<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1995
REGISTRATION NO. 33-58661
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ALL AMERICAN SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5065 59-2814714
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
16115 NORTHWEST 52ND AVENUE
MIAMI, FLORIDA 33014
(305) 621-8282
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
PAUL GOLDBERG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ALL AMERICAN SEMICONDUCTOR, INC.
16115 NORTHWEST 52ND AVENUE
MIAMI, FLORIDA 33014
(305) 621-8282
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
<TABLE>
<S> <C>
COPIES TO:
ALAN D. AXELROD, ESQ. RICHARD A. LIPPE, ESQ.
RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN MELTZER, LIPPE, GOLDSTEIN, WOLF, SCHLISSEL &
2500 FIRST UNION FINANCIAL CENTER SAZER, P.C.
MIAMI, FLORIDA 33131-2336 190 WILLIS AVENUE
(305) 374-7580 MINEOLA, NEW YORK 11501
(516) 747-0300
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
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>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value............... 5,232,500(1) $ 1.984(2) $10,381,280(2) $3,580
------------------------------------------------------------------------------------------------------------
Underwriter's Common Stock Purchase
Warrants(3)............................... 523,250 $.00002 $ 10 $ 1
------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value(4)............ 210,000 $ 1.984(2) $ 416,640(2) $ 144
------------------------------------------------------------------------------------------------------------
Total Registration Fee...................................................................... $3,725(5)
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</TABLE>
(1) Includes 682,500 shares of Common Stock that may be issued if the
Underwriter's over-allotment option is exercised in full.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the high and low price of the Common
Stock on April 11, 1995.
(3) To be issued to the Underwriter of this offering (assumes the Underwriter's
over-allotment option has been exercised in full). See "UNDERWRITING."
(4) Includes 180,000 shares of Common Stock underlying existing warrants and
30,000 "restricted shares" of Common Stock issued pursuant to the exercise
of a warrant which are being registered for future sale. See "CONCURRENT
REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS."
(5) A Registration Fee in the amount of $4,063 was previously paid in connection
with the initial filing of this Registration Statement on April 17, 1995.
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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--------------------------------------------------------------------------------
<PAGE> 2
ALL AMERICAN SEMICONDUCTOR, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN THE PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM, NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------------------------ --------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............ Outside Front Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Not Applicable
8. Plan of Distribution....................... Outside Front Cover Page; Underwriting;
Concurrent Registration of Shares for Future
Sale by Warrant Holders
9. Description of Securities to be
Registered................................. Outside Front Cover Page; Dividend Policy;
Description of Securities
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information With Respect to the
Registrant................................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dividend Policy;
Market Information; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Executive
Compensation; Principal Shareholders;
Certain Transactions; Description of
Securities; Experts; Index to Consolidated
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities............................ Not Applicable
</TABLE>
(ii)
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement covers the registration of (i) 4,550,000 shares
of Common Stock, plus 682,500 shares available pursuant to the Underwriter's
over-allotment option, and (ii) 180,000 shares of Common Stock underlying
certain warrants of the Company and 30,000 restricted shares of Common Stock
issued pursuant to the exercise of a warrant of the Company to be offered by the
holders thereof (the "Warrant Holders' Securities"). See "Description of
Securities -- Existing Warrants", "Underwriting" and "Concurrent Registration of
Shares for Future Sale by Warrant Holders". Following the Prospectus for this
offering are certain pages of the Prospectus relating to the Warrant Holders'
Securities, including alternate front and back cover pages and sections entitled
"Concurrent Registration of Shares for Future Sale by Warrant Holders" and
"Concurrent Public Offering". All other sections of the Prospectus for this
offering, other than "Underwriting", "Concurrent Registration of Shares for
Future Sale by Warrant Holders", "Use of Proceeds" and certain information under
"Prospectus Summary", are to be used in the Prospectus relating to the Warrant
Holders' Securities. In addition, certain cross-references in this Prospectus
shall be adjusted in the Prospectus for the Warrant Holders' Securities.
(iii)
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 25, 1995
PRELIMINARY PROSPECTUS
[ALL AMERICAN LOGO]
a leader in distribution technology
4,550,000 SHARES
COMMON STOCK
All American Semiconductor, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Offering") 4,550,000 shares of the Company's common stock,
$.01 par value per share (the "Common Stock") through Lew Lieberbaum & Co., Inc.
(the "Underwriter").
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." On May 18, 1995, the last sale price of the Common Stock was
$2.00 per share. See "MARKET INFORMATION."
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY
THE DISCUSSION UNDER "RISK FACTORS."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
-------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
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</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
consisting of: (a) a non-accountable expense allowance equal to the product
of three percent of the Price to the Public Per Share multiplied by the
number of shares of Common Stock sold in this Offering, of which $10,000
has been paid to date; (b) warrants entitling the Underwriter to purchase,
for a period of four years commencing one year after the date of this
Prospectus (the "Effective Date"), shares of Common Stock in an amount
equal to ten percent of the Common Stock sold in this Offering at a price
of $ per share (140%
(footnotes continued on page 3)
------------------------------
The shares of Common Stock are offered by the Underwriter on a "firm
commitment" basis, when, as and if delivered to and accepted by the Underwriter,
subject to prior sale and certain other conditions and legal matters. The
Underwriter reserves the right to withdraw, cancel, or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Common Stock will be made against payment therefor
on or about June , 1995, at the offices of Lew Lieberbaum & Co., Inc., 600
Old Country Road, Suite 518, Garden City, New York 11530.
[LEW LIEBERBAUM & CO., INC. LOGO]
THE DATE OF THIS PROSPECTUS IS , 1995.
<PAGE> 5
[4 COLOR ART]
Color map of the United States showing the Company's Headquarters,
Sales Offices and Field Sales Representatives. Seven photographs show various
employees performing different tasks and the Company's warehouse and ISO 9002
certification. Photograph of Company logos.
2
<PAGE> 6
(footnotes continued)
of the public offering price of the Common Stock (the "Underwriter's
Purchase Warrants"); and (c) a consulting agreement for twenty-four months
after the Effective Date providing for the payment in advance of $66,000 at
the closing of this Offering. Further, the Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). See "UNDERWRITING."
(2) After deducting discounts and commissions payable to the Underwriter, but
before deducting estimated expenses of $258,205 payable by the Company
(excluding the Underwriter's non-accountable expense allowance). See
"UNDERWRITING."
(3) The Company has granted an option to the Underwriter, exercisable within 30
business days from the Effective Date, to purchase up to 682,500 additional
shares of Common Stock on the same terms and conditions as set forth above,
solely to cover over-allotments, if any (the "Over-Allotment Option"). If
the Over-Allotment Option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ and $ , respectively. See
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at its offices at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, New York, New York 10048. Also,
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto pursuant to the
Act and the rules and regulations of the Commission thereunder. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as a part thereof. The statements contained in this Prospectus
as to the contents of any contract or other document referred to are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each statement being qualified in any and all respects by such
reference. A copy of the Registration Statement, including exhibits and
schedules, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes) appearing elsewhere in
this Prospectus. Unless the context indicates otherwise, the "Company" refers to
ALL AMERICAN SEMICONDUCTOR, INC., a Delaware corporation, and its consolidated
subsidiaries. Unless otherwise indicated, the information contained in this
Prospectus assumes that the Underwriter's Over-Allotment Option has not been
exercised and that none of the currently outstanding options, warrants or other
rights have been exercised. Investors should carefully consider the information
set forth under the heading "RISK FACTORS."
THE COMPANY
The Company is a national distributor of electronic components manufactured
by others. The Company distributes a full range of semiconductors (active
components), including transistors, diodes, memory devices and other integrated
circuits, as well as passive components, such as capacitors, resistors,
inductors and electromechanical products, including cable, connectors, filters
and sockets. These components are sold primarily to original equipment
manufacturers in a diverse and growing range of industries, including
manufacturers of consumer goods, satellite and communications products,
computers and computer-related products, robotics and industrial equipment,
radar and air traffic control systems, defense and aerospace equipment and
medical instrumentation. The Company does not derive substantial revenues from
the sale of microprocessors. The average sales invoice generated by the Company
is approximately $600.
The Company has grown rapidly and, as a result, the Company has recently
been recognized by an industry trade publication as the 21st largest distributor
of electronic components in the United States. This ranking is out of an
industry group that numbers more than 1,000 distributors. The Company offers
more than 40,000 different electronic components through distribution agreements
with over 90 suppliers. The products manufactured by these suppliers allow the
Company to offer a broad, well-accepted and competitive line of components. The
Company provides these products and an array of related services to
approximately 10,000 customers. The vast majority of these customers are middle
and emerging market companies which generally are not the focus of the larger
distributors in the industry. The Company currently has 20 offices in 13 states
and retains field sales representatives to market and distribute products in
other territories throughout the United States, Puerto Rico, Canada and Mexico.
The Company has reported record sales in each of the last nine years. Sales
have grown from $11.1 million in 1985 to $101.1 million in 1994. In the first
three months of 1995 a new quarterly sales record of $38.3 million was achieved.
This was a 63.5% increase over sales of $23.4 million for the first three months
of 1994. The Company's order backlog has increased from approximately $24
million at December 31, 1993, to approximately $31 million at December 31, 1994,
and by March 31, 1995, had increased to approximately $39.4 million. The Company
has also succeeded in increasing its net income from $18,000 ($.01 per share) in
1990, to $1.7 million ($.19 per share, $.18 fully diluted) in 1993. Although net
income declined to $352,000 ($.03 per share) in 1994, the Company believes that,
as a result of substantial expansion expenditures incurred in 1994, it has
positioned itself to successfully participate in the dynamics of its rapidly
changing industry and to achieve substantial additional growth in the future. In
May 1994, the Company moved into a new state-of-the-art distribution center
which, coupled with recently expanded computer and communications systems, the
Company believes provides it with excess capacity to accommodate more than $400
million in annual revenues without significant additional fixed costs.
The electronics industry is one of the largest and faster growing
industries in the United States. An industry association forecasts total U.S.
factory sales of electronic products by original equipment manufacturers will
exceed $373 billion in 1995 compared to $276 billion in 1991. Distributors are
an integral part of the electronics industry. During 1995, an estimated $18
billion of electronic components are projected by an industry association to be
sold through distribution in the United States, up from $9 billion in 1991. In
recent years there has been a growing trend for distribution to play an
increasing role in the customers' procurement process. The Company believes that
users of electronic components will continue to increase their service and
quality requirements and that this trend will result in both customers and
suppliers becoming more dependent
4
<PAGE> 8
on distributors in the future. As a result, the Company also believes that there
will be increasing opportunities for those distributors that have expanded their
service capabilities.
The Company expects to take advantage of these opportunities and to
continue its growth by gaining market share, increasing the number of accounts
it services and increasing sales to existing customers. To do so, the Company
has developed and will continue to implement a corporate growth strategy
consisting of the following major elements:
- Developing state-of-the-art distribution technologies. These technologies
have enhanced the Company's operations and have dramatically expanded the
Company's service capabilities by incorporating nationwide access to
real-time inventory and pricing information, electronic order entry, rapid
order processing, just-in-time deliveries, bar coding capabilities,
electronic data interchange, bonded and consigned inventory programs,
automatic inventory replenishment programs, in-plant stores, in-plant
terminals and quality management programs.
- Establishing strategic relationships with additional suppliers to
continue to broaden the Company's product offerings. Since 1980, the
Company has increased the number of suppliers it represents from
approximately 20 to 90.
- Expanding the Company's market recognition as a national distributor
through acquisitions and the opening of additional sales offices. Since
the end of 1992, the Company has completed three acquisitions and has
opened ten new sales offices in the following general areas: Salt Lake
City, Utah; Huntsville, Alabama; San Diego, Orange County and San Fernando
Valley, California; Austin and Houston, Texas; Portland, Oregon; Danbury,
Connecticut; and, most recently, Tampa/St. Petersburg, Florida.
- Creating a technical sales program by hiring electrical engineers at
offices across the country to assist customers at the design and
development stage and to train the Company's sales force.
- Establishing a new semiconductor programming center in San Jose,
California which is expected to become operational during the second
quarter of 1995. This center will enable the Company to participate in the
rapidly growing market for programmable products and to attract new
product lines that require programming capabilities.
- Creating a kitting department which allows the Company to fulfill
increasing customer requirements to provide products that are not part of
the Company's regular product offering.
- Creating an electromechanical value-added center to dramatically expand
the Company's ability to provide connector and cable assemblies, cable
harnessing and terminal block modification services to address the growing
customer demand for outsourcing of these types of work.
While the Company was reincorporated in Delaware in 1987, it and its
predecessors have operated since 1964. The Company's principal executive office
is located at 16115 Northwest 52nd Avenue, Miami, Florida 33014 and its
telephone number is (305) 621-8282.
5
<PAGE> 9
THE OFFERING
COMMON STOCK OFFERED(1)............ 4,550,000 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THE
OFFERING(1)(2)................... 16,996,791 shares
USE OF PROCEEDS.................... Net proceeds will be used initially to
reduce the Company's revolving line of
credit pending its use for continued
expansion of the Company, including
opening new sales offices, inventory
diversification and general working
capital. See "USE OF PROCEEDS."
RISK FACTORS....................... An investment in the securities offered
hereby involves a high degree of risk.
Prospective investors should consider
carefully the factors set forth under
"RISK FACTORS."
THE NASDAQ STOCK MARKET (NASDAQ
NATIONAL MARKET) SYMBOL............ SEMI
---------------
(1) Assumes the Underwriter's Over-Allotment Option is not exercised. See
"UNDERWRITING."
(2) Based on number of shares outstanding as of March 31, 1995, and does not
give effect to the potential issuance of 1,386,274 shares of Common Stock
upon the exercise of outstanding employee and other stock options and
674,875 shares of Common Stock upon the exercise of outstanding warrants
(the "Existing Warrants"). Under certain circumstances the Company may also
be obligated to issue 1,000 shares of Common Stock and incentive stock
options covering an additional 130,000 shares. All of these options, rights
to acquire shares and the Existing Warrants are collectively referred to as
the "Existing Rights." Also excluded are the shares of Common Stock that
may be issuable upon the exercise of the Underwriter's Purchase Warrants.
In addition, in May 1995 the Company entered into new employment agreements
with its executive officers which provide for an aggregate of 1,000,000
stock options (collectively the "New Options") to be granted to them,
subject to obtaining the approval of the Company's shareholders (i) to
certain amendments to the Company's Employees', Officers', Directors' Stock
Option Plan (the "Option Plan"), including increasing the number of shares
of Common Stock reserved for issuance under the Option Plan, and (ii) to
increase the number of shares of Common Stock authorized to be issued by
the Company. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Acquisitions," "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"-- Employment Agreements", "DESCRIPTION OF SECURITIES -- Existing
Warrants" and "UNDERWRITING."
6
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data for the Company for the years ended
December 31, 1990 through 1994 and the three months ended March 31, 1994 and
1995 have been derived from the consolidated financial statements of the
Company. Such information and data should be read in conjunction with the
"SELECTED CONSOLIDATED FINANCIAL DATA" and Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net Sales(1).................................... $ 38,286 $ 23,413 $101,085 $ 67,510 $ 49,015 $ 45,332 $ 41,315
Cost of Sales................................... (29,418) (17,152) (74,632) (49,010) (35,083) (32,001) (29,007)
-------- -------- -------- -------- -------- -------- --------
Gross Profit.................................... 8,868 6,261 26,453 18,500 13,932 13,331 12,308
Selling, General and Administrative Expenses.... (7,259) (5,136) (23,335) (14,821) (11,366) (11,577) (11,177)
Nonrecurring Expenses(2)........................ -- -- (548) (61) (114) (124) --
-------- -------- -------- -------- -------- -------- --------
Income from Operations.......................... 1,609 1,125 2,570 3,618 2,452 1,630 1,131
Interest Expense................................ (665) (275) (1,772) (1,103) (1,153) (1,407) (1,205)
Other Income (Expense) -- Net(3)................ -- (48) (39) 281 (18) 47 149
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes...................... 944 802 759 2,796 1,281 270 75
Provision for Income Taxes...................... (406) (321) (407) (1,094) (525) (153) (57)
-------- -------- -------- -------- -------- -------- --------
Net Income...................................... $ 538 $ 481 $ 352 $ 1,702 $ 756 $ 117 $ 18
======== ======== ======== ======== ======== ======== ========
Earnings Per Share(4):
Primary....................................... $ .04 $ .04 $ .03 $ .19 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
Fully Diluted................................. $ .04 $ .04 $ .03 $ .18 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ------- ------- ------- ------- -------
(UNAUDITED) MARCH 31
1995 AS
ADJUSTED(5)
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital................................ $41,867 $39,800 $27,534 $19,427 $15,112 $14,745 $ 49,617
Total Assets................................... 67,219 57,858 37,968 28,595 24,977 22,806 74,969
Long-Term Debt (including current portion)..... 29,762 27,775 14,928 13,850 13,405 12,149 29,762
Shareholders' Equity........................... 17,518 16,950 15,612 8,517 4,633 4,516 25,268
Book Value Per Common Share.................... $ 1.41 $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $ 1.49
</TABLE>
---------------
(1) On June 14, 1993, January 24, 1994, and September 9, 1994, the Company,
through its wholly-owned subsidiaries, completed the acquisitions of
substantially all of the assets of All American Transistor Corporation of
D.C., Components Incorporated and GCI Corp., respectively. Net sales
includes the net sales for such companies acquired of $1,952,000,
$10,234,000 and $1,390,000 for the three months ended March 31, 1994, and
for the years ended December 31, 1994 and 1993, respectively. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."
(2) The year ended December 31, 1994 includes a charge for relocation of plant
facilities in the amount of $185,000 and a write-off of the Company's
product development investment of $363,000. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(3) The years ended December 31, 1993 and 1990 include approximately $237,000
and $180,000, respectively, of income from the settlements of the Company's
business interruption claims.
(4) Weighted average shares (including common share equivalents) outstanding for
(i) the years ended December 31, 1994, 1993, 1992, 1991 and 1990 were
13,029,714, 9,166,908, 6,514,481, 3,806,856 and 3,721,791, respectively, on
a primary basis and were 13,029,714, 9,511,500, 6,514,481, 3,962,038 and
3,721,791, respectively, on a fully diluted basis, and (ii) for the three
months ended March 31, 1995 and 1994 were 12,683,546 and 12,763,797,
respectively, on a primary basis and were 12,693,881 and 12,836,308,
respectively, on a fully diluted basis.
(5) As adjusted to reflect as of March 31, 1995, the receipt of the net proceeds
of this Offering in the estimated amount of $7,750,000 before the
application thereof. See "USE OF PROCEEDS" and "CAPITALIZATION."
7
<PAGE> 11
RISK FACTORS
Investment in the Common Stock offered hereby is highly speculative and
involves a high degree of risk. It is impossible to foresee and describe all the
risks and business, economic and financial factors which may affect the Company.
Prospective investors should carefully consider the following factors, as well
as all other matters set forth elsewhere in this Prospectus, before making an
investment in the Common Stock offered hereby.
1. CREDIT FACILITY RESTRICTIONS; FUTURE AVAILABILITY. The Company
currently has available a revolving line of credit (the "Line") with an
institutional lender (the "Senior Lender"). On March 28, 1995, the Line was
increased from $25 million to $30 million; provided, however, that the Company
may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company's revolving credit agreement dated
December 29, 1992, as amended (the "Credit Agreement"), governing the Line
contains covenants that impose limitations on the Company and requires the
Company to be in compliance with certain financial ratios. If the Company fails
to make required payments, or if the Company fails to comply with the various
covenants contained in the Credit Agreement, the Senior Lender may be able to
accelerate the maturity of such indebtedness. As of December 31, 1994, the
Company was in compliance with the required financial ratios and other covenants
and the Company believes that it is presently in compliance with the financial
ratios and all other covenants under the Credit Agreement. The receivables,
inventory and equipment of the Company (including its subsidiaries), as well as
the capital stock of its subsidiaries, are pledged to the Senior Lender to
secure the Line. The Credit Agreement expires on May 31, 1997. Borrowings under
the Line bear interest at either one-quarter of one percent ( 1/4%) below the
prime rate or, at the Company's option, two percent (2%) above certain LIBOR
rates. As of May 1, 1995, $22,549,000 was outstanding under the Line. To the
extent that there is an increase in interest rates, or present borrowing
arrangements are no longer available, the Company could be adversely impacted.
See "USE OF PROCEEDS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
2. DEPENDENCE ON FINANCING FOR FUTURE EXPANSION. In order to continue to
grow its business and achieve its expansion strategy, the Company may require
additional debt or equity financing in amounts exceeding those contemplated to
be provided by this Offering or available, or that may be available, under the
Line. There can be no assurance that the Company will be able to obtain such
additional financing to continue its growth if, as and when required. In that
regard, after this Offering (assuming the issuance of the 4,550,000 shares of
Common Stock offered hereby and the 682,500 shares covered by the Over-Allotment
Option) the Company will only have a nominal amount of authorized and unreserved
shares of Common Stock available for issuance. As a result, the Company expects
to seek the approval of its shareholders to increase the number of shares of
Common Stock and preferred stock authorized to be issued, although no assurance
can be given that such approval will be obtained. See "Lack of Additional
Authorized and Unissued Shares" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources."
3. DECLINING GROSS PROFIT MARGINS. During the past four years the Company
has been experiencing declining gross profit margins as a result of the
competitive environment in the electronics distribution industry, a greater
number of large volume transactions at reduced margins and a change in the
Company's overall sales mix. The Company expects that these trends will
continue, and possibly even accelerate, in the future. Furthermore, as the
Company endeavors to expand its business with existing customers, it expects to
do so at decreasing gross profit margins. In order to obtain profitability while
gross profit margins are declining, the Company will need to expand its sales
while improving operating efficiencies. While the Company believes that its
investments in plant capacity and computer and communications equipment and its
expansion of its sales offices, corporate staff and other infrastructure have
positioned the Company to achieve improvements in operating efficiencies, there
can be no assurance that this goal can be achieved. See "MANAGEMENT'S
8
<PAGE> 12
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Results of Operations" and "BUSINESS -- Products."
4. DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the
services of its executive officers, including Paul Goldberg, its Chairman and
Chief Executive Officer, and Bruce M. Goldberg, its President and Chief
Operating Officer. The loss of the services of one or more of the Company's key
executives for any reason could have a material adverse effect upon the business
of the Company. While the Company believes that it would be able to locate
suitable replacements for its executives if their services were lost to the
Company, there can be no assurance it would be able to do so. The Company's
future success will also depend in part upon its continuing ability to attract
and retain highly qualified personnel. The Company owns a $1,000,000 term life
insurance policy on Paul Goldberg's life and a $1,000,000 term life insurance
policy on Bruce M. Goldberg's life, with benefits on both policies payable to
the Company. The Company also has employment agreements with its four executive
officers. See "MANAGEMENT" and "EXECUTIVE COMPENSATION -- Employment
Agreements."
5. RELATIONSHIPS WITH SUPPLIERS. Substantially all of the Company's
inventory has and will be purchased from manufacturers with whom the Company has
entered into non-exclusive distribution agreements, which are typically
cancellable upon 30 to 90 days written notice. While these agreements generally
provide for price protection, stock rotation privileges, obsolescence credit and
return privileges if an agreement is cancelled, there can be no assurance that
the manufacturers will comply with their contractual obligations or that these
agreements will not be cancelled. In 1994 the Company's three largest suppliers
accounted for approximately 14%, 7% and 6% of purchases, respectively. While the
Company does not believe that the loss of any one supplier would have a material
adverse impact upon the Company since most products sold by the Company are
available from multiple sources, the Company's future success will depend in
large part on maintaining relationships with existing suppliers and developing
new relationships. The loss of, or significant disruptions in relationships
with, suppliers could have a material adverse effect on the Company's business
since there can be no assurance that the Company will be able to replace lost
suppliers. See "BUSINESS -- Suppliers."
6. INCREASING EARNINGS BREAK EVEN. In late 1992 the Company embarked upon
an aggressive expansion plan. Since the end of 1992, the Company has opened ten
new sales offices, relocated all existing sales offices into larger facilities,
acquired three distributors and increased its plant capacity, computer and
communications equipment, staff in most corporate departments and service
capabilities. See "BUSINESS -- Corporate Strategy -- Expansion," "-- Corporate
Strategy -- Services" and "-- Facilities and Systems." In order to finance its
growth, the Company has also increased its debt significantly in recent years.
As a result of its expansion and increased debt service, the level of the
Company's revenues required to achieve a break even in earnings has increased
significantly. While the Company believes that its expansion plans will enable
it to achieve substantial growth in revenues, there can be no assurance that
such growth will be obtained or maintained. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS."
7. FOREIGN MANUFACTURING AND TRADE REGULATION. A significant number of the
components sold by the Company are manufactured outside the United States and
purchased by the Company from United States subsidiaries or affiliates of those
foreign manufacturers. As a result, the Company and its ability to sell at
competitive prices could be adversely affected by increases in tariffs or
duties, changes in trade treaties, currency fluctuations, strikes or delays in
air or sea transportation, and possible future United States legislation with
respect to pricing and import quotas on products from foreign countries. The
Company's ability to be competitive in or with the sales of imported components
could also be affected by other governmental actions and changes in policies
related to, among other things, anti-dumping legislation and currency
fluctuations. Since the Company purchases from United States subsidiaries or
affiliates of foreign manufacturers, the Company's purchases are paid for in
U.S. dollars which does reduce the potential adverse effect of currency
fluctuations. While the Company does not believe that these factors adversely
impact its business at present, there can be no assurance that such factors will
not materially adversely affect the Company in the future. See
"BUSINESS -- Foreign Manufacturing and Trade Regulation."
9
<PAGE> 13
8. COMPETITION. The Company competes with many companies that sell and
distribute semiconductors and passive products. Many of these companies have
greater assets and possess greater financial and personnel resources than those
of the Company. Many of these competitors also carry product lines which the
Company does not carry. There can be no assurance that the Company will be able
to continue to compete successfully with existing or new competitors and failure
to do so could have a material adverse effect on the Company. See
"BUSINESS -- Competition."
9. INDUSTRY CYCLICALITY. The electronics distribution industry has been
affected historically by general economic downturns, which have had an adverse
economic effect upon manufacturers and end-users of electronic components and
electronic component distributors such as the Company. In addition, the
life-cycle of existing electronic products and the timing of new product
development and introduction can affect demand for electronic components. See
"BUSINESS -- Products."
10. DEPENDENCE ON THE COMPUTER INDUSTRY. Many of the products the Company
sells are used in the manufacture or configuration of computers. These products
are characterized by rapid technological change, short product life cycles and
intense competition. The computer industry has experienced significant unit
volume growth over the past two years, which has in turn increased demand for
many of the Company's products. A slowdown in the growth of the computer
industry could adversely affect the Company's ability to continue its recent
growth. See "BUSINESS -- Products."
11. CONTINUED GROWTH. The Company's growth may depend, in part, upon its
ability to acquire other distributors in the future. No assurances can be given
that any such acquisitions will be achieved. Future acquisitions will depend, in
part, on the Company's ability to find suitable candidates for acquisition and
the availability of sufficient internal funds and/or debt or equity financing to
consummate any such acquisition. See "BUSINESS -- Corporate Strategy." There can
be no assurance that the Company will be able to sustain its recent rate of
growth in sales. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
12. POTENTIAL PRODUCT LIABILITY. As a result of its value-added services
and as a participant in the distribution chain between the manufacturer and the
end-user, the Company would likely be named as a defendant in any products
liability action brought by an end-user. To date, no material claims have been
asserted against the Company for products liability; there can be no assurance,
however, that such material claims will not arise in the future. In the event
that any products liability claim is not fully funded by insurance or if the
Company is unable to be indemnified by or recover damages from the supplier of
the product that caused such injury, the Company may be required to pay some or
all of such claim from its own funds. Any such payment could have a material
adverse impact on the Company. See "LEGAL PROCEEDINGS."
13. CONTINUED CONTROL BY PRESENT SHAREHOLDERS AND MANAGEMENT. Paul
Goldberg, Bruce M. Goldberg and members of their family and trusts therefor
(collectively, the "Goldberg Group") own 2,051,440 shares of the outstanding
Common Stock, approximating 16.5% of the outstanding shares (and assuming the
sale of the 4,550,000 shares pursuant hereto, 12.1% of the outstanding shares
after the Offering is completed) and, in the event of the exercise of all
outstanding stock options and warrants (but not the New Options), the Goldberg
Group would own approximately 16.7% (and 12.7% after the Offering is completed).
As a result, the Goldberg Group may be in a position to effectively control the
Company. In addition, the executive officers of the Company comprise four of the
six directors of the Company. Accordingly, they are in a position to control the
day to day affairs of the Company without the oversight and controls of a Board
of Directors comprised of a greater percentage of independent (non-employee)
directors. See "PRINCIPAL SHAREHOLDERS" "MANAGEMENT" and "EXECUTIVE
COMPENSATION -- Employment Agreements -- The Goldberg Agreements."
14. LACK OF ADDITIONAL AUTHORIZED AND UNISSUED SHARES. The Company's
Certificate of Incorporation (the "Certificate") authorizes the issuance of
20,000,000 shares of Common Stock and 1,000,000 shares of preferred stock.
Assuming the issuance as of the date hereof of the 4,550,000 shares of Common
Stock offered hereby and the 682,500 shares covered by the Over-Allotment Option
and the exercise of all Existing Rights, only 128,560 (0.6%) of the Company's
authorized shares of Common Stock would remain unissued. As a result of the
limited number of authorized and unissued shares of Common Stock, the Company
expects at its
10
<PAGE> 14
1995 annual meeting of shareholders currently scheduled to be held in July 1995
(the "1995 Annual Meeting") to seek approval of its shareholders to increase the
number of shares of Common Stock and preferred stock authorized to be issued.
Since the current record date for shareholders entitled to vote at the 1995
Annual Meeting is May 15, 1995, purchasers of shares of Common Stock issued
pursuant to this Offering will not be entitled to vote at such meeting on this
matter or any other matter coming before such meeting. At the Company's 1994
annual meeting of shareholders held on July 29, 1994, the shareholders of the
Company did not approve the proposal of the Company's Board of Directors (the
"Board") to increase the number of shares of Common Stock and preferred stock
authorized to be issued to 40,000,000 and 5,000,000, respectively. In the event
that the shareholders of the Company do not approve an increase in the
authorized shares of capital stock of the Company in the future, the continued
growth of the Company could be materially and adversely impaired as a result of
its inability to raise additional equity capital when needed or to be able to
issue shares of its capital stock in connection with future acquisitions or
other corporate purposes including issuance of options to employees including
the New Options. See "DESCRIPTION OF SECURITIES."
15. POSSIBLE ISSUANCE OF ADDITIONAL SHARES. To the extent available for
issuance, the Company's Board has the power to issue any or all authorized and
unissued shares without shareholder approval, including the shares of authorized
preferred stock, which shares can be issued with such rights, preferences and
limitations as are determined by the Board. Any securities issuances may result
in a reduction in the book value or market price of the outstanding shares. If
the Company issues any additional securities, such issuance may reduce the
proportionate ownership and voting power of each existing shareholder. Further,
any new issuances of securities could be used for anti-takeover purposes or
might result in a change of control of the Company. See "DESCRIPTION OF
SECURITIES."
16. NO DIVIDENDS ANTICIPATED. The Company has not paid any cash dividends
on its Common Stock and does not anticipate paying dividends on its shares in
the foreseeable future inasmuch as it expects to employ all available cash in
the continued growth of its business. Further, the Credit Agreement prohibits
the payment of dividends. See "DIVIDEND POLICY."
17. CERTAIN PROVISIONS IN THE CERTIFICATE; ANTI-TAKEOVER PROVISIONS. The
Company's Certificate includes provisions designed to discourage attempts by
others to acquire control of the Company without negotiation with the Board, and
to attempt to ensure that such transactions are on terms favorable to all of the
Company's shareholders. These provisions provide, among other things, that
meetings of shareholders' may only be called by the Board; that an affirmative
vote of two-thirds of the outstanding shares of Common Stock is required to
approve certain business combinations unless 65% of the Board approves such
transaction; for three classes of directors with each class elected for a three
year staggered term; that the Board in evaluating a tender offer or certain
business combinations is authorized to give due consideration to all relevant
factors; and that actions of shareholders may not be taken by written consent of
shareholders in lieu of a meeting. For various reasons, however, these
provisions may not always be in the best interest of the Company or its
shareholders. These reasons include the fact that the provisions of the
Certificate (i) make it difficult to remove directors even if removal would be
in the best interest of the Company and its shareholders; (ii) make it more
difficult for shareholders to approve certain transactions that are not approved
by at least 65% of the Board, even if the transactions would be beneficial to
the Company; and (iii) eliminate the ability of the shareholders to act without
a meeting. Further, the Certificate and the Company's Bylaws include provisions
that are intended to provide for limitation of liabilities of officers and
directors in certain circumstances and for indemnification of officers and
directors against certain liabilities. See "DESCRIPTION OF SECURITIES -- Certain
Provisions of Certificate of Incorporation and Bylaws" and "-- Certain
Provisions Relating to Limitation of Liability and Indemnification of
Directors."
18. POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common
Stock could be subject to significant fluctuations in response to such factors
as, among others, variations in the anticipated or actual results of operations
of the Company or of other distributors in the electronics industry and changes
in general conditions in the economy, the financial markets or the electronics
distribution industry. See "MARKET INFORMATION."
11
<PAGE> 15
19. SHARES AVAILABLE FOR FUTURE RESALE. Of the 12,446,791 shares of Common
Stock presently outstanding, approximately 2,081,440 are "restricted securities"
within the meaning of the Act and the rules and regulations promulgated
thereunder and, generally, may be sold only in compliance with Rule 144 under
the Act, pursuant to registration under the Act or pursuant to another exemption
therefrom. Generally, under Rule 144, a person who has held "restricted
securities" for a period of at least two years (including the holding period of
any prior owner except an affiliate) may sell a limited number of such shares in
the public market. Generally, a person is entitled to sell, within any three
month period, in ordinary brokerage transactions a number of those shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 169,968 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which the Rule 144 notice of the sale is filed with the
Commission. Persons who are not affiliates of the Company, who have not been
affiliated with the Company at any time during the 90-day period prior to the
sale and who have satisfied a three year holding period (including the holding
period of any prior owner except an affiliate) may sell without regard to such
limitations. Substantially all restricted shares of the outstanding Common Stock
are presently eligible for sale under Rule 144. Sales made pursuant to Rule 144
by the Company's existing shareholders may have a depressive effect on the price
of the shares in the public market. Such sales also could adversely affect the
Company's ability to raise capital at that time through the sale of its equity
securities. The Underwriter has, however, obtained an agreement of the Company
and the directors and executive officers of the Company not to sell any of their
Common Stock for a period of 180 days from the date of this Prospectus without
the Underwriter's prior written consent. 30,000 shares of the "restricted
securities," which were recently acquired by the holder thereof pursuant to the
exercise of a warrant of the Company, are being registered concurrently herewith
as a result of registration rights provided in such warrant. None of the other
"restricted securities" have registration rights. See "SHARES ELIGIBLE FOR
FUTURE SALE," "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS" and "UNDERWRITING."
20. MARKET OVERHANG OF EXISTING RIGHTS. The Company had outstanding as of
the date of this Prospectus the Existing Rights representing options, warrants
and other potential rights to acquire up to 2,192,149 shares of the Company's
Common Stock. It is anticipated that the holders of the Existing Rights, from
time to time, will exercise their Existing Rights to acquire shares of the
Company's Common Stock and will offer their shares in the public market place,
which could interfere with the Company's ability to obtain future financing and
could adversely affect the market price of the Common Stock. In addition, under
certain circumstances and events, including obtaining the required shareholder
approvals, the New Options could become exercisable. See "SHARES ELIGIBLE FOR
FUTURE SALE," "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Acquisitions," "EXECUTIVE COMPENSATION -- Employees',
Officers', Directors' Stock Option Plan" and "-- Employment Agreements" and
"DESCRIPTION OF SECURITIES -- Existing Warrants."
21. BROAD DISCRETION IN APPLICATION OF PROCEEDS. The net proceeds of this
Offering, after being used initially to reduce the Company's Line, may be
applied to working capital and other corporate purposes. Accordingly, management
of the Company will have broad discretion over the use of proceeds. See "USE OF
PROCEEDS."
22. DILUTION. The net tangible book value of the Company at March 31,
1995, was approximately $17.0 million or $1.36 per share of Common Stock. Net
tangible book value per share of Common Stock is determined by dividing the
Company's tangible net worth (total tangible assets less total liabilities) by
the number of shares of Common Stock outstanding. After giving effect, as of
that date, to the sale of 4,550,000 shares of Common Stock offered by the
Company hereby at an assumed public offering price of $2.00 per share and after
deduction of underwriting discounts and commissions, non-accountable expense
allowance and estimated offering expenses payable by the Company and the receipt
by the Company of approximately $7,750,000 of net proceeds, the pro forma net
tangible book value would have been approximately $24.7 million or $1.45 per
share of Common Stock. This amount represents an immediate increase in net
tangible book value of $.09 per share to existing shareholders and an immediate
dilution in net tangible book value of $.55 per share to new investors
purchasing shares in the Offering. See "DILUTION."
12
<PAGE> 16
23. UNDERWRITER'S PURCHASE WARRANTS. In connection with the Offering, the
Company will sell to the Underwriter, for nominal consideration, the
Underwriter's Purchase Warrants. Subject to the approval by the Company's
shareholders of the authorization of at least 35,000,000 shares of Common Stock
in the future, the Underwriter's Purchase Warrants will be exercisable
commencing 12 months after the date of this Prospectus until five years from the
date of this Prospectus, at an exercise price of $ (140% of the public
offering price of the Common Stock) per share. The Underwriter's Purchase
Warrants will have certain anti-dilution provisions. For the life of the
Underwriter's Purchase Warrants, the holders thereof will be given the
opportunity to profit from a rise in the market price for the underlying shares
with a resulting dilution in the interest of the Company's other shareholders.
The terms on which the Company could obtain additional capital during the life
of the Underwriter's Purchase Warrants may be adversely affected because the
holders of the Underwriter's Purchase Warrants might be expected to exercise
them at a time when the Company would otherwise be able to obtain any needed
additional capital in a new offering of securities at a price per share greater
than the exercise price per share of the Underwriter's Purchase Warrants. The
Company has also agreed to register or qualify, or both, the Underwriter's
Purchase Warrants and/or the shares underlying the Underwriter's Purchase
Warrants on two occasions, the first of which would be at the Company's expense
and the second of which would be at the expense of the holders of the
Underwriter's Purchase Warrants. In addition, the holders of the Underwriter's
Purchase Warrants have the right to "piggyback" on any registration statements
that the Company files during the exercise period. Such obligation could
interfere with the Company's ability to obtain future financing. See
"UNDERWRITING."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,550,000 shares of
Common Stock offered hereby (after deducting the Underwriter's discounts and
commissions and non-accountable expense allowance and the other estimated
expenses of the Offering) are estimated to be approximately $7,750,000
(approximately $8,951,000 if the Over-Allotment Option is exercised in full by
the Underwriter), based on an assumed public offering price of $2.00 per share
of Common Stock. The Company intends initially to use such net proceeds to
temporarily reduce the amount outstanding (approximately $22,549,000 as of May
1, 1995) under the Company's Line, pending the Line's use for the continued
expansion of the Company including opening new sales offices, inventory
diversification and general working capital purposes. On March 28, 1995, the
Line was increased from $25 million to $30 million; provided, however, that the
Company may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company expects that the successful completion
of this Offering will satisfy the increased capitalization condition of the
Senior Lender for the Company to borrow in excess of $27 million. The Line bears
interest at either one-quarter of one percent ( 1/4%) below the prime rate or,
at the Company's option, two percent (2%) above certain LIBOR rates and expires
on May 31, 1997. See "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" and Note 5 to Notes to Consolidated Financial Statements for
discussions of the Line.
DIVIDEND POLICY
The Company has never declared or paid cash dividends. In 1989 the Board
declared a 25% stock split effected in the form of a stock dividend. Future
dividend policy will depend on the Company's earnings, capital requirements,
financial condition and other relevant factors. It is not anticipated, however,
that the Company will pay cash dividends on its Common Stock in the foreseeable
future, inasmuch as it expects to employ all available cash in the continued
growth of its business. In addition, the Credit Agreement prohibits the payment
of any dividends without the prior written consent of the Senior Lender. See
Note 5 to Notes to Consolidated Financial Statements.
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<PAGE> 17
MARKET INFORMATION
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." The Company effected its initial public offering of Common Stock
in 1987. The following table sets forth the range of high and low sale prices
for the Common Stock as reported on The Nasdaq Stock Market during each of the
quarters presented.
<TABLE>
<CAPTION>
QUARTER OF FISCAL YEAR HIGH LOW
--------------------------------------------------------------------------- ----- -----
<S> <C> <C>
1993
First Quarter............................................................ $ 1 25/32 $ 1 5/16
Second Quarter........................................................... 1 9/16 1 5/32
Third Quarter............................................................ 2 3/4 1 3/8
Fourth Quarter........................................................... 2 25/32 2
1994
First Quarter............................................................ 3 7/8 2 7/16
Second Quarter........................................................... 3 13/16 2 1/2
Third Quarter............................................................ 3 1/4 2 1/8
Fourth Quarter........................................................... 2 3/8 1 1/2
1995
First Quarter............................................................ 2 1/8 1 15/32
Second Quarter (through May 18, 1995).................................... 2 3/16 1 5/8
</TABLE>
As of May 18, 1995, there were approximately 500 holders of record of the
Common Stock based on the stockholders list maintained by the Company's transfer
agent. Many of these record holders hold these securities for the benefit of
their customers. The Company believes that it has over 4,500 beneficial holders
of its Common Stock.
On May 18, 1995, the last sale price, as reported by The Nasdaq Stock
Market, for the Common Stock was $2.00 per share.
14
<PAGE> 18
CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization of the Company at March
31, 1995, and as adjusted to give effect to the receipt of the proceeds of the
Offering, net of offering expenses, commissions and discounts and
non-accountable expense allowance (assuming the sale of 4,550,000 shares of
Common Stock at a public offering price of $2.00 per share), but before the
initial use of the net proceeds of the Offering to reduce debt under the Line.
This table should be reviewed in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt (including current portion)(1)........................ $29,762 $29,762
------- -----------
Shareholders' Equity
Preferred Stock(2)................................................. -- --
Common Stock(3).................................................... 124 170
Capital in Excess of Par Value..................................... 11,794 19,498
Retained Earnings.................................................. 5,660 5,660
Less Treasury Stock, at cost, 19,592 shares........................ (60) (60)
------- -----------
Total Shareholders' Equity......................................... 17,518 25,268
------- -----------
$47,280 $55,030
======= =========
</TABLE>
---------------
(1) For a description of the Company's long-term debt, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources" and Note 5 to Notes to
Consolidated Financial Statements.
(2) The Company has 1,000,000 shares of authorized preferred stock, $.01 par
value, none of which is issued.
(3) The Company has 20,000,000 shares of authorized Common Stock, 12,446,791
shares of which were issued and outstanding as of March 31, 1995, and
16,996,791 shares of which are assumed will be issued and outstanding upon
completion of the Offering. Does not include shares issuable upon exercise
of the Over-Allotment Option, the Existing Rights or the New Options. See
"UNDERWRITING" and "DESCRIPTION OF SECURITIES", "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."
15
<PAGE> 19
DILUTION
The net tangible book value of the Company at March 31, 1995, was
approximately $17.0 million or $1.36 per share of Common Stock. Net tangible
book value per share of Common Stock is determined by dividing the Company's
tangible net worth (total tangible assets less total liabilities) by the number
of shares of Common Stock outstanding. After giving effect, as of that date, to
the sale of 4,550,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $2.00 per share and after deduction of
underwriting discounts and commissions, non-accountable expense allowance and
estimated offering expenses payable by the Company and the receipt by the
Company of approximately $7,750,000 of net proceeds, the pro forma net tangible
book value would have been approximately $24.7 million or $1.45 per share of
Common Stock. This amount represents an immediate increase in net tangible book
value of $.09 per share to existing shareholders and an immediate dilution in
net tangible book value of $.55 per share to new investors purchasing shares in
the Offering. The following table illustrates this per share dilution to be
incurred by the new investors from the public offering price:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $2.00
Net tangible book value per share before the Offering.............. $1.36
Increase attributable to the Offering.............................. .09
-----
Pro forma net tangible book value per share after the Offering....... 1.45
-----
Dilution in net tangible book value per share to new investors....... $ .55
=====
</TABLE>
The foregoing table assumes that none of the Existing Rights or New Options
will be exercised. To the extent that such Existing Rights or New Options are
eventually exercised, there may be further dilution to new investors. See
"CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS,"
"DESCRIPTION OF SECURITIES -- Existing Warrants", "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."
16
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the Company (i) for
and as of the end of each of the years 1990 through 1994 have been derived from
the consolidated financial statements of the Company, which have been audited by
Lazar, Levine and Company LLP, Certified Public Accountants, and (ii) for the
three months ended March 31, 1994 and 1995 and as of the quarter ended March 31,
1995 have been derived from the unaudited consolidated financial statements of
the Company and, in the opinion of the Company's management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly such information. Such information should be read in conjunction
with the Consolidated Financial Statements and related notes included elsewhere
in this Prospectus. See "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net Sales(1).................................... $ 38,286 $ 23,413 $101,085 $ 67,510 $ 49,015 $ 45,332 $ 41,315
Cost of Sales................................... (29,418) (17,152) (74,632) (49,010) (35,083) (32,001) (29,007)
-------- -------- -------- -------- -------- -------- --------
Gross Profit.................................... 8,868 6,261 26,453 18,500 13,932 13,331 12,308
Selling, General and Administrative Expenses.... (7,259) (5,136) (23,335) (14,821) (11,366) (11,577) (11,177)
Nonrecurring Expenses(2)........................ -- -- (548) (61) (114) (124) --
-------- -------- -------- -------- -------- -------- --------
Income from Operations.......................... 1,609 1,125 2,570 3,618 2,452 1,630 1,131
Interest Expense................................ (665) (275) (1,772) (1,103) (1,153) (1,407) (1,205)
Other Income (Expense) -- Net(3)................ -- (48) (39) 281 (18) 47 149
-------- -------- -------- -------- -------- -------- --------
Income Before Income Taxes...................... 944 802 759 2,796 1,281 270 75
Provision for Income Taxes...................... (406) (321) (407) (1,094) (525) (153) (57)
-------- -------- -------- -------- -------- -------- --------
Net Income...................................... $ 538 $ 481 $ 352 $ 1,702 $ 756 $ 117 $ 18
======== ======== ======== ======== ======== ======== ========
Earnings Per Share(4):
Primary....................................... $ .04 $ .04 $ .03 $ .19 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
Fully Diluted................................. $ .04 $ .04 $ .03 $ .18 $ .12 $ .03 $ .01
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ------- ------- ------- ------- -------
(UNAUDITED) MARCH 31
1995
AS ADJUSTED(5)
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital............................... $41,867 $39,800 $27,534 $19,427 $15,112 $14,745 $ 49,617
Total Assets.................................. 67,219 57,858 37,968 28,595 24,977 22,806 74,969
Long-Term Debt (including current portion).... 29,762 27,775 14,928 13,850 13,405 12,149 29,762
Shareholders' Equity.......................... 17,518 16,950 15,612 8,517 4,633 4,516 25,268
Book Value Per Common Share................... $ 1.41 $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $ 1.49
</TABLE>
---------------
(1) On June 14, 1993, January 24, 1994, and September 9, 1994, the Company,
through its wholly-owned subsidiaries, completed the acquisitions of
substantially all of the assets of All American Transistor Corporation of
D.C., Components Incorporated and GCI Corp., respectively. Net sales
includes the net sales for such companies acquired of $1,952,000,
$10,234,000 and $1,390,000 for the three months ended March 31, 1994, and
for the years ended December 31, 1994 and 1993, respectively. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions."
(2) The year ended December 31, 1994 includes a charge for relocation of plant
facilities in the amount of $185,000 and a write-off of the Company's
product development investment of $363,000. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(3) The years ended December 31, 1993 and 1990 include approximately $237,000
and $180,000, respectively, of income from the settlements of the Company's
business interruption claims.
(4) Weighted average shares (including common share equivalents) outstanding for
(i) the years ended December 31, 1994, 1993, 1992, 1991 and 1990 were
13,029,714, 9,166,908, 6,514,481, 3,806,856 and 3,721,791, respectively, on
a primary basis and were 13,029,714, 9,511,500, 6,514,481, 3,962,038 and
3,721,791, respectively, on a fully diluted basis, and (ii) for the three
months ended March 31, 1995 and 1994 were 12,683,546 and 12,763,797,
respectively, on a primary basis and were 12,693,881 and 12,836,308,
respectively, on a fully diluted basis.
(5) As adjusted to reflect as of March 31, 1995, the receipt of the net proceeds
of this Offering in the estimated amount of $7,750,000 before the
application thereof. See "USE OF PROCEEDS" and "CAPITALIZATION."
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Overview
The following table sets forth for the years ended December 31, 1994, 1993
and 1992 and for the three months ended March 31, 1995 and 1994 (i) certain
items in the Company's consolidated statements of income expressed as a
percentage of net sales and (ii) the percentage change in dollar amounts of such
items as compared to the indicated prior fiscal year or fiscal quarter.
<TABLE>
<CAPTION>
ITEMS AS A PERCENTAGE PERIOD TO PERIOD PERCENTAGE
OF NET SALES INCREASE (DECREASE)
--------------------------------------------- --------------------------------------
THREE MONTHS THREE MONTHS
ENDED YEARS ENDED ENDED YEARS ENDED
MARCH 31 DECEMBER 31 MARCH 31 DECEMBER 31
--------------- ------------------------- ------------ ---------------------
1995 1994 1994 1993 1992 1995-94 1993-94 1992-93
----- ----- ----- ----- ----- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0% 63.5% 49.7% 37.7%
Gross Profit......................... 23.2 26.7 26.2 27.4 28.4 41.6 43.0 32.8
Selling, General and Administrative
Expenses........................... 19.0 21.9 23.1 22.0 23.2 41.3 57.4 30.4
Nonrecurring Expenses................ -- -- .5 .1 .2 -- 798.4 (46.5)
Income from Operations............... 4.2 4.8 2.5 5.4 5.0 43.0 (29.0) 47.6
Interest Expense..................... 1.7 1.2 1.8 1.6 2.4 141.8 60.7 (4.3)
Income Before Income Taxes........... 2.5 3.4 .8 4.1 2.6 17.7 (72.9) 118.3
Net Income........................... 1.4 2.1 .3 2.5 1.5 11.9 (79.3) 125.1
</TABLE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1995 AND 1994
Sales
Net sales for the first three months of 1995 increased significantly to
$38.3 million, a 63.5% increase over net sales of $23.4 million for the first
three months of 1994. This was a new quarterly sales record, exceeding the
previous record by more than $10 million. The dramatic sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by acquired companies which represented
approximately $4.6 million of sales in the first three months of 1995. In
addition, the Company continued to benefit from consolidations within the
industry as customers continued to seek additional sources of supply in order to
minimize supplier dependency and to achieve a higher level of service. See
"BUSINESS -- Corporate Strategy."
Gross Profit
Gross profit was $8.9 million in the first three months of 1995, a $2.6
million or 41.6% increase over gross profit of $6.3 million for the same period
of 1994. The increase was due to the significant growth in sales discussed
above. Gross profit margins as a percentage of net sales were 23.2% for the
first three months of 1995 compared to 26.7% for the first three months of 1994.
The downward trend reflects a decline associated with a greater number of large
volume transactions at reduced margins, the competitive environment in the
electronic distribution marketplace, as well as a change in the Company's
overall sales mix. See "Comparison of Years Ended December 31, 1994 and
1993 -- Gross Profit" and "BUSINESS -- Products" and "-- Competition." This
downward trend may continue if the Company maintains its rapid growth in sales.
See "RISK FACTORS -- Declining Gross Profit Margins."
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased $2.1
million to $7.3 million for the first three months of 1995 compared to $5.1
million for the first three months of 1994. The increase was primarily the
result of the Company's rapid growth and aggressive expansion. As sales grew by
$14.9 million for the quarter ended March 31, 1995, over the same period of
1994, selling expenses increased including sales commissions and telephone
expenses. As a result of the relocation of the Company's corporate headquarters
18
<PAGE> 22
and distribution facility in May 1994, the expansion of the computer and
communications systems, the opening of new sales offices and the relocation of
existing sales offices occurring during 1994, rent (both for realty and
personalty), occupancy expenses and depreciation and amortization costs
increased for the first three months of 1995 as compared to the first three
months of 1994. In addition, the Company expanded its sales personnel, created
and staffed a corporate operations department and a west coast credit department
and increased staffing in almost all corporate departments during 1994. As a
result, SG&A for the first three months of 1995 reflects increased salaries,
payroll taxes and employee benefit costs. See "Comparison of Years Ended
December 31, 1994 and 1993 -- Selling, General and Administrative Expenses" for
a further discussion of the Company's expansion of its facilities, systems,
services, offices and personnel in 1994.
SG&A as a percentage of net sales improved to 19.0% for the quarter ended
March 31, 1995, from 21.9% for the same period of 1994. The improvement in SG&A
as a percentage of net sales reflects increased operating efficiencies and
benefits from economies of scale.
Income from Operations
Income from operations increased 43.0% to $1.6 million for the first three
months of 1995 compared to $1.1 million for the same period of last year. This
increase was attributable to the significant increase in sales and improved
operating efficiencies which more than offset the decline in gross profit
margins and the additional expenses associated with the Company's rapid growth
and aggressive expansion discussed above.
Interest Expense
Interest expense increased to $665,000 for the first three months of 1995,
as compared to $275,000 for the same period of 1994. The increase resulted from
additional borrowings required to fund the Company's continued growth, including
the issuance of subordinated debentures in the amount of $5,150,000 in a private
placement completed in the second quarter of 1994, additional debt incurred in
connection with two acquisitions during 1994 and the financing of tenant
improvements and personal property in connection with the Company's new
corporate headquarters and distribution center. Additionally, an increase in
interest rates more than offset savings associated with the decrease in the rate
charged the Company by its Senior Lender. See "Comparison of Years Ended
December 31, 1994 and 1993 -- Interest Expense."
Net Income
Net income increased to $538,000 ($.04 per share) for the quarter ended
March 31, 1995 from net income of $481,000 ($.04 per share) for the quarter
ended March 31, 1994. The increase in net income for the 1995 period resulted
primarily from the significant increase in sales as well as from the increased
operating efficiencies and benefits from economies of scale discussed above.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
Sales
Net sales for 1994 increased $33.6 million to $101.1 million, a 49.7%
increase over net sales of $67.5 million for 1993. The sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by acquired companies which represented
approximately $10 million of sales in 1994. In addition, the Company continued
to benefit from consolidations within the industry as customers continued to
seek additional sources of supply in order to minimize supplier dependency and
to achieve a higher level of service. Substantially all of the increase in net
sales is attributable to volume increases and the introduction of new products
as compared to price increases. See "BUSINESS -- Corporate Strategy."
Gross Profit
Gross profit was $26.5 million in 1994, an $8.0 million or 43.0% increase
over gross profit of $18.5 million in 1993. The increase was due predominantly
to the growth in sales discussed above. Gross profit margins as a
19
<PAGE> 23
percentage of net sales were 26.2% in 1994 compared to 27.4% in 1993. The
downward trend reflects a decline associated with a greater number of large
volume transactions at reduced margins, the competitive environment in the
electronic distribution marketplace, as well as a change in the Company's
overall sales mix. The overall sales mix has changed as sales of newer
technology products are now playing a greater role in the sales of the Company
than in prior years. Many of the newer technology products result in lower
profit margins than sales of more mature product lines on which the Company has
historically focused and which tend to have less risk inherent in large volume
purchases. By making large volume purchases, the Company decreases its per-unit
cost, thus increasing its potential for higher profit margins upon resale of
these mature products. See "BUSINESS -- Products" and "-- Competition." This
downward trend is expected to continue, and has accelerated, in 1995. See "RISK
FACTORS -- Declining Gross Profit Margins."
Selling, General and Administrative Expenses
SG&A increased $8.5 million to $23.3 million in 1994 compared to $14.8
million in 1993. The increase was primarily the result of the Company's rapid
growth and aggressive expansion. As sales grew by $33.6 million, selling
expenses increased substantially including sales commissions, telephone expenses
and the cost of supplies.
In May 1994 the Company relocated its corporate headquarters and
distribution facility for the second time since 1990. The 1994 move into a
Company designed state-of-the-art facility will accommodate significant future
growth and will enable the Company to expand its service capabilities, enhance
its quality control programs and improve its productivity. Additionally, the
Company expanded its computer and communications systems and equipment. During
1994, the Company also opened seven new sales offices, relocated four existing
sales offices into larger facilities, opened a west coast corporate office and
acquired two electronic components distributors. This resulted in increased SG&A
including increased rent (both for realty and personalty) and related occupancy
expenses, depreciation expenses and amortization costs and the incurrence of
moving and start-up costs and design, consulting and integration expenses.
In order to effectively drive and manage its aggressive expansion, the
Company expanded its sales staff and sales management team, created and staffed
a corporate operations department and a west coast credit department and
increased staffing in almost all corporate departments. The Company also
expanded its service capabilities by staffing its technical sales program,
creating a kitting department and establishing its American Assemblies division
to improve its value-added services. The Company's quality control programs and
traceability procedures were enhanced resulting in the Company obtaining the
international quality standard of ISO 9002. As a result, the Company incurred
consulting expenses and start-up costs and had increased salaries, payroll taxes
and employee benefit costs. See "BUSINESS -- Corporate Strategy -- Expansion",
"-- Facilities and Systems" and "-- Corporate Strategy -- Services" and
"-- Quality Controls and ISO Certification."
SG&A as a percentage of sales increased to 23.1% in 1994 as compared to
22.0% in 1993 due to the increase in expenses discussed above. As a result of
its expansion, the Company believes it now has plant capacity, systems and staff
in place to facilitate substantial increases in revenues without significant
additional fixed costs and expects to realize benefits from improved operating
efficiencies and economies of scale which should result in a decrease in SG&A as
a percentage of sales in the future.
Income from Operations
As a result of the additional SG&A as detailed above and the recording of
nonrecurring expenses consisting of a charge for relocation of plant facilities
in the amount of $185,000 and a write-off of a product development investment in
the amount of $363,000, compared to nonrecurring expenses of $61,000 incurred in
1993, income from operations was impacted and decreased to $2.6 million in 1994
compared to $3.6 million in 1993. See "BUSINESS -- Facilities and Systems" and
"-- Licensed Technology" and Notes 4 and 8 to Notes to Consolidated Financial
Statements. The Company expects that the aggressive expansion discussed above
positions the Company to process dramatic increases in revenues without
significant additional fixed costs.
20
<PAGE> 24
Interest Expense
Interest expense increased to $1.8 million in 1994 compared to $1.1 million
in 1993. The increase was due primarily to an increase in borrowings required to
fund the Company's continued growth, including the issuance of subordinated
debentures in the amount of $5,150,000 in a private placement completed in the
second quarter of 1994, additional debt incurred in connection with the
Company's acquisitions in the approximate amount of $3.4 million and
subordinated debt aggregating approximately $2 million relating to purchase
money financing of acquisitions and the financing of tenant improvements and
personal property in connection with the Company's new corporate headquarters
and distribution center. Additionally, an increase in interest rates more than
offset savings associated with the decrease in the rate charged the Company by
the Senior Lender. See "-- Liquidity and Capital Resources" and
"-- Acquisitions" and Note 5 to Notes to Consolidated Financial Statements.
Net Income
For the year ended December 31, 1994, net income was $352,000 ($.03 per
share), as compared to net income of $1.7 million ($.19 per share, $.18 fully
diluted) in 1993. This decrease was primarily attributable to the increase in
SG&A, the increased interest expense and the nonrecurring expenses discussed
above.
COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND 1992
Net Sales
Net sales for 1993 increased $18.5 million to $67.5 million, a 37.7%
increase over net sales of $49.0 million for 1992. The sales increase was
attributable to a general increase in demand for electronic products, an
increase in sales in substantially all territories, revenues generated by new
sales offices and revenues generated by an acquired company which represented
$1.4 million of sales in 1993. In addition, the Company continued to benefit
from consolidations within the industry.
Gross Profit
Gross profit was $18.5 million in 1993, a $4.6 million or 32.8% increase
over gross profit of $13.9 million in 1992. The increase was due predominantly
to the growth in sales discussed above. Gross profit margins as a percentage of
net sales were 27.4% in 1993 compared to 28.4% in 1992. The downward trend
reflects a decline associated with a greater number of large volume transactions
at reduced margins, the competitive environment in the electronic distribution
marketplace, as well as a change in the Company's overall sales mix. See
"BUSINESS -- Products" and "-- Competition."
Selling, General and Administrative Expenses
SG&A increased $3.5 million, or 30.4%, to $14.8 million in 1993 compared to
$11.4 million in 1992. The increase was the result of the Company's rapid growth
and aggressive expansion. As sales grew by $18.5 million, selling expenses
increased dramatically, including commissions, telephone expenses and supplies.
During 1993, SG&A was impacted by three new sales offices (one opened at the end
of 1992 and two opened during 1993) and the relocation of one existing office
into a larger facility. See "BUSINESS -- Corporate Strategy -- Expansion" and
"-- Sales and Marketing -- Sales Office Locations". This resulted in increased
rent, increased depreciation expenses and moving and start-up costs. The Company
also acquired the assets of an affiliated company resulting in integration
expenses and an increase in all operating expense line items. See
"Acquisitions." Additionally, the increase reflects expenses incurred in
connection with implementing the Company's profit sharing 401(k) plan in June
1993, to which matching contributions were made for all of 1993 and additional
depreciation expenses associated with new computer and communications equipment.
SG&A as a percentage of sales decreased in 1993 to 22.0% down from 23.2% in
1992. The improvement reflects the Company's efforts to improve operating
efficiencies as well as the benefits of economies of scale
21
<PAGE> 25
associated with increased sales levels. The improved operating efficiencies as
well as the benefits of economies of scale realized during 1993, more than
offset the increased expenses discussed above.
Income from Operations
Income from operations increased 47.6% in 1993 to $3.6 million compared to
$2.5 million in 1992. This increase, which was achieved despite declining gross
profit margins, resulted from increased sales, improvements in operating
efficiencies, cost savings associated with a 1991 warehouse consolidation, and
the benefits of economies of scale resulting in a decrease in SG&A as a
percentage of sales. Income from operations in 1992 was impacted by a
nonrecurring expense in the amount of $114,000 attributable to employee benefits
incurred from the elimination of duplicate tasks associated with the relocation
and consolidation of the Company's warehouse.
Interest Expense
Interest expense decreased in 1993 to $1.1 million from $1.2 million in
1992. This decrease was primarily a result of the decline in the prime interest
rate during the period as well as a reduction in the percentage over prime
charged by the Company's lender. At the end of 1992, the Company entered into a
new Credit Agreement with the Senior Lender which provided for the lower
percentage over prime. The improvement in the interest rate more than offset the
interest expense associated with increased borrowings required to fund the
Company's growth and the acquisition of its affiliate completed in June 1993.
See "Acquisitions."
Net Income
For the year ended December 31, 1993, net income was $1.7 million ($.19 per
share, $.18 fully diluted), an increase of 125.1% from net income of $756,000
($.12 per share) for 1992. The increase in 1993 reflects the growth in sales,
increased operating efficiencies, reduction in SG&A as a percentage of sales and
the reduction in interest expense. The increase in net income in 1993 also
included income of $237,000 ($144,000 on an after-tax basis) resulting from the
settlement of a business interruption insurance claim which occurred during the
third quarter of 1992. See Note 9 to Notes to Consolidated Financial Statements.
Net income in 1992 also reflected a gain on the extinguishment of debt in the
amount of $36,000 ($21,000 on an after-tax basis) and nonrecurring expenses in
the amount of $114,000 ($67,000 on an after-tax basis) discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1995, increased to approximately $41.9 million
from working capital of approximately $39.8 million and $27.5 million at
December 31, 1994 and 1993, respectively. The current ratio was 3.03:1 at March
31, 1995, as compared to 3.94:1 and 4.43:1 at December 31, 1994 and 1993,
respectively. Accounts receivable levels at March 31, 1995, were $22.7 million,
up from accounts receivable levels of $16.6 million and $11.5 million at
December 31, 1994 and 1993, respectively. The increases in accounts receivable
reflect the record quarterly and annual levels of sales for the first three
months of 1995 and for the 1994 fiscal year, respectively. However, the average
number of days that accounts receivable were outstanding as of March 31, 1995
and December 31, 1994, was 55 and 56 days, respectively, an improvement from 59
days as of December 31, 1993. Inventory increased to $38.5 million at March 31,
1995, from inventory of $35.0 million and $23.3 million at December 31, 1994 and
1993, respectively. The increase in inventory in the first three months of 1995
was primarily to support the increases in both semiconductor and passive product
sales as well as to support budgeted future growth. The increase in inventory in
fiscal 1994 from fiscal 1993 was also primarily to support the increases in both
semiconductor and passive product sales as well as from acquisitions of Chicago
and Philadelphia-based distributors in 1994. See "Acquisitions." In addition,
the increase in inventory from 1993 to 1994 reflects the initial stocking
packages associated with new product lines obtained during 1994 and increases
made to support 1995 sales budgets. Inventory turns, however, improved to 2.6
times in 1994 compared to 2.4 times in 1993. The increase in accounts payable
and accrued expenses by $6.8 million to $19.8 million at March 31, 1995, as
compared to $13.0 million at December 31, 1994, and by $5.8 million to $13.0
million in 1994 as compared to $7.2 million in 1993, was primarily as a result
of the increase in inventory in the first three months of 1995 over the end of
1994 and in 1994 over 1993, respectively.
22
<PAGE> 26
During 1994, as a result of the acquisitions of the assets of two
companies, assets and liabilities increased and the Company's borrowings under
the Line increased to repay certain assumed liabilities. See "Acquisitions" and
Note 3 to Notes to Consolidated Financial Statements. The Company's assets and
liabilities further increased in 1994 in connection with tenant improvements and
related capital expenditures associated with the move of the Company's
headquarters and distribution facility. As of May 1, 1994, the Company executed
a promissory note in the amount of $865,000 in favor of the landlord for the
Company's new headquarters and distribution facility to finance substantially
all of the tenant improvements necessary for the new facility. This $865,000
note has no payments in the first year (interest accrues and is added to the
principal amount), is payable interest only in the second year and has a
repayment schedule with varying monthly payments over the remaining 18 years. At
the same time, the Company entered into another promissory note with such
landlord for $150,000 to finance certain personal property for the new facility.
This $150,000 note is payable interest only for six months and thereafter in 60
equal self-amortizing monthly payments of principal and interest. In addition
certain additional improvements to the new facility aggregating approximately
$90,300 were financed as of May 1, 1995 by the landlord. This $90,300 is
evidenced by a promissory note payable in 240 consecutive, equal self-amortizing
monthly installments of principal and interest. These notes, which are
subordinate to the Company's Line, accrue interest at a fixed rate of 8% per
annum and are payable monthly to the extent payments are required. See
"BUSINESS -- Facilities and Systems" and Note 5 to Notes to Consolidated
Financial Statements.
During the last two fiscal years, the Company's shareholders' equity
doubled from $8.5 million at the end of 1992 to $17.0 million at the end of
1994. This increase resulted primarily from the net income during 1993 and 1994,
and the exercise during 1993 of the Class A and Class B Warrants issued in
connection with the sale by the Company of equity securities in June 1992 (the
"1992 Public Offering"). Upon the exercise of the warrants, which were called by
the Company during 1993, the Company received net proceeds of approximately $5.4
million. In addition, during 1994, the Company received net proceeds of
approximately $465,000 from the exercise of underwriters' warrants issued in
connection with the 1992 Public Offering. The net proceeds from these issuances
of securities were used for continued expansion and general working capital
purposes.
In 1994, the Credit Agreement was amended to increase the Line from $20
million to $25 million. In addition, as a result of the increase in the
Company's equity and subordinated debt through 1994, the interest rate on the
Line was reduced to, at the Company's option, either one-quarter of one percent
( 1/4%) below prime or two percent (2%) above certain LIBOR rates. Under the
terms of the 1994 amendment, the Company will pay a nonusage fee of one-tenth of
one percent ( 1/10%) calculated on the unused portion of the Line, payable
quarterly in arrears, and the termination date of the Line was extended to May
31, 1997. On March 28, 1995, the Credit Agreement was amended whereby the Line
was increased from $25 million to $30 million; provided, however, that the
Company may borrow in excess of $27 million only after (i) the Senior Lender has
reviewed and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. In May 1995, the Senior Lender completed its review and became
satisfied with the Company's audited consolidated financial statements for the
year ended December 31, 1994. The Company expects that the successful completion
of this Offering will satisfy the increased capitalization condition of the
Senior Lender for the Company to borrow in excess of $27 million. The 1995
amendment to the Credit Agreement permits the Company to request standby letters
of credit to be issued by the Senior Lender on the Company's behalf, with a
sublimit of $5 million available for letters of credit under the Line and such
letters of credit being chargeable as advances against the Line. The Company
will pay the Senior Lender an issuance fee equal to three-quarters of one
percent (.75%) per annum of the aggregate amount of outstanding letters of
credit. See Note 5 to Notes to Consolidated Financial Statements.
The Credit Agreement requires the Company to be in compliance with certain
financial ratios including a minimum amount of tangible net worth and a current
asset support ratio based upon specified percentages of eligible accounts
receivable and inventories. The Company also is required to comply with certain
affirmative and negative covenants. These covenants place limitations on the
Company's future borrowings, dividend
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<PAGE> 27
payments, redemption of certain securities, transactions with affiliates on
other than an arm's-length basis, investments, acquisitions, mergers, capital
expenditures and changes in control and management. As of December 31, 1994, the
Company was in compliance with the required financial ratios and other covenants
and the Company believes that it is presently in compliance with the financial
ratios and other covenants under the Credit Agreement. Outstanding borrowings
under the Line, which are secured by accounts receivable, inventories and
equipment and a pledge of the capital stock of the Company's subsidiaries,
amounted to $19,991,000 at December 31, 1994, $22,129,000 at March 31, 1995, and
$22,549,000 on May 1, 1995.
In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a 9% non-convertible
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500 common stock purchase warrants exercisable at $3.15 per
share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 386,250 warrants. The debentures are payable in
semi-annual installments of interest only commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the Line and the
notes described above issued to the Company's landlord. Each warrant issued can
be exercised to purchase one share of the Company's Common Stock at any time
between December 14, 1994 and June 13, 1999 at an exercise price equal to $3.15
per share. See "DESCRIPTION OF SECURITIES -- Existing Warrants" and Note 5 to
Notes to Consolidated Financial Statements.
The Company expects that its cash flows from operations and additional
borrowings available under the Credit Agreement will be sufficient to meet its
current financial requirements over the next twelve months. The Company
continues, however, to explore available financing alternatives to fund the
Company's long term growth. This Offering is one of those alternatives. To the
extent that additional funds are required by the Company in the future, the
Company's lack of additional authorized and unissued Common Stock could prevent
it from raising additional equity capital at a time when it is needed for its
operations or further expansion. See "RISK FACTORS."
INFLATION AND CURRENCY FLUCTUATIONS
The Company does not believe that inflation or currency fluctuations
significantly impacted its business during 1994 or the first three months of
1995; however, inflation, changing interest rates and currency fluctuations have
had significant effects on the economy in the past and could adversely impact
the Company's results in the future. See "RISK FACTORS -- Foreign Manufacturing
and Trade Regulations."
ACQUISITIONS
On June 14, 1993, the Company, through a then newly-formed subsidiary (the
"Rockville Subsidiary"), completed the acquisition of substantially all of the
assets of All American Transistor Corporation of D.C. ("DC"), formerly a 45%
owned affiliate of the Company, based in Rockville, Maryland. The consideration
for the acquisition of such assets was the assumption of all of DC's disclosed
liabilities. As a result, the Company's consolidated assets and liabilities each
increased by approximately $1,000,000. At closing, the Company paid off a note
payable to a bank of approximately $503,000 (including accrued interest), which
was part of the $1,000,000 increase in liabilities. As part of such acquisition,
the majority shareholder of the seller entered into a one year employment
agreement with the Rockville Subsidiary at a base salary of $75,000 per annum
plus a bonus based on sales made by such person, which agreement has since
expired.
On January 24, 1994, the Company, through a then newly-formed subsidiary
(the "Illinois Subsidiary"), completed the acquisition of substantially all of
the assets of Components Incorporated, a regional distributor of electronic
components and related products based near Chicago, Illinois ("Components"). As
consideration for this acquisition, the Company paid $599,000 in cash and issued
a promissory note of approximately $399,000. The promissory note bears interest
at 8% per annum and is payable in quarterly installments of interest only for a
term of two years, with the entire principal amount payable in full on January
24, 1996. In addition to the purchase price, the Illinois Subsidiary agreed to
assume and discharge when due, all of
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<PAGE> 28
Components' disclosed liabilities, which were approximately $700,000. As part of
such assumption, Components' bank line in the amount of $400,000 was paid in
full at the closing.
The president and principal stockholder of Components (the "Components
Principal") was hired by the Illinois Subsidiary to conduct the day-to-day
operations of the Illinois Subsidiary pursuant to an employment agreement dated
January 24, 1994. Although the Components Principal was transferred to a staff
marketing position during 1994, the terms of his employment agreement remain the
same. Pursuant to the employment agreement, which may be renewed annually by the
Illinois Subsidiary for up to a maximum term of four years, the Components
Principal will receive annual base compensation of $105,000, plus separate
bonuses based on the net earnings and gross sales of the Illinois Subsidiary. In
addition to the base compensation and bonuses, the Components Principal received
$350,000 of consideration for a covenant not to compete that restricts any
competition with the Illinois Subsidiary and the Company for a period extending
to the later of the third anniversary of the Components Principal's termination
as an employee or January 24, 1999. The $350,000 consideration was in the form
of a grant of 98,160 stock options to the Components Principal to acquire Common
Stock at a price of $1.65 per share (valued at $100,000 as of January 24, 1994),
and the delivery to the Components Principal of a promissory note of the
Illinois Subsidiary in the principal amount of $250,000. The $1.65 options are
exercisable, in whole or in part, at any time during the period commencing July
1, 1994, and ending January 23, 1999, subject to earlier termination on death or
disability. The Company, pursuant to its agreement to register the Common Stock
underlying such options by July 31, 1994, registered such shares in February
1994. The $250,000 promissory note bears interest at 8% per annum, payable
quarterly, with $100,000 of principal due March 10, 1995, $50,000 of principal
due April 24, 1996, and the remaining $100,000 payable in eight equal quarterly
principal installments in the amount of $12,500 over the fourth and fifth years
of such note. In the event the Illinois Subsidiary's net income equals or
exceeds $650,000 in any fiscal year, it must prepay one-half of the then
outstanding principal balance of such note and, in the event the Illinois
Subsidiary's net income again equals or exceeds $650,000 in a subsequent fiscal
year, the Company must prepay the entire then outstanding principal balance of
such note. If the Components Principal resigns or is terminated for cause on or
prior to January 24, 1996, the Components Principal will be obligated to pay to
the Company the sum of $100,000 as liquidated damages, payable at his election
either in cash or by reduction of the then outstanding principal balance of the
$250,000 promissory note. The Company has also agreed to grant to the Components
Principal employee incentive stock options at fair market value on the date of
grant (5,000 on January 24, 1995; 10,000 on January 24, 1996; and 15,000 on
January 24, 1997), each of such three sets of options to be exercisable for a
period of five years, subject to earlier termination in the event of termination
of employment, death or disability. The Company has guaranteed all of the
obligations of the Illinois Subsidiary owed to Components and the Components
Principal in connection with this transaction.
On September 9, 1994, the Company, through a then newly-formed subsidiary
(the "New Jersey Subsidiary"), completed the acquisition of substantially all of
the assets of GCI Corp., a Philadelphia-area distributor of electronic
components based in southern New Jersey. As consideration for this acquisition,
the Company paid $485,000 in cash, issued a promissory note in the approximate
amount of $306,000 and granted stock options covering 117,551 shares of Common
Stock at an exercise price of $1.65 per share (valued at $144,000 as of
September 9, 1994) exercisable between September 9, 1995 and September 8, 1999.
The New Jersey Subsidiary also assumed substantially all of the disclosed
liabilities of approximately $1,930,000, including a $1,400,000 bank note
payable which has been repaid. The $306,000 promissory note is payable interest
only on a quarterly basis for the first two years from closing with the
principal amount (together with accrued interest thereon) payable in equal
quarterly installments over the next three years. One-half of the then
outstanding principal balance of the promissory note is required to be paid if
certain net earnings (as defined) of the New Jersey Subsidiary are attained for
1995 or 1996. GCI Corp. may earn up to an additional $760,000 of contingent
purchase price over the three-year period ending December 31, 1997 if certain
gross profit targets are met.
The three principal stockholders and key employees of GCI Corp. (the "GCI
Principals") each received an employment agreement from the New Jersey
Subsidiary commencing on September 10, 1994, and expiring on December 31, 1997,
and providing for base salary of $122,000, $113,000, and $110,000 per annum,
respectively. In addition to base salary, each of the GCI Principals may earn a
bonus based upon the
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<PAGE> 29
percentage of the net earnings generated in the sales territory, as defined. In
addition to the net earnings bonus, two of the GCI Principals may earn an annual
bonus based upon the gross profit of the Company with respect to all sales made
in Maryland, Virginia and Delaware, if certain minimum gross profit levels are
obtained. The Company has also agreed to grant to each of the GCI Principals
employee incentive stock options at fair market value on the date of grant
(10,000 to each on January 30, 1996; 10,000 to each on January 30, 1997; and
10,000 to each on January 30, 1998), but each such grant is conditional upon
sales in the sales territory, as defined, attaining a minimum gross profit for
the year most recently ended and, if granted, vests ratably over a six year
period. One other key employee of GCI Corp. accepted employment with the New
Jersey Subsidiary and was granted 10,000 employee incentive stock options at an
exercise price of $2.63 per share (the fair market value on the date of grant)
vesting ratably over a six year period, the ability to receive up to 15,000
additional employee incentive stock options (5,000 per year in respect of 1995,
1996 and 1997) if a certain minimum gross profit for sales in the sales
territory, as defined, are attained during each such year, and shall be issued
1,000 shares of Common Stock upon completing his 18th month of service with the
New Jersey Subsidiary. The Company has guaranteed all of the obligations of the
New Jersey Subsidiary to GCI Corp. and the GCI Principals.
The operating results of each of the acquired companies are included in the
consolidated results of operations of the Company from the date of their
respective acquisition. See Notes 3 and 5 to Notes to Consolidated Financial
Statements.
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<PAGE> 30
BUSINESS
OVERVIEW
Over the last 30 years, the electronics industry has grown to be one of the
largest and today is one of the faster growing industries in the United States.
An industry association forecasts total U.S. factory sales of electronic
products to exceed $373 billion in 1995 compared to $276 billion in 1991. The
growth of this industry has been driven by increased demand for new products
incorporating sophisticated electronic components, such as laptop computers and
satellite and communications equipment, as well as the increased utilization of
electronic components in a wide range of industrial, consumer and military
products. The three product groups included in the electronic components
industry are semiconductors, which account for approximately 40% of the
electronic components distribution marketplace, passive/electromechanical
components accounting for approximately 40%, and systems (such as disk drives,
terminals and computer peripherals), accounting for approximately 20%. The
Company, as a distributor of both semiconductors and passive/electromechanical
products, sells two of the three major categories of products generally sold
through distribution. The Company does not presently intend to become a
distributor of systems.
Distributors are an integral part of the electronics industry. During 1995,
an estimated $18 billion of electronic components are projected to be sold
through distribution in the United States up from $9 billion in 1991. Electronic
component manufacturers sell directly to only a small number of the potential
customers. This small segment of the customer base accounts for a large portion
of the total available revenues. It is not economical for the component
manufacturers to provide a broad range of sales support services to handle the
large amount of customers that account for the balance of the available
revenues. Thus, the manufacturers rely on distributors to augment their sales,
marketing and service operations. By offering a broad range of products, it is
more efficient for the distributor to service the large customer base not
addressed directly by the component manufacturers. Furthermore, distributors
offer their customers a broad and growing range of services including the
convenience of immediate or scheduled deliveries to support just-in-time
requirements. Distributors also provide assistance in filling complete order
requirements and a higher level of customer service than that available directly
from component manufacturers. Through the use of distributors, both the
customers and suppliers are able to reduce personnel and other costs associated
with maintaining component inventories. During recent years there has been a
growing trend for distribution to play an increasing role in the customers'
procurement process. The Company believes that users of electronic components
will continue to increase their service and quality requirements and that this
trend will result in both customers and suppliers becoming more dependent on
distributors. This will result in increasing opportunities for those
distributors that have expanded their service capabilities.
THE COMPANY
The Company is a national distributor of electronic components manufactured
by others. These components are sold primarily to original equipment
manufacturers in a diverse and growing range of industries. The Company's
customer base includes manufacturers of consumer goods, satellite and
communications products, computers and computer-related products, robotics and
industrial equipment, radar and air traffic control systems, defense and
aerospace equipment and medical instrumentation.
Approximately 70% of the Company's sales are derived from the sale of
semiconductors (active components), including transistors, diodes, memory
devices and other integrated circuits. The remaining 30% of the Company's sales
are derived from passive products, such as capacitors, resistors, inductors and
electromechanical products, including cable, connectors, filters and sockets.
The Company does not derive substantial revenues from the sale of
microprocessors. The Company's average sales invoice is approximately $600.
While the Company was reincorporated in Delaware in 1987, it and its
predecessor have operated since 1964. The Company is one of the faster growing
distributors in the industry and, based on 1994 revenues, the Company was
recently recognized by an industry publication as the 21st largest distributor
of electronic components in the United States, up from the 24th largest
distributor in the previous year.
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CORPORATE STRATEGY
The Company's strategy is to continue its growth and to gain market share
by increasing the number of customers it sells to through a combination of
expanding existing sales offices, opening new sales offices and making
additional acquisitions. Furthermore, the Company intends to increase sales to
its existing customers. As part of its growth strategies, the Company also
intends to expand its product offerings and service capabilities. While the
Company's aggressive growth plans have caused an adverse effect on
profitability, the Company believes that the investment in future expansion was
necessary to position the Company to participate in the dynamics of its rapidly
growing and changing industry and to achieve greater profitability.
Expansion
The Company has undergone significant expansion over the last few years.
Since the end of 1992, the Company has opened 10 new sales offices, relocated
and expanded all existing offices and acquired three electronic component
distributors in order to increase its presence in the national market. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions" and "Sales and Marketing -- Sales Office Locations."
The Company is seeking to further expand and enhance its geographic coverage by
opening or acquiring three to four new sales offices over the next eighteen
months. Although no agreement has been reached as of the date of this
Prospectus, the Company is currently in discussions with acquisition candidates.
In order to effectively drive and manage its aggressive expansion, the
Company restructured, enhanced and expanded its sales staff and sales management
team. The Company also expanded its quality control programs, created and
staffed a corporate operations department and increased staffing in almost all
corporate departments. To better service the large customer base in the western
part of the United States, in 1994 the Company also opened a west coast
corporate office which houses a regional distribution center, a regional credit
department and sales and marketing executives for the Company.
In order to process rapid growth in sales, the Company moved into new
corporate offices and a state-of-the-art distribution center which dramatically
expanded the Company's capacity to service sales. See "Facilities and Systems."
This capacity, combined with the growth expected to be attained in the future as
a result of the aggressive expansion discussed above, is expected to enable the
Company to realize the benefits of improved operating efficiencies and
increasing economies of scale.
Capitalizing on Industry Trends
The Company believes that there are several significant trends occurring
simultaneously within the electronics industry. The first trend is that
customers are reducing their approved vendor base in an effort to place a
greater percentage of their purchases with fewer, more capable distributors. At
the same time, there has been substantial consolidation within the distribution
chain resulting in customers seeking additional sources of supply to minimize
dependency on a single supplier. Additionally, the Company believes that the
larger distributors resulting from consolidations will concentrate on larger
customers causing a growing need for distribution service at the middle and
emerging market customer base as such customers seek to maintain a high level of
service. These trends have put pressure on customers to achieve the proper
balance between relying on fewer distributors while at the same time not
becoming dependent on a single supplier. In an attempt to take advantage of
these trends, the Company has been strategically expanding its product offerings
and service capabilities in order to increase its ability to support more
customer needs. The Company believes that its flexibility and service
capabilities, coupled with its pricing structure and broad product offering,
will enable the Company to continue to take advantage of these growth
opportunities.
Increasing Product Offerings
The Company intends to continue its effort to increase the number and
breadth of its product offerings, thereby allowing it to attract new customers
and to represent a larger percentage of the purchases being made by its existing
customers. As part of its efforts to attract new suppliers and expand its
product offerings, the Company has opened new sales offices in order to achieve
the geographic coverage necessary to be recognized
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as a national distributor. The Company has increased the number of suppliers
whose products it offers from approximately 20 in 1980 to over 90 by 1994. See
"Suppliers -- Authorized Distributorships."
Services
As stated above, customers are reducing their approved vendor base in an
effort to place a greater percentage of their purchases with fewer, more capable
distributors. As part of its overall strategy to increase market penetration,
the Company has endeavored to develop state-of-the-art service capabilities. The
Company refers to these service capabilities as "distribution technology." The
Company believes that it has developed service capabilities comparable to some
of the larger distributors in the industry and which are not yet readily
available at many distributors of comparable size to the Company. The Company
further believes that these capabilities are not generally made available by the
largest distributors to the middle and emerging market customers, which
represent the vast majority of the Company's customers. See "Competition." Thus,
one of the ways the Company differentiates itself from its competition is to
make state-of-the-art distribution technology available to both large and small
customers. Although the Company believes that this differentiation will assist
the Company's growth, there can be no assurance that such differentiation exists
to the extent that the Company currently believes or that it will continue in
the future.
The Company's distribution technology incorporates nationwide access to
real-time inventory and pricing information, electronic order entry and rapid
order processing. During the past 24 months, the Company has dramatically
expanded its services capabilities to include just-in-time deliveries, bar
coding capabilities, bonded and consigned inventory programs, in-plant stores,
in-plant terminals and automatic inventory replenishment programs. In the past
12 months, the Company has also implemented electronic data interchange ("EDI")
programs. EDI programs permit the electronic exchange of information between the
Company and its customers or suppliers and facilitate transactions between them
by reducing paperwork and employee time. The Company currently has approximately
28 customers using at least some aspect of its EDI program.
The Company has also expanded its technical capabilities by creating a
technical sales program. As part of this program the Company has hired
electrical engineers at various sales offices across the country and expects to
continue to increase the number of engineers in the future. The program is
intended to generate more sales by providing customers with increased service at
the design and development stages. The program is also intended to enhance the
technical capabilities of the Company's entire sales force through regular
training sessions.
In an effort to reduce the number of distributors they deal with, and
ultimately reduce their procurement costs, many customers have been selecting
distributors that, in addition to providing their standard components, are also
able to provide products that are not part of the distributors' regular product
offering. This service is referred to as "kitting." In order to expand its
service offerings to address this growing customer requirement, the Company
created a kitting department toward the end of 1994.
Another rapidly growing segment of electronics distribution is the sale of
programmable semiconductor products. Programmable semiconductors enable
customers to reduce the number of components they use by highly customizing one
semiconductor to perform a function that otherwise would require several
components to accomplish. This saves space and enables customers to reduce the
size and cost of their products. In order to effectively sell programmable
products, most major distributors have established their own semiconductor
programming centers. To enable it to participate in this growing segment of the
industry, the Company has decided to open its own semiconductor programming
center. During the second quarter of 1995, the Company expects to have its
programming center fully operational in its new west coast corporate facility.
In addition to enabling the Company to address a rapidly growing market for
programmable products, this capability will allow the Company to attract new
product lines that require programming capabilities.
Quality Controls and ISO Certification
In order to properly manage its rapid growth and achieve compliance with
the increasingly stringent quality standards of its customer base, during 1994
the Company created an operations department and
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<PAGE> 33
embarked upon a Total Quality Management ("TQM") program. The TQM program
creates continuous process improvement teams empowered to design and direct the
ongoing re-engineering of the Company. The intention of the TQM program is to
improve service and, over time, increase efficiency and productivity and reduce
costs. The expansion in capacity and service capabilities discussed above were
done within the confines of increasing strictness in quality control programs
and traceability procedures. As a result, the Company has successfully completed
a procedure and quality audit resulting in its certification under the
international quality standard of ISO 9002. This quality standard was
established by the International Standards Organization created by the European
Economic Community ("EEC"). Such organization created uniform standards of
measuring a company's processes, traceability procedures and quality control in
order to assist and facilitate trading and business among the EEC. The Company
believes that this certification has currently been obtained by only a few
distributors and is becoming a requirement of an increasing portion of the
customer base in the United States.
PRODUCTS
Active and Passive Components
The Company markets both semiconductors and passive products.
Semiconductors, which are active products, respond to or activate upon receipt
of electronic current. Active products include transistors, diodes, memory
devices and other integrated circuits. Passive components, on the other hand,
are designed to facilitate completion of electronic functions. Passive products
include capacitors, resistors, inductors and electromechanical products, such as
cable, connectors, filters and sockets. Virtually all of the Company's customers
purchase both active and passive products.
While the Company offers many of the latest technology products, its focus
has historically been on mature products that have a more predictable demand,
more stable pricing and more constant sourcing. The Company believes that the
greater predictability in the demand for these products and the fact that
component manufacturers are not likely to invest capital in order to increase
production of older technologies combine to reduce the risks inherent in large
volume purchases of mature product. By making large volume purchases, the
Company decreases its per-unit cost, thus increasing its potential for higher
profit margins upon resale of these mature products. Although the Company
continues to position itself as a leader in the more mature product lines, as
part of its growth strategy, sales of the newer technology products are now
playing a greater role in the overall sales mix of the Company and may play an
even greater role in the overall sales mix as the Company expands its product
offerings. Many of the newer technology products result in lower profit margins
than sales of more mature product lines.
The Company does not offer express warranties with respect to any of its
products, instead passing on only such warranties, if any, as are granted by its
suppliers.
Electromechanical Value-Added Services
In an effort to reduce overhead, a growing number of customers have been
outsourcing certain processes and relying more upon distributors to handle
certain assemblies and modification work. These include connector and cable
assemblies, cable harnessing, terminal block modifications and other services.
These electromechanical value-added services offer distributors an opportunity
to sell their components at significantly higher margins when these components
become integrated into an assembly.
The Company began offering electromechanical value-added services in 1989
as a result of its acquisition of a regional passive component distributor which
offered such services. To date, the Company has had only minimal revenues from
such value-added services. Part of the strategy for the acquisition by the
Company of the Chicago, Illinois based distributor (see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Acquisitions")
in January 1994 was to expand the Company's electromechanical value-added
capabilities as the acquired company derived a substantially higher percentage
of its revenues from these value-added services. In order to further drive the
sales of value-added services, in the second half of 1994 the Company created a
division called American Assemblies & Design operating at its newly acquired
Chicago location. American Assemblies & Design is
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<PAGE> 34
expected to dramatically expand the Company's value-added capabilities with
respect to electromechanical products. While there can be no assurance as to the
success of this division, the Company expects American Assemblies & Design will
contribute revenues and profits in the second half of 1995.
SALES AND MARKETING
Overall Strategy
The Company differentiates itself from its competitors in the marketplace
by the combination of products and services that it can provide to its
customers. The Company is a broad-line distributor offering over 40,000
different products representing more than 90 different component manufacturers.
In addition, the Company employs a decentralized management philosophy whereby
branch managers are given latitude to run their operations based on their
experience within their particular regions and the needs of their particular
customer base. This decentralization results in greater flexibility and a higher
level of customer service. Thus, the Company believes it can provide the broad
product offering and competitive pricing normally associated with the largest
national distributors, while still providing the personalized service level
usually associated only with regional or local distributors. Additionally, the
Company brings to the middle and emerging market customers a level of service
capabilities that the smaller distributor cannot provide.
The Company's marketing strategy is to have the geographic coverage,
service capabilities and flexibility and the quality assurance to enable it to
be an expanded source of supply for all middle and emerging market customers by
providing a broad range of products and services to these customers; and to now
become a significant supplier for the top tier customers with a niche of
products supported by the high level of quality, service and technical
capabilities required to do business with these accounts.
Marketing Techniques
The Company uses various techniques in marketing its products. These
include direct marketing through personal visits to customers by management,
salespeople and sales representatives, supported by a staff of inside sales
personnel who handle the accepting, processing and administration of sales
orders; ongoing advertising in various national industry publications and trade
journals as well as general advertising, sales referrals and marketing support
from component manufacturers. The Company also uses its expanded service
capabilities, new technical sales program and its status as an authorized
distributor for certain manufacturers as marketing tools. See "Corporate
Strategy -- Services" and "Suppliers -- Authorized Distributorships."
Sales Personnel
As of May 1, 1995, the Company employed on a full-time basis 82 inside and
96 outside salespeople with approximately 19 more management employees involved
in sales. The Company also had 10 sales representatives covering various
territories where the Company does not have sales offices. In addition, the
Company currently employs 7 electrical engineers in its technical sales program.
Salespeople are generally compensated by a combination of salary and commissions
based upon the profits obtained on their sales. Each branch is run by a general
manager who reports to a regional manager, who in turn reports to an area
manager. In order to minimize management layers, each area and regional manager
acts as the general manager of the branch where they are located. All area
managers report to the Company's Senior Vice President of Sales and Marketing.
Area, regional and general managers are compensated by a combination of salary
and incentives based upon achieving various goals including profits from the
sales offices in their respective areas or regions.
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Sales Office Locations
The Company currently operates 20 sales offices. The table below shows the
general location (and specific town or city, if different) of each office and
the year it was established.
<TABLE>
<CAPTION>
YEAR
OFFICE ESTABLISHED
---------------------------------------------------------------------------------- -----------
<S> <C>
Alabama
Huntsville........................................................................ 1993
California
Orange County (Cypress)(1)........................................................ 1994
San Diego......................................................................... 1993
San Fernando Valley (Calabasas)(2)................................................ 1994
San Jose.......................................................................... 1985
Connecticut
Danbury........................................................................... 1994
Florida
Fort Lauderdale (Deerfield/Sunrise)(3)............................................ 1990
Miami............................................................................. 1973
Tampa/St. Petersburg (Clearwater)................................................. 1995
Illinois
Chicago (Lisle)................................................................... 1994
Maryland
Rockville......................................................................... 1993
Massachusetts
Boston (Bedford).................................................................. 1988
Minnesota
Minneapolis (Eden Prairie)........................................................ 1986
New York
Hauppauge......................................................................... 1984
Oregon
Portland (Beaverton).............................................................. 1994
Pennsylvania
Philadelphia (West Berlin, New Jersey)(4)......................................... 1993
Texas
Austin............................................................................ 1994
Dallas (Richardson)............................................................... 1988
Houston........................................................................... 1994
Utah
Salt Lake City.................................................................... 1992
</TABLE>
---------------
(1) This office was relocated from Irvine to a larger facility in Cypress in the
second quarter of 1995.
(2) This office was relocated from Simi to a larger facility in Calabasas in the
second quarter of 1995.
(3) This office was moved from Sunrise to Deerfield in 1994.
(4) The original Philadelphia area office was located in Cherry Hill, New Jersey
and was closed in conjunction with the completion of the acquisition by the
Company of a Philadelphia area distributor in September 1994.
During the second quarter of 1995 the Company relocated its San Fernando
Valley and Orange County, California offices into two much larger facilities in
Calabasas and Cypress, California. As part of such relocations, the Company
closed its office in Torrance, California which was originally opened in 1981.
The
32
<PAGE> 36
Company also retains field sales representatives to market other territories
throughout the United States, Canada and Mexico. The Company may consider
opening branches in these other territories if the representatives achieve
acceptable sales levels. Further, the Company may in the future consider
acquiring more distributors. Although no agreement has been reached as of the
date of this Prospectus, the Company is currently in discussions with
acquisition candidates.
Transportation
All of the Company's products are shipped through third party carriers.
Incoming freight charges are generally paid by the Company, while outgoing
freight charges are typically paid by the customer.
Seasonality
The Company's sales have not historically been materially greater in any
particular season or part of the year.
CUSTOMERS
The Company markets its products primarily to original equipment
manufacturers in a diverse and growing range of industries. The Company's
customer base includes manufacturers of consumer goods, computers and
computer-related products, defense and aerospace equipment, radar and air
traffic control systems, satellite and communications products, robotics and
industrial equipment and medical instrumentation. The Company's customer list
includes approximately 10,000 accounts. During 1994, no customer accounted for
more than 3% of the Company's sales and the Company does not believe that the
loss of any one customer would have a material adverse impact on its business.
Although sales of products to commercial users account for the vast
majority of the Company's sales, approximately 5% of the Company's sales in 1994
were comprised of high reliability products generally sold to companies
servicing the military. High reliability products are required to meet military
specifications and result in additional paperwork and administrative costs to
the Company.
BACKLOG
As is typical of distributors, the Company has a backlog of customer
orders. While these customer orders are cancellable, the Company believes its
backlog is a reliable indicator of future sales. At December 31, 1994, the
Company had a backlog in excess of $31 million, 29% higher than the backlog of
$24 million at December 31, 1993. By March 31, 1995, the Company's backlog had
risen to approximately $39.4 million. The Company believes that a substantial
portion of its backlog represents products due to be delivered within the next
three months. Approximately 50% of the backlog relates to purchase orders which
call for scheduled shipments of inventory over a period of time, with the
balance representing products that are on back-order with suppliers. The
scheduled shipments enable the Company to plan purchases of inventory over
extended time periods to satisfy such requirements.
SUPPLIERS
Authorized Distributorships
The Company generally purchases products from components manufacturers
pursuant to non-exclusive distribution agreements. Such suppliers generally
limit the number of distributors they will authorize in a given territory. As an
authorized distributor, the Company obtains sales referrals, as well as sales,
marketing and engineering support, from components manufacturers. These
referrals and support assist the Company in closing sales and obtaining new
customers. The Company's status as an authorized distributor is also a valuable
marketing tool as the end customers receive greater support from the components
manufacturers.
The Company believes that an important factor which suppliers consider in
determining whether to grant or to continue to provide distribution rights to a
certain distributor is such distributor's geographic representation. In meeting
its goal of being recognized as a national distributor, the Company has opened
sales
33
<PAGE> 37
offices in a number of markets throughout the United States (see "Corporate
Strategy -- Expansion" and "Sales and Marketing -- Sales Office Locations") and
has advertised in national industry publications to demonstrate its distribution
capabilities to current and potential customers and suppliers.
All distribution agreements are cancellable by either party, typically upon
30 to 90 days' notice. The Company believes its exposure to inventory loss is
significantly reduced by the following provisions typically found in its
distribution agreements: price protection, stock rotation privileges,
obsolescence credit and return privileges. Price protection is typically in the
form of a credit to the Company for any inventory the Company has of products
for which the manufacturer reduces its prices. The stock rotation privileges
typically allow the Company to exchange inventory in an amount up to 5% of a
prior period's purchases. The obsolescence credit allows the Company to return
any products which the manufacturer discontinues. Upon termination of a
distribution agreement, the return privileges typically require the manufacturer
to repurchase the Company's inventory at the Company's adjusted purchase price.
If the Company terminates the distribution agreement, there is typically a 10%
to 15% restocking charge. There can be no assurance that all manufacturers will
comply with their contractual obligations.
Substantially all of the Company's inventory is purchased pursuant to its
distribution agreements. The Company does not generally purchase product for
inventory unless it is a commonly sold product, there is an outstanding customer
order to be filled, a special purchase is available or unless it is an initial
stocking package in connection with a new line of products.
Supplier Base
Over the past 10 years the Company has expanded its supplier base
significantly. Presently, the Company has non-exclusive distribution agreements
with over 90 different suppliers and considers itself to be a broad-line
distributor. The Company does not regard any one supplier as essential to its
operations, since most of the products the Company sells are available from
other sources at competitive prices. In 1994, the Company's three largest
suppliers accounted for approximately 14%, 7% and 6% of consolidated purchases,
respectively. While the Company does not believe that the loss of any one
supplier would have a material adverse impact on its business, the loss of a
significant number of suppliers in a short period of time could have such an
impact. If the Company were to lose its rights to distribute the products of any
one particular supplier, there can be no assurance that the Company would be
able to replace the products which were available from that particular supplier.
The Company, from time to time, eliminates companies and adds new companies to
its list of authorized suppliers in an attempt to provide its customers with a
better product mix. See "RISK FACTORS -- Relationships with Suppliers" and Note
11 to Notes to Consolidated Financial Statements.
FACILITIES AND SYSTEMS
Facilities
As a result of its continued growth, the Company has relocated its
corporate headquarters and distribution facility twice since 1990. In order to
support substantial future growth without another relocation, the Company
entered into a new lease for a 110,800 square foot facility in Miami, Florida to
contain new corporate offices and a state-of-the-art distribution center
designed by the Company. The Company moved into this new facility in May of
1994. The Company presently occupies approximately 75% of the facility, with the
balance being sublet to an unrelated third party. The new lease has a term
expiring in 2014 with three 6-year renewal options. The Company has the right to
terminate this lease at any time after the fifth year of the term upon
twenty-four months prior written notice and the payment of all outstanding debt
owed to the landlord. The lease provides for annual fixed rental payments
totaling approximately $264,000 in the first year, $267,000 in the second year,
$279,000 in each of the third, fourth and fifth years, $300,600 in the sixth
year, $307,800 in the seventh year, and in each year thereafter during the term
the rent shall increase once per year in an amount equal to the annual
percentage increase in the consumer price index not to exceed 4% in any one
year. The renewal options are at fair market value rental rates. In June 1994,
the Company entered into a sublease with an unrelated third party for
approximately 25% of the new facility for a term of three years ending on July
14, 1997, with no renewal options and the Company having the right to recapture
34
<PAGE> 38
approximately 13,000 square feet of the sublet space from and after the
eighteenth month of the three year term. The sublease provides for base rent of
$5,000 per month increasing 5% per year and additional rent representing the
subtenant's prorata share of landlord pass through expenses and other expenses
pertaining to the sublet premises. Although continued growth is not assured, the
Company estimates that this new facility (including the space currently sublet)
has capacity to handle over $400 million in annual revenues.
Prior to May 1994, the Company's main corporate offices and warehouse were
also located in Miami, Florida, and consisted of approximately 37,000 square
feet, of which approximately 10,000 square feet was office space and
approximately 27,000 square feet was warehouse space.
As a result of the January 1994 acquisition, the Company leases a 9,700
square foot facility located near Chicago, Illinois, which houses a sales
office, a warehouse and the value-added operations of the Company's American
Assemblies division. Furthermore, the Company occupies approximately 11,000
square feet in Northern California, approximately 5,000 square feet of which is
used for sales, 3,500 square feet of which is used for corporate offices. The
balance of this Northern California facility is being used as a regional
distribution facility and, in the second quarter of 1995, is expected to house
the Company's new semiconductor programming center. In addition, the Company
leases space for its 17 other sales offices (excluding Miami which is located in
the Company's corporate headquarters), which range in size from approximately
1,000 square feet to 6,000 square feet. See "Sales and Marketing -- Sales Office
Locations."
Systems
In 1990, the Company created a management information systems ("MIS")
department and, in 1991, new computer and communications systems were placed
into service. As a result of its rapid expansion and in order to assure that the
Company can continue to grow and provide state-of-the-art distribution
technology in the future, the Company expanded these systems during 1994 and
expects to continue to develop and expand its systems capabilities further. The
Company believes that these systems will assist in increasing sales and in
improving efficiency and the potential for greater profitability in the future
through increased employee productivity, enhanced asset management, improved
quality control capabilities and expanded customer service capabilities. See
"Corporate Strategy -- Services."
The Company's systems and operations are designed to facilitate centralized
warehousing which allows salespeople across the country to have real-time access
to inventory and pricing information and allows a salesperson in any office to
enter orders electronically, which instantaneously print in the Company's
distribution facility for shipping and invoicing. The combination of the
centralized warehouse and the electronic order entry enable the Company to
provide rapid order processing at low costs. The system also provides for
automatic credit checks, which prohibit any product from being shipped until the
customer's credit has been approved. Additionally, its systems provide the
Company with more timely and reliable information, allowing the Company to
enhance asset management. The Company's communications equipment enables
personnel to communicate from office to office over existing data lines, thereby
controlling telephone expenses. Further, the systems allow the Company to
participate with customers and suppliers in electronic data interchange and to
expand customer services, including just-in-time deliveries, kitting programs,
bar-coding, automatic inventory replenishment programs, bonded and consigned
inventory programs, in-plant stores and in-plant terminals.
While the development of the MIS department, the acquisition of new
computer and communications equipment, the development of software for its
systems and the 1991 consolidation of the Company's warehouse operations reduced
the Company's profitability in 1989 through 1992, the Company began to benefit
from these investments in 1993. The Company believes that, with its new
distribution center combined with the expansion of its systems and
infrastructure which began in 1994 and will continue in 1995, the Company will
be positioned to sustain significant sales growth without significant additional
investment in fixed overhead, thereby improving operating margins in the future.
35
<PAGE> 39
FOREIGN MANUFACTURING AND TRADE REGULATION
A significant number of the components sold by the Company are manufactured
outside the United States and purchased by the Company from United States
subsidiaries or affiliates of those foreign manufacturers. As a result, the
Company and its ability to sell at competitive prices could be adversely
affected by increases in tariffs or duties, changes in trade treaties, currency
fluctuations, strikes or delays in air or sea transportation, and possible
future United States legislation with respect to pricing and import quotas on
products from foreign countries. The Company's ability to be competitive in or
with the sales of imported components could also be affected by other
governmental actions and changes in policies related to, among other things,
anti-dumping legislation and currency fluctuations. Since the Company purchases
from United States subsidiaries or affiliates of foreign manufacturers, the
Company's purchases are paid for in U.S. dollars which does reduce the potential
adverse effect of currency fluctuations. While the Company does not believe that
these factors adversely impact its business at present, there can be no
assurance that such factors will not materially adversely affect the Company in
the future.
EMPLOYEES
As of May 1, 1995, the Company employed 361 persons: 34 are involved in
management; 37 are involved in marketing; 178 are involved in sales; 46 are
involved in warehouse and shipping; 23 are involved in operations and kitting;
35 are involved in bookkeeping and clerical; and 8 are involved in MIS. None of
the Company's employees are covered by collective bargaining agreements. The
Company believes that its relations with its employees are good.
COMPETITION
The Company believes that there are over 1,000 electronic components
distributors throughout the United States, ranging in size from less than $1
million in revenues to companies with annual sales exceeding $4 billion
worldwide. These distributors can be divided into global distributors who have
operations around the world, national distributors who have offices throughout
the United States, regional distributors and local distributors. With 20 offices
in 13 states, the Company competes as a national distributor. The Company, which
was recently recognized by an industry publication as the 21st largest
distributor of electronic components in the United States, believes its primary
competition comes from the top 50 distributors in the industry.
The Company competes with many companies that distribute electronic
components and, to a lesser extent, companies that manufacture such products and
sell them directly. Many of these companies have greater assets and possess
greater financial and personnel resources than does the Company. The competition
in the electronics distribution industry can also be segregated by target
customers: major accounts; middle market accounts; and emerging growth accounts.
Competition to be the primary supplier for the major customers is dominated by
the top 10 distributors as a result of the product offerings, pricing and
distribution technology offered by these distributors. The Company competes for
these major industry customers by seeking to provide the very best service and
quality and focusing on fill-in or niche products. The Company believes that it
is able to earn satisfactory margins on this business without competing head-on
with the industry giants. The Company believes competition from the top 10
distributors for the middle and emerging market customer base is not as strong
since the largest distributors focus their efforts on the major account base.
For this reason, the Company has focused its efforts on servicing this middle
and emerging market customer base. The Company competes for this business by
seeking to offer a broader product base, better pricing and more sophisticated
distribution technology than the regional or local distributors, by seeking to
offer more sophisticated distribution technology than comparably sized
distributors and by seeking to offer to such middle and emerging market
companies a higher service level than are offered to them by the major national
distributors. With its expanded service capabilities and quality assurance
procedures in place, the Company believes that it can now compete for a bigger
portion of the business at the top tier customer base, although there can be no
assurance it will be successful in doing so.
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<PAGE> 40
LICENSED TECHNOLOGY
As a result of the rapid growth of the Company's electronic components
distribution business, the Company has decided to no longer pursue its
development of certain licensed technology intended to protect various
electronic equipment and machines from surges and sags in power which can damage
the components within the equipment. See Note 4 to Notes to Consolidated
Financial Statements.
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation relating to claims
arising out of its operations in the ordinary course of business. Such claims
are generally covered by insurance or, if they relate to products which it
distributes, the Company would expect that the manufacturers of such products
would indemnify the Company, as well as defend such claims on the Company's
behalf, although no assurance can be given that any manufacturer would do so.
The Company believes that none of these claims should have a material adverse
impact on its financial condition or results of operations. See "RISK
FACTORS -- Potential Product Liability"
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME CLASS AGE POSITION
------------------------------------ ----- ---- ------------------------------------
<S> <C> <C> <C>
Paul Goldberg(1).................... III 66 Chairman of the Board of Directors
and Chief Executive Officer
Bruce M. Goldberg(1)................ II 39 President and Chief Operating
Officer and Director
Howard L. Flanders.................. II 37 Vice President, Secretary and Chief
Financial Officer and Director
Rick Gordon......................... III 41 Senior Vice President of Sales and
Marketing and Director
S. Cye Mandel(2)(3)................. I 66 Director
Sheldon Lieberbaum(2)(3)............ I 60 Director
</TABLE>
---------------
(1) member of the Executive Committee
(2) member of the Audit Committee
(3) member of the Compensation Committee
The Company's Certificate of Incorporation provides for a staggered board,
consisting of three classes. The terms of office of Class I, II and III
directors expire in 1995, 1996 and 1997, respectively. See "DESCRIPTION OF
SECURITIES -- Certain Provisions of Certificate of Incorporation and Bylaws."
The Company's executive officers serve at the discretion of the Board; however,
all executive officers have employment agreements with the Company. See
"EXECUTIVE COMPENSATION -- Employment Agreements." The following is a brief
resume of the Company's executive officers and directors.
PAUL GOLDBERG, one of the co-founders of the Company and the father of
Bruce M. Goldberg, has been employed by the Company in various executive
capacities since its predecessor's formation in 1964, and has served as Chairman
of the Board and Chief Executive Officer since 1978. Mr. Goldberg was also
President of the Company until July 1994.
BRUCE M. GOLDBERG, the son of Paul Goldberg, joined the Company in October
1988 as Vice President, in 1990 became Executive Vice President and in July 1994
became President and Chief Operating Officer.
37
<PAGE> 41
Bruce M. Goldberg has served as a Director of the Company since 1987. From 1984
until joining the Company, Bruce M. Goldberg practiced law in his own firm.
Prior thereto, he practiced law while associated with two Miami law firms,
Shutts & Bowen and Shapiro, Hoffman, Lester and Abramson.
HOWARD L. FLANDERS joined the Company in February 1991 as its Vice
President and Chief Financial Officer, and in 1992 became a Director of the
Company and Secretary. Prior to joining the Company, Mr. Flanders, who is a CPA,
was Controller of Reliance Capital Group, Inc., a subsidiary of Reliance Group
Holdings, Inc., where he held various positions since 1982. Prior thereto, Mr.
Flanders was an accountant with the public accounting firm of Coopers & Lybrand.
RICK GORDON has been employed by the Company since January 1986. He was
originally the General Manager of the Company's Northern California office and
Northwest Regional Manager. In March 1990, Mr. Gordon became the Western
Regional Vice President and in 1992 Vice President of North American Sales and a
Director of the Company. In 1994, Mr. Gordon was appointed Senior Vice President
of Sales and Marketing for the Company. Before working for the Company, Mr.
Gordon was Western Regional Vice President for Diplomat Electronics, another
electronic components distributor, from 1975 until 1986.
S. CYE MANDEL is a prominent South Florida businessman who has been an
executive in the food service industry for the past 20 years. Mr. Mandel has
been a principal in the entity which acted from 1989 to 1993 as the manager of
the Miccosukee Indian bingo enterprise located in Miami, Florida. Mr. Mandel has
served as Director of the Company since 1987.
SHELDON LIEBERBAUM is director of corporate finance and a director and
shareholder of Lew Lieberbaum & Co., Inc., an investment banking firm which is
the Underwriter of this Offering and was one of the underwriters of the
Company's 1992 Public Offering. He was also an officer of the underwriter which
took the Company public in 1987. Mr. Lieberbaum has been in the brokerage
business for over 35 years and serves as a director for Unapix Enterprises,
Eastco Industrial Safety Corporation and In-Home Health, Inc. Mr. Lieberbaum
became a Director of the Company in 1992 in connection with an agreement of the
Company with the underwriters of the 1992 Public Offering that until June 18,
1997, the Company would use its best efforts to cause one individual designated
by such underwriters to be elected to the Board or to be an advisor to the
Board. It is contemplated that, in the event that this Offering is successfully
completed, a similar agreement regarding the designation of a director of the
Company will be entered into between the Company and the Underwriter which would
have a term of three years from the Effective Date, but would not be operative
until the expiration of the existing agreement with the underwriters of the 1992
Public Offering so that only one designee of either the Underwriter or the
underwriters of the 1992 Public Offering would serve on the Board at any time.
See "UNDERWRITING." The National Association of Securities Dealers, Inc.
("NASD") recently alleged that the Underwriter and others, including Mr.
Lieberbaum, in 1991 engaged in market manipulation, inaccurately maintained
books and records and failed to adequately supervise the activities of the
Underwriter's personnel in connection with the trading for the Underwriter's
account of warrants which were part of a public offering of units of convertible
preferred stock and warrants of a company for which the Underwriter had acted in
1991 as managing underwriter. In order to expeditiously resolve this matter and
without admitting or denying these allegations, in January 1995 Mr. Lieberbaum
and others voluntarily entered into a Letter of Acceptance, Waiver and Consent
with the NASD pursuant to which Mr. Lieberbaum was censured and fined by the
NASD, agreed to pay with the Underwriter and others restitution to customers and
was suspended from associating with any NASD member for a one month period.
BOARD COMMITTEES
Executive Committee
The Executive Committee is comprised of Paul Goldberg and Bruce M.
Goldberg. During 1994, the Executive Committee did not meet formally, however,
its members met on nearly a daily basis in connection with the operations of the
Company. The Executive Committee possesses substantially all of the powers of
the Board and acts as the Board between Board meetings.
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<PAGE> 42
Audit Committee
The Audit Committee is comprised of S. Cye Mandel and Sheldon Lieberbaum.
The Audit Committee is responsible for recommending the selection of the
independent auditors (which was done during the last year by the Board as a
whole), reviewing the arrangements and scope of the independent audit, reviewing
internal accounting procedures and controls and reviewing the reports and
recommendations of the independent auditors with respect to internal controls.
Compensation Committee
Prior to March 27, 1993, the Compensation Committee was comprised of Paul
Goldberg and Bruce M. Goldberg. Effective March 27, 1993, the Compensation
Committee consists of S. Cye Mandel and Sheldon Lieberbaum, two independent
non-employee directors of the Company. See "Compensation Committee Interlocks
and Insider Participation" for a discussion of the Compensation Committee's
responsibilities.
Nominating Committee
The Board does not have a Nominating Committee, such function being
performed by the Board as a whole.
BOARD COMPENSATION
The members of the Board do not currently receive compensation from the
Company for acting in their capacity as directors of the Company nor has the
Company adopted any standard arrangement for compensating non-employee directors
of the Company. The Company may decide in the future to compensate directors
and/or to establish a standard compensation arrangement for non-employee
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1993, the Compensation Committee of the Board consisted of
Paul Goldberg, Chairman and Chief Executive Officer, and Bruce M. Goldberg,
Director and then Executive Vice President. At a meeting of the Board held on
March 27, 1993, Paul Goldberg and Bruce M. Goldberg resigned from the
Compensation Committee and the Board reconstituted the Compensation Committee to
consist of S. Cye Mandel and Sheldon Lieberbaum, both being independent,
non-employee Directors of the Company. Prior to the changes effective in March
of 1993, the Compensation Committee reviewed, designed and approved the
compensation of all employees of the Company, except for the members of the
Compensation Committee whose compensation was determined by the Board as a
whole. Effective with the reconstitution of the Compensation Committee in March
1993, the Board decided that management of the Company should make decisions
with respect to the compensation (other than the granting of stock options) of
all employees other than the executive officers of the Company. Furthermore, in
connection with this Offering, the Company has agreed with the Underwriter that
the Company will not increase or authorize an increase in the compensation of
its executive officers without the approval of the Compensation Committee for a
period of three years from the Effective Date. In addition, the Company has
agreed that for three years from the Effective Date it will use its best efforts
to cause one individual designee of the Underwriter to be elected to the
Company's Board and that such designee will also serve as a member of the
Compensation Committee. Currently, Sheldon Lieberbaum, director of corporate
finance and a director and shareholder of the Underwriter, is a member of the
Board and the Compensation Committee. See "UNDERWRITING."
39
<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned during each of the fiscal years ended December 31, 1994,
1993 and 1992 by the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company whose total annual salary
and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
---------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
------------------------------------------ ----- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul Goldberg............................. 1994 184,000 -- -- 10,000
Chairman and Chief Executive Officer 1993 178,000 113,000 100,000 8,000
1992 167,000 15,000 -- 5,000
Bruce M. Goldberg......................... 1994 150,000 -- -- 26,000
President and Chief Operating Officer 1993 135,000 98,000 100,000 14,000
1992 114,000 15,000 -- 2,000
Rick Gordon............................... 1994 155,000 20,000 -- 16,000
Senior Vice President of Sales and 1993 135,000 11,000 3,000 12,000
Marketing 1992 123,000 -- -- 2,000
Howard L. Flanders........................ 1994 130,000 -- -- 17,000
Vice President and Chief Financial 1993 105,000 11,000 103,000 14,000
Officer 1992 93,000 -- -- --
</TABLE>
---------------
(1) All other compensation includes Company contributions to life insurance
policies, where the Company is not the beneficiary, to the Deferred
Compensation Plan and to the 401(k) Plan of the Company and the cost to the
Company of the nonbusiness use of Company automobiles used by executive
officers. See hereinbelow and "Deferred Compensation Plan for Executive
Officers and Key Employees" and "401(k) Plan."
The Company has a $1,000,000 key man term life insurance policy on the life
of Paul Goldberg with benefits payable to the Company. In addition, the Company
pays for a $550,000 universal life insurance policy on the life of Paul Goldberg
with benefits payable to his wife. The current annual premiums on the foregoing
policies insuring the life of Paul Goldberg are approximately $9,300 and $7,700
for the key man and universal life insurance policies, respectively. The Company
owns and is the beneficiary of a $1,000,000 term policy on the life of Bruce M.
Goldberg. The current annual premium on this policy is $1,580. Moreover, during
1994 the Company transferred ownership of a $1,000,000 whole life insurance
policy (the "Whole Life Policy") on the life of Bruce M. Goldberg to Bruce M.
Goldberg to fulfill an obligation under his existing employment arrangement. The
Company intends to make annual advances to Bruce M. Goldberg to cover the annual
premium of the Whole Life Policy currently in the amount of $22,995. Such annual
advances are secured by the cash surrender value of the Whole Life Policy. Since
more than two and one-half years had passed since the date of Bruce M.
Goldberg's existing employment agreement, fifty percent (50%) of the advances
through December 31, 1994, were cancelled and the related security released on
January 1, 1995. The remainder of the existing advances and any future advances
made to pay premiums on the Whole Life Policy through May 31, 1997, will be
cancelled and any remaining security will be released in accordance with a
vesting schedule by May 31, 1997, provided Bruce M. Goldberg continues
employment with the Company through the end of such period. Thereafter the
Company will continue, for the duration of Bruce M. Goldberg's employment, to
pay the annual premium to Bruce M. Goldberg for the Whole Life Policy. If Bruce
M. Goldberg is terminated by the Company for cause prior to May 31, 1997, he
will be entitled to pay off the nonvested advances owed to the Company and
obtain a release of any collateral assignment. If Bruce M. Goldberg is
terminated without cause or upon a change in control, any nonvested advances
owed to the Company will become immediately vested and any remaining security
will be released. In addition, beginning
40
<PAGE> 44
in 1993 the Company has funded, and intends to continue to fund, the premiums
for $1,000,000 flexible premium life insurance policies owned by each of Howard
L. Flanders and Rick Gordon. The Company's advances will be secured by a
collateral assignment of the cash value and death benefit of each of the
policies. The current annual premium on each of these policies is $11,500. The
Company's obligations to make premium payments in connection with Howard L.
Flanders' and Rick Gordon's policies are expected to last for a maximum of ten
years. After Howard L. Flanders and Rick Gordon have been with the Company for a
period of five years from the year in which the policy was acquired (1993) and
provided they each remain in the employ of the Company or they have become
disabled or a change in control has occured during the term of their employment,
the advances will be deemed cancelled and the security released thereafter
ratably over a five year vesting period until such time as all advances are
deemed cancelled. See "Employment Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options during its fiscal year ended
December 31, 1994, to any executive officer of the Company.
AGGREGATED OPTION EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION
VALUES
The following table sets forth information concerning the aggregate option
exercises in the fiscal year ended December 31, 1994, and the value of
unexercised stock options as of December 31, 1994 for the individual executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Paul Goldberg.................. -- -- 120,000(E) 84,500(E)
80,000(U) --(U)
Bruce M. Goldberg.............. 3,125(2) 6,700(2) 95,000(E) 63,375(E)
80,000(U) --(U)
Rick Gordon.................... -- -- 85,600(E) 79,688(E)
37,400(U) 32,813(U)
Howard L. Flanders............. -- -- 55,600(E) 44,375(E)
77,400(U) 37,500(U)
</TABLE>
---------------
(1) Value is based upon the difference between the exercise price of the options
and the last reported sale price of the Common Stock on December 31, 1994.
(2) Stock options covering 3,125 shares of Common Stock at an exercise price of
$1.60 per share were exercised by Bruce M. Goldberg during the fiscal year
ended December 31, 1994. The value realized per share is based upon the
difference between the closing sale price of the Company's Common Stock on
The Nasdaq Stock Market on the date of exercise and the exercise price.
EMPLOYEES', OFFICERS', DIRECTORS' STOCK OPTION PLAN
In 1987, the Company established the Option Plan. Unless earlier
terminated, the Option Plan will continue in effect through May 28, 2004, after
which it will expire and no further options could thereafter be granted under
the Option Plan. The Option Plan provides for awards of options to purchase
shares of Common Stock to officers, directors and employees of and independent
contractors associated with the Company. A maximum of 2,250,000 shares of the
Company's Common Stock has previously been reserved for issuance upon the
exercise of options granted under the Option Plan. In order to have a sufficient
number of authorized and unissued shares of Common Stock to undertake this
Offering (assuming the Over-Allotment Option will be exercised in full), the
number of shares of the Company's Common Stock reserved for issuance under the
Option Plan has been reduced by the Board to no more than 1,575,250 shares;
provided, however, that, in the event that the Over-Allotment Option is not
exercised, there will be no reduction in the number of reserved
41
<PAGE> 45
shares or, if not exercised in full, a lesser reduction will be made.
Notwithstanding the foregoing reduction, in May 1995 the Board authorized an
increase in the number of shares of the Company's Common Stock reserved for
issuance under the Option Plan to 3,250,000 shares, subject to obtaining the
approval of the shareholders of the Company to such increase and to an increase
in the number of shares of Common Stock authorized to be issued by the Company
at the 1995 Annual Meeting. See "DESCRIPTION OF SECURITIES" and "RISK FACTORS."
The increases are necessary in order to authorize the aggregate of 1,000,000 New
Options to be granted to the four executive officers of the Company in
connection with their entering into new employment agreements with the Company.
See "Employment Agreements." If approved, such increase would also eliminate any
reduction in the reserved shares under the Option Plan necessitated by this
Offering.
The Option Plan is administered by the Compensation Committee. The
Compensation Committee's functions include recommending persons to whom options
should be granted, the date of each option grant, the number of shares of Common
Stock to be included in each option, any vesting and exercise schedule and the
option price and term (which in no event will be for a period more than ten
years from the date of grant). The Compensation Committee's proposals are based
upon and in recognition of the judgment, initiative, leadership and continued
efforts of eligible participants. Unless the Compensation Committee is comprised
of at least three disinterested persons, meaning that none of such persons are
eligible or have within the previous year been eligible to participate in the
Option Plan, any option granted to a director must satisfy all of the following
requirements: (i) the total number of options granted to directors under the
Option Plan may not exceed 35% of the shares reserved under the Option Plan (the
"35% Limitation"); (ii) no director may be granted options in excess of 30% of
the shares issued under the Option Plan in any one particular issuance; (iii)
options granted to directors may not be exercisable for at least one year after
the date of grant; (iv) the exercise price of options granted to directors may
not be less than the fair market value of the Common Stock on the date of grant,
except that if a director beneficially owns 10% or more of the combined voting
power of the Company, the option price may not be less than 110% of the fair
market value of the Common Stock on the date of grant. In addition, options
granted to directors are subject to all other restrictions set forth in the
Option Plan. Since currently there are only two disinterested directors on the
Compensation Committee, the above limitations relating to grants of options to
directors are currently in effect. As a result of the number of shares of the
Company's Common Stock reserved for issuance under the Option Plan being
required to be reduced by the Board to permit the Company to undertake this
Offering, Paul Goldberg and Bruce M. Goldberg have agreed not to exercise stock
options held by them for an aggregate of up to 50,000 shares each of Common
Stock to enable the Option Plan to remain in compliance with the 35% Limitation.
This agreement would terminate upon the number of shares reserved for issuance
being subsequently increased to an amount sufficient to permit the Option Plan
to be in compliance with the 35% Limitation or the 35% Limitation being
otherwise eliminated. As a result of the New Options to be granted to the four
executive officers of the Company in connection with their entering into new
employment agreements, in May 1995 the Board authorized the elimination of the
above limitations, as well as certain other amendments to the Option Plan,
subject to obtaining the approval of the Company's shareholders. Such approval
is currently expected to be sought at the 1995 Annual Meeting. See "Employment
Agreements."
The exercise price for all options granted under the Option Plan shall not
be less than the fair market value of the Common Stock on the date of grant (or
110% of the fair market value if the beneficiary of the grant beneficially owns
10% or more of the outstanding shares of Common Stock; provided, however, that,
as part of the amendments, to the Option Plan authorized by the Board in May
1995, subject to approval by the shareholders, this 110% provision has been
limited to incentive stock options only). In addition, the aggregate fair market
value of the Common Stock (determined at the date of the option grant) for which
a person may be granted incentive stock options which first become exercisable
in any calendar year under the Option Plan may not exceed $100,000. Options
granted pursuant to the Option Plan are not transferrable during an optionee's
lifetime.
To the extent incentive stock options are granted under the Option Plan,
this generally entitles an optionee who is an employee to defer recognition of
income or loss for federal tax purposes until the shares underlying the options
are sold. Under the Option Plan the Company does not obtain any federal tax
deductions except in unusual circumstances.
42
<PAGE> 46
On February 11, 1994, the Company filed a registration statement on Form
S-8 with the Commission in order to register 1,687,914 shares of Common Stock
then issuable under the Option Plan and 98,160 issuable to an employee of the
Company upon the exercise of a stock option granted outside of the Option Plan
in connection with an acquisition by the Company. So long as such registration
statement remains effective under the Act, shares of Common Stock issued upon
the exercise of outstanding options under the Option Plan will be immediately
and freely tradable without restriction under the Act, subject to applicable
volume limitations, if any, under Rule 144 and, in the case of executive
officers and directors of the Company, Section 16 of the Exchange Act. It is
contemplated that the Company will at the appropriate time file an amendment to
its registration statement on Form S-8 in order to register any additional
shares of Common Stock reserved for issuance under the Option Plan.
As of May 18, 1995, a total of 1,316,690 options were granted and had not
expired or been forfeited, of which 146,127 were exercised and 1,170,563 options
were outstanding (of which 631,000 options were held by executive officers and
directors of the Company as a group, see "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-Ended Option Values" and 549,412 options are
presently exercisable). These options, which are held by 68 persons, are
exercisable at prices ranging from $.75 per share to $2.63 per share and are
exercisable through various expiration dates from 1995 to 2000. In addition,
certain options were issued to the selling stockholders in connection with the
Company's acquisitions in 1994. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Acquisitions."
DEFERRED COMPENSATION PLAN FOR EXECUTIVE OFFICERS AND KEY EMPLOYEES
Effective January 1, 1988, the Company established a deferred compensation
plan (the "Deferred Compensation Plan") for executive officers and key employees
of the Company. The employees eligible to participate in the Deferred
Compensation Plan (the "Participants") are chosen at the sole discretion of the
Board, upon a recommendation from the Compensation Committee. Pursuant to the
Deferred Compensation Plan, commencing on a Participant's retirement date, he or
she will receive an annuity for ten years. The amount of the annuity shall be
computed at 30% of the Participant's salary, as defined. Any Participant with
less than ten years of service to the Company as of his or her retirement date
will only receive a pro rata portion of the annuity. Retirement benefits paid
under the Deferred Compensation Plan will be distributed monthly. The Company
paid benefits under this plan of approximately $52,000 during 1994, none of
which was paid to any executive officer. The maximum benefit payable to a
Participant (including each of the executive officers) under the Deferred
Compensation Plan is presently $22,500 per annum.
401(K) PLAN
The Company maintains a 401(k) Plan (the "401(k) Plan"), which is intended
to qualify under Section 401(k) of the Internal Revenue Code of 1986, as
amended. All full-time employees of the Company over the age of 21 are eligible
to participate in the 401(k) Plan after completing 90 days of employment. Each
eligible employee may elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her salary, limited to $9,240 in 1994. The
Company makes matching contributions and in 1994 its contributions were in the
amount of 25% on the first 6% contributed of each participating employee's
salary.
EMPLOYMENT AGREEMENTS
The Goldberg Agreements
Effective June 1, 1992, the Company entered into employment agreements with
Paul Goldberg, its Chief Executive Officer and Bruce M. Goldberg, its current
President and Chief Operating Officer (collectively, the "1992 Agreements"). The
1992 Agreements are for three-year terms expiring on May 31, 1995. Pursuant to
their 1992 Agreements, Paul Goldberg and Bruce M. Goldberg currently receive a
base salary of $186,000 and $150,000 per annum, respectively. Under the 1992
Agreements, Paul Goldberg and Bruce M. Goldberg are also each entitled to
receive a bonus equal to 5% of the Company's pre-tax income in excess of
$1,000,000 in any calendar year. Such bonus compensation payable under the 1992
Agreements to Paul Goldberg and Bruce M. Goldberg is limited to $150,000 and
$100,000 per annum, respectively. For the calendar year 1994, Paul Goldberg and
Bruce M. Goldberg did not earn a bonus, although they were each paid $100,000
relating to bonuses earned for the Company's 1993 fiscal year.
43
<PAGE> 47
In addition, the 1992 Agreements provide for certain additional benefits,
including participation in Company benefit plans, including the Deferred
Compensation Plan, payments to the employee upon his disability, certain life
insurance benefits and the continued use of a Company automobile. See "Summary
Compensation Table." The agreements prohibit Paul Goldberg and Bruce M. Goldberg
from competing with the Company for two years after any voluntary termination of
employment or termination for cause. The agreements further provide that, if
there is a change in control (as defined) of the Company, the Company shall have
the option to either extend the agreements for two additional years or terminate
the agreements upon making a lump sum severance payment equal to two years
compensation. Further, if Paul Goldberg or Bruce M. Goldberg were to be
terminated without cause, each of them would be entitled to receive severance
benefits equal to the greater of two years compensation or the remainder of the
compensation due them under their respective employment agreements.
In May 1995, the Company entered into new employment agreements with each
of Paul Goldberg and Bruce M. Goldberg to take effect as of the expiration of
the 1992 Agreements (collectively the "1995 Agreements"). The 1995 Agreement for
Paul Goldberg extends the term of his employment until December 31, 2000,
subject to earlier termination as a result of his retirement as hereinafter
described, and provides for a base salary effective as of June 1, 1995, of
$250,000 per annum, subject to an annual increase commencing as of January 1,
1996 (which increase shall be prorated for the period between June 1, 1995 and
December 31, 1995) equal to the greater of 4% per annum or the increase in the
cost of living. The 1995 Agreement for Bruce M. Goldberg extends the term of his
employment until December 31, 2000, and provides for a base salary effective as
of June 1, 1995, of $275,000 per annum, subject to the same annual increase
formula as for Paul Goldberg under his 1995 Agreement. Under the 1995
Agreements, Paul Goldberg and Bruce M. Goldberg will each be entitled to receive
an annual cash bonus equal to 3% of the Company's pre-tax income, before
nonrecurring and extraordinary charges, in excess of $1,000,000 in any calendar
year. Such annual bonus compensation for each of Paul Goldberg and Bruce M.
Goldberg is limited in any year to an amount no greater than two times his
respective base salary for the applicable year. In addition, Bruce M. Goldberg
will also receive an additional one time bonus in the amount of $30,000 on
January 15, 1996, in the event that the Company's net sales for calendar year
1995 exceed $135,000,000.
The 1995 Employment Agreements, together with the new employment agreements
between the Company and each of Howard L. Flanders and Rick Gordon described
below, provide for the granting of an aggregate of 1,000,000 stock options
pursuant to the Option Plan as additional incentive compensation for such four
executive officers (collectively, the "New Options"). Paul Goldberg and Bruce M.
Goldberg will be granted New Options covering 250,000 and 450,000 shares of
Common Stock, respectively, out of the aggregate of 1,000,000 New Options. All
of the New Options are to be granted on the earlier to occur of the date that
the registration statement of which this Prospectus is a part becomes effective,
or June 15, 1995. The New Options will be exercisable over a 10 year period from
the date of grant, subject to the vesting schedule set forth below and, in the
case of Messrs. Flanders and Gordon, generally maintaining as many of the New
Options as possible as incentive stock options. Each of the New Options will
have an exercise price equal to 100% of the fair market value of a share of
Common Stock on the date of grant. If the date of grant is the effective date of
the registration statement, the exercise price will be the public offering price
per share of the Common Stock offered hereby. The New Options granted to each of
the executive officers will vest in no event later than 9 years from date of
grant, subject to earlier vesting in the following percentage increments based
upon the Company attaining net earnings per share on a primary basis in any year
between 1995 and 2000 (inclusive) in at least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
----------------------------------------------------------- ------------
<S> <C>
25%.................................................. $.18
50................................................... .22
75................................................... .28
100................................................... .38
</TABLE>
The granting of the New Options will be void and a nullity in the event
that the Company does not obtain the approval of the Company's shareholders to
(i) the amendments to the Option Plan which are necessary to
44
<PAGE> 48
permit the granting of the New Options, including the increase in the number of
shares reserved for issuance under the Option Plan to 3,250,000 shares (the
"Plan Amendments"), and (ii) an increase in the number of shares of Common Stock
authorized to be issued by the Company to enable the Company to have sufficient
shares of Common Stock available for, among other things, issuance upon the
exercise of the New Options. See "DESCRIPTION OF SECURITIES" and "RISK FACTORS."
In the event that the shareholders of the Company do not approve the Plan
Amendments within the required period of 12 months from the Board's
authorization thereof in May 1995 or do not approve the increase in the number
of authorized shares of Common Stock resulting in the New Options automatically
terminating, the annual cash bonus of each of Paul Goldberg and Bruce M.
Goldberg described above would be increased from 3% to 5% of the Company's
pre-tax income before nonrecurring and extraordinary charges. It is currently
contemplated that the approval of the Company's shareholders will be sought at
the 1995 Annual Meeting.
Under Paul Goldberg's 1995 Agreement, he may elect, in his sole discretion,
to retire at any time on or after January 1, 1999 (the "Retirement Election").
Upon the earlier to occur of the Retirement Election or at the expiration or
earlier termination of the term of the 1995 Agreement, the Company will be
obligated to pay Paul Goldberg (in addition to any other compensation he may be
entitled to upon termination), and his spouse upon his death, a retirement
benefit of $100,000 per annum until the later of the death of Paul Goldberg or
his spouse, provide him and his spouse, without cost, until the later of their
respective deaths, at least the same level of medical and health insurance
benefits as was provided prior to his retirement and continue to pay the
premiums on the life insurance policies covering his and his spouse's lives as
described hereinbelow and under "Summary Compensation Table" above.
The 1995 Agreements also provide certain additional benefits to each of
Paul Goldberg and Bruce M. Goldberg, including participation in the Company
benefit plans, including the Deferred Compensation Plan and the 401(k) Plan, and
the continued use of a Company automobile. In addition, in the event of the
disability of Paul Goldberg, the Company will be obligated to continue all
compensation and other benefits due under his 1995 Agreement for the shorter of
two years or until January 1, 1999, and to thereafter provide the retirement and
health benefits described above. In the event of the disability of Bruce M.
Goldberg, the Company will be obligated to continue all compensation and other
benefits due under his 1995 Agreement for two years thereafter. Furthermore, in
addition to the life insurance policies covering the life of Paul Goldberg and
Bruce M. Goldberg described under "Summary Compensation Table" being funded by
the Company, the Company has agreed to advance the Paul Goldberg Family
Insurance Trust or such other person designated by Paul Goldberg (i) each year
until the insured's death the amount of the annual premium for a new $1,000,000
face value insurance policy on Paul Goldberg's or his spouse's life and (ii)
each year until the later to die of Paul Goldberg or his spouse the amount of
the annual premium for a $1,000,000 face value second to die insurance policy on
the lives of Paul Goldberg and his spouse. Such annual advances (together with
interest to accrue thereon at the rate of 5% per annum) for each policy will be
secured by the respective insurance policy and the higher of the advances
(together with the interest accrued thereon) for and the cash surrender value of
the respective policy will be repaid to the Company upon the death of Paul
Goldberg, the death of his spouse or the death of Paul Goldberg and his spouse
(as applicable) out of the proceeds thereof.
The 1995 Agreements also provide that, in the event of change in control
(as defined) of the Company, each of Paul Goldberg and Bruce M. Goldberg shall
have the option in his sole discretion to terminate his 1995 Agreement. In such
event, Paul Goldberg would be entitled to elect (in lieu of electing to continue
to receive some or all of the compensation, payments and benefits as and when
due under the 1995 Agreement) to receive a lump sum payment equal to the sum of
(i) Paul Goldberg's compensation due through the greater of the end of the term
of the 1995 Agreement or three years after the change in control, (ii) the
present value (assuming a certain discount rate and life expectancy) of the
retirement payments payable to Paul Goldberg commencing from the later of the
end of the term or three years after the change in control until his death,
(iii) an amount sufficient to pay, until the later of his or his spouse's death,
the premium for at least the same level of health insurance benefits as was
provided before the change in control and (iv) an amount sufficient to pay,
until the later of his or his spouse's death (as applicable), the premiums on
the life insurance policies insuring his or his spouse's lives as described in
the previous paragraph. Similarly, under Bruce M. Goldberg's 1995 Agreement, in
the event of a change in control and Bruce M. Goldberg's election to terminate
his 1995
45
<PAGE> 49
Employment Agreement, Bruce M. Goldberg at his option will be entitled to elect
to receive a lump sum payment equal to his compensation due through the later of
the end of the term of his 1995 Agreement or three years after the change in
control or for such period to continue to receive such compensation as and when
due under the 1995 Agreement. In addition, in the event of a change in control,
all unvested options held by Paul Goldberg or Bruce M. Goldberg, as well as any
other executive officer, would vest and become immediately exercisable. These
change in control provisions will replace the change in control provisions of
the 1992 Agreements as of June 1, 1995.
The Flanders Agreement
In May 1995, the Company entered into an employment agreement with Howard
L. Flanders, its Vice President, Secretary and Chief Financial Officer (the
"Flanders Agreement"). The Flanders Agreement continues through December 31,
1998, and provides for a base salary, effective as of March 1, 1995, of $157,500
per annum, subject to an annual increase commencing as of January 1, 1996, equal
to the greater of 5% per annum or the increase in the cost of living. Under the
Flanders Agreement, Mr. Flanders will be entitled to receive an annual cash
bonus equal to 2% of the Company's pre-tax income, before nonrecurring and
extraordinary charges, in excess of $1,000,000 in any calendar year. Such annual
cash bonus compensation is limited in any year to an amount no greater than Mr.
Flanders' base salary for the applicable year. Mr. Flanders will also be granted
150,000 New Options; provided, that, if the shareholders' approvals necessary in
connection with the granting of the New Options as described above is not
obtained, then Mr. Flanders' annual cash bonus percentage will be increased from
2% to 2.5%. In addition, the Flanders Agreement provides for certain additional
benefits, including participation in the Company benefit plans, including the
Deferred Compensation Plan and the 401(k) Plan, payment to Mr. Flanders upon his
disability of his compensation and other benefits for two years thereafter and
the continued use of a Company automobile. The Flanders Agreement prohibits Mr.
Flanders from competing with the Company for two years after any voluntary
termination of employment or termination for cause. Further, if Mr. Flanders
were to be terminated without cause, he would be entitled to receive severance
benefits equal to the greater of two-years compensation or the remainder of the
compensation due under the Flanders Agreement. Additionally, under the Flanders
Agreement, the Company will pay premiums under a life insurance policy with the
beneficiary to be as designated by Mr. Flanders as described under "Summary
Compensation Table" above. The Flanders Agreement also provides that, in the
event of a change in control (as defined) of the Company, Mr. Flanders will have
the option in his sole discretion to terminate the Flanders Agreement. In such
event, Mr. Flanders at his option would be entitled to elect to receive a
lump-sum payment equal to Mr. Flanders' compensation due through the later of
the end of the term of the Flanders Agreement or two years after the change in
control or for such period to continue to receive such compensation as and when
due under the Flanders Agreement.
The Gordon Agreement
In May 1995, the Company entered into an employment agreement with Rick
Gordon, its Senior Vice President of Sales and Marketing (the "Gordon
Agreement"). The Gordon Agreement continues through December 31, 1998, and
provides for a base salary, effective as of March 1, 1995, of $163,000 per
annum, subject to an annual increase commencing as of January 1, 1996, equal to
the greater of 5% per annum or the increase in the cost of living. Under the
Gordon Agreement, Rick Gordon will be entitled to receive an annual cash bonus
equal to 2% of the Company's pre-tax income, before nonrecurring and
extraordinary charges, in excess of $1,000,000 in any calendar year. Such annual
cash bonus compensation is limited in any year to an amount no greater than Mr.
Gordon's base salary for the applicable year. With respect to fiscal 1995, Rick
Gordon will also receive an additional one time bonus in the amount of $15,000
on January 15, 1996, in the event that the Company's net sales for calendar year
1995 exceed $135,000,000. Mr. Gordon will be granted 150,000 New Options;
provided, that, if the shareholders' approvals necessary in connection with the
granting of the New Options as described above is not obtained, then Mr.
Gordon's annual cash bonus percentage will be increased from 2% to 2.5%. In
addition, the Gordon Agreement provides for certain additional benefits,
including participation in the Company benefit plans, including the Deferred
Compensation Plan and the 401(k) Plan, payment to Mr. Gordon upon his disability
of his compensation and other benefits for two years thereafter and the
continued use of a Company automobile. The Gordon Agreement prohibits Mr. Gordon
46
<PAGE> 50
from competing with the Company for two years after any voluntary termination of
employment or termination for cause. Further, if Mr. Gordon were to be
terminated without cause, he would be entitled to receive severance benefits
equal to the greater of two-years compensation or the remainder of the
compensation due under the Gordon Agreement. Additionally, under the Gordon
Agreement, the Company will pay premiums under a life insurance policy with the
beneficiary to be as designated by Mr. Gordon as described under "Summary
Compensation Table" above. The Gordon Agreement also provides that, in the event
of a change in control (as defined) of the Company, Mr. Gordon will have the
option in his sole discretion to terminate the Gordon Agreement. In such event,
Mr. Gordon at his option would be entitled to elect to receive a lump-sum
payment equal to Mr. Gordon's compensation due through the later of the end of
the term of the Gordon Agreement or two years after the change in control or for
such period to continue to receive such compensation as and when due under the
Gordon Agreement.
CERTAIN TRANSACTIONS
Paul Goldberg, a director and executive officer of the Company, owns a
one-third interest in GBG of Maryland, Inc., a corporation that leased office
space to a wholly-owned subsidiary of the Company until December 1994. At such
time, the lease was terminated in connection with the sale to an unrelated third
party of the building in which the office space was located. The Company's
wholly-owned subsidiary currently leases the office space from such unrelated
third party. During fiscal year 1994, such wholly-owned subsidiary paid
approximately $31,000 in rent to lease such office space.
Sheldon Lieberbaum, a director of the Company, is director of corporate
finance and a director and shareholder of the Underwriter. The Underwriter will
receive compensation in connection with this Offering. See "UNDERWRITING."
47
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 18, 1995, and after the
consummation of this Offering by: (i) each person known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's Common Stock,
(ii) each director of the Company, (iii) each executive officer of the Company
and (iv) all executive officers and directors of the Company as a group. Except
as indicated in the notes to the following table, the persons named in the table
have sole voting and investment power with respect to all shares shown as
beneficially owned by them. Unless otherwise indicated in the notes to the
table, officers and directors can be reached at the principal office of the
Company.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING
SHARES(1)
AMOUNT AND NATURE OF --------------------
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP
------------------------------------- -------------------- BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C> <C>
Bruce M. Goldberg(2).............................................. 1,006,341 8.1% 5.9%
Paul Goldberg(3).................................................. 817,476 6.6% 4.8%
S. Cye Mandel(4).................................................. 5,625 * *
Howard L. Flanders................................................ 1,000 * *
Rick Gordon....................................................... 1,000 * *
Sheldon Lieberbaum(4)(5).......................................... -- -- --
All executive officers and directors as a group (6 persons)....... 1,831,442 14.7% 10.8%
</TABLE>
---------------
* Less than 1%
(1) Assumes no exercise of the Underwriter's Over-Allotment Option and excludes
the Underwriter's Purchase Warrants. In addition, excludes outstanding
stock options to purchase 1,386,274 shares, of which 1,170,563 options to
purchase shares were issued pursuant to the Option Plan. Of these
outstanding options, 631,000 options are held by the executive officers and
directors of the Company as a group, including 175,000 options held by
Bruce M. Goldberg, 200,000 options held by Paul Goldberg, 133,000 options
held by Howard L. Flanders and 123,000 options held by Rick Gordon. Further
excludes currently outstanding warrants to purchase 674,875 shares and
other Existing Rights and the New Options. If all currently outstanding
options and warrants were exercised, Bruce M. Goldberg, Paul Goldberg,
Howard L. Flanders, Rick Gordon and all executive officers and directors of
the Company as a group would own 8.1%, 7.0%, .9%, .9% and 17.0%,
respectively, of the Company's outstanding Common Stock (and assuming the
completion of the Offering 6.2%, 5.3%, .7%, .7% and 12.9%, respectively, of
the Company's outstanding Common Stock).
(2) Includes 53,380, 26,000, 69,496, 69,496 and 69,496 shares held of record by
Bruce M. Goldberg as trustee for his sons, Matthew Goldberg and Alec
Goldberg, and for his nieces and nephew, Kimberly Phelan, Tiffany Phelan
and Patrick Phelan, respectively. For federal securities law purposes only,
Bruce M. Goldberg is deemed to be the beneficial owner of these securities.
Does not include 7,500 shares of Common Stock owned by Jayne Goldberg, the
wife of Bruce M. Goldberg, and 27,225 shares held of record by an unrelated
third party as trustee for Matthew Goldberg (18,475 shares) and Alec
Goldberg (8,750 shares). Bruce M. Goldberg disclaims beneficial ownership
over all of such securities.
(3) Includes 319,218 shares owned of record by Paul Goldberg's wife, Lola
Goldberg, and 1,250 and 1,250 shares, respectively, held of record by Paul
Goldberg as custodian for Kimberly Phelan and Tiffany Phelan. For federal
securities law purposes only, Paul Goldberg is deemed to be the beneficial
owner of these securities. Does not include 192,898 shares held of record
by Robin Phelan, the daughter of Paul and Lola Goldberg, over which
securities Paul and Lola Goldberg disclaim beneficial ownership.
(4) Mr. Mandel's address is 1800 Northeast 114th Street, North Miami, Florida
33181. Mr. Lieberbaum's address is 600 Old County Road, Suite 518, Garden
City, New York 11530.
(5) Does not include any Underwriter's Purchase Warrants to be issued in
connection with this Offering.
Each of the Company's executive officers and directors has agreed with the
Underwriter for the benefit of the Company and the Underwriter not to offer,
sell, contract to sell, grant any option, right or warrant with
48
<PAGE> 52
respect to or otherwise dispose of (collectively "Dispositions") any shares of
Common Stock or any securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for 180 days after the Effective Date, without the
prior written consent of the Underwriter. Notwithstanding these lock-up
agreements, such persons may make intra-family Dispositions and Dispositions in
connection with a merger, consolidation, reorganization, exchange offer,
acquisition or similar transaction or under the Option Plan of the Company.
DESCRIPTION OF SECURITIES
GENERAL
The Company currently has 20,000,000 shares of authorized Common Stock,
$.01 par value per share, and 1,000,000 shares of preferred stock, par value
$.01 per share. As of May 18, 1995, 12,446,791 shares of Common Stock were
issued and outstanding and held of record by approximately 500 shareholders. The
Existing Rights cover up to an additional 2,192,149 shares of Common Stock.
After the completion of the Offering and the issuance of the 4,550,000 shares
offered hereby and assuming the exercise of the Over-Allotment Option, the
Company will only have 2,320,709 shares of Common Stock available for issuance,
all of which are currently reserved for issuance upon the exercise of Existing
Rights or under the Option Plan. As a result, the Company expects at the 1995
Annual Meeting to seek approval of its shareholders to substantially increase
the number of shares of Common Stock and preferred stock authorized to be
issued. There is no assurance the Company will obtain such approval. See "RISK
FACTORS."
The following description of the Common Stock and preferred stock are based
on the Company's Certificate and Bylaws and applicable Delaware law and are
qualified in all respects by the provisions thereof. See "AVAILABLE
INFORMATION."
COMMON STOCK
Each shareholder is entitled to one vote for each share owned of record on
all matters submitted to a vote of shareholders. The holders of shares do not
possess cumulative voting rights, which means that the holders of more than
fifty percent of the outstanding shares voting for the election of directors can
elect all of the directors, and, in such event, the holders of the remaining
shares will be unable to elect any of the Company's directors. See "RISK
FACTORS." Holders of outstanding Common Stock are entitled to receive ratably
dividends out of assets legally available therefor at such times and in such
amounts as the Company's Board may from time to time determine, subject to
preferences that may be applicable to any outstanding preferred stock. Upon the
liquidation, dissolution, or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding preferred stock.
Holders of Common Stock have no preemptive, conversion or subscription rights,
and shares are not subject to redemption. All outstanding shares are, and the
shares of Common Stock being offered hereby will be, when issued against the
consideration set forth in this Prospectus, fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Certificate, the Board has the authority to issue
such preferred stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting any series,
without any further action by the shareholders. The issuance of preferred stock
in certain circumstances may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
shareholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of, and the voting and other rights of the holders of, the Common Stock.
The Company has no shares of preferred stock outstanding and has no current
plans to issue any such shares. See "RISK FACTORS -- Possible Issuance of
Additional Shares."
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EXISTING WARRANTS
In connection with the 1992 Public Offering, the Company sold to JW Charles
Securities, Inc., Corporate Securities Group, Inc. and Lew Lieberbaum & Co.,
Inc., the underwriters thereof (the "1992 Underwriters"), for nominal
consideration, 175,000 non-redeemable warrants (the "1992 Underwriters'
Warrants") to purchase units (the "1992 Units"), each 1992 Unit consisting of
two shares of Common Stock, one warrant to purchase one share of Common Stock
for $1.10 and one warrant to purchase one share of Common Stock for $1.50. The
1992 Underwriters' Warrants are exercisable until June 18, 1997, at an exercise
price of $3.30 per 1992 Unit, and have certain anti-dilution provisions. At the
date of this Prospectus, only 17,500 of these 1992 Underwriters' Warrants have
not been exercised together with the related warrants comprising part of the
1992 Unit underlying the 1992 Underwriters' Warrants.
In September 1987, the Company issued to its financial public relations
firm (the "PR Firm") a warrant to acquire 90,000 shares of Common Stock at an
exercise price of $1.60 per share (as adjusted to give effect to the 1989 stock
split) relating to a since expired consulting agreement covering financial
public relations/investor relations services. In connection with the 1992 Public
Offering, the Company extended the exercise period of this warrant to June 18,
1994, and, in connection with entering into a new consulting agreement with the
PR Firm as described below, the exercise period was extended again to June 18,
1997. As of the date of this Prospectus, this warrant has not been exercised.
In May 1993, the Company issued to the PR Firm two additional warrants each
to acquire 45,000 shares of Common Stock at an exercise price of $1.35 per share
through May 14, 1998. One of such warrants was issued to induce the PR Firm to
enter into a new consulting agreement with the Company covering financial public
relations/investor relations services and was fully vested and immediately
exercisable and not forfeitable. The other warrant was forfeitable by the PR
Firm if such consulting agreement was not renewed by the Company for a second
year and was only exercisable commencing on May 14, 1994, if the consulting
agreement was renewed for the second year. Such consulting agreement has been
renewed for the second year and thus the second warrant has fully vested and is
exercisable. As of the date of this Prospectus, neither of these warrants has
been exercised.
In June 1994, as part of the 1994 Private Placement, the Company issued
386,250 Common Stock purchase warrants. Each warrant issued can be exercised to
purchase one share of the Company's Common Stock at any time between December
14, 1994 and June 13, 1999, at an exercise price equal to $3.15 per share. As
part of the 1994 Private Placement, RAS Securities Corp., the placement agent
for such offering, was issued warrants to purchase 38,625 shares of Common Stock
at any time between June 14, 1995 and June 13, 1999, at an exercise price equal
to $3.78 per share.
The holders of the Existing Warrants have been granted certain registration
rights. As a consequence thereof, all of the shares of Common Stock underlying
the Existing Warrants (other than the 1993 warrants issued to the PR Firm and
the warrants issued in connection with the 1994 Private Placement) have been
previously registered by the Company in connection with prior public offerings.
The holders of the Existing Warrants issued to the PR Firm in 1987 and 1993 have
elected pursuant to their registration rights to register for future sale the
180,000 shares of Common Stock underlying their warrants as part of the
Registration Statement of which this Prospectus forms a part. See "SHARES
ELIGIBLE FOR SALE" and "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY
WARRANT HOLDERS."
EXISTING OPTIONS AND OTHER RIGHTS
The Company has outstanding as of this date employee and other stock
options of the Company to acquire up to 1,386,274 shares of Common Stock. In
addition, under certain circumstances and events, the Company may be obligated
to issue 1,000 shares of Common Stock and incentive stock options under the
Option Plan covering an additional 130,000 shares of Common Stock, as well as
the New Options. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Acquisitions" and "EXECUTIVE
COMPENSATION -- Employees', Officers', Directors' Stock Option Plan" and
"-- Employment Agreements."
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<PAGE> 54
UNDERWRITER'S PURCHASE WARRANTS
In connection with this Offering, the Underwriter will be issued the
Underwriter's Purchase Warrants. See "UNDERWRITING."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is The
Trust Company of New Jersey, 35 Journal Square, Jersey City, New Jersey 07306.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Certificate and Bylaws of the Company include, among others, the
following provisions:
1. Annual and special meetings of the stockholders may be called only
by the Company's Board.
2. An affirmative vote of at least two-thirds of the outstanding
shares of Common Stock is required to approve or authorize certain business
combinations, unless 65% of the Company's Board approves such transaction,
in which case, a simple majority of the outstanding shares of Common Stock
will be required to approve such transaction.
3. There exist three classes of directors, each class elected for
three-year staggered terms.
4. Officers and directors of the Company will be indemnified to the
fullest extent permitted under Delaware law.
5. The Company has elected not to be governed by Section 203 of the
Delaware General Corporation Law which means that the Company is not
subject to the provisions of Delaware Law which generally provides that
certain transactions between the Company and an "interested stockholder" be
approved by the affirmative vote of two-thirds of the outstanding shares
which are not owned by the interested stockholders. An interested
stockholder ("Interested Stockholder") is (i) an owner of 15% or more of
the outstanding voting stock of the Company; or (ii) an affiliate or
associate of the Company who was the owner of 15% or more of the
outstanding voting stock of the Company at any time within the three year
period prior to the date on which it is sought to be determined whether
such person is an Interested Stockholder, and the affiliates and associates
of such person.
The members of the Goldberg Group will not be considered Interested
Stockholders, as defined in Section 203 and the Certificate, since they
either (i) acquired greater than 15% of the outstanding Common Stock prior
to December 23, 1987, or (ii) acquired their shares of Common Stock by gift
from a person falling within (i) above, both of which are exceptions under
Section 203 and the Certificate to the definition of Interested
Stockholders.
6. The Board when evaluating any offer of another person to make a
tender offer or certain business combinations is authorized, in connection
with the exercise of its judgment in determining what is in the best
interests of the Company as a whole, to give due consideration to all
relevant factors including, among others, the social, legal and economic
effects upon employees, suppliers, customers and others having similar
relationships with the Company and the communities in which the Company
conducts its business.
7. Any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken only upon the vote of the
shareholders at such meeting duly called and may not be taken by written
consent of shareholders.
8. An affirmative vote of at least two-thirds of the outstanding
shares of Common Stock is required to amend certain provisions of the
Certificate including those described in items numbered 2, 3, 5, 6 and 7
above.
The provisions of the Certificate and Bylaws of the Company summarized
above may have certain anti-takeover effects. Such provisions, individually or
in combination, may discourage other persons, or make it
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more difficult, without the approval of the Company's Board, for other persons
to make a tender offer or acquisitions of substantial amounts of the Common
Stock or from launching other takeover attempts that a shareholder might
consider in such shareholder's best interest, including attempts that might
result in the payment of a premium over the market price of the Common Stock
held by such shareholder.
CERTAIN PROVISIONS RELATING TO LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS
The Company's Certificate contains provisions which would limit the scope
of personal liability of directors to the Company or its shareholders for
monetary damages for breach of fiduciary duty. The provisions are consistent
with Section 102(b)(7) of the Delaware General Corporation Law, which is
designed, among other things, to encourage qualified individuals to serve as
directors of Delaware corporations by permitting a Delaware corporation and its
shareholders to adopt provisions in the corporation's certificate of
incorporation limiting directors' liability for monetary damages for breach of
the duty of care.
Such provisions will protect the Company's directors against personal
liability from breaches of their duty of care in certain circumstances. The
provisions of the Certificate would absolve directors of liability for
negligence in the performance of their duties, including gross negligence.
Directors would remain liable, under current law, for beaches of their duty of
loyalty to the corporation and its shareholders, as well as acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law or a transaction from which a director derives any improper personal
benefit. Also, the provisions would not absolve directors of liability under
Section 174 of the Delaware General Corporation Law, which makes directors
personally liable for unlawful dividends or unlawful stock repurchases or
redemptions and expressly sets forth a negligence standard with respect to such
liability. Further, these provisions would not eliminate or limit liability of
directors arising in connection with causes of action brought under Federal
securities laws.
While the provisions of the Certificate provide directors with protection
from awards of monetary damages for breaches of the duty of care, it does not
eliminate the directors' duty of care. Accordingly, the provisions of the
Certificate would have no effect on the availability of suitable non-monetary
remedies such as an injunction or rescission based upon a director's breach of
the duty of care.
In addition, the Certificate provides that the Company shall indemnify its
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, as the same may be amended and supplemented.
Such indemnification provision is not exclusive of any other rights to which
those indemnified may be entitled under the Company's Bylaws, agreements, vote
of stockholders or disinterested directors or otherwise.
The Company has also entered into indemnification contracts
("Indemnification Contracts") with its executive officers and directors
("Indemnitees"). The Indemnification Contracts provide that, in the event of
claims against an Indemnitee relating to an Indemnitee's position as an officer,
director, or agent of the Company, the Company shall indemnify such officer or
director to the fullest extent permitted by law against any and all expenses,
judgments, fines, penalties and amounts paid in settlement of such claims and
any taxes imposed on such Indemnitee as a result of payments received pursuant
to the Indemnification Contracts. The obligations of the Company to indemnify an
Indemnitee are subject to review by the Board, or persons appointed by the
Board, that such indemnification would be permissible under applicable law. In
the event of a change in control of the Company which has not been approved by a
majority of the Company's directors, a special independent counsel selected by
the Indemnitee must render its legal opinion to the Company and the Indemnitee
as to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law.
The Indemnification Contracts require the Company to advance to Indemnitees
expenses incurred by the Indemnitees in connection with investigating,
defending, or otherwise participating in any indemnification claim, subject to
the condition that if the Board, or the special independent legal counsel in the
event of a change in control of the Company, determines that such Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be reimbursed for any amounts advanced to the Indemnitee. In the event of a
potential change in control, the Indemnification Contracts require the Company,
upon written request by an Indemnitee, to create a trust for the benefit of such
Indemnitee. The Company must fund such
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trust in an amount sufficient to satisfy any and all expenses reasonably related
to any claim anticipated at the time of such request. The trustee must pay to
the Indemnitee all amounts to which Indemnitee is entitled to indemnification
and all unexpended funds are to be returned to the Company.
Insofar as indemnifications for liabilities arising under the Act may be
permitted to directors and officers pursuant to the Certificate and Bylaws or
the Indemnification Contracts, the Company has been advised that in the opinion
of the Commission such indemnification is against public policy and, therefore,
may be unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering (assuming the Over-Allotment Option is not
exercised), the Company will have outstanding 16,996,791 shares of Common Stock,
without giving effect to any future grants of options or warrants or exercise of
any outstanding Existing Rights or the New Options to purchase Common Stock
after the date of this Prospectus. Of the shares that will be outstanding after
this Offering, approximately 14,915,351 shares will be freely tradeable without
restriction or further registration under the Act unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 of the Act.
Substantially all of the remaining 2,081,440 shares of Common Stock to be
outstanding upon completion of the Offering are "restricted securities" as that
term is defined in Rule 144 and, except for 30,000 of such shares, are subject
to the lock-up agreements described below. 30,000 shares of such "restricted
securities," which were acquired by the holder (who is not an officer, director
or affiliate of the Company) pursuant to the exercise in March 1995 of a warrant
of the Company, are being registered concurrently herewith as a result of
registration rights provided in such warrant. None of the other "restricted
securities" have registration rights. See "RISK FACTORS -- Shares Available for
Future Resale" and "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT
HOLDERS."
The Company's executive officers and directors have entered into lock-up
agreements with the Underwriter pursuant to which they have agreed not to make
any Disposition of any shares of Common Stock of the Company, or any securities
convertible into, or exchangeable or exercisable for, shares of Common Stock for
a period of 180 days from the Effective Date, without the prior written consent
of the Underwriter. Notwithstanding these lock-up agreements, such persons may
make intra-family Dispositions and Dispositions in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or similar
transactions or under the Option Plan. An appropriate legend will be marked on
the face of stock certificates representing all such shares of Common Stock. See
"PRINCIPAL SHAREHOLDERS." The Underwriter may waive compliance with the lock-up
agreements or any part thereof without notice to the holders of the Company's
securities or to the market where the securities are traded. In addition, the
Underwriter has received certain registration rights with respect to the shares
of Common Stock issuable upon exercise of the Underwriter's Purchase Warrants.
See "UNDERWRITING."
In addition, the Company had outstanding as of the date of this Prospectus
Existing Rights representing options, warrants and other potential rights to
acquire up to 2,192,149 shares of Common Stock, without giving effect to the New
Options. Certain of the shares underlying the Existing Rights have previously
been registered by the Company and the agreements evidencing the Existing Rights
require the Company to register or qualify, or both, the shares underlying the
Existing Rights on demand of the holders thereof (a "demand registration")
and/or in any future registration statements that the Company files generally
during their respective exercise periods (a "piggyback registration"). See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Acquisitions," "EXECUTIVE COMPENSATION -- Employees', Officers',
Directors' Stock Option Plan" and "-- Employment Agreements" and "DESCRIPTION OF
SECURITIES -- Existing Warrants." In that regard, as part of the Registration
Statement of which this Prospectus forms a part, 180,000 shares of Common Stock
underlying certain Existing Warrants, as well as the 30,000 shares of
"restricted securities" described above, are being registered for future sale by
the holders thereof. See "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY
WARRANT HOLDERS."
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No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, or the future exercise of
the Existing Rights or New Options will have on the prevailing market price for
the Common Stock. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Stock and could impair the Company's future ability to
obtain capital through an offering of equity securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, the Company has agreed to sell to the Underwriter
and the Underwriter has agreed to purchase from the Company 4,550,000 shares of
Common Stock at the price to the public less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the Underwriter will be obligated to purchase all of the
shares of Common Stock offered hereby on a "firm commitment" basis, if any are
purchased. The Underwriter has informed the Company that it does not expect
discretionary sales to exceed one percent (1%) of the total number of shares of
Common Stock offered hereby.
The Underwriter has advised the Company that it proposes to initially offer
the Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less
concessions not in excess of $ per share and such dealers may reallot to
certain other dealers a concession not exceeding $ per share. After the
Offering, the offering price and the concessions may be changed at the
discretion of the Underwriter. The Common Stock is offered subject to receipt
and acceptance by the Underwriter and to certain other conditions, including the
right to reject orders in whole or in part.
The Company has granted to the Underwriter an option exercisable during the
30 business day period after the Effective Date to purchase from the Company on
the same terms and conditions up to an aggregate of 682,500 additional shares of
Common Stock (15% of the number of shares being offered hereby) for the sole
purpose of covering over-allotments, if any.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this Offering, of which $10,000 has
been paid to date. Further, the Company has agreed to reimburse the Underwriter
for certain accountable expenses relating to this Offering.
The Company and all of the Company's executive officers and directors have
agreed not to make a Disposition of any shares of Common Stock or any securities
convertible into, exchangeable or exercisable for, shares of Common Stock for a
period of 180 days after the Effective Date without the prior written consent of
the Underwriter. Notwithstanding these agreements, such persons may make
intra-family Dispositions and Dispositions in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or similar
transaction or under the Option Plan. The Underwriter may waive compliance with
these agreements or any part thereof without notice to the holders of the
Company's securities or to the market where its securities are traded.
The Company has agreed that for three years after the Effective Date, it
will use its best efforts to cause one individual designated by the Underwriter
to be elected to the Company's Board of Directors or to be an advisor to the
Board, which individual may be a director, officer, employee or affiliate of the
Underwriter. The Company has also agreed that such designee will serve as a
member of the Board's Compensation Committee. Currently, Sheldon Lieberbaum, a
director, officer and shareholder of the Underwriter, serves on the Company's
Board pursuant to a similar agreement of the Company with the 1992 Underwriters
in connection with the 1992 Public Offering, which agreement expires on June 18,
1997. Accordingly, the agreement with the Underwriter would become operative
only after the expiration of the similar agreement with the 1992 Underwriters so
that only one designee of either the Underwriter or the 1992 Underwriters would
serve on the Board at any time.
In connection with the Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, the Underwriter's Purchase Warrants to
purchase from the Company one share of Common Stock for every ten shares of
Common Stock sold pursuant to the Offering. The Underwriter's Purchase
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Warrants are exercisable at a price equal to 140% of the per share public
offering price of the Common Stock offered hereby ($ ) for a period (the
"Warrant Exercise Term") of four years commencing one year from the Effective
Date; provided, however, that the Underwriter has acknowledged and agreed that
(i) the Company does not have the authorized and unissued shares of Common Stock
(after taking into account the shares being offered hereby) to be able to issue
any of the shares of Common Stock underlying the Underwriter's Purchase Warrants
upon the exercise thereof and (ii) only in the event and when (if at all) the
number of authorized shares of the Company's Common Stock is increased to at
least 35,000,000 shares will the holders of the Underwriter's Purchase Warrants
have the right to exercise, in whole or in part, the Underwriter's Purchase
Warrants during the Warrant Exercise Term. The Underwriter's Purchase Warrants
provide that for a period of four years commencing one year from the Effective
Date, at the request of the holders of a majority of the Underwriter's Purchase
Warrants, the Company will register, in whole or in part, on up to two occasions
the Underwriter's Purchase Warrants and/or the shares of Common Stock underlying
the Underwriter's Purchase Warrants. The first such requested registration will
be at the expense of the Company and the second such requested registration will
be at the expense of the holders requesting registration. In addition, the
holders of the Underwriter's Purchase Warrants have the right to "piggyback" all
or any part of the Underwriter's Purchase Warrants and/or the shares of Common
Stock underlying the Underwriter's Purchase Warrants on any registration
statement (other than a registration statement on Form S-8, Form S-4 or other
similar registration form) filed by the Company or its principal stockholders at
any time during the stated term of the Underwriter's Purchase Warrants. The
Underwriter's Purchase Warrants contain anti-dilution provisions providing for
adjustment of the exercise price upon the occurrence of certain events,
including the issuance of Common Stock or other securities convertible into or
exercisable for Common Stock at a price per share less than the market price of
the Common Stock at the time of the applicable issuance, or in the event of any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction.
During the term of the Underwriter's Purchase Warrants, the holders of the
Underwriter's Purchase Warrants are given the opportunity to profit from a rise
in the market price of the Common Stock. To the extent that the Underwriter's
Purchase Warrants are exercised, dilution of the interest of the Company's
stockholders will occur. Further, the terms upon which the Company will be able
to obtain additional equity capital may be adversely affected since the holders
of the Underwriter's Purchase Warrants can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Underwriter's Purchase Warrants.
The Company has engaged the Underwriter as its financial consultant for a
period of 24 months to commence on the Effective Date, in consideration for
which the Underwriter will receive a consulting fee of $66,000 payable in full
at the closing of this Offering, plus reimbursement of out-of-pocket expenses.
Pursuant to this consulting agreement (the "Consulting Agreement") the
Underwriter will render certain financial advisory and investment banking
services to the Company.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement of which this Prospectus forms a part, including
liabilities under the Act. To the extent that this indemnification may purport
to provide exculpation from possible liabilities arising under the federal
securities laws, it is the opinion of the Commission that such indemnification
is against public policy and is therefore unenforceable.
The foregoing is a summary of the principal terms of the Underwriting
Agreement, the Underwriter's Purchase Warrants and the Consulting Agreement and
does not purport to be complete. Reference is made to the copies of the
Underwriting Agreement, the Underwriter's Purchase Warrants and the Consulting
Agreement, which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS
Concurrently with this Offering, the Company is registering 180,000 shares
of its Common Stock underlying certain Existing Warrants and 30,000 shares of
"restricted securities" which were acquired by the holder pursuant to the recent
exercise of a warrant issued by the Company (the "Restricted Shares"). None of
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these Existing Warrants have been exercised to date and none of the shares
underlying these Existing Warrants or the Restricted Shares are being offered by
the Underwriter. The Company is obligated to register these shares because of
registration rights granted to the holders of these warrants when they were
originally issued.
The 180,000 shares of Common Stock being registered underlying the Existing
Warrants are issuable pursuant to (i) a warrant granted to The Equity Group,
Inc. (assigned to Robert D. Goldstein) to purchase 90,000 shares of Common Stock
at an exercise price of $1.60 per share exercisable through June 18, 1997; and
(ii) two additional warrants granted to The Equity Group, Inc. each to acquire
45,000 shares of Common Stock at an exercise price of $1.35 per share
exercisable through May 14, 1998. The Restricted Shares being registered were
issued by the Company pursuant to the exercise on March 23, 1995, by Sam Berman
(who was the Company's landlord for its prior corporate headquarters and
warehouse facility and is the Company's landlord for its new corporate
headquarters and distribution center) of a warrant granted on March 25, 1992, to
Mr. Berman to acquire 30,000 shares of Common Stock at an exercise price of
$1.00 per share exercisable through March 24, 1995. The warrant was granted to
Mr. Berman in connection with his making a $1 million subordinated loan to the
Company (the loan was repaid in June 1992 out of the proceeds of the 1992 Public
Offering). See "DESCRIPTION OF SECURITIES -- Existing Warrants" and "SHARES
ELIGIBLE FOR FUTURE SALE."
The holders of the warrants referred to in (i) and (ii) above have agreed
not to sell their shares in the public marketplace for a period of 180 days from
the date of this Prospectus without the express written consent of the
Underwriter. It is anticipated that the holders of the shares being registered,
from time to time, will offer their shares in the public marketplace.
LEGAL MATTERS
Rubin Baum Levin Constant Friedman & Bilzin, Miami, Florida has acted as
counsel to the Company in connection with this Offering and will render an
opinion as to the legality of the securities being offered hereby. Meltzer,
Lippe, Goldstein, Wolfe, Schlissel & Sazer, P.C., Mineola, New York, has acted
as counsel to the Underwriter in connection with this Offering.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1993 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the three years ended December 31, 1994, 1993 and 1992 have been
included in this Prospectus in reliance upon the report of Lazar, Levine and
Company LLP, independent certified public accountants, given on the authority of
such firm as experts in accounting and auditing. See "INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS."
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ALL AMERICAN SEMICONDUCTOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at March 31, 1995 (unaudited), December 31, 1994 and
December 31, 1993................................................................... F-3
Consolidated Statements of Income for each of the three months ended March 31, 1995
and 1994 (unaudited) and for each of the three years ended December 31, 1994, 1993
and 1992............................................................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for the three months ended
March 31, 1995 (unaudited) and for each of the three years ended December 31, 1994,
1993 and 1992....................................................................... F-5
Consolidated Statements of Cash Flows for each of the three months ended March 31,
1995 and 1994 (unaudited) and for each of the three years ended December 31, 1994,
1993 and 1992....................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
All American Semiconductor, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of All
American Semiconductor, Inc. and subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the three years in the period ended December 31, 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 audits 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 consolidated financial position of
All American Semiconductor, Inc. and subsidiaries at December 31, 1994 and 1993
and the results of their operations and their cash flows for the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company adopted
accounting standards that changed its method of accounting for income taxes and
post retirement benefits in 1993.
/s/ LAZAR, LEVINE & COMPANY LLP
New York, New York
March 10, 1995, except as to
Note 5, the date of which is
March 28, 1995
F-2
<PAGE> 62
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -------------------------
1995 1994 1993
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 172,000 $ 200,000 $ 180,000
Accounts receivable, less allowances for doubtful
accounts of $523,000, $425,000 and $400,000....... 22,730,000 16,615,000 11,498,000
Inventories.......................................... 38,452,000 34,971,000 23,254,000
Other current assets................................. 1,143,000 1,543,000 619,000
----------- ----------- -----------
Total current assets.............................. 62,497,000 53,329,000 35,551,000
Property, plant and equipment -- net................... 2,895,000 2,832,000 1,534,000
Deposits and other assets.............................. 1,276,000 1,178,000 751,000
Excess of cost over fair value of net assets
acquired -- net...................................... 551,000 519,000 132,000
----------- ----------- -----------
$67,219,000 $57,858,000 $37,968,000
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 691,000 $ 396,000 $ 589,000
Accounts payable and accrued expenses................ 19,794,000 13,007,000 7,239,000
Income taxes payable................................. -- -- 109,000
Other current liabilities............................ 145,000 126,000 80,000
----------- ----------- -----------
Total current liabilities......................... 20,630,000 13,529,000 8,017,000
Long-term debt:
Notes payable........................................ 22,585,000 20,507,000 14,339,000
Subordinated debt.................................... 6,486,000 6,872,000 --
----------- ----------- -----------
49,701,000 40,908,000 22,356,000
----------- ----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued........................... -- -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 12,446,791, 12,416,791 and 12,017,750
shares issued and outstanding..................... 124,000 124,000 120,000
Capital in excess of par value....................... 11,794,000 11,764,000 10,782,000
Retained earnings.................................... 5,660,000 5,122,000 4,770,000
Treasury stock, at cost, 19,592 shares............... (60,000 ) (60,000) (60,000)
----------- ----------- -----------
17,518,000 16,950,000 15,612,000
----------- ----------- -----------
$67,219,000 $57,858,000 $37,968,000
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 63
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
--------------------------- ------------------------------------------
1995 1994 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............................ $ 38,286,000 $ 23,413,000 $101,085,000 $ 67,510,000 $ 49,015,000
Cost of sales........................ (29,418,000) (17,152,000) (74,632,000) (49,010,000) (35,083,000)
------------ ------------ ------------ ------------ ------------
Gross profit......................... 8,868,000 6,261,000 26,453,000 18,500,000 13,932,000
Selling, general and administrative
expenses........................... (7,259,000) (5,136,000) (23,335,000) (14,821,000) (11,366,000)
Nonrecurring expenses:
Relocation of plant facilities..... -- -- (185,000) (61,000) (114,000)
Write-off of product development
investment....................... -- -- (363,000) -- --
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS............... 1,609,000 1,125,000 2,570,000 3,618,000 2,452,000
Interest expense..................... (665,000) (275,000) (1,772,000) (1,103,000) (1,153,000)
Other income (expense) -- net........ -- (48,000) (39,000) 281,000 (18,000)
------------ ------------ ------------ ------------ ------------
Income before income taxes........... 944,000 802,000 759,000 2,796,000 1,281,000
Provision for income taxes........... (406,000) (321,000) (407,000) (1,094,000) (525,000)
------------ ------------ ------------ ------------ ------------
NET INCOME........................... $ 538,000 $ 481,000 $ 352,000 $ 1,702,000 $ 756,000
============= ============= ============= ============= =============
Earnings Per Share:
Primary............................ $ .04 $ .04 $ .03 $ .19 $ .12
============= ============= ============= ============= =============
Fully diluted...................... $ .04 $ .04 $ .03 $ .18 $ .12
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 64
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED TREASURY SHAREHOLDERS'
SHARES STOCK PAR VALUE EARNINGS STOCK EQUITY
---------- -------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1991...................... 3,721,791 $ 37,000 $ 2,344,000 $2,312,000 $(60,000) $ 4,633,000
Sale of equity securities... 4,025,000 40,000 3,088,000 -- -- 3,128,000
Net income.................. -- -- -- 756,000 -- 756,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1992...................... 7,746,791 77,000 5,432,000 3,068,000 (60,000) 8,517,000
Sale of equity securities... 4,270,959 43,000 5,350,000 -- -- 5,393,000
Net income.................. -- -- -- 1,702,000 -- 1,702,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1993...................... 12,017,750 120,000 10,782,000 4,770,000 (60,000) 15,612,000
Exercise of stock options
and
warrants.................. 399,041 4,000 545,000 -- -- 549,000
Issuance of options and
warrants.................. -- -- 437,000 -- -- 437,000
Net income.................. -- -- -- 352,000 -- 352,000
---------- -------- ----------- ---------- -------- -------------
Balance, December 31,
1994...................... 12,416,791 124,000 11,764,000 5,122,000 (60,000) 16,950,000
Exercise of warrant......... 30,000 -- 30,000 -- -- 30,000
Net income (unaudited)...... -- -- -- 538,000 -- 538,000
---------- -------- ----------- ---------- -------- -------------
Balance, March 31, 1995
(unaudited)............... 12,446,791 $124,000 $11,794,000 $5,660,000 $(60,000) $ 17,518,000
========= ======== ========== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 65
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
------------------------- ---------------------------------------
1995 1994 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 538,000 $ 481,000 $ 352,000 $ 1,702,000 $ 756,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 170,000 92,000 677,000 384,000 408,000
Non-cash interest expense......................... 18,000 -- 47,000 -- --
Nonrecurring expenses............................. -- -- 363,000 -- (124,000)
Other expense, net................................ -- -- -- 31,000 82,000
Changes in assets and liabilities:
Increase in accounts receivable................. (6,115,000) (2,117,000) (3,019,000) (2,835,000) (1,170,000)
Increase in inventories......................... (3,481,000) (1,834,000) (9,508,000) (5,228,000) (2,850,000)
Decrease (increase) in other current assets..... 360,000 (127,000) (904,000) (411,000) 67,000
Increase (decrease) in accounts payable and
accrued expenses.............................. 6,787,000 2,273,000 4,702,000 708,000 (618,000)
Increase (decrease) in other current
liabilities................................... 19,000 189,000 (63,000) 85,000 31,000
----------- ----------- ----------- ----------- -----------
Net cash used for operating activities........ (1,704,000) (1,043,000) (7,353,000) (5,564,000) (3,418,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............... (173,000) (67,000) (1,618,000) (250,000) (159,000)
Decrease (increase) in other assets................. (150,000) (145,000) (712,000) (134,000) 113,000
Purchases of net assets of acquired companies....... -- (552,000) (1,084,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities........ (323,000) (764,000) (3,414,000) (384,000) (46,000)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of equity securities..... 30,000 532,000 742,000 5,393,000 3,128,000
Increase in notes payable........................... -- -- 6,088,000 -- 1,050,000
Repayments of notes payable......................... (169,000) (546,000) (2,119,000) (964,000) (1,463,000)
Net borrowings under line of credit agreements...... 2,138,000 1,795,000 6,076,000 1,536,000 858,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 1,999,000 1,781,000 10,787,000 5,965,000 3,573,000
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash......................... (28,000) (26,000) 20,000 17,000 109,000
Cash, beginning of period........................... 200,000 180,000 180,000 163,000 54,000
----------- ----------- ----------- ----------- -----------
Cash, end of period................................. $ 172,000 $ 154,000 $ 200,000 $ 180,000 $ 163,000
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................... $ 492,000 $ 275,000 $ 1,604,000 $ 1,102,000 $ 1,150,000
========== ========== ========== ========== ==========
Income taxes paid................................... $ 10,000 $ 53,000 $ 1,021,000 $ 1,163,000 $ 306,000
========== ========== ========== ========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital leases aggregating $634,000 for computer equipment became effective
in August 1994.
In September 1994, the Company acquired substantially all of the assets of
GCI Corporation. The Company paid $485,000 in cash, with the balance by a
combination of a promissory note and stock options. The Company also assumed
substantially all of the seller's disclosed liabilities. In addition, in January
1994, the Company acquired substantially all of the assets of Components
Incorporated. The Company paid $599,000 in cash, with the balance in a
promissory note. The Company also assumed substantially all of the seller's
disclosed liabilities. During 1993, the Company acquired substantially all of
the assets of an affiliated company. The purchase price payable for such assets
was the assumption of liabilities.
See notes to consolidated financial statements
F-6
<PAGE> 66
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are in accordance with generally accepted
accounting principles. Outlined below are those policies considered particularly
significant.
Basis of Consolidation and Presentation
The consolidated financial statements of the Company include the accounts
of all subsidiaries, all of which are wholly-owned. All material intercompany
balances and transactions have been eliminated in consolidation.
Prior periods' financial statements have been reclassified to conform with
the current period's presentation.
Concentration of Credit Risk
Accounts receivable potentially exposes the Company to concentrations of
credit risk, as defined by Financial Accounting Standards Board Statement No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk."
Inventories
Inventories, which consist solely of electronic components held for resale,
are stated at the lower of cost (determined on an average cost basis) or market.
Depreciation and Amortization
Fixed assets are reflected at cost. Depreciation of office furniture and
equipment, computer equipment and motor vehicles is provided on straight-line
and accelerated methods over the estimated useful lives of the respective
assets. Amortization of leasehold improvements is provided using the
straight-line method over the term of the related lease or the life of the
respective asset, whichever is shorter. Maintenance and repairs are charged to
expense as incurred; major renewals and betterments are capitalized.
The excess of cost over the fair value of net assets acquired is being
amortized over 40 years using the straight-line method.
Income Taxes
The Company has elected to file a consolidated federal income tax return
with its subsidiaries. Deferred income taxes are provided on transactions which
are reported in the financial statements in different periods than for income
tax purposes. The Company adopted Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes" ("SFAS 109"), for the year ended December
31, 1993. SFAS 109 requires recognition of deferred tax liabilities and assets
for expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the difference is expected to reverse. Under SFAS
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. The
effect of the adoption of SFAS 109 was not material. See Note 6 to Notes to
Consolidated Financial Statements.
F-7
<PAGE> 67
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
Earnings Per Share
Primary earnings per share has been computed based upon the weighted
average number of common and common equivalent shares outstanding during each
period presented. Fully diluted earnings per share has been computed assuming
conversion of all dilutive stock options and warrants.
The following average shares were used for the computation of primary and
fully diluted earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
----------------------- ----------------------------------
1995 1994 1994 1993 1992
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Primary........................ 12,683,546 12,763,797 13,029,714 9,166,908 6,514,481
Fully diluted.................. 12,693,881 12,836,308 13,029,714 9,511,500 6,514,481
</TABLE>
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash.
Postretirement Benefits
In 1993, the Company adopted Financial Accounting Standards Board Statement
No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than
Pensions." The effect of the adoption of this Statement was not material.
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement
No. 112, "Employers' Accounting for Postemployment Benefits" which became
effective for fiscal years beginning after December 15, 1993. This standard
requires the expensing, on an accrual basis, of all benefits provided to former
or inactive employees, their beneficiaries and covered dependents after
employment but before retirement. The Company does not provide any
postemployment benefits at this time.
NOTE 2 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ---------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Office furniture and equipment...................... $ 2,263,000 $ 2,210,000 $ 1,793,000
Computer equipment.................................. 1,431,000 1,321,000 1,587,000
Leasehold improvements.............................. 1,065,000 1,058,000 69,000
Motor vehicles...................................... 25,000 25,000 25,000
----------- ----------- -----------
4,784,000 4,614,000 3,474,000
Accumulated depreciation and amortization........... (1,889,000) (1,782,000) (1,940,000)
----------- ----------- -----------
$ 2,895,000 $ 2,832,000 $ 1,534,000
========== ========== ==========
</TABLE>
NOTE 3 -- ACQUISITIONS
On September 9, 1994, the Company completed the acquisition of
substantially all of the assets of GCI Corp., a Philadelphia-area distributor of
electronic components. As consideration for this acquisition, the Company paid
$485,000 in cash, issued a promissory note of approximately $306,000 payable
interest only for
F-8
<PAGE> 68
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
two years and in quarterly installments over the next three years, and issued
stock options valued at $144,000 at September 9, 1994. The Company also assumed
substantially all of the seller's disclosed liabilities of approximately
$1,930,000, including a $1,400,000 bank note payable which has been repaid. See
Notes 5 and 7 to Notes to Consolidated Financial Statements. The promissory note
is required to be paid down by one-half of the then outstanding principal
balance if certain Net Earnings (as defined) are attained for 1995 or 1996. The
seller may earn up to an additional $760,000 of contingent purchase price over
the three-year period ending December 31, 1997 if certain gross profit targets
are met. The acquisition was accounted for by the purchase method of accounting
which resulted in the recognition of approximately $394,000 of excess cost over
fair value of net assets acquired. The operating results of the acquired company
are included in the consolidated statement of income from the date of
acquisition.
The three principal stockholders and key employees of GCI Corp. (the "GCI
Principals") each received an employment agreement expiring on December 31, 1997
providing for base salary of $122,000, $113,000 and $110,000 per annum,
respectively. In addition to base salary, each of the GCI Principals may earn a
bonus based upon the percentage of the Net Earnings generated in the sales
Territory, as defined. In addition to the net earnings bonus, two of the GCI
Principals may earn an annual bonus based upon the gross profit of the Company
with respect to all sales made in Maryland, Virginia and Delaware, but only if
certain minimum gross profit levels are obtained. The Company has also agreed to
grant to each of the GCI Principals employee incentive stock options at fair
market value on the date of grant (10,000 to each by January 30, 1996; 10,000 to
each by January 30, 1997; and 10,000 to each by January 30, 1998), but each such
grant is conditional upon sales in the sales Territory, as defined, attaining a
minimum gross profit for the year most recently ended. One other key employee of
GCI Corp. accepted employment with the Company and was granted 10,000 employee
incentive stock options at an exercise price of $2.63 per share, the ability to
receive up to 15,000 additional employee incentive stock options (5,000 per year
in respect of 1995, 1996 and 1997) if certain minimum gross profit for sales in
the sales Territory, as defined, are attained during each such year, and shall
be issued 1,000 shares of Common Stock upon completing his 18th month of
service.
On January 24, 1994, the Company completed the acquisition of substantially
all of the assets of Components Incorporated, a Chicago-based distributor of
electronic components ("Components"). As consideration for this acquisition, the
Company paid $599,000 in cash and issued a promissory note of approximately
$399,000 due two years from closing. The Company also assumed substantially all
of the seller's disclosed liabilities of approximately $700,000, including a
$400,000 bank note payable which has been repaid. See Note 5 to Notes to
Consolidated Financial Statements. The president and principal stockholder of
Components (the "Components Principal") received an employment agreement, which
may be renewed annually by the Company for up to a maximum term of four years,
providing for base salary of $105,000 per annum plus separate bonuses based on
specified net earnings and gross sales. In addition to the base salary and
bonuses, the Components Principal received $350,000 of consideration for a
covenant not to compete that restricts any competition with the Company for a
period equal to the later of the third anniversary of the Components Principal's
termination as an employee or January 24, 1999. The $350,000 consideration was
in the form of a grant of stock options valued at $100,000 as of January 24,
1994 and the delivery to the Components Principal of a promissory note in the
principal amount of $250,000. See Notes 5 and 7 to Notes to Consolidated
Financial Statements. The Company has also agreed to grant to the Components
Principal employee incentive stock options at fair market value on the date of
grant (5,000 on January 24, 1995; 10,000 on January 24, 1996; and 15,000 on
January 24, 1997), each of such three sets of options to be for a period of five
years, subject to earlier termination in the event of termination of employment,
death or disability. The acquisition was accounted for by the purchase method of
accounting. The operating results of the acquired company are included in the
consolidated statement of income from the date of acquisition.
F-9
<PAGE> 69
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
On June 14, 1993, the Company completed the acquisition of substantially
all of the assets of All American Transistor Corporation of D.C. ("D.C."),
formerly a 45% owned affiliate. The consideration for the acquisition was the
assumption of all of D.C.'s disclosed liabilities. As a result, the Company's
assets and liabilities each increased by approximately $1,000,000, including
principal and interest on a bank note payable of approximately $503,000 which
has been paid off in full. The acquisition of D.C. has been accounted for by the
purchase method of accounting and the purchase price approximates the fair value
of the net assets acquired. The operating results of this acquisition are
included in the Company's consolidated statements of income from the date of
acquisition. Prior to this acquisition, the Company sold inventory to D.C. at
cost plus 10%. Sales to D.C. aggregated approximately $91,000 for the year ended
December 31, 1992. In addition, the Company previously accounted for its 45%
investment in this affiliate under the equity method of accounting.
The following unaudited pro forma consolidated income statement data
presents the consolidated results of operations of the Company as if the
acquisitions of GCI Corp., Components and D.C. had occurred at the beginning of
the periods presented:
<TABLE>
<CAPTION>
THREE
MONTHS YEARS ENDED DECEMBER 31
ENDED MARCH ----------------------------------------
31 1994 1994 1993 1992
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales.......................... $26,055,000 $107,539,000 $81,341,000 $61,617,000
Net income......................... 582,000 578,000 1,879,000 819,000
Primary earnings per share......... $.05 $.04 $.21 $.13
Fully diluted earnings per share... $.05 $.04 $.20 $.13
</TABLE>
The above pro forma information does not purport to be indicative of what
would have occurred had the acquisitions been made as of such date or of the
results which may occur in the future.
NOTE 4 -- PRODUCT DEVELOPMENT INVESTMENT WRITE-OFF
As a result of the rapid growth of the Company's electronic components
distribution business, the Company has decided to no longer pursue the design
and development of certain licensed technology intended to protect various
electronic equipment and machines from surges and sags in power. Accordingly,
the Company has expensed its total investment of $363,000 in 1994, which had
been classified as deferred product development costs within deposits and other
assets in the Consolidated Balance Sheet at December 31, 1993.
NOTE 5 -- LONG-TERM DEBT
Line of Credit
On March 28, 1995, the Company's line of credit agreement was amended to
increase the facility up to $30 million; provided, however, that the Company may
borrow in excess of $27 million only after (i) the senior lender has reviewed
and been satisfied, in its sole discretion, with the Company's audited
consolidated financial statements for the year ended December 31, 1994, and (ii)
the Company has received additional capitalization of not less than $4 million
(after all expenses of issuance and sale) from the issuance of its equity
securities. The amendment to the line of credit agreement permits the Company to
request standby letters of credit to be issued by the senior lender on the
Company's behalf, with a sublimit of $5 million available for letters of credit
under the line and such letters of credit being chargeable as advances against
the line. The Company will pay the senior lender an issuance fee equal to
three-quarters of one percent (.75%) per annum of the aggregate amount of
outstanding letters of credit. Outstanding borrowings under this loan facility,
which are collateralized by accounts receivable, inventories and equipment and a
pledge of the capital stock of the Company's subsidiaries, amounted to
$22,129,000 at March 31, 1995.
F-10
<PAGE> 70
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
In 1994, the Company's line of credit agreement was amended to increase the
facility to $25 million, extend the maturity to May 31, 1997 and reduce the
Company's borrowing rate from one-quarter of one percent ( 1/4%) above prime to,
at the Company's option, either one-quarter of one percent ( 1/4%) below prime
or two percent (2%) above certain LIBOR rates. The Company will pay a nonusage
fee of one-tenth of one percent ( 1/10%) calculated on the unused portion of the
line of credit, payable quarterly in arrears. At December 31, 1994, outstanding
borrowings under the Company's then $25 million facility were $19,991,000.
Under the line of credit agreement, the Company is required to comply with
certain affirmative and negative covenants. These covenants place limitations on
the Company's future borrowings, dividend payments, redemption of certain
securities and transactions with affiliates on less than an arm's-length basis,
investments, acquisitions, mergers and changes in control and management.
Furthermore, the agreement requires the Company to maintain certain financial
ratios including a current asset support ratio based upon specified percentages
of eligible accounts receivable and inventories. As of March 31, 1995, the
Company was in compliance with the required financial ratios and other
covenants.
At December 31, 1993, outstanding borrowings under the Company's then $20
million facility were $13,915,000.
Notes Payable -- Other
Other notes payable aggregating $114,000 and $133,000, of which $108,000
and $109,000 is classified as long-term at March 31, 1995 and December 31, 1994,
respectively, are payable monthly with interest rates from 9.0% to 12.5% per
annum.
Subordinated Debt
In September 1994, in connection with the acquisition of GCI Corp., the
Company issued a promissory note to the seller bearing interest at 7% per annum
in the approximate amount of $306,000 due in 1999. The promissory note, which is
subordinate to the Company's line of credit, is payable interest only on a
quarterly basis for the first two years with the principal amount, together with
accrued interest thereon, payable in equal quarterly installments over the next
three years. One-half of the then outstanding principal balance of the
promissory note is required to be paid if certain Net Earnings (as defined) are
attained for 1995 or 1996.
In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a non-convertible 9%
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 7,500 common stock purchase warrants exercisable at $3.15 per
share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 386,250 warrants. See Note 7 to Notes to
Consolidated Financial Statements. The debentures are payable in semi-annual
payments of interest only in arrears commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the Company's line
of credit and certain notes issued to the Company's landlord. The 386,250
warrants were valued at $.50 per warrant as of the date of the 1994 Private
Placement and, accordingly, the Company has recorded the discount in the
aggregate amount of $193,125 as additional paid-in capital. This discount is
being amortized over the ten-year term of the debentures and approximately
$14,000 and $10,000 were expensed during the three months ended March 31, 1995
and the year ended December 31, 1994, respectively.
In May 1994, the Company executed a promissory note in the amount of
$865,000 in favor of the Company's landlord to finance substantially all of the
tenant improvements necessary for the Company's new facility. This $865,000 note
requires no payments in the first year (interest accrues and is added to the
principal balance), is payable interest only in the second year and has a
repayment schedule with varying
F-11
<PAGE> 71
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
monthly payments over the remaining 18 years. At the same time, the Company
entered into another promissory note with the Company's landlord for up to
$150,000 to finance certain personal property for the new facility. This
$150,000 note is payable interest only for six months and thereafter in 60 equal
self-amortizing monthly payments of principal and interest. It is also
contemplated that certain additional improvements to the new facility related to
various miscellaneous items aggregating approximately $100,000 will be financed
by the landlord and be repayable in 240 consecutive, equal self-amortizing
installments of principal and interest. These notes, which are subordinate to
the Company's line of credit, bear interest at 8% per annum and are payable
monthly. In addition, the Company executed a promissory note in the approximate
amount of $33,000 with the Company's landlord. This note is payable monthly with
interest at 9.5% per annum and matures in April 1997.
In January 1994, in connection with the acquisition of Components, the
Company issued a promissory note to the seller bearing interest at 8% per annum
in the approximate amount of $399,000, payable in quarterly installments of
interest only, for a term of two years, with the entire principal amount payable
in full in January 1996. In addition, as part of the consideration for a
covenant not to compete, the Company issued a promissory note to the principal
of the seller in the amount of $250,000 (the "Non-Compete Note"). The
Non-Compete Note bears interest at 8% per annum, payable quarterly, with
$100,000 of principal due March 10, 1995, $50,000 of principal due April 24,
1996, and the remaining $100,000 payable in eight quarterly principal
installments each in the amount of $12,500 payable over the fourth and fifth
years of such note. One-half of the then outstanding principal balance of the
Non-Compete Note is required to be paid if certain Net Earnings (as defined) are
attained in any fiscal year, with the entire then outstanding principal balance
of the Non-Compete Note required to be paid if at least the same level of Net
Earnings (as defined) are attained in a subsequent fiscal year. If the principal
of the seller resigns or is terminated for cause on or prior to January 24,
1996, he will be obligated to pay the Company $100,000, payable either in cash
or as a reduction of the principal balance of the Non-Compete Note. These notes
are subordinate to the Company's line of credit.
Long-term debt of the Company as of December 31, 1994, other than the line
of credit, matures as follows:
<TABLE>
<S> <C>
1995......................................................... $ 161,000
1996......................................................... 543,000
1997......................................................... 189,000
1998......................................................... 277,000
1999......................................................... 192,000
Thereafter................................................... 5,780,000
----------
$7,142,000
=========
</TABLE>
Obligations under Capital Leases
The Company is the lessee of computer and office equipment under capital
leases expiring in various years through 1997. The assets, aggregating $773,000,
and liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payments or the fair value of the assets. The assets
are depreciated over their estimated productive lives. As of December 31, 1994,
accumulated depreciation of these assets aggregated approximately $154,000.
Depreciation of assets under capital leases is included in depreciation expense.
F-12
<PAGE> 72
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
Minimum future lease payments under capital leases as of December 31, 1994
and for each of the next five years and in the aggregate are approximately as
follows:
<TABLE>
<S> <C>
1995.......................................................... $ 347,000
1996.......................................................... 292,000
1997.......................................................... 190,000
1998.......................................................... --
1999.......................................................... --
---------
Total minimum lease payments.................................. 829,000
Less amount representing interest............................. (187,000)
---------
Total obligations under capital leases........................ 642,000
Current portion............................................... (235,000)
---------
$ 407,000
=========
</TABLE>
Interest rates on capital leases vary from 11.7% to 13.9% per annum and are
imputed based on the lower of the Company's incremental borrowing rate at the
inception of each lease or the lessor's implicit rate of return. Various capital
leases provide for purchase options.
NOTE 6 -- INCOME TAXES
The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities as of March 31, 1995, December 31, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 -----------------------
1995 1994 1993
----------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable....................... $ 207,000 $168,000 $216,000
Inventory................................. 242,000 222,000 161,000
Other assets.............................. 52,000 51,000 86,000
----------- -------- --------
501,000 441,000 463,000
Deferred tax liabilities:
Fixed assets.............................. 376,000 326,000 352,000
----------- -------- --------
Net deferred tax asset...................... $ 125,000 $115,000 $111,000
=========== ======== ========
</TABLE>
F-13
<PAGE> 73
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
The components of income tax expense for the three months ended March 31,
1995 and 1994 and for the years ended December 31, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C>
March 31, 1995
Federal........................................... $ 346,000 $ 8,000 $ 354,000
State............................................. 50,000 2,000 52,000
---------- -------- ----------
$ 396,000 $ 10,000 $ 406,000
========= ======== =========
March 31, 1994
Federal........................................... $ 275,000 $ 2,000 $ 277,000
State............................................. 44,000 -- 44,000
========= ======== =========
$ 319,000 $ 2,000 $ 321,000
========= ======== =========
December 31, 1994
Federal........................................... $ 385,000 $ (3,000) $ 382,000
State............................................. 26,000 (1,000) 25,000
---------- -------- ----------
$ 411,000 $ (4,000) $ 407,000
========= ======== =========
December 31, 1993
Federal........................................... $ 962,000 $(11,000) $ 951,000
State............................................. 145,000 (2,000) 143,000
---------- -------- ----------
$1,107,000 $(13,000) $1,094,000
========= ======== =========
December 31, 1992
Federal........................................... $ 404,000 $ 51,000 $ 455,000
State............................................. 64,000 6,000 70,000
---------- -------- ----------
$ 468,000 $ 57,000 $ 525,000
========= ======== =========
</TABLE>
A reconciliation of the difference between the expected income tax rate
using the statutory federal tax rate and the Company's effective tax rate is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEARS ENDED DECEMBER
31 31
------------- ----------------------
1995 1994 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Federal income tax statutory rate.......... 34.0% 34.0% 34.0% 34.0% 34.0%
State income tax, net of federal income tax
benefit....................................... 3.6 3.5 4.6 3.4 3.6
Other -- including non-deductible items......... 5.4 2.5 15.0 1.7 3.4
---- ---- ---- ---- ----
Effective tax rate.............................. 43.0% 40.0% 53.6% 39.1% 41.0%
==== ==== ==== ==== ====
</TABLE>
The high effective tax rate for the year ended December 31, 1994 is
primarily due to non-deductible entertainment expenses.
NOTE 7 -- CAPITAL STOCK, OPTIONS AND WARRANTS
In June 1994, the Company issued an aggregate of 386,250 common stock
purchase warrants in connection with a private placement of subordinated
debentures (see Note 5 to Notes to Consolidated Financial Statements). The
warrants are exercisable at any time between December 14, 1994 and June 13,
F-14
<PAGE> 74
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
1999 at an exercise price of $3.15 per share. In connection with this private
placement, the placement agent received warrants to purchase 38,625 shares of
the Company's common stock. The placement agent's warrants are exercisable for a
four-year period commencing June 14, 1995 at an exercise price of $3.78 per
share.
During 1992, the Company sold units, each unit consisting of two shares of
common stock and two warrants. In addition, the underwriters of this offering
were issued warrants to purchase 175,000 units at $3.30 per unit. The
underwriters' warrants are exercisable for a four-year period which commenced in
June 1993. During 1993, the Company redeemed its then outstanding warrants. In
addition, during 1993, 78,750 of the underwriters' warrants were exercised. As a
result of these transactions, the Company received aggregate net proceeds of
approximately $5,393,000 in 1993. During 1994, an additional 78,750 of the
underwriters' warrants were exercised, leaving a balance of 17,500 warrants. The
Company received aggregate net proceeds of approximately $465,000 in 1994. The
net proceeds are being used for continued expansion and general working capital
purposes.
In March 1992, the Company issued a warrant to acquire 30,000 shares of its
common stock at $1.00 per share in connection with a $1.0 million subordinated
loan to the Company which was repaid in June 1992. This warrant was exercised in
March 1995.
In September 1987, the Company issued a warrant to acquire 90,000 shares of
its common stock at $1.60 per share (after the 1989 stock split) relating to a
since expired consulting agreement. In connection with the public offering
completed in June 1992, the Company extended the exercise period of this warrant
to June 1994. In May 1993, in connection with a new consulting agreement with
the same party, the Company further extended the exercise period to June 1997
and issued additional warrants to acquire 90,000 shares of its common stock at
$1.35 per share. At March 31, 1995, none of the warrants relating to these
consulting agreements had been exercised.
In June 1987, the Company reserved 375,000 shares of common stock for
issuance under an employee stock option plan. In September 1992, the number of
shares of common stock reserved for issuance under this stock option plan was
increased to 750,000 shares, in 1993 the number of shares of common stock
reserved for issuance under this stock option plan was increased to 1,750,000
shares and in 1994 the number of shares of common stock reserved was increased
to 2,250,000 shares. As of March 31, 1995 outstanding options under this plan
were as follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
DATE OF GRANT OUTSTANDING OPTION PRICE
----------------------------------------------------------- ------------- ------------
<S> <C> <C>
1991....................................................... 435,000 $ .75 -$1.03
1993....................................................... 469,063 $1.375-$2.53
1994....................................................... 261,500 $2.125-$2.63
1995....................................................... 5,000 $1.84
-------------
Total outstanding.......................................... 1,170,563
Total exercised............................................ 146,127
Total available............................................ 933,310
-------------
2,250,000
==========
</TABLE>
All such options outstanding are exercisable within six years from the date
granted.
In connection with the acquisition of the assets of Components (see Note 3
to Notes to Consolidated Financial Statements), the Company issued 98,160
unqualified stock options exercisable through January 1999 at an exercise price
of $1.65 per share.
F-15
<PAGE> 75
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
In connection with the acquisition of the assets of GCI Corp. (see Note 3
to Notes to Consolidated Financial Statements), the Company issued 117,551
unqualified stock options exercisable from September 1995 through September 1999
at an exercise price of $1.65 per share.
In addition, under certain circumstances, the Company may be obligated to
issue 1,000 shares of its common stock and 135,000 incentive stock options. See
Note 3 to Notes to Consolidated Financial Statements.
NOTE 8 -- COMMITMENTS/RELATED PARTY TRANSACTIONS
In December 1991, the Company relocated its corporate offices and Miami
warehouse to a 37,000 sq. ft. facility. In addition, a warehouse in New York was
consolidated into this new Miami warehouse. In connection with the relocation
and consolidation, the Company entered into a new lease with an unrelated third
party which was to expire in December 1997. Annual rent payments under this
lease totaled $57,000 in 1994.
In May 1994, the Company terminated its lease covering the 37,000 sq. ft.
facility and entered into a new lease with its then existing landlord to lease a
new 110,800 sq. ft. facility for its corporate headquarters and Miami warehouse.
The Company is utilizing approximately 75% of this new facility, the balance of
which the Company is subleasing to an unrelated third party for a term of three
years ending on July 14, 1997. This sublease has no renewal options and the
Company has the right to recapture approximately 13,000 square feet of the
sublet space from the tenant after the eighteenth month of the three-year term.
The sublease provides for base rent of $5,000 per month increasing 5% per year
and additional rent representing the subtenant's pro rata share of landlord
pass-through expenses and other expenses pertaining to the sublet premises. The
new lease has a term expiring in 2014 (subject to the Company's right to
terminate at any time after the fifth year of term upon twenty-four months prior
written notice and the payment of all outstanding debt owed to the landlord and
without giving effect to the Company's three six-year options to renew at the
fair market value rental rates) and provides for annual fixed rental payments
totaling approximately $264,000 in the first year, $267,000 in the second year,
$279,000 in each of the third, fourth and fifth years, $300,600 in the sixth
year, $307,800 in the seventh year and in each year thereafter during the term,
the rent shall increase once per year in an amount equal to the annual
percentage increase in the consumer price index not to exceed 4% in any one
year.
In addition, a Company executive officer and director owns a one-third
interest in a corporation that leased office space to the Company until December
1994. During 1994, the Company paid approximately $31,000 in rent to lease such
office space.
Approximate minimum future rental payments required under operating leases,
which include 20 sales office locations, equipment under lease and the new
corporate headquarters lease commencing in 1994, that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1994, are as
follows for the next five years:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------------------------------------------------
<S> <C>
1995........................................................ $1,307,000
1996........................................................ 1,218,000
1997........................................................ 987,000
1998........................................................ 644,000
1999........................................................ 444,000
</TABLE>
F-16
<PAGE> 76
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
Total rent expense, including real estate taxes and net of sublease income,
amounted to approximately $235,000 and $158,000 for the three months ended March
31, 1995 and 1994, respectively, and $753,000, $526,000 and $492,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
Effective June 1, 1992, the Company entered into employment agreements with
Paul Goldberg, its Chief Executive Officer, and Bruce M. Goldberg, its current
President and Chief Operating Officer (collectively, the "1992 Agreements"). The
1992 Agreements are for three-year terms expiring on May 31, 1995. Pursuant to
their 1992 Agreements, Paul Goldberg and Bruce M. Goldberg currently receive a
base salary of $186,000 and $150,000 per annum, respectively. Under the 1992
Agreements, Paul Goldberg and Bruce M. Goldberg are also each entitled to
receive a bonus equal to five percent of the Company's pre-tax income in excess
of $1,000,000 in any calendar year. Such bonus compensation payable under the
1992 Agreements to Paul Goldberg and Bruce M. Goldberg is limited to $150,000
and $100,000 per annum, respectively. For the calendar year 1994, Paul Goldberg
and Bruce M. Goldberg did not earn a bonus, although they were each paid
$100,000 relating to bonuses earned for the Company's 1993 fiscal year.
In addition, the 1992 Agreements provide for certain additional benefits,
including participation in Company benefit plans, including the Deferred
Compensation Plan, payments to the employee upon his disability, life insurance
coverage and the continued use of a Company automobile. The agreements prohibit
Paul Goldberg and Bruce M. Goldberg from competing with the Company for two
years after any voluntary termination of employment or termination for cause.
The agreements further provide that if there is a change in control (as defined)
of the Company, the Company shall have the option to either extend the
agreements for two additional years or terminate the agreements upon making a
lump sum severance payment equal to two years compensation. Further, if Paul
Goldberg or Bruce M. Goldberg were to be terminated without cause, each of them
would be entitled to receive severance benefits equal to the greater of two
years compensation or the remainder of the compensation due them under their
respective employment agreements.
Effective January 1, 1988, the Company established a deferred compensation
plan (the "Deferred Compensation Plan") for executive officers and key employees
of the Company. The employees eligible to participate in the Deferred
Compensation Plan (the "Participants") are chosen at the sole discretion of the
Board of Directors upon a recommendation from the Board of Directors'
Compensation Committee. Pursuant to the Deferred Compensation Plan, commencing
on a Participant's retirement date, he or she will receive an annuity for ten
years. The amount of the annuity shall be computed at 30% of the Participant's
Salary, as defined.
Any Participant with less than ten years of service to the Company as of
his or her retirement date will only receive a pro rata portion of the annuity.
Retirement benefits paid under the Deferred Compensation Plan will be
distributed monthly. The Company paid benefits under this plan of approximately
$52,000 during 1994, none of which was paid to any executive officer. The
maximum benefit payable to a Participant (including each of the executive
officers) under the Deferred Compensation Plan is presently $22,500 per annum.
At March 31, 1995 and December 31, 1994 the cash surrender values of insurance
policies owned by the Company under the Plan, which provide for the accrued
deferred compensation benefits, aggregated approximately $70,000 and $67,000,
respectively.
The Company maintains a 401(k) plan (the "401(k) Plan"), which is intended
to qualify under Section 401(k) of the Internal Revenue Code. All full-time
employees of the Company over the age of 21 are eligible to participate in the
401(k) Plan after completing 90 days of employment. Each eligible employee may
elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of
his or her salary, limited to $9,240 in 1994. The Company makes matching
contributions and in 1994 its contributions were in the amount of 25% on the
first 6% contributed of each participating employee's salary.
F-17
<PAGE> 77
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994 IS
UNAUDITED)
NOTE 9 -- SETTLEMENT OF INSURANCE CLAIM
In 1993, the Company settled its business interruption claim, which
occurred during the third quarter of 1992, for $237,000. This settlement is
reflected as other income in the Consolidated Statement of Income for the year
ended December 31, 1993.
NOTE 10 -- CONTINGENCIES
From time to time the Company may be named as a defendant in suits for
product defects, breach of warranty, breach of implied warranty of
merchantability, patent infringement or other actions relating to products which
it distributes which are manufactured by others. In each case, the Company
expects that the manufacturer of such products will indemnify the Company, as
well as defend such actions on the Company's behalf although there is no
guarantee that the manufacturers will do so.
NOTE 11 -- ECONOMIC DEPENDENCY
For the three months ended March 31, 1995 and 1994, no supplier accounted
for in excess of 10% of the Company's total purchases.
For the year ended December 31, 1994, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$12,200,000. The net outstanding accounts payable to this supplier at December
31, 1994 amounted to approximately $246,000.
For the year ended December 31, 1993, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$9,600,000. The net outstanding accounts payable to this supplier at December
31, 1993 amounted to approximately $178,000.
For the year ended December 31, 1992, purchases from one supplier were in
excess of 10% of the Company's total purchases and aggregated approximately
$6,100,000. The net outstanding accounts payable to this supplier at December
31, 1992 amounted to approximately $300,000.
F-18
<PAGE> 78
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SALE WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
ANY OF THE DATES AS OF WHICH INFORMATION IS FURNISHED OR SINCE THE DATE OF THIS
PROSPECTUS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Market Information.................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Legal Proceedings..................... 37
Management............................ 37
Executive Compensation................ 40
Certain Transactions.................. 47
Principal Shareholders................ 48
Description of Securities............. 49
Shares Eligible for Future Sale....... 53
Underwriting.......................... 54
Concurrent Registration of Shares for
Future Sale by Warrant Holders...... 55
Legal Matters......................... 56
Experts............................... 56
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4,550,000 SHARES
$ PER SHARE
[ALL AMERICAN LOGO]
a leader in distribution technology
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
PROSPECTUS
------------------------------
[LEW LIEBERBAUM & CO., INC. LOGO]
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 79
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
ALTERNATE
SUBJECT TO COMPLETION, DATED MAY 25, 1995
PRELIMINARY PROSPECTUS
[ALL AMERICAN LOGO]
a leader in distribution technology
210,000 SHARES
COMMON STOCK
This Prospectus relates to 210,000 shares of Common Stock, $.01 par value
per share (the "Common Stock") of All American Semiconductor, Inc., a Delaware
corporation (the "Company"), 180,000 which are issuable upon exercise of
warrants previously issued by the Company and 30,000 of which are "restricted
securities" which were acquired by the holder pursuant to the recent exercise of
a warrant issued by the Company.
180,000 shares of the shares of Common Stock offered hereby are issuable
upon exercise of warrants previously granted to The Equity Group, Inc. (assigned
to Robert D. Goldstein) to purchase 90,000 shares of Common Stock at an exercise
price of $1.60 per share exercisable through June 18, 1997, and two additional
warrants granted to The Equity Group, Inc. each to acquire 45,000 shares of
Common Stock at an exercise price of $1.35 per share exercisable through May 14,
1998. The holders of the warrants have agreed not to sell the shares issuable
upon the exercise of such warrants in the public marketplace for a period of 180
days from the date of this Prospectus without the prior written consent of Lew
Lieberbaum & Co., Inc. (the "Underwriter".) The remaining 30,000 shares of
Common Stock offered hereby (the "Restricted Shares") were issued by the Company
pursuant to the exercise on March 23, 1995, by Sam Berman (who is the Company's
landlord for its new corporate headquarters and distribution center) of a
warrant granted on March 25, 1992, to Mr. Berman to acquire 30,000 shares of
Common Stock at an exercise price of $1.00 per share exercisable through March
24, 1995. The holders of the warrants covering the 180,000 shares of Common
Stock offered hereby and the Restricted Shares are hereinafter collectively
referred to as the "Selling Holders". See "CONCURRENT REGISTRATION OF SHARES FOR
FUTURE SALE BY WARRANTS HOLDERS" and "DESCRIPTION OF SECURITIES -- Existing
Warrants."
On the date of this Prospectus (the "Effective Date"), a Registration
Statement under the Securities Act of 1933, as amended (the "Act"), with respect
to an underwritten public offering (the "Offering") of 5,232,500 shares
(including the 682,500 shares covered by the over-allotment option granted to
the Underwriter) of Common Stock by the Company at a price of $ per share was
declared effective by the Securities and Exchange Commission (the "Commission").
Sales pursuant to the Offering may have an adverse effect upon the market price
of the Common Stock.
The shares of Common Stock offered by this Prospectus may be sold from time
to time by the Selling Holders or by their transferees. The distribution of the
shares offered hereby may be effected in one or more transactions that may take
place on the over-the-counter market, including ordinary brokers' transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees may be
paid by the Selling Holders.
The Selling Holders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Act with respect to
the securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company has agreed to indemnify the
Selling Holders against certain liabilities, including liabilities under the
Act.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Holders. The Company has previously received $30,000
from the holder of the Restricted Shares in consideration of the issuance to him
of such shares. In the event all of the outstanding warrants held by the Selling
Holders are exercised, the Company will receive additional gross proceeds of
$265,500 relating to the 180,000 shares covered by this Prospectus issuable upon
the exercise of such outstanding warrants.
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." On May 18, 1995, the last sale price of the Common Stock was
$2.00 per share. See "MARKET INFORMATION."
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
DISCUSSION UNDER "RISK FACTORS."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1995.
<PAGE> 80
ALTERNATE
CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY WARRANT HOLDERS
Concurrently with the Offering, the Company is registering in this
Prospectus 180,000 shares of its Common Stock underlying certain Existing
Warrants and 30,000 shares of "restricted securities" which were acquired by the
holder pursuant to the recent exercise of a warrant issued by the Company. None
of these Existing Warrants have been exercised to date and none of the shares
underlying these Existing Warrants or the Restricted Shares are being offered by
the Underwriter. The Company is obligated to register these shares because of
registration rights granted to the holders of these warrants when they were
originally issued.
The 180,000 shares of Common Stock being registered in this Prospectus
underlying the Existing Warrants are issuable pursuant to (i) a warrant granted
to The Equity Group, Inc. (assigned to Robert D. Goldstein, the President and a
shareholder of The Equity Group, Inc.) to purchase 90,000 shares of Common Stock
at an exercise price of $1.60 per share exercisable through June 18, 1997; and
(ii) two additional warrants granted to The Equity Group, Inc. each to acquire
45,000 shares of Common Stock at an exercise price of $1.35 per share
exercisable through May 14, 1998. The Restricted Shares being registered were
issued by the Company pursuant to the exercise on March 23, 1995, by Sam Berman
(who was the Company's landlord for its prior corporate headquarters and
warehouse facility and is the Company's landlord for its new corporate
headquarters and distribution center) of a warrant granted on March 25, 1992, to
Mr. Berman to acquire 30,000 shares of Common Stock at an exercise price of
$1.00 per share exercisable through March 24, 1995. The warrant was granted to
Mr. Berman in connection with his making a $1 million subordinated loan to the
Company (the loan was repaid in June 1992 out of the proceeds of the 1992 Public
Offering). See "DESCRIPTION OF SECURITIES -- Existing Warrants" and "SHARES
ELIGIBLE FOR FUTURE SALE."
The holders of the warrants referred to in (i) and (ii) above have agreed
not to sell their shares in the public marketplace for a period of 180 days from
the date of this Prospectus without the express written consent of the
Underwriter. It is anticipated that the Selling Holders, from time to time, will
offer their shares in the public marketplace. The Company will not receive any
proceeds from the sale of such shares of Common Stock; however, the Company has
previously received $30,000 in consideration of the issuance of the Restricted
Shares and will receive additional proceeds upon the exercise of the outstanding
warrants relating to 180,000 shares of the shares covered by this Prospectus.
There are no material relationships between any of the Selling Holders and the
Company or its subsidiaries or affiliates, nor have any such material
relationships existed within the past three years, except as described
hereinabove and in "DESCRIPTION OF SECURITIES -- Existing Warrants" and
"BUSINESS -- Facilities and Systems -- Facilities."
The sale of the Common Stock underlying the outstanding warrants held by
the Selling Holders, subject to a restriction on such sales for a period of 180
days following the date hereof except with the written consent of the
Underwriter, and the sale of the Restricted Shares may be effected from time to
time in transactions (which may include block transactions by or for the account
of the Selling Holders) in the over-the-counter market or in negotiated
transactions, through the writing of options on the securities, pursuant to Rule
144, a combination of such methods of sale or otherwise. Sales may be made at
fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices.
Selling Holders may effect such transactions by selling their securities
directly to purchasers, through brokers-dealers acting as agents for the Selling
Holders or to broker-dealers who may purchase shares as principals and
thereafter sell the securities from time to time in the over-the-counter market,
in negotiated transactions, or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Holders and/or the purchasers for whom such broker-dealers may act
as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may be in excess of customary
commissions). Upon the Company being notified by a Selling Holder that any
material arrangement has been entered into by a Selling Holder with a
broker-dealer for the purchase of any shares of Common Stock being registered in
this Prospectus, the Company will file a
A-2
<PAGE> 81
ALTERNATE
supplemental prospectus pursuant to Rule 424(c) of the Act disclosing (i) the
name of the Selling Holder and of the participating broker-dealer(s); (ii) the
number of shares involved; (iii) the price at which such shares were sold; and
(iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable.
The Selling Holders, and broker-dealers, if any, acting in connection with
such sale might be deemed to be "underwriters" within the meaning of Section
2(11) of the Act and any commission received by them or any profit on the resale
of the securities might be deemed to be underwriting discounts and commissioners
under the Act.
CONCURRENT PUBLIC OFFERING
On the date of this Prospectus, a registration statement under the Act with
respect to an underwritten offering of 4,550,000 shares of Common Stock was
declared effective by the Commission.
Sales of Common Stock by the Company or by securityholders other than the
Selling Holders, or even the potential of such sales, may have an adverse effect
on the market price of the Company's Common Stock. The shares of Common Stock
(other than the Restricted Shares) being offered by the Selling Holders may not
be sold for a period of 180 days from the date of this Prospectus, except upon
the written consent of the Underwriter.
A-3
<PAGE> 82
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE
SPECIFICALLY OFFERED HEREBY OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SALE WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED OR SINCE THE DATE OF THIS PROSPECTUS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Prospectus Summary.................... 4
Risk Factors.......................... 8
Dividend Policy....................... 13
Market Information.................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Legal Proceedings..................... 37
Management............................ 37
Executive Compensation................ 40
Certain Transactions.................. 47
Principal Shareholders................ 48
Description of Securities............. 49
Shares Eligible for Future Sale....... 53
Concurrent Registration of Shares for
Future Sale by Warrant Holders...... A-2
Concurrent Public Offering............ A-3
Legal Matters......................... 56
Experts............................... 56
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
ALTERNATE
------------------------------------------------------
------------------------------------------------------
210,000 SHARES
[ALL AMERICAN LOGO]
a leader in distribution technology
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
PROSPECTUS
------------------------------
, 1995
------------------------------------------------------
------------------------------------------------------
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be
incurred in connection with the Offering, other than underwriting discounts and
commissions:
<TABLE>
<CAPTION>
AMOUNT(1)
--------
<S> <C>
SEC Registration Fee...................................................... $ 4,063
NASD Fee.................................................................. 1,642
Nasdaq Market Listing Fee................................................. 17,500
Printing and Engraving.................................................... 50,000
Underwriter's Non-Accountable Expense Allowance(2)........................ 273,000
Legal Fees and Expenses................................................... 100,000
Accounting Fees and Expenses.............................................. 30,000
Blue Sky Fees and Expenses................................................ 35,000
Miscellaneous............................................................. 20,000
--------
Total................................................................ $531,205
========
</TABLE>
---------------
(1) Estimated, except for SEC Registration Fee, NASD Fee and Nasdaq Market
Listing Fee.
(2) $313,950 if the Underwriter's Over-Allotment Option is exercised in full.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by the Delaware General Corporation Law, directors and
officers of the Company are indemnified against liability under certain
circumstances. Reference is made to the Company's Certificate of Incorporation,
as amended, and to "DESCRIPTION OF SECURITIES -- Certain Provisions Relating to
Limitation of Liability and Indemnification of Directors."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 15, 1992, the Registrant has issued and sold the following
unregistered securities:
(1) On March 25, 1992, the Company issued a warrant to acquire 30,000
shares of Common Stock at an exercise price of $1.00 per share exercisable
through March 24, 1995, to a lender who made a $1 million subordinated loan
to the Company (the loan was repaid in June 1992 out of the proceeds of the
1992 Public Offering). The warrant was exercised on March 23, 1995, and
certificates for 30,000 restricted shares of Common Stock are in the
process of being issued by the Company.
(2) In connection with the 1992 Public Offering, the Company sold on
June 26, 1992, to the 1992 Underwriters, for nominal consideration, 175,000
non-redeemable warrants (the "1992 Underwriters' Warrants") to purchase
units (the "1992 Units"), each 1992 Unit consisting of two shares of Common
Stock, one warrant to purchase one share of Common Stock for $1.10 and one
warrant to purchase one share of Common Stock for $1.50. The 1992
Underwriters' Warrants are exercisable until June 18, 1997, at an exercise
price of $3.30 per 1992 Unit, and have certain anti-dilution provisions. As
of the date of this Registration Statement, only 17,500 of these 1992
Underwriters' Warrants have not been exercised together with the related
warrants comprising part of the 1992 Unit underlying the 1992 Underwriters'
Warrants.
(3) On September 2, 1987, the Company issued to The Equity Group,
Inc., its financial public relations firm (the "PR Firm"), a warrant to
acquire 90,000 shares of Common Stock at an exercise price of $1.60 per
share (as adjusted to give effect to the 1989 stock split) relating to a
since expired consulting agreement covering financial public
relations/investor relations services. In connection with the 1992
II-1
<PAGE> 84
Public Offering, the Company extended the exercise period of this warrant
to June 18, 1994, and, in connection with entering into a new consulting
agreement with the PR Firm as described below, the exercise period was
extended again to June 18, 1997. As of the date of this Registration
Statement, this warrant has not been exercised.
(4) On May 14, 1993, the Company issued to the PR Firm two additional
warrants each to acquire 45,000 shares of Common Stock at an exercise price
of $1.35 per share through May 14, 1998. One of such warrants was issued to
induce the PR Firm to enter into a new consulting agreement with the
Company covering financial public relations/investor relations services and
was fully vested and immediately exercisable and not forfeitable. The other
warrant was forfeitable by the PR Firm if such consulting agreement was not
renewed by the Company for a second year and was only exercisable
commencing on May 14, 1994, if the consulting agreement was renewed for the
second year. Such consulting agreement has been renewed for the second year
and thus the second warrant has fully vested and is exercisable. As of the
date of this Registration Statement, neither of these warrants has been
exercised.
(5) On June 14, 1994, the Company completed a private placement (the
"1994 Private Placement") of 51.5 units, with each unit consisting of a 9%
non-convertible subordinated debenture due 2004 in the principal amount of
$100,000 issuable at par, together with 7,500 common stock purchase
warrants exercisable at $3.15 per share. The 51.5 units issued represent
debentures aggregating $5,150,000 together with an aggregate of 386,250
warrants. The debentures are payable in semi-annual installments of
interest only commencing December 1, 1994, with the principal amount
maturing in full on June 13, 2004. The Company is not required to make any
mandatory redemptions or sinking fund payments. Each warrant issued can be
exercised to purchase one share of the Company's Common Stock at any time
between December 14, 1994 and June 13, 1999 at an exercise price equal to
$3.15 per share.
(6) As part of the 1994 Private Placement, RAS Securities Corp., as
part of the consideration for acting as the placement agent for such
offering, was issued on June 14, 1994, warrants to purchase 38,625 shares
of Common Stock at any time between June 14, 1995 and June 13, 1999, at an
exercise price equal to $3.78 per share. As of the date of this
Registration Statement, none of the warrants issued in connection with the
1994 Private Placement has been exercised.
(7) On January 24, 1994, in connection with the acquisition by the
Company of substantially all of the assets of Components Incorporated
("Components"), the Company granted to Robert L. Ryan, the principal of
Components, stock options to acquire 98,160 shares of Common Stock at an
exercise price of $1.65 per share. This grant was part of the consideration
paid by the Company for a covenant not to compete that restricts Mr. Ryan
from competing with the Company and its Illinois Subsidiary for a period
extending to the later of the third anniversary of Mr. Ryan's termination
as an employee or January 24, 1999. The 98,160 stock options were valued at
such time at $100,000. The options are exercisable, in whole or in part, at
any time during the period commencing July 1, 1994 and ending January 23,
1999, subject to earlier termination on death or disability. As of the date
of this Registration Statement, none of the stock options has been
exercised.
(8) On September 9, 1994, as part of the consideration paid by the
Company to acquire substantially all of the assets of GCI Corp., the
Company granted to GCI Corp. stock options covering 117,551 shares of
Common Stock at an exercise price of $1.65 per share exercisable between
September 9, 1995 and September 8, 1999. The 117,551 options were valued at
such time at $144,000. As of the date of this Registration Statement, none
of the stock options has been exercised.
The sales of above securities were deemed to be exempt from registration
under the Act in reliance on Section 4(2) of the Act, or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were attached to the share certificates, options and/or warrants issued
in such transactions.
II-2
<PAGE> 85
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement, as amended.*
1.2 -- Form of Selected Dealers Agreement, as amended.*
3.1 -- Certificate of Incorporation, as amended (incorporated by reference to Exhibits to
the Company's Registration Statement on Form S-1, File No. 33-15345-A and to the
Company's Form 10-K for the fiscal year ended December 31, 1991).
3.2 -- Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the
quarter ended June 30, 1994).
4.1 -- Specimen Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-2, File No. 33-47512).
4.2 -- Form of Underwriter's Warrant Agreement, as amended.*
5.1 -- Opinion of Rubin Baum Levin Constant Friedman & Bilzin Re: Legality.*
10.1 -- Form of Indemnification Contracts with Directors and Executive Officers
(incorporated by reference to Exhibit 10.1 to the Company's Registration Statement
on Form S-2, File No. 33-47512).
10.2 -- Lease Agreement for Headquarters (incorporated by reference to Exhibit 10.2 to the
Company's Form 10-K for the fiscal year ended December 31, 1991).
10.3 -- Lease agreement for headquarters dated May 1, 1994 between Sam Berman d/b/a Drake
Enterprises ("Drake") and the Company (incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the quarter ended March 31, 1994), together with
related agreement dated May 1, 1994 between Drake and the Company (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-K for the fiscal year ended
December 31, 1994).
10.4 -- Promissory Notes, all dated May 1, 1994, payable to the Company's landlord in the
amounts of $865,000, $150,000 and $32,718 (incorporated by reference to Exhibit
10.2 to the Company's Form 10-Q for the quarter ended March 31, 1994).
10.5 -- Master Lease Agreement dated March 21, 1994, together with lease schedules for
computer and other equipment (incorporated by reference to Exhibit 10.9 to the
Company's Form 10-K for the fiscal year ended December 31, 1994).
10.6 -- License Agreement for Patented Technology (incorporated by reference to Exhibit to
the Company's Form 10-K for the fiscal year ended December 31, 1991).
10.7 -- Revolving Credit Agreement, Master Promissory Note, Security Agreement and Stock
Pledge Agreement, all dated December 29, 1992 with the Company's lender
(incorporated by reference from the Company's Current Report on Form 8-K dated
December 29, 1992).
10.8 -- First Amendment to Revolving Credit Agreement (Letter Agreement), Master Promissory
Note and Guaranty Agreement, all dated May 27, 1993, with the Company's lender
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended June 30, 1993).
10.9 -- Second Amendment to Revolving Credit Agreement and First Amendment to Stock Pledge
Agreement and Master Promissory Note, all dated July 19, 1993, with the Company's
lender (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for
the quarter ended June 30, 1993).
10.10 -- Third Amendment to Revolving Credit Agreement and Master Promissory Note, both
dated as of August 4, 1994, and Second Amendment to Stock Pledge Agreement,
Security Agreement and Guaranty Agreement, all dated as of August 10, 1994, with
the Company's lender (incorporated by reference to Exhibit 10.2 to the Company's
Form 10-Q for the quarter ended June 30, 1994).
</TABLE>
II-3
<PAGE> 86
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------------------------------------------------------------------
<C> <C> <S>
10.11 -- Fourth Amendment to Revolving Credit Agreement and Master Promissory Note, both
dated as of March 28, 1995, with the Company's lender (incorporated by reference to
Exhibit 10.22 to the Company's Form 10-K for the fiscal year ended December 31,
1994).
10.12 -- Asset Purchase Agreement dated March 30, 1993 by and between All American
Semiconductor of Rockville, Inc. and All American Transistor Corporation of D.C.
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the
fiscal year ended December 31, 1992).
10.13 -- Asset Purchase Agreement dated January 5, 1994 by and between All American
Semiconductor of Chicago, Inc. and Components Incorporated and as an exhibit
thereto the employment agreement with Robert Ryan (incorporated by reference to
exhibits to the Company's current report on Form 8-K dated January 19, 1994).
10.14 -- Asset Purchase Agreement dated as of July 1, 1994 by and between the Company and
GCI Corp.; Letter Agreement dated July 1, 1994 among the Company, GCI Corp., Robert
Andreini, Joseph Cardarelli and Joseph Nelson; Guaranty dated July 1, 1994; and
Amendment Letter to Asset Purchase Agreement and Letter Agreement dated July 15,
1994 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended June 30, 1994).
10.15 -- Stock Option Plan (incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, File No. 33-15345-A).
10.16 -- Deferred Compensation Plan (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form S-2, File No. 33-47512).
10.17 -- All American Semiconductor, Inc. 401(k) Profit Sharing Plan (incorporated by
reference to Exhibit 10.25 to the Company's Form 10-K for the fiscal year ended
December 31, 1994).
10.18 -- Form of Financial Advisory and Investment Banking Agreement (incorporated by
reference to Exhibit 10.11 to the Company's Registration Statement on Form S-2,
File No. 33-47512).
10.19 -- Form of Consulting Agreement, as amended.*
10.20 -- Consulting Contract dated May 14, 1993 by and between the Company and The Equity
Group, Inc. (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
10.21 -- Employment Agreement dated as of June 1, 1992 between the Company and Paul Goldberg
(incorporated by reference to Exhibit 10.12 to the Company's Registration Statement
on Form S-2, File No. 33-47512).
10.22 -- Employment Agreement dated as of May 24, 1995, between the Company and Paul
Goldberg.*
10.23 -- Employment Agreement dated as of June 1, 1992 between the Company and Bruce M.
Goldberg (incorporated by reference to Exhibit 10.13 to the Company's Registration
Statement on Form S-2, File No. 33-47512).
10.24 -- Employment Agreement dated as of May 24, 1995, between the Company and Bruce M.
Goldberg.*
10.25 -- Employment Agreement dated as of May 24, 1995, between the Company and Howard L.
Flanders.*
10.26 -- Employment Agreement dated as of May 24, 1995, between the Company and Rick
Gordon.*
10.27 -- Warrant issued to Sam Berman in connection with the $1.0 million loan (incorporated
by reference to Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.28 -- Form of Warrant Extension Agreement relating to the Warrant issued to The Equity
Group, Inc. (assigned to Robert D. Goldstein) (incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-2, File No. 33-47512).
</TABLE>
II-4
<PAGE> 87
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------------------------------------------------------------------
<C> <C> <S>
10.29 -- Warrant Certificates Nos. 93-1 and 93-2 dated as of May 13, 1993, issued to The
Equity Group, Inc. (incorporated by reference to Exhibit 10.24 to the Company's
Form 10-K for the fiscal year ended December 31, 1994).
10.30 -- Form of Warrant Agreement (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-2, File No. 33-47512).
10.31 -- Form of Underwriter's Warrant Agreement (incorporated by reference to Exhibit 4.5
of the Company's Registration Statement on Form S-2, File No. 33-47512).
10.32 -- Fiscal Agency Agreement, dated as of June 8, 1994, between the Company and American
Stock Transfer & Trust Co. ("American Stock Transfer"), as fiscal agent, paying
agent and securities registrar (incorporated by reference to Exhibit 4.1 to the
Company's Form 8-K dated June 14, 1994, and filed with the Commission on June 15,
1994).
10.33 -- Warrant Agreement, dated as of June 8, 1994, between the Company and American Stock
Transfer, as warrant agent (incorporated by reference to Exhibit 4.2 to the
Company's Form 8-K dated June 14, 1994, and filed with the Commission on June 15,
1994).
10.34 -- Placement Agent's Warrant Agreement, dated as of June 8, 1994, between the Company
and RAS Securities Corp. (incorporated by reference to Exhibit 4.3 to the Company's
Form 8-K dated June 14, 1994, and filed with the Commission on June 15, 1994).
10.35 -- Promissory Note, dated May 1, 1995, payable to Drake, the Company's landlord, in
the amount of $90,300.*
10.36 -- Amended and Restated All American Semiconductor, Inc. Employees' Officers',
Directors' Stock Option Plan.*
11.1 -- Earnings per share; see Note 1 to Notes to Consolidated Financial Statements
regarding computation of per share earnings.
21.1 -- List of Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 to
the Company's Form 10-K for the fiscal year ended December 31, 1994).
23.1 -- Consent of Rubin Baum Levin Constant Friedman & Bilzin (included as part of Exhibit
5.1).*
23.2 -- Consent of Lazar, Levine and Company LLP, independent certified public accountants
(included at page II-8).*
24.1 -- Powers of Attorney (included as part of Signatures).**
27.1 -- Financial Data Schedule (incorporated by reference to Exhibit 27.1 to the Company's
Form 10-Q for the fiscal quarter ended March 31, 1995).
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- --------------------------------------------------------------------------
<C> <S>
II Amounts Receivable from Related Parties and Underwriters, Promoters, and
Employees other than Related Parties.
</TABLE>
---------------
* Filed herewith
** Previously filed
ITEM 17. UNDERTAKINGS.
The 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, as amended; (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,
II-5
<PAGE> 88
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, as amended, 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 a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the provisions of
Item 14, 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 or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(5) (a) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(b) 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.
(6) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denomination and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
II-6
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, All American
Semiconductor, Inc., has duly caused this amendment no. 1 to registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Miami, Florida on the 25th day of May, 1995.
ALL AMERICAN SEMICONDUCTOR, INC.
By: /s/ PAUL GOLDBERG
------------------------------------
Paul Goldberg,
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ------------------------------- --------------
<C> <S> <C>
/s/ PAUL GOLDBERG Chairman of the Board and Chief May 25, 1995
--------------------------------------------- Executive Officer (Principal
Paul Goldberg Executive Officer)
* President and Chief Operating May 25, 1995
--------------------------------------------- Officer and Director
Bruce M. Goldberg
/s/ HOWARD L. FLANDERS Vice President, Chief Financial May 25, 1995
--------------------------------------------- Officer and Director
Howard L. Flanders (Principal Financial and
Accounting Officer)
* Senior Vice President of Sales May 25, 1995
--------------------------------------------- and Marketing and Director
Rick Gordon
* Director May 25, 1995
---------------------------------------------
Sheldon Lieberbaum
* Director May 25, 1995
---------------------------------------------
S. Cye Mandel
*By: /s/ PAUL GOLDBERG
---------------------------------------------
Paul Goldberg,
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 90
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
All American Semiconductor, Inc.
Miami, Florida
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1, of our report included herein dated March
10, 1995, except as to Note 5, the date of which is March 28, 1995, relating to
the consolidated financial statements of All American Semiconductor, Inc. and
Subsidiaries. We also consent to the application of our report to Financial
Statement Schedule II listed under Item 16(b) of this Registration Statement
when such schedule is read in conjunction with the consolidated financial
statements referred to in our report. The audits referred to in such report also
include such schedule. We also consent to the references to our firm under the
headings "Experts" and "Selected Consolidated Financial Data" in the Prospectus.
However, it should be noted that Lazar, Levine & Company LLP has not prepared or
certified such "Selected Consolidated Financial Data."
/s/ LAZAR, LEVINE & COMPANY LLP
New York, NY
May 25, 1995
II-8
<PAGE> 91
SCHEDULE II
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT
BALANCE AT ------------------------- END OF PERIOD
BEGINNING AMOUNTS AMOUNTS -----------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------------------------- ---------- --------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992:
Control Devices International... $ 318,631 -0- $ 318,631(1) -0- -0- -0-
</TABLE>
---------------
(1) The note receivable from Control Devices International, a joint venture
between the Company and an unrelated third party, was reclassified as an
Other Asset-Deferred Product Development cost during 1992, when the Company
acquired 100% of the joint venture pursuant to a mandatory buy-out
provision in the joint venture agreement.
S-1
<PAGE> 92
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
EXHIBITS
TO
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ALL AMERICAN SEMICONDUCTOR, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 93
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement, as amended...............................
1.2 -- Form of Selected Dealers Agreement, as amended...........................
4.2 -- Form of Underwriter's Warrant Agreement, as amended......................
5.1 -- Opinion of Rubin Baum Levin Constant Friedman & Bilzin Re: Legality......
10.19 -- Form of Consulting Agreement, as amended.................................
10.22 -- Employment Agreement dated as of May 24, 1995, between the Company and
Paul Goldberg............................................................
10.24 -- Employment Agreement dated as of May 24, 1995, between the Company and
Bruce M. Goldberg........................................................
10.25 -- Employment Agreement dated as of May 24, 1995, between the Company and
Howard L. Flanders.......................................................
10.26 -- Employment Agreement dated as of May 24, 1995, between the Company and
Rick Gordon..............................................................
10.35 -- Promissory Note, dated May 1, 1995, payable to Drake, the Company's
landlord, in the amount of $90,300.......................................
10.36 -- Amended and Restated All American Semiconductor, Inc. Employees'
Officers', Directors' Stock Option Plan..................................
23.1 -- Consent of Rubin Baum Levin Constant Friedman & Bilzin (included as part
of Exhibit 5.1)..........................................................
23.2 -- Consent of Lazar, Levine and Company LLP, independent certified public
accountants (included at page II-8)......................................
24.1 -- Powers of Attorney*......................................................
</TABLE>
---------------
* Previously filed
i
<PAGE> 1
EXHIBIT 1.1
ALL AMERICAN SEMICONDUCTOR, INC.
4,550,000 SHARES OF COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
_____________,1995
Lew Lieberbaum & Co., Inc.
600 Old Country Road
Garden City, New York 11530
Dear Sirs:
All American Semiconductor, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you as the Underwriter (the
"Underwriter") as follows:
1. Description of Securities.
(a) The Company proposes, subject to the terms and conditions stated
herein, to issue and sell to the Underwriter 4,550,000 shares (the "Firm
Shares") of its common stock, par value $.01 per share (the "Common Stock").
The Company also proposes to grant to the Underwriter an option to purchase up
to an additional 682,500 shares of Common Stock (the "Option Shares"). The
offering of Firm Shares and Option Shares contemplated hereby is sometimes
referred to herein as the "Offering." The Firm Shares and the Option Shares
are herein collectively referred to as the "Shares."
(b) At the closing of the sale referred to in Section 4, the Company
will also sell to the Underwriter and/or its designees, for a total purchase
price of $10.00, warrants (the "Underwriter's Warrants") to purchase one share
of Common Stock for every ten shares of Common Stock sold in the Offering at a
price equal to ____$ per share of Common Stock purchased (140% of such price to
the public). The Underwriter's Warrants shall be non-exercisable and non-
transferable other than to (i) officers of the Underwriter, and (ii) members of
the selling group and their officers or partners, for a period of 12 months
following the Effective Date (defined below). Thereafter, the Underwriter's
Warrants are exercisable and transferable for a period of four years. If the
Underwriter's Warrants are not exercised during their term, they shall by their
terms, automatically expire. At the request of the holders of a majority of
the Underwriter's Warrants, the Underwriter's Warrants and the shares of Common
Stock issuable upon exercise of the Underwriter's Warrants, in whole or in
part, shall be registered for sale to the public at the Company's sole cost and
expense. The holders of a majority of the Underwriter's Warrants may make a
second demand that the Underwriter's Warrants and the Common Stock issuable
upon exercise of the Underwriter's Warrants, in whole or in part, be registered
for sale to the public, at the cost and expense of such holders.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company.
The Company represents, warrants, and covenants with the Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement on Form S-1 (File No.
33-58661), including a preliminary prospectus (the "Preliminary Prospectus"),
for the registration of the Shares under the Securities Act of 1933, as amended
(the "Act"). The Company will file further amendments to said the registration
statement in the form to be delivered to the Underwriter and will not, before
the registration statement becomes effective, file any other amendment thereto
to which the Underwriter shall have objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the
time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein), is hereinafter called the "Registration
Statement" and the prospectus, in the form filed with the Commission pursuant
to Rule 424 (b) of the General Rules and Regulations of the Commission under
the Act (the "Regulations") or, if no such filing is made, the definitive
prospectus used in the Offering, is hereinafter called the "Prospectus." The
term "preliminary prospectus" shall mean any prospectus included in the
Registration Statement prior to the time the same is declared effective (the
"Effective Date") by the Commission or such other prospectus as described in
Rule 430 of the Regulations. The Company has delivered to you copies of each
preliminary prospectus as filed with the Commission and has consented to the
use of such copies for the purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any preliminary prospectus, and each preliminary
prospectus has complied with and conformed in all material respects with the
requirements of the Act and the Regulations and has not included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) When the Registration Statement becomes effective under
the Act and at all times subsequent thereto up to and including the Closing
Date (hereinafter defined) and the Option Closing Date (hereinafter defined)
and for such longer periods as a Prospectus is required to be delivered
pursuant to the Act (but in no event more than 180 days after the Effective
Date) in connection with the sale of the Shares by the Underwriter, the
Registration Statement and the Prospectus, and any amendment thereof or
supplement thereto, will contain all material statements which are required to
be stated therein in accordance with the Act and the Regulations, and will in
all material respects comply with and conform to the requirements of the Act
and the Regulations and the Registration Statement, and any amendment or
supplement thereto, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and the Prospectus and any
supplement thereto will not contain an 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 the light of the circumstances under which they
were made, not misleading; provided, however, that this representation and
warranty does not apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company by you, expressly
stated for use in connection with the preparation of the Registration Statement
or
-2-
<PAGE> 3
Prospectus, or in any amendment thereof or supplement thereto. It is
understood and acknowledged by the Company that the statements set forth under
the heading "Underwriting" in the Prospectus with respect to the amounts of
the selling concession and reallowance and the information regarding Sheldon
Lieberbaum set forth in the Prospectus under the heading "Management"
constitute the only information furnished in writing by or on behalf of the
Underwriter for use in connection with the preparation of the Registration
Statement and Prospectus.
(d) The only subsidiaries of the Company are the subsidiaries
listed on Exhibit 21.1 to the Registration Statement (the "subsidiaries"). The
Company and each of its subsidiaries is, and at the Closing Date and the Option
Closing Date will be, a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. The Company
and each of its subsidiaries is and at the Closing Date and the Option Closing
Date will be duly qualified or licensed to do business and in good standing as
a foreign corporation in each jurisdiction in which their ownership or leasing
of any properties or the character of their operations requires such
qualification or licensing. The Company and each of its subsidiaries has, and
at the Closing Date and the Option Closing Date will have, all requisite power
and authority (corporate or other), and the Company and its subsidiaries, have
all necessary authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory officials and bodies to own or
lease their properties and to conduct their business as is described in the
Prospectus except those that would not materially and adversely effect the
Company and its subsidiaries taken as a whole. The Company and its
subsidiaries are doing business and have been doing business during the period
described in the Registration Statement in compliance with all such
authorizations, approvals, orders, licenses, certificates and permits and in
compliance in all material respects with all federal, state and local laws,
rules and regulations concerning the business in which the Company and its
subsidiaries are engaged. The disclosures in the Registration Statement, if
any, concerning the effects of federal, state and local regulation on the
Company's business and that of its subsidiaries, as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company has all requisite power and authority (corporate
and other) to enter into this Agreement, to issue, sell and deliver the Shares
and the Underwriter's Warrants to be delivered by the Company in accordance
herewith and to carry out the provisions and conditions hereof, and all
consents, authorizations, approvals and orders required in connection therewith
have been obtained or will have been obtained prior to the Closing Date,
provided, however, the Underwriter acknowledges and agrees that on the date
hereof the Company does not have the authorized and unissued shares of Common
Stock (after taking into account the Shares) to be able to issue any of the
shares of Common Stock underlying the Underwriter's Warrants.
(e) This Agreement has been duly and validly authorized and
executed by the Company and constitutes a legal valid and binding obligation of
the Company, enforceable in accordance with its terms subject as to such
enforceability to applicable bankruptcy and insolvency laws. The Shares to be
sold in the Offering and the Underwriter's Warrants (but not the Shares of
Common Stock underlying the Underwriter's Warrants) to be issued and sold by
the Company pursuant to this Agreement, have been duly authorized and, when
issued and paid for in accordance with this Agreement the Shares will be
validly issued, fully paid and
-3-
<PAGE> 4
non-assessable with no personal liability attaching to the ownership thereof.
The Shares and Underwriter's Warrants are not and will not be subject to the
preemptive rights of any stockholder of the Company or similar contractual
rights to purchase securities issued by the Company. All of the issued and
outstanding capital stock of the Company's subsidiaries has been duly and
validly issued and is fully paid and nonassessable and was not issued in
violation of preemptive rights and is owned directly by the Company, free and
clear of any lien, encumbrance, claim, security interest, restriction on
transfer, voting trust, shareholders agreement or other defect of title other
than the security interest therein held by Sun Bank/Miami National Association,
as described in the Registration Statement. There are no options, warrants or
other purchase rights, or any other claims respecting issuances of additional
securities of each such subsidiary.
(f) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof by the Company will not conflict with, result
in a breach or violation of any of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or bylaws of the Company or any of
its subsidiaries or of any evidence of indebtedness, lease, mortgage,
indenture, contract or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their properties is bound, or under any applicable
statute, law, rule, regulation, judgment, order or decree of any government,
professional advisory body, administrative agency or court, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
their properties, or result in the creation or imposition of any lien, charge
or encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries. No consent, approval, authorization or order of any court or
governmental or other regulatory agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, including the issuance, sale and delivery of the Shares and the
Underwriter's Warrants, except for the order of the Commission making the
Registration Statement effective and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Shares by the Underwriter and except that the Company does not have the
authorized and unissued shares of Common Stock (after taking into account the
Shares) to be able to issue any of the shares of Common Stock underlying the
Underwriter's Warrants.
(g) Subsequent to the date hereof, and prior to the Closing
Date and the Option Closing Date, the Company will not issue pursuant to a
private or public sale and private or public offering any equity securities
except that the Company (i) may issue Common Stock in satisfaction of
outstanding options, warrants and other rights as described in the Registration
Statement; (ii) may issue equity securities in connection with a merger,
consolidation or acquisition; and (iii) may issue the Shares to the Underwriter
hereunder. Except as described in the Registration Statement and the
Prospectus and except for any options issued pursuant to its stock option plan,
as amended, the Company does not have, and at the Closing Date and at the
Option Closing Date will not have outstanding, any options to purchase or
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell shares of
its preferred stock, Common Stock or any options, warrants, convertible
securities or obligations.
-4-
<PAGE> 5
(h) The financial statements and notes thereto and the
supporting schedules included in the Registration Statement and the Prospectus
fairly present the financial position and the results of operations of the
Company and its subsidiaries at the respective dates and for the respective
periods to which they apply; and all such financial statements and notes have
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. The financial and other information appearing the
Prospectus under the captions "Summary Financial Data", "Capitalization",
"Selected Consolidated Financial Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" present fairly the
information purported to be shown therein on the basis stated in the Prospectus
as of the dates and for the periods indicated. No other financial statements
or schedules of the Company or any other entity are required by the Act or
Regulations to be included in the Registration Statement or the Prospectus
other than as set forth in the Registration Statement.
(i) Neither the Company nor any of its subsidiaries is, and
at the Closing Date and at the Option Closing Date neither will be, in
violation or breach of, or default in, the due performance and observance of
any term, covenant or condition of its Credit Agreement (as defined in the
Prospectus) or lease for its corporate headquarters or of any material term,
covenant or condition of any other indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which
the Company or any such subsidiaries is a party or by which the Company or any
of its subsidiaries may be bound or to which any of the property or assets of
the Company or its subsidiaries is subject. The Company has not and will not
have taken any action in violation of the provisions of its Articles of
Incorporation or the Bylaws or, to the best of its knowledge, any law, statute
or any order, rule or regulation of any court or regulatory authority or
governmental body having jurisdiction over or applicable to the Company, any of
its subsidiaries or their, business or properties.
(j) The Company and each of its subsidiaries has, and at the
Closing Date and the Option Closing Date will have, good and marketable title
to all properties and assets described in the Prospectus and in the
consolidated financial statements as owned by it, free and clear of all liens,
charges, encumbrances, claims, security interests, restrictions and defects of
any material nature to the Company and its subsidiaries taken as a whole
whatsoever, except such as are described or referred to in the Prospectus and
liens for taxes not yet due and payable. The lease relating to the Company's
headquarters and all of the other leases and subleases under which the Company
or any of its subsidiaries is the lessor or sublessor of any material assets or
properties or under which the Company or any of its subsidiaries hold any
material properties or assets as lessee as described in the Prospectus are, and
will on the Closing Date and the Option Closing Date be, in full force and
effect, and except as described in the Prospectus neither the Company nor any
of its subsidiaries is and will not be in default in respect to any of the
material terms or provisions of any of such leases or subleases and no material
claim has been asserted by anyone adverse to the rights of the Company or any
of its subsidiaries as lessor, sublessor, lessee or sublessee under any of the
leases or subleases mentioned above, or affecting or questioning the right of
the Company or any of its subsidiaries to continue possession of such leased or
subleased premises or assets under any such lease or
-5-
<PAGE> 6
sublease except as described or referred to in the Prospectus. The Company and
each of its subsidiaries owns or leases all such properties as are necessary to
its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(k) The authorized, issued and outstanding capital stock of
the Company as of March 31, 1995 and as of the date of this Agreement is as set
forth in the Prospectus under "Capitalization". All of the shares of issued
and outstanding capital stock of the Company have been duly authorized, validly
issued and are fully paid and non-assessable with no personal liability to the
ownership thereof and were not issued in violation of or subject to any
preemptive rights or similar contractual rights to purchase securities issued
by the Company. Except as set forth in the Prospectus or otherwise pursuant to
the Company's stock option plan, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company. The Shares and the
Underwriter's Warrants and all such options and warrants conform in all
material respects to all statements relating thereto contained in the
Registration Statement and the Prospectus.
(l) Except as described in the Prospectus, neither the
Company nor its subsidiaries owns or controls any capital stock or securities
of, or have any ownership or proprietary interest in, or otherwise participate
in any other corporation, partnership, joint venture, firm, association or
business organization which is a material part of the Company's or its
subsidiaries' business or operations.
(m) Lazar, Levine & Company LLP (LL&C") has certified and
reported on the financial statements of the Company for the years ended
December 31, 1994, December 31, 1993 and December 31, 1992 with respect to the
Company and its subsidiaries all of which are filed with the Commission as a
part of the Registration Statement. LL&C are independent accountants with
respect to the Company and its subsidiaries as required by the Act and the
Regulations.
(n) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date and the Option Closing Date, except as set forth in the
Registration Statement and the Prospectus, (i) there has been no material
adverse change in, or any fact known to the Company which could reasonably be
expected to have a material adverse effect on, the business, prospects,
properties, assets, operations, condition (financial or other) or results of
operations of the Company and its subsidiaries taken as a whole, whether or not
arising from transactions in the ordinary course of business; (ii) since the
date of the latest balance sheet presented in the Registration Statement and
the Prospectus, neither the Company nor its subsidiaries has incurred or
undertaken any liabilities or obligations, direct or contingent, other than
accounts payable and other obligations incurred in the ordinary course of
business that are not material to the Company and its subsidiaries taken as a
whole; (iii) neither the Company nor any or its subsidiaries has entered into
any transactions, other than those in the ordinary course of business, that are
material to the Company and any of its subsidiaries taken as a whole; (iv) the
Company has not purchased any of its capital stock and there has been no
dividend or distribution of any kind declared, made
-6-
<PAGE> 7
or paid by the Company on any class of its capital stock; and (v) there has not
been (A) any change in the capital stock of the Company or any of its
subsidiaries other than the exercise of options, warrants or rights reflected
in the Registration Statement and the Prospectus as outstanding or granted
pursuant to the Company's stock option plan, as amended or (B) any issuance of
options, warrants, convertible securities or other rights to purchase the
capital stock of the Company (other than the grant of options under the
Company's stock option plan as described in the Registration Statement and the
Prospectus, each in the ordinary course of business).
(o) There is no litigation or governmental proceeding pending
or to the knowledge of the Company threatened against, or involving the
properties or business of the Company or any of its subsidiaries or any of its
or their officers and directors which might materially and adversely affect the
value, assets or the operation of the properties or the business of the Company
and any of its subsidiaries taken as a whole. Further, there are no actions,
suits or proceedings related to environmental matters or related to
discrimination on the basis of age, sex, religion or race, nor is the Company
or any of its subsidiaries charged with or, to the Company's knowledge, under
investigation with respect to any violation of any statutes or regulations of
any regulatory authority having jurisdiction over their business or operations.
No labor disturbances by the employees of the Company or any of its
subsidiaries exist or, to the knowledge of the Company, have been threatened
which would have a material adverse effect on the Company and its subsidiaries
taken as a whole.
(p) Each of the Company and its subsidiaries has, and at the
Closing Date and at the Option Closing Date will have, filed all federal, state
and foreign income and franchise tax returns required to be filed by them and
all such returns are true, correct and complete in all material respects. The
Company and each of its subsidiaries has paid all taxes which were required to
be paid by it except for any such tax that currently is being contested in good
faith or as described in the Prospectus. All tax liabilities are adequately
provided for on the books of the Company. The Company has not received notice
of any material proposed additional tax assessments against it or any of its
subsidiaries.
(q) Neither the Company nor any of its subsidiaries or their
respective executive officers and directors on behalf of the Company or its
subsidiaries has at any time (i) made any contribution to any candidate for
political office, or failed to disclose fully any such contribution, in
violation of law, or (ii) made any payment to any state, federal, foreign
governmental or professional regulatory agency, officer or official or other
person charged with similar public, quasi-public or professional regulatory
duties, other than payments or contributions required or allowed by applicable
law.
(r) Except as set forth in the Registration Statement,
neither the Company or any of its subsidiaries nor any officer, director,
employee or agent of the Company or its subsidiaries has directly or indirectly
made any payment or transfer of any funds or assets of the Company or conferred
any personal benefit by use of the Company's or its subsidiaries' assets or
received any funds, assets or personal benefit, in each case in violation of
any law, rule or regulation.
-7-
<PAGE> 8
(s) On the Closing Date and on the Option Closing Date, all
transfer or other taxes, if any (other than income taxes) which are required to
be paid, and are due and payable, in connection with the sale and transfer of
the Shares by the Company to the Underwriter will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such
taxes will have been fully complied with.
(t) There are no contracts, agreements, instruments or other
documents of the Company or any of its subsidiaries which are of a character
required to be described in the Registration Statement or Prospectus or filed
as exhibits to the Registration Statement which have not been so described or
filed. Each loan, advance and guarantee of indebtedness by the Company or any
of its subsidiaries to or for the benefit of any of the officers or directors
of the Company or its subsidiaries or any of the members of the families of any
of them required to be described in the Registration Statement or the
Prospectus has been described therein in compliance with the requirements of
the Act, Form S-1 and the Regulations.
(u) The Company intends to apply the proceeds from the sale
of the Shares sold by it for the purposes and in the manner set forth in the
Registration Statement and Prospectus under the heading "Use of Proceeds."
(v) The Company and each of its subsidiaries owns or
possesses the requisite licenses or rights to use all material trademarks,
service marks, service names, trade names, patents and technology necessary to
conduct its business in all material respects as described in the Prospectus.
There is no claim or action by any person pertaining to or proceeding pending,
or to the knowledge of the Company, threatened, which challenges the exclusive
right of the Company with respect to the use of its name or with respect to any
trademarks, service marks, service names, trade names, patents or technology
used in the conduct of any material aspect of the Company's and its
subsidiaries business taken as a whole. The Company has no knowledge of any
infringement by it of any trademarks, servicemarks, tradenames, patents or
technology of others which would have a material adverse effect on the Company
and its subsidiaries taken as a whole.
(w) The Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(1) transactions are executed in accordance with management's general or
specified authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (3) access to
assets is permitted only in accordance with managements general or specific
authorizations; and (4) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) The Company has timely filed with the Commission all
documents required to be filed by its under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations thereunder,
and at the time such documents were filed, they (i) complied in all material
respects with the applicable provisions of the Exchange Act and (ii) did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under
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<PAGE> 9
which they were made, not misleading. The Common Stock currently outstanding
is quoted on and the Shares to be sold under this Agreement to the Underwriter
are duly authorized for quotation on The Nasdaq Stock Market, subject only to
notice of issuance.
(y) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of the Registration Statement, preventing or suspending the
use of any preliminary prospectus, the Prospectus, the Registration Statement,
or any amendment or supplement thereto, refusing to permit the effectiveness of
the Registration Statement, or suspending the registration or qualification of
the Shares, nor, to the knowledge of the Company, have any such authorities
instituted or threatened to institute any proceedings with respect to a Stop
Order.
(z) Each of the Company and its subsidiaries maintains
insurance of the types and in the amounts generally deemed adequate for its
business, including but not limited to, general liability insurance, product
liability insurance and insurance covering real and personal property owned or
leased by the Company or its subsidiaries against theft, damage, destruction,
acts of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(aa) There are no rights of return or other agreements
between the Company or any of its subsidiaries, on the one hand, and any
customer of the Company or any of its subsidiaries, on the other hand, that
would cause any sales reflected in the Company's financial statements included
in the Prospectus to fail to qualify as sales in accordance with generally
accepted accounting principles or the Company's revenue recognition policy as
reflected in the audited financial statements included in the Prospectus.
Subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as set forth therein, neither
the Company nor any of its subsidiaries has received notification of the
termination of any material distribution agreement to which the Company or any
of its subsidiaries is a party, or become aware of any facts indicating that
any such termination is being contemplated, which when terminated would have a
material adverse effect on the Company and its subsidiaries taken as a whole,
and neither the Company nor any of it subsidiaries has received notification
that any material customer of the Company or any of its subsidiaries is
planning to cease such purchases or to reduce such purchases materially, which
when ceased or reduced would have a material adverse effect on the Company and
its subsidiaries taken as a whole.
(bb) No holder of any securities of the Company or any other
person has rights that have not been satisfied or waived to require
registration of any securities because of the filing or effectiveness of the
Registration Statement or otherwise in connection with the sale of the Shares
or Underwriter's Warrants contemplated hereby.
(cc) None of the Company, any of its directors, officers or
controlling persons has taken and at the Closing Date and the Option Closing
Date, none will have taken, directly or indirectly, any action designed to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock or any security of the Company to facilitate the sale or resale of
the Shares or
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<PAGE> 10
the Company's Common Stock.
(dd) Except pursuant to this Agreement, there are no claims
for services in the nature of a finder's or broker's or agent's fee or
commission with respect to the sale of the Shares hereunder or the consummation
of the transactions contemplated hereby.
(ee) No right of first refusal exists with respect to any sale
of securities by the Company, except as and to the extent contained in this
Agreement.
(ff) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Underwriter was, when made,
or as of the Closing Date or as of the Option Closing Date will be inaccurate,
untrue or incorrect in any material respect.
(gg) The Company is not, and upon consummation of the
transactions contemplated hereby will not be, subject to registration as an
"investment company" under the Investment Company Act of 1940, as amended.
(hh) No relationship, direct or indirect, exists between or
among the Company, on the one hand, and the directors, officers, shareholders,
customers or suppliers of the Company or any of its subsidiaries on the other
hand, which is required by the Act or the Regulations to be described in the
Prospectus which is not so described.
3. Further Covenants of the Company. The Company covenants and
agrees with the Underwriter that:
(a) It shall promptly deliver to the Underwriter, without
charge, two fully signed copies of each Registration Statement and of each
amendment or supplement thereto, including all financial statements and
exhibits and such number of conformed copies of such Registration Statement and
any such amendments or supplements as the Underwriter may reasonably request.
(b) The Company has delivered to the Underwriter, without
charge, as many copies as it has requested of each Preliminary Prospectus
heretofore filed with the Commission in accordance with and pursuant to the
Commission's Rule 430 under the Act and will deliver to the Underwriter and to
any Selected Dealer (as hereinafter defined), without charge, on the Effective
Date of the Registration Statement, and thereafter from time to time during
such reasonable period as the Underwriter may request (but in no event more
than 180 days after the Effective Date) if, in the opinion of counsel for the
Underwriter, the Prospectus is required by the Act to be delivered in
connection with sales by an Underwriter or a dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of such amended or supplemented Prospectus) as the Underwriter may
request for the purposes contemplated by the Act. The Company will take all
necessary actions to furnish to whomever the Underwriter may direct, when and
as requested by the Underwriter, all necessary documents, exhibits,
information, applications, instruments and papers as may be reasonably required
or, in the opinion of counsel to the Underwriter, desirable in order to permit
or facilitate the sale of the Shares.
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<PAGE> 11
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by the Underwriter in
connection with the distribution of the Shares (the "Selected Dealers") to be
purchased by the Underwriter and all dealers to whom any of such Shares may be
sold by the Underwriter or by any Selected Dealer, to use the Prospectus, as
from time to time amended or supplemented, in connection with the sale of the
Shares in accordance with the applicable provisions of the Act, the applicable
Regulations and applicable state law, until completion of the distribution of
the Shares and for such longer period as the Underwriter may request if the
Prospectus is required under the Act, the applicable Regulations or applicable
state law to be delivered in connection with sales of the Shares by the
Underwriter or the Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective at the earliest possible time and
will notify you immediately, and will confirm the notice in writing: (i) when
the Registration Statement or any post-effective amendment thereto becomes
effective; (ii) of the issuance by the Commission of any Stop Order or of the
initiation or the threatening of any proceedings for that purpose; (iii) of the
suspension of any qualification or registration of the Shares or the
Underwriter's Warrants, or underlying securities, for offering or sale in any
jurisdiction or of the initiating or the threatening of any proceedings for
that purpose; (iv) of the receipt of any comments by the Company or any of its
agents from the Commission; (v) of any request by the Commission for any
amendment of or supplement to the Registration Statement or Prospectus or for
any additional information; and (vi) of the happening of any event which makes
any statement of a material fact contained in the Registration Statement untrue
or which requires the making of additional changes in the Registration
Statement or Prospectus in order to make the statements made therein not
misleading. The Company shall use its best efforts to prevent the issuance of
any Stop Order and, if the Commission shall enter a Stop Order at any time, the
Company will make every reasonable effort to obtain the lifting of such order
at the earliest possible moment.
(e) During the time when a prospectus relating to the Shares
is required to be delivered under the Act, the Company shall comply with all
requirements imposed upon it by the Act (but in no event more than 180 days
after the Effective Date) and the Exchange Act, as now and hereafter amended
and by the Regulations, as from time to time in force, as necessary to permit
the continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and the Prospectus. If at any time when a prospectus
relating to the Shares is required to be delivered under the Act (but in no
event more than 180 days after the Effective Date), any event shall have
occurred as a result of which, in the opinion of the Company or counsel for the
Underwriter, the Prospectus as then amended or supplemented includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend or supplement the Registration Statement or the Prospectus
to comply with the Act or the Regulations, the Company shall notify the
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to the Underwriter)
which will correct such statement or omission or will effect such compliance
and the Company will use its best efforts to have any such amendment declared
effective as soon as possible and
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<PAGE> 12
will furnish to the Underwriter copies thereof.
(f) The Company shall in cooperation with the Underwriter, at
or prior to the time the Registration Statement becomes effective, qualify or
register the Shares for offering and sale under the securities laws or blue sky
laws of such jurisdictions as the Underwriter may designate and maintain such
qualification or registration in effect for so long as required for the
distribution thereof. In each jurisdiction where such qualification or
registration shall be effected, the Company shall, unless the Underwriter
agrees that such action is not at the time necessary or advisable, file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction.
(g) The Company shall make generally available to its
security holders and to the Underwriter, as soon as practicable, but in no
event later than the first day of the fifteenth full calendar month following
the Effective Date of the Registration Statement, an earnings statement of the
Company, which shall be in reasonable detail but which need not be audited,
covering a period of at least twelve months beginning after the Effective Date
of the Registration Statement, which earnings statements shall satisfy the
requirements of Section 11(a) of the Act and the Regulations as then in effect.
The Company may discharge this obligation in accordance with Rule 158 of the
Regulations.
(h) During the period of five years commencing on the
Effective Date of the Registration Statement, the Company shall furnish to its
stockholders an annual report (including financial statements audited by its
independent public accountants), in reasonable detail, and, at its expense,
shall furnish the Underwriter if so requested (i) within 105 days after the end
of each fiscal year of the Company, a consolidated balance sheet of the Company
and its then consolidated subsidiaries for such year, and consolidated
statements of operations, stockholder's equity and cash flows of the Company
and its consolidated subsidiaries for the fiscal year then ended all in
reasonable detail and all certified by independent accountants (within the
meaning of the Act and the Regulations; provided, however, that, in lieu
thereof the Company can furnish the Underwriter a copy of its Form 10-K for the
applicable fiscal year as filed with the Commission, (ii) within 50 days after
the and of each of the first three fiscal quarters of each fiscal year, similar
balance sheets as of the end of such fiscal quarter and similar statements of
operations and cash flows for the fiscal quarter then ended, all in reasonable
detail, and subject to year end adjustment, all certified by the Company's
principal financial officer or the Company's principal accounting officer as
having been prepared in accordance with generally accepted accounting
principles applied on a consistent basis; provided, however, that in lieu
thereof the Company can furnish the Underwriter a copy of its Form 10-Q for the
applicable fiscal period as filed with the Commission, (iii) as soon as
available, each report furnished to or filed with the Commission or any
securities exchange (including The Nasdaq Stock Market) and each report,
statement or financial statement furnished to the Company's shareholders
generally and (iv) as soon as available, such other material as the Underwriter
may from time to time reasonably request regarding the condition (financial or
other) and operations of the Company and its subsidiaries provided, however,
that the Underwriter will maintain such information confidential to the extent
it is not in the public domain.
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<PAGE> 13
(i) For a period through and including the quarter ended June
30, 1996, the Company, at its expense, shall cause its regularly engaged
independent certified public accountants to consult with the Company concerning
the Company's financial statements for each of the first three quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly reports and the mailing of quarterly financial
information to stockholders. The purpose of such consultation is to obtain the
assistance and input of such accountants so that each of such financial
statements will comply in all material respects with the applicable accounting
requirements of the Exchange Act and the regulations promulgated thereunder and
will be fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of then most
recently audited financial statements of the Company. It is not the intended
purpose of this provision that such accountant's audit or review such financial
statement within the meaning of the AICPA's Statement on Auditing Standards or
that such accountants issue any report to the Company or the Underwriter.
(j) For a period of ninety (90) days after the Effective
Date, the Company shall not issue, directly or indirectly, any press release or
other public announcement or hold any press conference other than in the
promotion by the Company of its products in the ordinary course of its business
and the reporting of its sales and operating results and financial condition,
without the Underwriter's prior written consent, which consent shall not be
unreasonably withheld or delayed.
(k) The Company shall deliver to the Underwriter a reasonable
period prior to filing, any amendment or supplement to the Registration
Statement or Prospectus proposed to be filed of the Registration Statement and
shall not file any such amendment or supplement to which the Underwriter shall
in good faith object after being furnished such copy.
(l) The Company shall not at any time take, directly or
indirectly, any action designed to, or which will constitute or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Shares to facilitate the sale or resale of any of the
Shares or the Company's Common Stock.
(m) For a period of 180 days after the Effective Date of the
Registration Statement, the Company shall not, without the Underwriter's prior
written consent, issue or sell, or contract to sell or otherwise dispose of
(collectively, "Dispositions") any of its equity securities or debt convertible
into equity securities (or announce the offering of any such securities),
except (i) Dispositions of the Shares and the Underwriter's Warrant pursuant to
this Agreement, (ii) Dispositions of stock options under the Company's stock
option plan and shares of Common Stock on the exercise thereof, (iii)
Dispositions of securities pursuant to the exercise of outstanding options,
warrants and rights, and (iv) Dispositions of securities in connection with a
merger, consolidation reorganization, exchange offer, acquisition or similar
transaction.
(n) The Company shall apply the net proceeds from the
Offering received by it in a manner consistent with the application described
in "Use of Proceeds" in the Prospectus.
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<PAGE> 14
(o) Counsel for the Company, the Company's accountants, and
the officers and directors of the Company shall, respectively, furnish the
opinions, the letters and the certificates referred to in the subsections of
Section 8 hereof, and, in the event that the Company shall file any amendment
to the Registration Statement relating to the offering of the Shares or any
amendment or supplement to the Prospectus relating to the offering of the
Shares subsequent to the Effective Date of the Registration Statement, such
counsel, such accountants, such officers and directors shall, at the time of
the Closing or Option Closing respectively, furnish to the Underwriter such
opinions, letters and certificates, each dated the date of its delivery, of the
same nature as the opinions, the letters and the certificates referred to in
said Section 8, respectively, as the Underwriter may reasonably request, or, if
any such opinion or letter or certificate cannot be furnished by reason of the
fact that such counsel or such accountants or any such officer or director
believes that the same would be inaccurate, such counsel or such accountants or
such officer or director shall furnish an accurate opinion or letter or
certificate with respect to the same subject matter.
(p) The Company will comply with all of the provisions of all
undertakings contained in the Registration Statement.
(q) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued Shares which are issuable
upon exercise of the Underwriter's Warrants outstanding from time to time;
provided, however, that notwithstanding the foregoing, the Company shall only
be required to comply with this provision after the number of authorized shares
of the Company's Common Stock is increased to at least 35,000,000. The Company
hereby covenants and agrees that it will promptly undertake to use its best
efforts to effectuate an increase in such authorized shares including by
retaining the services of a proxy solicitation firm reasonably acceptable to
the Underwriter and the Company, and through its Board of Directors, shall
recommend to its stockholders approval of all amendments to the Company's
certificate of incorporation necessary to increase the Company's authorized
Common Stock to at least 35,000,000 shares.
(r) The Underwriter shall have the right to designate a
nominee to the Company's Board of Directors or an advisor thereto to sit on or
advise said Board for a period of three years from the Effective Date and the
Company will recommend and use its best efforts to elect such a nominee,
provided that such right to designate a nominee to the Company's Board of
Directors or an advisor shall be satisfied to the extent of a similar
designation pursuant to that certain Underwriting Agreement, dated June 18,
1992 (the "1992 Underwriting Agreement"), until such right under the aforesaid
Underwriting Agreement has terminated (it being specifically agreed and
acknowledged that the Underwriter's right to designate a nominee or advisor
shall only be operative after the similar right under the 1992 Underwriting
Agreement has terminated so that only one such nominee or advisor shall be
designated at any time pursuant to this Agreement and the 1992 Underwriting
Agreement). If the Underwriter's designee is not elected to the board or if
the Underwriter chooses not to designate a nominee subject to the foregoing
proviso, the Underwriter shall have the right to designate one non-voting
advisor to, in the Underwriter's discretion, attend meetings of the Board for a
period of three years from the Effective Date. The Underwriter's nominee to
the Board, if elected to the Board, shall be appointed to the Company's
Compensation Committee. Such designee shall receive no more or
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<PAGE> 15
less compensation than is paid to other non-management directors of the Company
and shall be entitled to receive reimbursement for all reasonable costs
incurred in attending such meetings, including, but not limited to food,
lodging and transportation. Any designee of the Underwriter who has not been
elected a director but attends meetings as a non- voting advisor, shall be
required to execute a confidentiality agreement at the request of and
reasonably satisfactory to the Company.
(s) Commencing on the Effective Date, the Company shall have
entered into a the consulting agreement (the "Consulting Agreement") with the
Underwriter, substantially in the form filed as an exhibit to the Registration
Statement. On the Closing Date, the Company shall execute and deliver to the
Underwriter the Underwriter's Warrant Agreement and related certificates
substantially in the form filed as an exhibit to the Registration Statement.
(t) The Company shall effect and use its best efforts to
maintain the inclusion of the Shares for quotation through The Nasdaq Stock
Market (unless the Company is acquired or the Shares are listed for regular
trading activity on either the New York Stock Exchange or American Stock
Exchange) for at least five years from the date of this Agreement.
(u) The Company shall use its best efforts to register for
listing in Standard and Poors Corporation Reports as soon as permitted by
Standard and Poors Corporation and shall use its best efforts to have the
Company continued to be included in such publications for at least one year
thereafter.
(v) No person who is currently an executive officer or
director of the Company shall, without the Underwriter's prior written consent,
sell or otherwise dispose of, directly or indirectly, any shares of the Common
Stock of the Company (or any securities convertible into, exercisable,
exchangeable for Common Stock) owned by such person on the date of this
Agreement or hereafter acquired for a period of 180 days from the Effective
Date; provided, however, that gifts to family members and sales or dispositions
or conversions, exercises or exchanges in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or similar
transaction or exercises of options granted under the Company's stock option
plan shall not require any such consent. The Company has and will cause each
of its executive officers and directors (the "Insiders") to deliver to the
Underwriter, on or before the date of this Agreement, an agreement to this
effect, in form and substance reasonably satisfactory to you and to counsel for
the Underwriter. The Company agrees not to file a new registration statement
on Form S-8 or to increase the number of Shares of Common Stock registered
pursuant to the Company's existing Form S-8, during the twenty-four months
following the Effective Date without prior written approval of the Underwriter,
except to cover an aggregate of 3,250,000 shares underlying options.
(w) [Intentionally Blank]
(x) The Company agrees that no options or warrants shall be
granted after the Effective Date below the fair market value of the Shares for
a period of two years from the Effective Date without the Underwriter's prior
written consent provided that such consent will not be required for the
granting of options or warrants below fair market value by the Company
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<PAGE> 16
in connection with mergers, acquisitions, consolidations, combinations, joint
ventures, strategic alliances and other business associations and similar
transactions and arrangements. For purposes hereof "fair market value" shall
be determined in accordance with the terms of the Company's stock option plan,
as amended.
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<PAGE> 17
(y) The Company agrees not to increase or authorize an
increase in the compensation of its executive officers without the approval of
the Compensation Committee of the Board of Directors for a period of three
years from the Effective Date. For a period of three years from the Effective
Date the Company will not terminate or amend the terms or provisions of any
existing employment agreement entered into with an executive officer if such
termination or amendment would result in an increase in the amount of
compensation of or the number of options granted to or the vesting arrangement
of such options of such executive officer, except with the prior written
consent of the Underwriter which consent shall not be unreasonably withheld.
(z) The Company will comply with all registration, filing and
reporting requirements of the Exchange Act that may from time to time be
applicable to the Company. The Company shall use its best efforts to maintain
the registration of its Common Stock under the provisions of Section 12 of the
Exchange Act for a period of at least five (5) years from the Effective Date
unless such Common Stock is no longer outstanding.
(aa) For a period of eighteen months from the Effective Date,
the Company shall not without the Underwriter's prior written consent, directly
or indirectly, enter into sale of its assets, any merger, consolidation,
exchange offer or other business combination for which it is not the surviving
company or recommend in favor of a tender offer for Shares of the Company's
Common Stock, if the consideration to be received in any such transaction by a
holder of Common Stock (other than the Goldberg Group as defined in the
Registration Statement) Prospectus in exchange for shares of the Company's
Common Stock is less than the public offering price per Share pursuant to this
Offering.
(bb) The Company shall retain a transfer agent for the Common
Stock reasonably acceptable to the Underwriter for a period of not less than
five (5) years following the Effective Date. It is hereby agreed that the
Company's current transfer agent, The Trust Company of New Jersey is
acceptable.
(cc) As promptly as practicable after the Closing Date, the
Company will prepare, at its own expense, not less than four hard cover "bound
volumes" relating to the offering, and will distribute such volumes to the
individuals designated by the Underwriter or counsel for the Underwriter.
4. Purchase, Sale and Delivery of the Firm Shares; Closing Date.
(a) On the basis of the warranties, representations and agreements of the
Company herein, and subject to the satisfaction of the terms and conditions of
this Agreement, the Company agrees to sell to the Underwriter, and the
Underwriter, agrees to purchase from the Company 4,550,000 Firm Shares at a
price of $________ per Share (the "Public Offering Price") less an underwriting
discount of nine percent (9%) of the offering price for each Share
($.____________). The Underwriter may allow a concession not exceeding
$__________ per Share to Selected Dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD"), and to certain foreign
dealers, and such dealers may reallow to NASD members and to certain foreign
dealers a concession not exceeding $___ per Share.
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<PAGE> 18
(b) Delivery of the certificates for the Firm Shares and
payment therefor shall be made at 10:00 A.M., New York City time on the Closing
Date, as hereinafter defined, at the offices of the Underwriter or such other
location as may be agreed upon by the Underwriter and the Company. Delivery of
certificates for the Firm Shares (in definitive form and registered in such
names and in such denominations as the Underwriter shall request by written
notice to the Company delivered at least three business days prior to the
Closing Date), shall be made to the Underwriter for its account against payment
of the purchase price therefor by certified or official bank check or checks
payable in New York Clearing House funds or similar next day funds, or by wire
transfer of same day funds less an adjustment for the one-day cost of such
funds, payable to the order of the Company. The Company will make such
certificates available for inspection at least one full business day prior to
the Closing Date at such place as the Underwriter shall designate.
(c) The "Closing Date" shall be 1995, or such
other date not later than the tenth business day following the Effective Date
of the Registration Statement as the Underwriter shall determine and advise the
Company by at least two full business days' notice.
(d) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Firm Shares by the Company to
the Underwriter shall be borne by the Company. The Company will pay and hold
the Underwriter, and any subsequent holder of the Shares, harmless from any and
all liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to
the Underwriter of the Shares.
5. Purchase and Delivery of Option Shares; Option Closing Date.
(a) The Company agrees to sell to the Underwriter, and upon the basis of the
representations, warranties and agreements of the Company herein contained, and
subject to the satisfaction of all the terms and conditions of this Agreement,
the Underwriter shall have the option (the "Option) to purchase from the
Company all or part of up to 682,500 Option Shares at the same price per Share
as the Underwriter shall pay for the Firm Shares. Option Shares may be
purchased solely for the purpose of covering over- allotments made in
connection with the distribution and sale of the Firm Shares.
(b) The Option to purchase on one occasion all or part of the
Option Shares is exercisable by the Underwriter at any time before the
expiration of a period of thirty (30) business days from the Effective Date of
the Registration Statement (the "Option Period") by written notice to the
Company setting forth the number of Option Shares for which the Option is being
exercised, the name or names in which the certificates for such Option Shares
are to be registered and the denominations of such certificates. Upon exercise
of the Option, the Company shall sell to the Underwriter the aggregate number
of Option Shares specified in the notice exercising such option.
(c) Delivery of the Option Shares with respect to which the
Option shall have been exercised and payment therefor shall be made at 10:00
A.M., New York City time on the Option Closing Date, as hereafter defined, at
the offices of the Underwriter or at such other locations as may be agreed upon
by the Underwriter and the Company. Delivery of certificates
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<PAGE> 19
for Option Shares shall be made to the Underwriter for its account against
payment of the purchase price therefor by certified or official bank check or
check in New York Clearing House Funds or similar next day funds, or by wire
transfer of same day funds less an adjustment for the one-day cost of funds,
payable to the order of the Company. The Company will make the certificates
for Option Shares to be purchased at the Option Closing Date available for
inspection at least one full business day prior to such Option Closing Date at
such place as the Underwriter shall designate.
(d) The "Option Closing Date" shall be the date not later than
five business days after the end of the Option Period as you shall determine
and advise the Company by not less than three full business days' notice,
unless some other time is agreed upon between the Underwriter and the Company.
(e) The obligation of the Underwriter to purchase and pay for
Option Shares following exercise of the Option on the Option Closing Date shall
be subject to compliance as of such date with all the conditions specified in
Section 8 herein and the delivery to the Underwriter of opinions, certificates
and letters, each dated such Option Closing Date, substantially similar in
scope to those specified in Section 8 herein.
(f) The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Option Shares by the Company
to the Underwriter shall be borne by the Company. The Company will pay and
hold the Underwriter, and any subsequent holder of Option Shares, harmless from
any and all liabilities with respect to or resulting from any failure or delay
in paying federal and state stamp taxes, if any, which may be payable or
determined to be payable in connection with the original issuance or sale to
the Underwriter of the Option Shares.
6. Offering by Underwriter. It is understood and acknowledged by
the Company that the Underwriter proposes to offer the Shares for sale to the
public upon the terms set forth in the Prospectus.
7. Payment of Expenses. (a) Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement is terminated
(except if such termination results from a material breach by the Underwriter),
the Company agrees with the Underwriter that the Company will pay or cause to
be paid and bear all costs, fees, taxes and expenses incident to and in
connection with: (i) the issuance, offer, sale and delivery of the Shares,
including all expenses and fees incident to the preparation, printing, filing
and mailing (including the payment of postage with respect to such mailing) of
the Registration Statement (including all exhibits thereto), each Preliminary
Prospectus, the Prospectus, and amendments and post-effective amendments
thereof and supplements thereto, and this Agreement and related documents,
Preliminary and Final Blue Sky Memoranda, including the cost of preparing and
printing all copies thereof to be printed by a financial printer selected by
the Company and reasonably acceptable to the Underwriter in quantities deemed
necessary by the Underwriter; (ii) preparing and printing a one-quarter page
"Tombstone" advertisement in the Wall Street Journal; (iii) the printing,
engraving, issuance and delivery of the Shares, Underwriter's Warrants and the
securities underlying the Underwriter's Warrants, including any transfer or
other taxes payable
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<PAGE> 20
thereon in connection with the original issuance thereof; (iv) the
qualification of the Shares under the state or foreign securities or "Blue Sky"
laws by Underwriter's counsel and for NASD approval, all the fees and
disbursements of which shall be paid by the Company to such counsel, with
$10,000 having been paid such counsel upon initial filing of the Registration
Statement and another $10,000.00 being paid upon the effectiveness of the
Registration Statement and the remaining amounts to be paid at the Closing; (v)
fees and disbursements of counsel and accountants for the Company; (vi) the
filing fees payable to the Commission and the National Association of
Securities Dealers, Inc. ("NASD"); (vii) any other expenses incurred on behalf
of and approved in advance by the Company; (viii) any listing fees or continued
listing fees of the Common Stock on The Nasdaq Stock Market; and (viii)
reasonable travel expenses of the Underwriter and the Underwriter's counsel to
visit the Company's facilities.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Section 7(a) above, the Company shall reimburse the
Underwriter on the Closing Date and Option Closing Date, as applicable, for
expenses incurred by the Underwriter for which the Underwriter need not make an
accounting of, in the amount of 3% of the gross proceeds (Public Offering Price
per Share multiplied by the number of Shares purchased by the Underwriter
hereunder) of the Offering (including the number of Option Shares purchased by
the Underwriter pursuant to the exercise of the Option). This 3%
non-accountable expense allowance shall cover the fees of the Underwriter's
legal counsel, but shall not include any expenses for which the Company is
responsible under Section 7(a) above, including the reasonable fees and
disbursements of the Underwriter's legal counsel with respect to NASD filing,
qualification and Blue Sky matters. As of the date hereof, $10,000 has been
advanced by the Company to the Underwriter with respect to such non-accountable
expense allowance.
(c) If the Shares are not sold to the Underwriter as a result
of a material breach hereunder by the Company, or in the event that the Company
(through no material breach of the Underwriter) does not or cannot, for any
reason whatsoever, expeditiously proceed with the Offering, or if any of the
representations, warranties or covenants of the Company contained in this
Agreement are not materially correct or cannot be complied with in all material
respects by the Company resulting in the Underwriter's termination of this
Agreement prior to the Closing or the Company does not commence or continue
with the Offering any time hereafter or terminates the proposed transaction
prior to the Closing Date, the Company shall reimburse the Underwriter on an
accountable basis for all out-of-pocket expenses actually incurred in
connection with the Offering, this Agreement and all of the transactions hereby
contemplated, including, without limitation, the legal fees and expenses, by
the Underwriter's counsel. Such reimbursement shall be in addition to any
other rights the Underwriter may have hereunder or under law.
8. Conditions of Underwriter's Obligations. The obligations of the
Underwriter to consummate the transactions contemplated by this Agreement and
to purchase and pay for the Firm Shares and Option Shares, as provided herein,
shall be subject to the continuing accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Closing Date (for purposes of this Section 8, "Closing Date" shall refer to the
Closing Date for the Firm Shares and the Option Closing Date, if any, for the
Option Shares), the
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<PAGE> 21
accuracy of the statements of the Company and its officers and directors made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder and under each certificate, opinion and
document contemplated hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York City time, on the date of this Agreement, or at
such later date and time as shall be consented to in writing by the
Underwriter; and, on or prior to the Closing Date, no Stop Order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or the qualification or registration of the Shares under the securities
laws of any jurisdiction shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or the knowledge of the Company, shall be threatened or contemplated
by the Commission or any such authorities of any jurisdiction and any request
on the part of the Commission or any such authorities for additional
information shall have been complied with to the reasonable satisfaction of the
Commission or such authorities and counsel to the Underwriter and after the
date hereof no amendment or supplement shall have been filed to the
Registration Statement or Prospectus without your prior consent.
(b) The Registration Statement or the Prospectus or any
amendment thereof or supplement thereto shall not contain an untrue statement
of a fact which is material, or omit to state a fact which is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus there shall be no
litigation or other proceeding instituted against the Company, any of its
subsidiaries or any of its officers or directors and there shall be no
proceeding instituted or, to the Company's knowledge, threatened against the
Company or any of its officers or directors before or by any federal, state or
county commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding could have a material adverse effect on the Company
and its subsidiaries or their business, business prospects or properties taken
as a whole, or have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries taken as a whole.
(d) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document contemplated
under this Agreement to be delivered to the Underwriter shall be true and
correct in all material respects at the Closing Date as if made at the Closing
Date, and all covenants and agreements contained in this Agreement and in each
such certificate and document to be performed on the part of the Company, and
all conditions contained herein and in each such certificate and document to be
fulfilled or complied with by the Company at or prior to the Closing Date,
shall be fulfilled or complied with in all material respects.
(e) At the Closing Date, the Underwriter shall have received
the opinion of Rubin Baum Levin Constant Friedman & Bilzin, counsel to the
Company, dated such Closing Date,
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<PAGE> 22
addressed to the Underwriter and in form and substance satisfactory to counsel
to the Underwriter, to the effect that:
(i) 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 and has the power and authority (corporate or
other) to own or lease and operate its properties and to conduct its business
as described in the Registration Statement and to the best of its knowledge has
all material governmental licenses, permits, certifications, consents,
registrations, approvals franchises necessary to carry on its business in all
material respects as described in the Registration Statement. The Company and
each of its subsidiaries is duly qualified or licensed to do business as a
foreign corporation and is in good standing in all jurisdictions wherein such
qualification or licensing is necessary except where the failure to be so
qualified or licensed would not have a material adverse effect on the Company
and its subsidiaries taken as a whole;
(ii) The Company has the requisite power and authority
(corporate or other) to execute, deliver and perform the Underwriting
Agreement, the Consulting Agreement, and the Underwriter's Warrants (together
the "Transaction Documents") and to consummate the transactions contemplated
thereby except that on the date hereof the Company does not have the authorized
and unissued shares of Common Stock (taking into account the Shares) to be able
to issue any of the Shares of Common Stock underlying the Underwriter's
Warrants. The execution, delivery and performance of the Transaction
Documents, the consummation by the Company of the transactions therein
contemplated and the compliance by the Company with the terms thereof have been
duly authorized by all necessary action on the part of the Company, and each of
the Transaction Documents, has been duly executed and delivered by the Company
and is a legal, valid and binding obligation of the Company, enforceable in
accordance with their respective terms, subject, as to enforcement of remedies,
to applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally and the discretion of courts in
granting equitable remedies and except that enforceability of the
indemnification provisions and the contribution provisions set forth in the
Underwriting Agreement may be limited by the federal securities laws or public
policy underlying such laws;
(iii) The execution, delivery and performance of the
Transaction Documents by the Company and the consummation of the transactions
therein contemplated do not, and will not, with or without the giving of notice
or the lapse of time, or both, (A) result in a violation of the certificate of
incorporation or by-laws of the Company, (B) result in a breach of, or conflict
with, any terms or provisions of or constitute a default under, or result in
the modification or termination of, or result in the creation or imposition of
any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
(including any thereof filed as on Exhibit to the Registration Statement) to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their properties or assets are or may be
bound or affected; (C) violate or conflict with any existing applicable law,
rule or regulation or judgment, order or decree known to us of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or any of their properties or business; or (D) our
knowledge, have any material adverse effect on any permit, certification,
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<PAGE> 23
registration, approval, consent, license or franchise necessary for the Company
or any of its subsidiaries to own or lease and operate their properties and to
conduct its business or the ability of the Company or any of its subsidiaries
to make use thereof;
(iv) No authorization, approval, consent, order,
registration, license or permit of any court or governmental agency or body
(other than (A) those that have been obtained under the Act, and (B) applicable
state securities or blue sky laws) is required for the valid authorization,
issuance, sale and delivery of the Firm Shares, the Option Shares, or the
Underwriter's Warrants, or the consummation of the transactions contemplated by
the Transaction Documents except that the Company's shareholders must approve
an increase in the authorized shares of the Company in order for there to be
sufficient authorized shares to be issued upon exercise of the Underwriter's
Warrants;
(v) The Registration Statement was declared effective under
the Act on , 1995 and to the best of our knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated by the Commission and all filings required
by Rule 424(b) and Rule 430 of the Regulations have been made;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which we express no opinion),
comply as to form in all material respects with the requirements of the Act and
Regulations;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate in all material
respects and present fairly the information required to be discussed, and there
are no material statues, or regulations, or to the best of our knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required. To
the best of our knowledge, none of the material provisions of the contracts or
instruments described above violates any existing applicable law, rule or
regulation or judgment, order or decree known to us of any United States
governmental agency or court having jurisdiction over the Company, it
subsidiaries or any of their assets or businesses;
(viii) The authorized and outstanding capital stock of the
Company is as set forth in the Registration Statement and the Prospectus. To
our knowledge all of the Company's outstanding shares of Common Stock, have
been duly authorized and validly issued and are fully paid an nonassessable
with no personal liability attaching to the ownership thereof. To our
knowledge none of the outstanding shares of Common Stock has been issued in
violation of the preemptive rights of any shareholder of the Company. The
Common Stock conforms to the description thereof contained in the Registration
Statement and Prospectus. Except as disclosed in the Prospectus, to such
counsels knowledge after due inquiry, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments to
issue any shares of capital stock of the Company or any security convertible
into or exchangeable for
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<PAGE> 24
capital stock of the Company. To the best of our knowledge, except as set
forth in the Prospectus no holder of any of the Company's securities has rights
that have not been waived to the registration (whether as "demand," "piggyback"
or otherwise) of shares of Common Stock or other securities, because of the
filing of the Registration Statement by the Company or the Offering.
(ix) To the best of our knowledge after due inquiry all of
the issued and outstanding capital stock of the Company's subsidiaries have
been duly and validly issued and are fully paid and nonassessable and was not
issued in violation of preemptive rights and is owned directly by the Company,
free and clear of any lien, encumbrance, claim, security interest, restriction
or transfer, voting trust, shareholders agreement or defect of title other than
the security interest therein held by Sun Bank/Miami National Association. To
such counsel's knowledge, the subsidiaries have no outstanding options,
warrants or other purchase rights, or any other claims respecting issuances of
additional securities of each such subsidiary;
(x) The issuance and sale of the Firm Shares and the Option
Shares have been duly and validly authorized and, when issued and paid for
pursuant to the Underwriting Agreement, will be validly issued, fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. Neither the Firm Shares, nor
the Option Shares are subject to preemptive rights of any stockholder of the
Company. The certificates representing the securities are in proper legal form
under Delaware law;
(xi) The Underwriter will acquire good title to the Firm
Shares, free and clear of all liens, encumbrances, equities, security interests
and claims, provided that the Underwriter is a bona fide purchaser as defined
in Section 8-302 of the Uniform Commercial Code;
(xii) Assuming that the Underwriter exercises the Option to
purchase the Option Shares and makes payment therefor in accordance with the
terms of the Underwriting Agreement, upon delivery of the Option Shares to the
Underwriter thereunder, the Underwriter will acquire good title to the Option
Shares, free and clear of any liens, encumbrances, equities, security interests
and claims, provided that the Underwriter is a bona fide purchaser as defined
in Section 8-302 of the Uniform Commercial Code;
(xiii) To the best of our knowledge after due inquiry, there
are no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company or any of its subsidiaries, or involving their properties
or business, other than as described in the Prospectus, such description being
accurate, and other than litigation incident to the business conducted by the
Company which, individually and in the aggregate, is not material to the
Company and its subsidiaries taken as a whole, and, to our knowledge except as
otherwise disclosed in the Prospectus and the Registration Statement, the
Company and its subsidiaries are not in violation of any applicable federal and
state laws, statutes and regulations concerning its business;
(xiv) To the best of our knowledge, the Company has not
infringed and is not infringing with the rights of others with respect to its
intangible or intellectual property rights;
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<PAGE> 25
and, to the best of our knowledge, except as otherwise disclosed in the
Prospectus, neither the Company nor its subsidiaries has received any notice of
conflict with the asserted rights of others with respect to its intangible or
intellectual property rights which might, alone or in the aggregate, materially
adversely affect the business, results of operations or financial condition of
the Company and its subsidiaries taken as a whole;
(xv) The Shares to be sold pursuant to the Underwriting
Agreement are duly authorized and designated for inclusion on The Nasdaq Stock
Market, subject only to official notice of issuance;
(xvi) The statements in the Prospectus, and under items 14
and 15 of Part II of the Registration Statement, insofar as such statements
constitute a summary of the legal matters, documents or proceedings referred to
therein, accurately and fairly present the information called for with respect
to such legal matters, documents and proceedings;
(xvii) The Company is not in violation of its certificate of
incorporation or by-laws. To the knowledge of such counsel the Company is not
in default in any material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any indenture or other material agreement to
which the Company is a party or which it is bound; and
(xviii) The Company is not any "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that they have participated in
reviews and discussions and conferences with officers and other representatives
of the Company and its accountants and other persons in connection with the
preparation of the Registration Statement and the Prospectus, and although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as otherwise set forth in the
opinion), in the course of such reviews and discussions and such other
investigation as they deemed necessary, no facts came to our attention which
lead us to believe that (A) the Registration Statement (except as to the
financial statements and other financial data contained therein, as to which
they need not express an opinion), on the Effective Date, contained any untrue
statement or omitted to state any material fact required to be stated therein
or necessary to make the statements therein, not misleading, or (B) the
Prospectus (except as to the financial statements and other financial data
contained therein, as to which they need not express an opinion) contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion such counsel may rely (A) as to matters of
law other than Florida, Delaware and Federal law, to the extent they deem such
reliance proper and to the effect specified in such opinion, if at all, upon
the opinion of local counsel of good standing who they believe are reliable and
who are satisfactory to counsel for the Underwriter and (B) as to matters of
fact, to the extent they deem proper, on certificates of responsible officers
of the
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<PAGE> 26
Company and public officials. Copies of all such opinions and certificates
shall be furnished to counsel to the Underwriter on the Closing Date. The
opinion of such counsel for the Company shall state that the opinion of any
such other counsel is in form satisfactory to such counsel and, in their
opinion the Underwriter, you and they are justified in relying thereon.
(f) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities financial or otherwise, of
the Company or its subsidiaries, other than as contemplated in the Registration
Statement, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company or any of its
subsidiaries from the latest date as of which the financial condition of the
Company is set forth in the Registration Statement and Prospectus which is
material to the Company and its subsidiaries taken as a whole, which is either
(x) required to be disclosed in the Prospectus or Registration Statement and is
not so disclosed, or (y) likely to have material adverse effect on the business
or financial condition of the Company and its subsidiaries taken as a whole;
(iii) The Company shall not be in default under its Credit
Agreement or under any material provision of any instrument relating to any
outstanding indebtedness;
(iv) No material amount of the assets of the Company and its
subsidiaries taken as a whole shall have been pledged, mortgaged or otherwise
encumbered, except as set forth in the Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or any of
its subsidiaries or affecting any of its properties or businesses before or by
any court or federal or state commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding could materially and
adversely affect the business, operations, prospects or financial condition or
income of the Company and its subsidiaries, taken as a whole, except as set
forth in the Registration Statement and Prospectus; and
(vi) No Stop Order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's knowledge,
threatened by the Commission;
(g) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, there shall be furnished to the Underwriter
a certificate of the Company signed by the Chief Executive Officer and
principal financial officer of the Company, dated as of the date of its
delivery, to the effect that (i) the conditions set forth in subparagraph (f)
above have been satisfied (ii) as of the Closing Date, the representations and
warranties of the Company set forth in Section 2 herein and the statements in
the Registration Statement and Prospectus were and are true and correct in all
material respects, (iii) as of the Closing Date, the obligations of
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<PAGE> 27
the Company to be performed hereunder on or prior thereto has been duly
performed in all material respects; (iv) no Stop Order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been initiated or to their knowledge threatened; and (v)
the signers of said certificate have carefully examined the Registration
Statement and the Prospectus, and any amendments or supplements thereto, and
such documents do not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements made therein not misleading. Any certificate signed by any
officer of the Company and delivered to the Underwriter or counsel for the
Underwriter shall be deemed a representation and warranty by the Company to the
Underwriter as to the statements made therein.
(h) At the time this Agreement is executed, and at the
Closing Date, the Underwriter shall have received a letter, addressed to it and
in form and substance satisfactory in all respects (including the nonmaterial
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and counsel for the Underwriter, from LL&C dated as of the
date of this Agreement and as of the Closing Date:
(i) Confirming that they are independent public accountants
with respect to the Company and its subsidiaries within the meaning of the Act
and applicable regulations thereunder and the response to Item 10 of Form S-1
as set forth in the Registration Statement is correct as it relates to them;
(ii) Stating that in their opinion the audited financial
statements and schedules of the Company included in the Registration Statement
and Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations thereunder with respect
to registration statements on Form S-1;
(iii) Stating that with respect to the period from January 1,
1995 to a specified date (the "Specified Date") not earlier than five days
prior to the date of such letter, they have read such interim unaudited
financial data of the Company and its subsidiaries for the period from January
1, 1995 through the Specified Date as is available on the date of such letter,
read the minutes of the stockholders and board of directors of the Company for
the period from January 1, 1995 through the Specified Date and made inquiries
of officers of the Company responsible for financial and accounting matters as
to whether (A) at the Specified Date there was any change in the capital stock
or long-term liabilities of the Company or any decrease in the net current
assets or net assets of the Company as compared with the amounts shown on the
December 31, 1994 balance sheet filed with and as part of the Prospectus, or
(B) for the period from January 1, 1995 to the Specified Date, there were any
increases or decreases, as compared with the corresponding period in the
preceding year, in the total or per share amounts of net income, and further
stating that while such procedures and inquiries do not constitute an
examination made in accordance with generally accepted auditing standards,
nothing came to their attention which caused them to believe that there was any
such change other than as disclosed or contemplated by the Prospectus or, if
any such change has occurred, fully explaining the nature of such change and
its effect on the financial position of the Company;
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<PAGE> 28
(iv) Stating that they have carried out certain specified
procedures (specifically set forth in such letter or letters) as specified by
the Underwriter not constituting an audit, with respect to certain tables,
statistics and other financial data and specific dollar amounts, numbers of
shares, percentages and other financial information in the Prospectus specified
by the Underwriter and compared them with, either the audited financial
statements filed with and as a part of the Prospectus and covered by their
report included therein, or other financial data, specified by the Underwriter,
not included in the Prospectus but from which information in the Prospectus is
derived, and which have been obtained directly from the general accounting
records of the Company or indirectly from such accounting records by analysis
or computation, and having compared such tables, statistics and other financial
data with such audited financial statements or the accounting records of the
Company, as the case may be, stating that they have found such tables,
statistics and other financial data to agree therewith; and
(v) Stating such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
(i) All proceedings taken in connection with the
authorization, issuance or sale of the Shares of Common Stock and the
Underwriter's Warrants (other than the authorization of the shares underlying
the Underwriter's Warrants) as herein contemplated shall be satisfactory in
form and substance to the Underwriter and to counsel to the Underwriter, and
the Underwriter shall have received from such counsel an opinion, dated as the
Closing Date with respect to such of these proceedings as it may reasonably
require.
(j) The Company shall have furnished to the Underwriter such
certificates, additional to these specifically mentioned herein, as the
Underwriter may have reasonably requested in a timely manner as to the accuracy
and completeness, at the Closing Date, of any statement in the Registration
Statement or the Prospectus, as to the accuracy, at the Closing Date, of the
representations and warranties of the Company herein and in each certificate
and document contemplated under this Agreement to be delivered to the
Underwriter, as to the performance by the Company of its obligations hereunder
and under each such certificate and document or as to the fulfillment of the
conditions concurrent and precedent to the Underwriter obligations hereunder.
(k) The obligation of the Underwriter to purchase Option
Shares hereunder after it has exercised the Option is subject to the accuracy
of the representations and warranties of the Company contained herein on and as
of the Option Closing Date and to the satisfaction on and as of the Option
Closing Date of the conditions set forth herein.
(l) On the Closing Date there shall have been duly tendered to
the Underwriter for its account the appropriate number of shares of Common
Stock and the Underwriter's Warrants.
(m) The NASD, upon review of the terms of the public offering
of the Firm Shares and the Option Shares shall not have objected to the
Underwriter's participation in such offering.
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<PAGE> 29
(n) The Underwriter shall have received from each person who
is a director or officer of the Company an agreement to the effect that such
person will not, directly or indirectly, without the Underwriter's prior
written consent, offer, sell, offer or agree to sell, grant any option to
purchase or otherwise dispose (or announce any offer, sale, grant of an option
to purchase or other disposition) of any shares of Common Stock (or any
securities convertible into, exercisable or exchangeable for shares of Common
Stock) for a period ending 180 days after the effective date of the
Registration Statement provided that such persons may make gifts of such
securities to members of their immediate family without such consent to the
extent the transferee agrees in writing to be bound by the provisions of such
agreement and may otherwise make Dispositions as set forth in Section 3(m)
hereof.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Underwriter or to Underwriter's Counsel pursuant to this Section 8 shall not be
in all material respects reasonably satisfactory in form and substance to the
Underwriter and to the Underwriter's Counsel, all obligations of the
Underwriter hereunder may be cancelled at, or at any time prior to, each
Closing Date, by the Underwriter. Notice of such cancellation shall be given
to the Company in writing, or by telephone, telex or telegraph, confirmed in
writing. Any such cancellation shall be without liability of the Underwriter
to the Company or any stockholder, officer, director, employee or creditor of
the Company.
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the directors, officers and agents of the Underwriter and each
person, if any, who controls the Underwriter (a "controlling person") within
the meaning of either Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, liabilities, claims, damages, actions
and expenses or liability, whatsoever as incurred (including but not limited to
legal fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which it or such controlling
persons may become subject under the Act, the Exchange Act or under any other
statute or at common law or otherwise or under the laws of foreign countries,
arising out of or based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
Preliminary Prospectus or the Prospectus (as from time to time amended and
supplemented) or in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the shares issued or
issuable upon exercise of the Underwriter's Warrant, or in any application or
other document or written communication ("application") executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares or Underwriter's Warrants
(including the Shares issuable upon exercise of the Underwriter's Warrants)
under the securities laws thereof or filed with the Commission or any
securities exchange; (ii) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made) or (iii) any breach by the Company of
any of the representations, warranties and covenants contained in Sections 2
and
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3 of this Agreement, unless such statement or omission was made in reliance
upon or in conformity with information furnished to the Company as provided in
Section 2(c) hereof with respect to the Underwriter by or on behalf of the
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereof, or in an
application, as the case may be. Notwithstanding the foregoing, the Company
shall have no liability under this Section 9(a) if any such untrue statement or
omission made in a Preliminary Prospectus is cured in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Section 9(a), but only insofar as such losses, liabilities,
claims, expenses and damages arise out of are based upon any untrue statement
or alleged untrue statement of any material fact contained in or any omission
or alleged omission to state a material fact required to be stated in any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent made solely in
reliance upon, and in conformity with, information furnished to the Company by
the Underwriter as provided in Section 2(c) hereof expressly for use in the
preparation of such Preliminary Prospectus, the Registration Statement or
Prospectus; provided, however, that in no case shall the Underwriter be liable
or responsible for any amount in excess of the Underwriting discount applicable
to the Shares purchased by the Underwriter hereunder. This indemnity agreement
will be in addition to any liability which the Underwriter may otherwise have.
Notwithstanding the foregoing, the Underwriter shall have no liability under
this Section 9(b) if any such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus, and the Prospectus is
delivered to the person or persons alleging the liability upon which
indemnification is being sought.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section unless and only to the extent
that such failures materially and adversely prejudices such indemnifying
party). In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and to the extent it may elect
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the
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<PAGE> 31
employment of such counsel shall have been authorized in writing by one of the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to be in charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are
different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party
or parties), in any of which events such fees and expenses shall be borne by
the indemnifying parties. Anything in this subsection to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement
of any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld. Each indemnified party shall
promptly notify the Underwriter of the commencement of any litigation or
proceedings against the Company or any of its officers or directors or
controlling persons in connection with the issue and sale of the Shares or
Underwriter's Warrants or in connection with the Registration Statement or
Prospectus.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Underwriter agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and the
Underwriter may be subject, in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and by the
Underwriter, on the other hand, from the offering of the Shares; provided,
however, that in no case shall the Underwriter be responsible for any amount in
excess of the underwriting discount or commission applicable to the Shares
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Company and
the Underwriter shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company, on the one hand, and of the Underwriter, on the other hand, in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. The relative benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or the
Underwriter and the parties relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriter agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 9, each
person who controls the Underwriter within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of the Underwriter
shall have the same rights to contribution as the Underwriter, and each person
who controls the Company within the meaning
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<PAGE> 32
of either the Act or the Exchange Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to
the applicable terms and conditions of this paragraph (d).
(e) Any party entitled to contribution will, promptly after
receipt by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, if a claim for contribution in
respect thereof is made against another party (the "contributing party"),
notify the contributing party of the commencement thereof, but the omission so
to notify the contributing party will not relieve it from any liability it may
have to any other party from whom contribution may be sought from any
obligation it or they may have except and only to the extent that such failure
materially and adversely prejudices such party. In case any such action, suit
or proceeding is brought against any party, and such party notifies a
contributing party or his or its representative of the commencement thereof,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party; provided, however, that such consent was not unreasonably withheld. The
indemnification and contribution provisions contained in this Section 9 are in
addition to any other rights or remedies which either party hereto may have
with respect to the other or hereunder.
10. Survival of Representations, Warranties and Agreements. The
respective indemnity and contribution agreements by the Underwriter and the
Company contained in Section 9 hereof, and the covenants, representations and
warranties of the parties set forth in this Agreement, shall remain operative
and in full force and effect regardless of (i) any investigation made by the
Underwriter or on its behalf or by or on behalf of any person who controls the
Underwriter, or by the Company or any controlling person of the Company or any
director or any officer of the Company; or (ii) acceptance of any of the Shares
and payment therefor. The representations contained in Section 2 and the
agreements contained in Sections 7, 8 and 9 hereof shall survive the
termination of this Agreement.
11. Effective Date of This Agreement; Termination. (a) This Agreement
shall become effective at 10:00 A.M., New York time, on the day on which you
and the Company receive notification that the Registration Statement became
effective.
(b) This Agreement may be terminated by the Underwriter by
notifying the Company at any time on or before the Closing Date, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in the Underwriter's opinion will in the immediate future materially
disrupt, the securities markets; or (ii) if trading in the Company's Common
Stock shall have been suspended by the Commission or the NASDAQ or trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required on the New York or American
Stock Exchange or the over-the-counter market by the NASD or NASDAQ or by order
of the Commission or any other governmental authority having
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<PAGE> 33
jurisdiction; or (iii) if a banking moratorium has been declared by state or
federal authorities or if any new restriction adversely affecting the
distribution of the Shares shall have become effective; or (iv) if the Company
shall have sustained a loss material or substantial to the Company and its
subsidiaries taken as a whole by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Shares; or (v) if there shall
have been a material adverse change in the conditions of the market for the
Company's securities or the securities market in general, as in the
Underwriter's reasonable judgment would make it inadvisable to proceed with the
offering, sale and delivery of the Shares; or (vi) if there shall have been a
material adverse change in the financial or securities markets, particularly in
the over-the-counter market, in the United States having occurred since the
date of this Agreement; or (vii) there shall have occurred any outbreak or
escalation of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis the effect of which on financial
markets is such as to make it, in the judgement of the Underwriter,
impracticable or inadvisable to proceed with the Offering or the delivery of
Shares as contemplated by the Prospectus.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
11, the Company shall be notified promptly by the Underwriter by telephone or
facsimile, confirmed in writing by letter.
Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement, and whether or not
this Agreement is otherwise carried out, the provisions of Section 7 and 9
hereof shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to the
Underwriter, shall be personally delivered or sent by nationally recognized
overnight courier or by certified mail, postage prepaid with return receipt
requested to Lew Lieberbaum & Co., Inc., 600 Old Country Road, Garden City, New
York 11530, Attention: Leonard A. Neuhaus, with a copy to Richard A. Lippe,
Esq. Meltzer, Lippe, Goldstein, Wolf, Schlissel & Sazer, P.C., 190 Willis
Avenue, Mineola, New York and, if sent to the Company, shall personally
delivered or sent by nationally recognized overnight courier or by certified
mail, postage prepaid, with return receipt requested to the Company at 16115
Northwest 52nd Avenue, Miami, Florida 3014, Attention: Bruce M. Goldberg,
with a copy to Alan D. Axelrod, Esq., Rubin Baum Levin Constant Friedman &
Bilzin, 2500 First Union Financial Center, Miami, Florida 33131.
13. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 9 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or
claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
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<PAGE> 34
14. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without
giving effect to the choice of law principles thereof and shall supersede any
agreement or understanding, oral or in writing, express or implied, between the
Company and the Underwriter relating to the sale of any of the Shares.
15. Jurisdiction and Venue. The Company, and the Underwriter hereby
agree that any action, proceeding or claim against it arising out of, or
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern or Eastern District of New York, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company and the
Underwriter hereby irrevocably waive any objection to such exclusive
jurisdiction or inconvenient forum and also hereby irrevocably waive any right
or claim to trial by jury in connection with any such action, proceeding or
claim. Any such process or summons to be served upon any of the Company or the
Underwriter (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to such other party
at the address set forth in Section 12 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim.
16. Prevailing Party. In the event of any litigation concerning any
controversy, claim or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach or interpretation hereof, the
prevailing party shall be entitled to recover from the losing party reasonable
expenses, attorneys' fees, and costs incurred therein or in the enforcement or
collection of any judgment or award rendered therein. The "prevailing party"
means the party determined by the court to have most nearly prevailed, even if
such party did not prevail in all matters, not necessarily the one in whose
favor a judgment is rendered. Further, in the event of any default by a party
under this Agreement, such defaulting party shall pay all the expenses and
attorneys' fees incurred by the other party in connection with such default,
whether or not any litigation is commenced.
17. Specific Performance. The parties acknowledge and agree that
irreparable damage would occur in the event that certain of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of such provisions and to
enforce specifically such terms and provisions, this being in addition to any
other remedy to which they may be entitled at law or in equity.
18. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be illegal,
invalid, void or unenforceable, then the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect. Furtherance, in lieu of any such invalid or unenforceable term or
provision, the parties intend that there shall be added as part of this
Agreement, a provision as similar in terms to such invalid or unenforceable
provision as may be possible and valid and enforceable.
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<PAGE> 35
19. Counterparts. This Agreement may be executed in any number of
counterparts. All counterparts shall constitute one and the same instrument
and it shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this Underwriting Agreement shall constitute a binding
agreement between us.
Very truly yours,
ALL AMERICAN SEMICONDUCTOR, INC.
By:
-------------------------------
Name:
Title:
Accepted and agreed as of the date first above written:
LEW LIEBERBAUM & CO., INC.
By:
------------------------------------------
Leonard A. Neuhaus
Chief Financial Officer and
Chief Operating Officer
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<PAGE> 1
EXHIBIT 1.2
ALL AMERICAN SEMICONDUCTOR, INC.
4,550,000 SHARES OF COMMON STOCK
SELECTED DEALER'S AGREEMENT
__________________, 1995
Dear Sirs:
Lew Lieberbaum & Co., Inc., the Underwriter named in the
Prospectus dated _______, 1995 (the "Prospectus"), has agreed to purchase,
subject to the terms and conditions set forth in the Underwriting Agreement
with All American Semiconductor, Inc., a Delaware corporation (the "Company"),
an aggregate of 4,550,000 shares (the "Firm Shares") of Common Stock, $.01 par
value per share (the "Common Stock") of the Company. In addition, the
Underwriter has been granted an option to purchase from the Company up to an
additional 682,500 shares (the "Option Shares") of Common Stock to cover
over-allotments in connection with the sale of the Firm Shares. The Firm
Shares and the Option Shares are herein called the "Shares". The Shares are to
be offered for sale by the Underwriter at a price of $_________ per share (the
"Public Offering Price") in accordance with the terms of the offering which are
more particularly described in the Prospectus.
The Underwriter is offering, subject to the terms and
conditions hereof, a portion of the Shares for sale to certain securities
dealers who enter into an agreement with the Underwriter in this form at the
Public Offering Price, less a selling concession of $[DOLLAR AMOUNT] per share,
and the Underwriter may allow, and such dealers may reallow, a concession not
in excess of $[DOLLAR AMOUNT] per share to other dealers who enter into an
agreement with Underwriter in this form. The Underwriter may be included among
the Selected Dealers (defined below).
In purchasing Shares, you will rely only on the Prospectus and
on no other statement whatsoever, written or oral. You hereby further agree
with the Underwriter as follows with respect to any purchase of the Shares from
the Underwriter or from any dealer at a concession from the Public Offering
Price.
1. Public Offering; Trading. The Shares purchased by
you at a concession from the Public Offering Price shall be promptly offered to
the public upon the terms set forth in the Prospectus, subject to the
securities or blue sky laws of the jurisdictions in which the Shares are to be
offered for sale to the public at the Public Offering Price, or for sale at a
concession not to exceed $[DOLLAR AMOUNT] per share (i) to any other member
organization
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<PAGE> 2
of the National Association of Securities Dealers, Inc. (the "NASD") who is in
good standing with the NASD and who enters into an agreement with the
Underwriter in this form or (ii) to foreign dealers not eligible for membership
in the NASD who enter into an agreement with the Underwriter in this form (such
dealers and institutions being referred to herein as "Selected Dealers").
If you desire to purchase any of the Shares, your application
should reach the Underwriter promptly by telephone or facsimile at the
Underwriter's offices set forth below. The Underwriter reserves the right to
reject all subscriptions in whole or in part, to make allotments and to close
the subscription books at any time without notice. The privilege of purchasing
the Shares is extended to you by the Underwriter only if you may lawfully sell
the Shares to dealers in your state.
You represent that you have not effected and will not effect
any transaction in violation of the provisions of Rule 10b-6 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), applicable to
this offering and you agree that you will not, at any time prior to the
completion by you of the distribution of Shares acquired by you pursuant to
this Agreement, bid for, buy, sell, deal or trade in or attempt to induce
others to purchase, any shares of Common Stock (including the Shares) or buy
any right or option to purchase shares of Common Stock or buy any security of
the Company convertible into shares of Common Stock, for your own account or
for the account of a customer, except: (a) as provided in this Agreement, or in
the Underwriting Agreement relating to the sale of the Shares; (b) in
brokerage transactions or unsolicited orders which have not resulted from
activities on your part in connection with the solicitation of purchases and
which are executed by you in the ordinary course of your brokerage business; or
(c) as authorized by the Underwriter.
You agree to advise the Underwriter from time to time, upon
request, prior to the termination of this Agreement, of the number of Shares
purchased by you hereunder and remaining unsold which were purchased by you
from the Underwriter or from any other dealer at a concession from the Public
Offering Price and, on the Underwriter's request, you will resell to the
Underwriter any such Shares remaining unsold at the purchase price thereof if,
in the Underwriter's opinion, such Shares are needed to make delivery against
sales made to others.
If prior to the termination of this Agreement (or prior to
such earlier date as the Underwriter may have determined) the Underwriter
purchases or contracts to purchase, in the open market or otherwise, any Shares
which were purchased by you from the Underwriter or from any other Selected
Dealer at a concession from the Public Offering Price, or any Shares which may
have been issued in exchange for such Shares, you authorize the Underwriter
either (i) to charge your account with an amount equal to the selling
concession with respect thereto, which amount shall be credited against the
cost of such Shares; or (ii) to require you to repurchase such Shares at a
price equal to the total cost of such purchase, including commissions, if any,
and transfer taxes on the redelivery; or (iii) to sell for your account the
Shares so purchased and debit or credit your account for the loss or profit
resulting from such sale.
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<PAGE> 3
2. Delivery and Payment. If you purchase any Shares
hereunder, you agree that such purchases will be evidenced by the Underwriter's
written confirmation and will be subject to the terms and conditions set forth
in the confirmation and in the Prospectus.
Shares purchased by you hereunder shall be paid for at the
Public Offering Price at the offices of Lew Lieberbaum & Co., Inc., 600 Old
Country Road, Garden City, New York 11530 on or about ________, 1995 or such
later date as the Underwriter may advise you, by certified or official bank
check payable in New York Clearing House funds, or by wire transfer of
immediately available funds, to the order of "Bear Sterns Securities Corp." for
the account of the Underwriter against delivery of certificates for the Shares.
If you are a member of the Depository Trust Company, the Underwriter may, in
its discretion, deliver your Shares through their facilities. The applicable
concession will be paid to you, less any amounts charged to your account
pursuant to Section 1 above, after termination of this Agreement as set forth
below.
3. Termination. The Underwriter will advise you of the
date and time of termination of this Agreement or of any designated provisions
hereof. This Agreement shall, in any event terminate 30 business days from the
date of the commencement of the public offering of the Shares unless sooner
terminated by the Underwriter; provided, however, that the Underwriter shall
have the right to extend this Agreement for an additional period or periods not
exceeding 30 business days. Promptly after termination of this Agreement there
shall become due and payable to you the selling concession on all Shares which
you shall have purchased hereunder and which shall not have been purchased or
contracted for (including certificates issued upon transfer) by the Underwriter
in the open market or otherwise, during the term of this Agreement for the
account of the Underwriter.
4. Representations and Agreements. You represent that
you are (i) a member organization in good standing of the NASD and agree to
comply with all applicable rules of the NASD, including, without limitation,
the NASD's Interpretation with Respect to Free-Riding and Withholding and
Section 24 of Article III of the NASD's Rules of Fair Practice, or (ii) a
foreign dealer not eligible for membership in the NASD and agree (A) not to
sell any Shares within the United States, its territories or possessions or to
persons who are citizens thereof or resident therein and (B) in making other
sales, to comply with the above- mentioned NASD Interpretation and Sections 8,
24 and 36 of the above-mentioned Article III as if you were an NASD member
organization and Section 25 of such Article III as it applies to a nonmember
organization broker or dealer in a foreign country.
If you are a foreign dealer, you also represent that in
connection with sales of Shares and offers to sell Shares made outside the
United States (a) you will not offer or sell any Shares in any jurisdiction
except in compliance with applicable laws and (b) you will either furnish to
each person to whom any such sale or offer is made a copy of the then current
prospectus or of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), as the case may
be, or inform such person that such prospectus or Prospectus will be available
upon request. Any offering material in addition to the then current prospectus
or Prospectus furnished by you to any person in connection with any offers or
sales referred to in the preceding sentence (x) shall be prepared and so
furnished at your sole risk and expense and (y) shall not contain information
relating to
3
<PAGE> 4
the Shares or the Company which is inconsistent in any respect with the
information contained in the then current prospectus or in the Prospectus (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), as the case may be. It is understood by you that no
action has been taken to permit a public offering in any jurisdiction other
than the United States.
On becoming a Selected Dealer, and in offering and selling the
Shares, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), the 1934 Act and the NASD
Rules of Fair Practice. You confirm that you are familiar with Rule 15c2-8
under the 1934 Act relating to the distribution of preliminary and final
prospectuses for securities of an issuer (whether or not the issuer is subject
to the reporting requirements of Section 13 or 15(d) of the 1934 Act) and
confirm that you have complied and will comply therewith. You also confirm
that you are familiar with Release No. 4968 of the Securities and Exchange
Commission under the 1933 Act and that you have complied and will comply with
the requirements therein relating to the distribution of the Preliminary
Prospectus relating to the Shares.
The Underwriter shall have full authority as Underwriter to
take such action as it may deem advisable in respect of all matters pertaining
to the public offering of the Shares.
5. Miscellaneous. You will not give any information or
make any representations not contained in the Prospectus. No Selected Dealer
is authorized to act as agent for the Company or the Underwriter in offering or
selling the Shares to the public or otherwise.
The Underwriter will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
Upon application, the Underwriter will inform you as to the
states and other jurisdictions in which the Underwriter believes that the
Shares have qualified for sale under the respective securities or blue sky laws
of such states and other jurisdictions. You understand and agree that
compliance with the blue sky and securities laws in each jurisdiction where you
shall offer or sell any of the Shares shall be your sole responsibility and
that the Underwriter does not assume any obligation or responsibility as to the
rights of any Selected Dealer to sell the Shares in any state or other
jurisdiction or as to the eligibility of the Shares for sale therein.
All communications and notices relating to the subject matter
of this Agreement shall be addressed to Lew Lieberbaum & Co., Inc., 600 Old
Country Road, Garden City, New York 11530, attention: Neil Scott and to you at
the address set forth below and notices to you at such address shall be deemed
to have been duly given (a) five business days following the mailing thereof,
or (b) two business days following transmission by telecopier, telex or
telegraph to you.
Nothing herein will constitute us as partners, joint venturers
or an association with you, and you will be responsible for your share of any
liability or expense based on any claim to the contrary. The Underwriter shall
not be under any liability for or in respect of value,
4
<PAGE> 5
validity or form of the Shares or the delivery of the certificates for the
shares of Common Stock, or the performance by anyone of any agreement on its
part, or the qualification or registration of the Shares for sale under the
laws of any jurisdiction, or for or in respect of any other matter relating to
this Agreement, except for lack of good faith and for obligations expressly
assumed by the Underwriter in this Agreement, and no obligation on the
Underwriter's part shall be implied herefrom. The foregoing provisions shall
not be deemed a waiver of any liability imposed under the 1933 Act.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State, without regard to the conflict
of laws principles thereof. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original and all of which
together shall constitute the same instrument.
If you desire to purchase any Shares, please confirm your
application by signing and returning to us your confirmation on the duplicate
copy of this letter enclosed herewith, even though you may have previously
advised us thereof by telephone or telegraph. Our signature herein may be by
facsimile.
Very truly yours,
LEW LIEBERBAUM & CO., INC.
600 Old Country Road
Suite 518
Garden City, New York 11530
Telephone: (516) 745-1010
Facsimile: (516) 745-1026
By:________________________
Authorized Officer
Accepted and agreed to:
_______________________________
Name of Company
Address:
By:_______________________________
Authorized Representative
5
<PAGE> 6
APPLICATION TO SUBSCRIBE
Lew Lieberbaum & Co., Inc.
600 Old Country Road
Garden City, New York 11530
We hereby subscribe for _________________ Shares in accordance
with the terms and conditions stated in the foregoing letter agreement. We
hereby acknowledge receipt of the Prospectus referred to in the first paragraph
thereof relating to said Shares. We further state that in purchasing said
Shares we have relied upon said Prospectus and upon no other statement
whatsoever, whether written or oral. We confirm that we are a dealer actually
engaged in the investment banking or securities business and that we are either
(i) a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place of
business located outside the United States, its territories and its possessions
and not registered as a broker or dealer under the Securities Exchange Act of
1934, as amended, who hereby agrees not to make any sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein. We hereby agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and if we
are a foreign dealer and not a member of the NASD, we also agree to comply with
the NASD's interpretation with respect to free-riding and withholding, to
comply, as though we were a member of the NASD, with the provisions of Sections
8 and 36 of Article III of such Rules of Fair Practice, and to comply with
Section 25 of Article III thereof as that Section applies to non-member foreign
dealers.
___________________________
(Name of Company or Firm)
By: ___________________________
(Authorized Representative)
Address: ___________________________
Dated:__________, 1995 ___________________________
<PAGE> 1
EXHIBIT 4.2
UNDERWRITER'S WARRANT AGREEMENT
This UNDERWRITER'S WARRANT AGREEMENT is made as of _______, 1995
between ALL AMERICAN SEMICONDUCTOR, INC., a Delaware corporation (the
"Company"), and LEW LIEBERBAUM & CO., INC. (the "Underwriter").
RECITALS:
The Company proposes to issue and sell, pursuant to an Underwriting
Agreement dated ______, 1995, between the Company and the Underwriter (the
"Underwriting Agreement"), 4,550,000 shares of its Common Stock, par value $.01
per share (the "Common Stock"), to the Underwriter. The Company has also
granted the Underwriter an option to purchase up to an additional 682,500
shares of Common Stock (the "Over-Allotment Option").
The Company deems it advisable, in consideration for the benefits
provided to the Company by the Underwriter, to issue to the Underwriter
warrants (the "Warrants") entitling the holders thereof to purchase shares of
Common Stock in an amount equal to ten percent of the Common Stock sold to the
Underwriter pursuant to the Underwriting Agreement. The shares of Common Stock
issued upon exercise of the Warrants are referred to as the "Warrant Shares".
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of $10.00, the mutual agreements set forth herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto intending to be legally bound,
hereby agree as follows:
ARTICLE 1. ISSUANCE AND DELIVERY OF WARRANTS.
Section 1.01. Issuance of Warrants. On the Closing Date and
on the Option Closing Date, if any (as such terms are defined in the
Underwriting Agreement) the Company will issue and deliver Warrants in an
amount equal to ten percent of the shares of Common Stock sold to the
Underwriter pursuant to the Underwriting Agreement at such Closing Date or
Option Closing Date, if any, to the Underwriter or its designees, who shall be
persons to whom the Warrants could be transferred under Section 6.01. The
Warrants shall be substantially in the form of Exhibit A and in each such
denominations as shall have been requested by the Underwriter. Each Warrant
shall be dated the Closing Date or the Option Closing Date, as the case may be,
and shall be signed on behalf of the Company by the President or a Vice
President under its corporate seal reproduced thereon attested by the
Secretary.
ARTICLE 2. DURATION AND EXERCISE OF WARRANTS.
<PAGE> 2
Section 2.01. Duration of Warrants. Warrants may be
exercised on or after the first anniversary of the Effective Date (as defined
in the Underwriting Agreement) and prior to the close of business on the fifth
anniversary of the Effective Date, except as otherwise provided in Article 4
(such four year period is sometimes referred to herein as the "Exercise
Period"); provided, however, that notwithstanding anything to the contrary
contained herein, the Underwriter acknowledges and agrees that (i) on the date
hereof, the Company does not have the authorized and unissued shares of Common
Stock to be able to issue all of the shares of Common Stock underlying the
Warrants upon exercise thereof and (ii) only in the event and when (if at all)
the number of authorized shares of Common Stock is increased to at least
35,000,000 shares will the holders of the Warrants have the right to exercise,
in whole or in part, the Warrants. The Company will use its best efforts to
increase its authorized Common Stock to at least 35,000,000.
Section 2.02. Terms of Exercise. Each Warrant shall entitle
the holder thereof (the "Holder") to purchase the number of shares of Common
Stock stated therein, adjusted as provided in Article 3, upon payment of $_____
per share [140% of the public offering price] of Common Stock, adjusted as
provided in Article 3. Such price, as is in effect from time to time as
provided in Article 3, is referred to as the "Exercise Price".
Section 2.03. Exercise of Warrants.
(a) Subject to compliance with all of the provisions
hereof, a Warrant shall be exercised in whole or in part by surrendering it,
together with a subscription in the form appearing on the reverse side thereof
duly executed, accompanied by a certified or official bank check in payment of
the Exercise Price. Warrants may be surrendered at the principal office of the
Company.
(b) Subject to the proviso set forth in Section 2.01
hereof relating to the number of authorized shares of Common Stock and
compliance with all of the provisions hereof, Warrants shall be exercisable
during the Exercise Period at any time in whole or from time to time in part.
As soon as practicable after any Warrant has been so exercised (but in any
event within five business days thereafter), the Company shall without charge
issue and deliver or cause to be issued and delivered to, or upon the order of,
the holder of such Warrant, in such name or names as may be directed by such
holder, a certificate or certificates for the number of full Warrant Shares to
which such holder is entitled (rounded upwards in the case of any remaining
fractional interest in a Warrant Share) and, if such Warrant shall not have
been exercised in full, a new Warrant for the number of shares of Common Stock
as to which such Warrant shall not have been exercised. All Warrants so
surrendered shall be cancelled by or on behalf of the Company.
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<PAGE> 3
Section 2.04. Common Stock Issued Upon Exercise of Warrants.
(a) All Warrant Shares shall be duly authorized,
validly issued, fully paid and nonassessable subject to and limited by the
proviso set forth in Section 2.01 hereof relating to the number of authorized
shares of Common Stock. The Company shall pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares. The Company shall not
be required, however, to pay any tax imposed in connection with any transfer
involved in the issue of the Warrant Shares in a name other than that of the
holder of the Warrant who shall have exercised the same and in such event the
Company shall not be required to issue or deliver such Warrant Shares unless or
until the person requesting the issuance thereof shall have paid to the Company
the amount of any tax imposed in connection with such transfer or shall have
established that such tax, if any, has been paid.
(b) Irrespective of the date of issue of
certificates for any Warrant Shares, each person in whose name any certificate
is issued shall be deemed to have become the holder of record of the Warrant
Shares represented thereby on the date on which the Warrant was exercised as
and to the extent permitted hereunder and payment of the Exercise Price was
tendered as provided in Section 2.03.
ARTICLE 3. ANTI-DILUTION PROVISIONS.
Section 3.01. Adjustment of Exercise Price and Number of
Warrant Shares. The Exercise Price shall be subject to adjustment from time to
time as provided in this Article 3. Upon each adjustment of the Exercise
Price, each holder of Warrants shall be entitled to purchase as and to the
extent permitted hereunder, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant to the provisions of such Warrant immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment. Notwithstanding anything in this Section 3.01
to the contrary, the number of Warrant Shares issuable upon exercise of
Warrants shall not be increased if the Exercise Price is adjusted pursuant to
Section 3.02 or Section 3.03 unless the event giving rise to such adjustment in
the Exercise Price consists of the issuance of options, rights, warrants or
convertible securities to all holders of Common Stock entitling such holders to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock).
Section 3.02. Exercise Price Adjustment Formula. If, at any
time or from time to time after the date hereof, the Company shall issue or
sell any shares of Common Stock for a price per share which is less than the
Current Market Price (hereafter defined) in effect at the time of such issuance
or sale, then, and in each such case, the Exercise Price shall immediately be
reduced to the price determined by dividing (a) an amount equal to the sum of
(i) the product of the number of shares of Common Stock outstanding and deemed
(in
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<PAGE> 4
accordance with the provisions of Section 3.03) to be outstanding immediately
prior to such issue and sale times the Exercise Price in effect at the time of
such issuance or sale and (ii) the total consideration, if any, received and
deemed (in accordance with the provisions of Section 3.03) to be received by
the Company upon such issue and sale by (b) the total number of shares of
Common Stock outstanding and deemed (in accordance with the provisions of
Section 3.03) to be outstanding immediately after such issue or sale; provided,
however, that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such adjustment, except in the case of a combination of outstanding
shares of Common Stock, as provided in Section 3.06. As used herein, the
phrase "Current Market Price" at any day or date shall be deemed to be the last
reported sale price on such day or date, or, in case no such reported sale
takes place on such day or date, the average of the last reported sales prices
for the last three (3) trading days, in either case as officially reported by
the principal securities exchange on which the Common Stock is listed or
admitted to trading or by The Nasdaq-Stock Market, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange or quoted
by The Nasdaq-Stock Market, the average of the closing bid prices over the last
three (3) trading days as furnished by the NASD through NASDAQ or a similar
organization if NASDAQ is no longer reporting such information, or if the
Common Stock is not quoted on NASDAQ, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.
Section 3.03. Constructive Issuance of Common Stock,
Convertible Securities, Rights and Options.
(a) If the Company at any time or from time to time after
the date hereof shall issue, sell or grant any rights or options (collectively
referred to as "options") to subscribe for or purchase any shares of Common
Stock or any securities (collectively referred to as "convertible securities")
convertible into or exchangeable for shares of Common Stock, whether or not any
such options or the right to convert or exchange any such convertible
securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such options or upon conversion
or exchange of such convertible securities (determined by dividing (i) the
total consideration, if any, received or receivable by the Company for the
issue, sale or the granting of such options, plus the minimum amount of
additional consideration payable to the Company upon the exercise of such
options, plus in the case of any such options which relate to convertible
securities any additional consideration payable to the Company upon the issue
or sale of such convertible securities and upon the conversion or exchange
thereof by (ii) the maximum number of shares of Common Stock issuable upon the
exercise of such options or upon the conversion or exchange of such convertible
securities) shall be less than the Current Market Price in effect as of the
time of the issuance, sale
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<PAGE> 5
or granting of such options, the maximum number of shares of Common Stock
issuable upon the exercise of such options or upon conversion or exchange of
all convertible securities issuable upon the exercise of such options shall be
deemed, upon the issuance, sale or granting of such options, to be outstanding
and to have been issued for such price per share. Except as provided in
Section 3.03(c), no further adjustment of the Exercise Price shall be made upon
the issue or sale of shares of Common Stock upon the actual exercise of such
options or the conversion or exchange of such convertible securities.
(b) If the Company at any time or from time to time after
the date hereof shall issue or sell any convertible securities (other than
securities referred to in Section 3.03(a)), whether or not the right to convert
or exchange any such convertible securities is immediately exercisable, and the
price per share for which the Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total consideration, if any, received
or receivable by the Company for the issue or sale of such convertible
securities, plus the minimum amount of additional consideration payable to the
Company upon the conversion or exchange of such convertible securities by (ii)
the maximum number of shares of Common Stock issuable upon the conversion or
exchange of such convertible securities) shall be less than the Current Market
Price in effect as of the time of such issue or sale, the maximum number of
shares of Common Stock issuable upon conversion or exchange all of such
convertible securities shall be deemed, upon the issue or sale of such
convertible securities, to be outstanding and to have been issued for such
price per share. Except as provided in Section 3.03(c), no further adjustment
of the Exercise Price shall be made upon the issue or sale of shares of Common
Stock upon conversion or exchange of any such convertible securities.
(c) If the exercise price provided for in any option
referred to in Section 3.03(a), or the rate at which any convertible security
referred to in Section 3.03(a) or (b) is convertible into or exchangeable for
shares of Common Stock, shall change or a different exercise price or rate
shall become effective at any time or from time to time, the Exercise Price
shall immediately be adjusted to the Exercise Price which would have obtained
had the adjustments made and required to be made under this Section 3.03 upon
the issuance or sale of such options or such convertible securities been made
at such time upon the basis of (i) the issuance of the number of shares of
Common Stock theretofore delivered upon the exercise of such options or upon
the conversion or exchange of such convertible securities and the total
consideration received therefor, and (ii) the issuance of all shares of Common
Stock and all other options or convertible securities and the total
consideration received therefor. On the expiration of any such option or the
termination of any such right to convert or exchange any such convertible
securities, the Exercise Price shall immediately be adjusted to the Exercise
Price which would have obtained (iii) had the adjustments made upon the
issuance of such options or such convertible securities been made upon the
issuance of only the number of shares of Common Stock, if any, actually
delivered and the total consideration received therefor upon the exercise or
expiration of such options or upon the conversion or exchange of such
convertible securities and (iv) had adjustments been made on the basis of the
Exercise Price as adjusted under clause (iii) of this Section 3.03(c) for all
issues or sales of shares of Common Stock, options or convertible securities
made after the original issuance of such options or convertible securities. If
the exercise price provided for in any option referred to in Section
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<PAGE> 6
3.03(a), or the rate at which any convertible security referred to in Section
3.03(a) or (b) is convertible or exchangeable for shares of Common Stock, shall
decrease at any time pursuant to applicable provisions thereof designed to
protect against dilution, the Exercise Price shall immediately be decreased in
the case of delivery of shares of Common Stock upon the exercise of any such
option or upon the conversion or exchange of any such convertible securities,
to the Exercise Price which would have obtained had the adjustments made upon
the issue or sale of such option or such convertible security been made upon
the basis of the issuance of the shares of Common Stock so delivered and the
total consideration received therefor. No adjustment pursuant to this clause
(c) shall have the effect of increasing the Exercise Price by an amount in
excess of the amount of the adjustment therefor originally made in respect of
the issue, sale or grant of options or convertible securities.
(d) If any shares of Common Stock or any convertible
securities or any option shall be issued or sold for cash, the consideration
received by the Company shall be deemed to be the amount payable to the Company
therefor without deduction of any expense or cost of any kind incurred or any
underwriting commission, concession or discount paid or allowed by the Company
in connection therewith. If any shares of Common Stock or any convertible
securities or any option shall be issued or sold for a consideration other than
cash, the consideration received by the Company shall be deemed to be the fair
market value of such consideration as determined in good faith by the Board of
Directors of the Company without deduction of any expense or cost of any kind
incurred or any underwriting commission, concession or discount paid or allowed
by the Company in connection therewith and shall include any amounts payable by
security holders or any affiliate thereof. If any shares of Common Stock or
any convertible securities or any option shall be issued in connection with a
merger of another corporation into the Company, the consideration received by
the Company shall be deemed to be the fair value as determined in good faith by
the Board of Directors of the Company of such portion of the assets of such
merged corporation as the Board of Directors shall determine to be attributable
to such shares of Common Stock or such option or convertible securities, as the
case may be.
Section 3.04. Stock Dividends. If the Company shall at any
time or from time to time declare a dividend or any other distribution upon any
capital stock which is payable in shares of Common Stock, then and in each such
case, the Exercise Price shall be reduced to the quotient obtained by dividing
(i) the number of shares of Common Stock outstanding and deemed (in accordance
with the provisions of Section 3.03) to be outstanding immediately prior to
such declaration multiplied by the then effective Exercise Price by (ii) the
total number of shares of Common Stock outstanding and deemed (in accordance
with the provisions of Section 3.03) to be outstanding immediately after such
declaration. All shares of Common Stock and all options and convertible
securities issuable in payment of any dividend or other distribution upon the
capital stock of the Company shall be deemed to have been issued or sold
without consideration.
Section 3.05. Extraordinary Dividends and Distributions.
If the Company shall at any time or from time to time after the date hereof
declare a dividend or any other distribution
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<PAGE> 7
(however effectuated) upon the Common Stock payable otherwise than out of
current earnings, retained earnings or earned surplus and otherwise than in
shares of Common Stock, preferred stock or convertible securities, then and in
each such case, the Exercise Price shall be reduced by an amount equal, in the
case of a dividend or distribution in cash, to the amount thereof payable per
share of Common Stock or, in the case of any other dividend or other
distribution, to the fair value thereof per share of Common Stock at the time
such dividend or other distribution was declared, as determined in good faith
by the Board of Directors of the Company. A dividend or distribution other
than in cash shall be considered payable out of current earnings, retained
earnings or earned surplus only to the extent that such current earnings,
retained earnings or earned surplus are charged an amount equal to the fair
value of such dividend or distribution as determined in good faith by the Board
of Directors of the Company.
Section 3.06. Stock Splits and Reverse Stock Splits. If
the Company shall at any time or from time to time subdivide its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price
shall be proportionately reduced and the number of Warrant Shares issuable upon
exercise of each Warrant shall be proportionately increased. If the Company
shall combine the outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be proportionately increased and the number of
Warrant Shares issuable upon exercise of each Warrant shall be proportionately
decreased.
Section 3.07. Reorganizations and Asset Sales. If any
capital reorganization or reclassification of the Company, or any consolidation
or merger of the Company with another corporation, or the sale of all or
substantially all of the assets of the Company shall be effected in such a way
that the holders of the Common Stock shall be entitled to receive securities or
assets with respect to or in exchange for shares of Common Stock, adequate
provision shall be made, prior to and as a condition of such reorganization,
reclassification, consolidation, merger or sale, whereby each holder of
Warrants shall have the right to receive, upon the terms and conditions
specified herein and in lieu of the Warrant Shares otherwise receivable upon
the exercise of such Warrants, such securities or assets as may be issued or
payable with respect to or in exchange for the number of outstanding shares of
Common Stock equal to the number of Warrant Shares that would otherwise have
been receivable had such reorganization, reclassification, consolidation,
merger or sale not taken place. In any such case appropriate provision shall
be made with respect to the rights and interests of such holder so that the
provisions of this Agreement shall be applicable with respect to any securities
or assets thereafter deliverable upon exercise of the Warrants. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the survivor or successor
corporation resulting from such consolidation or merger or the purchaser of
such assets shall assume by written instrument delivered to each holder of
Warrants the obligation to deliver to such holder such securities or assets as
such holder may be entitled to receive. This Section shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers or
sales.
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<PAGE> 8
Section 3.08. Form of Warrant. The form of Warrant need
not be changed because of any adjustment to the Exercise Price or any change in
the amount or nature of securities issuable or deliverable pursuant to this
Article 3, and Warrants issued after such change may state the same number of
shares issuable in exchange for the Warrants as is stated in the Warrants
initially issued pursuant to this Agreement. The Company may at any time
change the form of Warrants to reflect any such change in the amount or nature
of securities issuable or deliverable upon exercise, provided such change in
form does not otherwise affect the substance thereof.
Section 3.09. Elimination of Fractional Interests. The
Company shall not be required to issue certificates representing fractions of
shares of Common Stock upon the exercise of Warrants, nor shall it be required
to issue scrip or pay cash in lieu of such fractional interests, it being the
intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the next whole number of shares of Common Stock or
other securities, properties or rights.
Section 3.10. Notice of Change in Shares Issuable, etc..
Whenever there is an adjustment pursuant to this Section or whenever the
security issuable or deliverable upon exercise of the Warrants is changed
pursuant to this Article 3, the Company shall promptly deliver to all of the
record holders of Warrants at their respective addresses registered with the
Company a certificate executed by its chief financial officer, setting forth in
reasonable detail the facts requiring the change and specifying the effective
date of such change and the number or amount of, and describing the shares or
other securities issuable or deliverable in exchange for, each Warrant as so
changed. The Company shall also mail a copy of such a notice to the
Underwriter. Failure to file such statement or to publish such notice, or any
defect in such statement or notice, shall not affect the legality or validity
of any such change.
Section 3.11. Other Dilutive Events. In case any event
shall occur as to which the provisions of this Article 3 are not strictly
applicable but the failure to make any adjustment would not in the opinion of
any holder of a Warrant fairly protect the purchase or conversion rights
represented by any Warrant in accordance with the essential intent and
principles of such Article, then, in each such case, upon the written request
of such holder, the Company shall appoint a firm of independent certified
public accountants of recognized national standing (which may be the regular
auditors of the Company), which shall give their opinion upon the adjustment,
if any, on a basis consistent with the essential intent and principles
established in this Article, necessary to preserve, without dilution, the
purchase or conversion rights represented by such Warrant. Upon receipt of
such opinion, the Company will promptly mail a copy thereof to the holder of
such Warrant and shall make the adjustments, if any, described therein.
Section 3.12. No Dilution or Impairment. The Company will
not, by amendment of its certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to
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<PAGE> 9
avoid the observance or performance of any of the terms of this Agreement or
any Warrant, but will at all times in good faith assist in carrying out all of
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of each holder of a Warrant against
dilution or other impairment.
Section 3.13. No Adjustment of Exercise Price in Certain
Cases. No Adjustment of the Exercise Price under any provision of this Article
3 or otherwise shall be made:
(a) in an amount less than ten (10) cents per share, but
any lesser adjustment shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to ten (10) cents per share or
more; and
(b) in connection with the issuance or sale of shares of
Common Stock pursuant to (x) options, warrants, other rights, and convertible
or exchangeable securities outstanding or in effect on the date hereof
(including pursuant to the Existing Rights and New Options, as defined in the
Company's Prospectus, dated ____, 1995) or (y) options issuable from time to
time pursuant to the Company's existing stock option plan, as amended from time
to time, as described in the Prospectus, provided such options are not issued
or granted at an exercise price below fair market value on the date of grant.
In addition, Holders shall not be entitled to cash or other dividends paid by
the Company on the Common Stock prior to the exercise of any Warrant held by
them.
ARTICLE 4. LIQUIDATION, MERGER, ETC.
Section 4.01. Notice to Warrantholders. Nothing contained
in this Agreement shall be construed as conferring upon the holders of Warrants
the right to vote or to consent or to receive notice as a stockholder in
respect of any meetings of stockholders for the election of directors or any
other matter or as having any rights whatsoever as a stockholder of the
Company. If, however, at any time prior to the expiration of the Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall authorize the issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
capital stock of the Company or of any other subscription rights or warrants;
or
(b) the Company shall authorize the distribution to all
holders of Common Stock of evidences of its indebtedness or assets (other than
regular cash dividends or cash distributions payable out of current earnings,
retained earnings or earned surplus or dividends payable in Common Stock); or
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<PAGE> 10
(c) there shall be proposed any consolidation or merger
to which the Company is to be a party and for which approval of the holders of
Common Stock is required, or the conveyance or transfer of the properties and
assets of the Company substantially as an entirety; or
(d) there shall be proposed the voluntary or involuntary
dissolution, liquidation or winding up of the Company; then the Company shall
cause to be given to the Underwriter and to each holder of Warrants at the
address registered with the Company, by first-class mail, postage prepaid, a
written notice stating (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such rights, warrants or
distribution are to be determined or (ii) the date on which any consolidation,
merger, conveyance, transfer, reorganization, reclassification, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange the shares for securities or other property, if any,
deliverable upon the consolidation, merger, conveyance, transfer,
reorganization, reclassification, dissolution, liquidation or winding up. Such
notice shall be filed and mailed in the case of a notice pursuant to clause (i)
above at least 10 calendar days before the record date specified and in the
case of a notice pursuant to clause (ii) above at least 15 calendar days before
the earlier of the dates specified.
Section 4.02. Expiration Date of Warrants. From the time
notice is required to be given pursuant to Section 4.01, the holders of
Warrants shall be entitled to exercise such Warrants regardless of the
provisions of Section 2.01 (other than the proviso to Section 2.01 hereof
relating to the number of authorized shares of Common Stock) and the right to
exercise the Warrants shall expire at the later of the time specified in
Section 2.01 or the close of business on the date specified in such notice as
the record date for determining holders of shares of Common Stock entitled to
receive any right, warrant or distribution of the type referred to in Section
4.01(a) or Section 4.01(b) or the later of the dates specified in such notice
as the date on which any consolidation, merger, conveyance, transfer,
reorganization, reclassification, dissolution, liquidation or winding up is
expected to become effective and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon the
consolidation, merger, conveyance, transfer, reorganization, reclassification,
dissolution, liquidation or winding up.
ARTICLE 5. OTHER PROVISIONS FOR PROTECTION OF WARRANTHOLDERS.
Section 5.01. Reservation and Listing of Shares. The
Company shall at all times reserve and keep available such number of shares of
its authorized but unissued shares of Common Stock as shall from time to time
be sufficient to permit the exercise of all outstanding Warrants subject to and
limited by the fact that on the date of this Agreement, the Company
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<PAGE> 11
does not currently have sufficient authorized and unissued shares and that the
exercisability of Warrants is limited as set forth in the proviso to Section
2.01 hereof relating to the number of authorized shares of Common Stock. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient for such purpose, the Company shall take such action as, in the
opinion of its counsel, may be necessary to increase its authorized but
unissued Common Stock to such number of shares as shall be sufficient for such
purpose; provided, however, that the Company shall only be required to comply
with this provision after the number of authorized shares of the Company's
Common Stock is increased to 35,000,000. Subject to the foregoing and the
proviso to Section 2.01 hereof relating to the number of authorized shares of
Common Stock, the Company covenants and agrees that all Common Stock issuable
upon exercise of the Warrants will, upon issuance, be duly and validly issued,
fully paid and non-assessable and no liability will attach to the holders
thereof by reason of being such a holder. Prior to the issuance of any Warrant
Shares, the Company shall secure the listing of such Warrant Shares upon The
Nasdaq Stock Market and/or any other securities exchange upon which shares of
Common Stock are then listed.
Section 5.02. Lost and Misplaced Warrant Certificates. If
any Warrant becomes lost, stolen, mutilated or destroyed, the Company shall, on
such terms as to indemnity or otherwise as it may in its discretion reasonably
impose (without security in the case of the Underwriter and its officers, issue
a new Warrant of like denomination, tenor and date as the Warrant so lost,
stolen, mutilated or destroyed. Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall at any time be enforceable
by anyone.
Section 5.03. Enforcement of Warrant Rights. All rights of
action are vested in the respective holders of the Warrants. Any holder of any
Warrant may, in his own behalf and for his own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company
suitable to enforce, or otherwise in respect of, his right to exercise his
Warrant for the purchase of the number of Warrant Shares issuable or
deliverable in exchange therefor, in the manner provided in the Warrant and in
this Agreement.
ARTICLE 6. TRANSFER AND OWNERSHIP OF WARRANTS.
Section 6.01. Negotiability and Ownership. The Warrants
issued hereunder shall not be sold, transferred, assigned or hypothecated by
the holders thereof prior to one year from the Effective Date except (a) to
successors of the holder and persons who are officers of the Underwriter or
officers or partners of dealers who are designated as such pursuant to any
Selected Dealers Agreement entered into in connection with the offering
contemplated by the Underwriting Agreement, or (b) in the case of an
individual, pursuant to such individual's last will and testament or the laws
of descent and distribution and, in any case, only in compliance with the
Securities Act of 1933, as amended, and any applicable state securities laws.
For the purposes of this Section 6.01, the term "officers" shall refer to those
persons
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<PAGE> 12
who are officers of Lew Lieberbaum & Co., Inc. on the date hereof and those
persons who become officers at any time before the expiration of the Warrants
regardless of whether such persons are officers of Lew Lieberbaum & Co., Inc.
at the time they transfer or assign a Warrant. Any attempted transfer in
contravention of this Section shall be null and void. The Warrants shall not
be sold, transferred, assigned or hypothecated during the period prior to one
year from the Effective Date except as specifically permitted by this Section
6.01.
Section 6.02. Exchange of Warrants. Upon the issuance and
prior to the expiration thereof, one or more Warrants may be surrendered at the
principal office of the Company for exchange and, upon cancellation thereof,
one or more new Warrants shall at the Company's expense be issued as requested
by the holder of the cancelled Warrant or Warrants for the same aggregate
number of shares as were issuable in exchange for the Warrant or Warrants so
cancelled.
Section 6.03. Restriction on Transfer of Warrants. The
Holder of a Warrant, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to resale or
to distribution thereof; and that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, except in
accordance with applicable state and federal securities laws.
ARTICLE 7. LEGENDS.
Section 7.01. Warrant Legend. Each Warrant shall contain a
legend in substantially the following form:
"THIS WARRANT IS SUBJECT TO THE CONDITIONS SPECIFIED
IN THE AGREEMENT, DATED __________, 1995, BETWEEN ALL AMERICAN
SEMICONDUCTOR, INC. AND LEW LIEBERBAUM & CO., INC. NO
TRANSFER IN VIOLATION OF SAID AGREEMENT SHALL BE EFFECTIVE."
Section 7.02. Warrant Share Legend. Each certificate
representing Warrant Shares shall, until registered pursuant to Article 8,
contain a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD OR TRANSFERRED WITHOUT AN EFFECTIVE AND CURRENT
REGISTRATION STATEMENT OR POST-EFFECTIVE AMENDMENT THERETO FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND
COMPLIANCE WITH
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<PAGE> 13
ALL APPLICABLE STATE SECURITIES LAWS OR EXCEPT PURSUANT, TO
THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT OR AN OPINION
OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
THAT REGISTRATION IS NOT REQUIRED UNDER THAT ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS."
ARTICLE 8. REGISTRATION RIGHTS.
Section 8.01. Piggyback Registration. If, at any time during the
Exercise Period after which the Company's authorized shares of Common Stock
have been increased to at least 35,000,000, the Company proposes to register
any of its securities under the Securities Act of 1933, as amended (the "Act")
(other than in connection with a merger, reorganization, combination,
consolidation, exchange offer, acquisition or similar transaction or stock
option, stock rights or purchase or dividend reinvestment plan or pursuant to a
Form S-8, S-4 or similar or successor forms) it will give written notice by
certified mail, return receipt requested at least ten (10) days prior to the
filing of each such registration statement, to the Underwriter and to all
Holders of Warrants and/or Warrant Shares of its intention to do so. Such
notice shall continue to be given by the Company with respect to any future
registrations so long as any Warrants or Warrant Shares remain to be
registered. If the Underwriter or any Holders of the Warrants and/or Warrant
Shares notify the Company within ten (10) days after receipt of any such notice
of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford each of the Underwriter and
such Holders of the Warrants and/or Warrant Shares the opportunity to have any
such Warrants and/or Warrant Shares registered under such registration
statement. Notwithstanding the foregoing, if, in the written opinion the
Company's managing underwriter, if any, for such offering , the inclusion of
the Warrants and/or Warrant Shares requested to be registered, when added to
the securities being registered by the Company or the selling shareholder(s),
will exceed the maximum amount of the Company's securities which can be
marketed without otherwise materially and adversely affecting the entire
offering (a copy of which opinion shall be furnished to the Underwriter), then
the Company may exclude from such offering all or any portion of the Warrants
or Warrant Shares requested to be so registered, but only if no securities are
included in such post-effective amendment or registration statement other than
securities being sold for the account of the Company or by selling security
holders or shareholders which have demanded or requested such registration
pursuant to an existing agreement as of the date hereof which grants
registration rights, in which case the Company will include in such
registration (i) first, the securities which the Company proposes to sell, (ii)
second, any securities demanded or requested to be included pursuant to
existing agreements as of the date hereof which give the holders thereof a
priority over the Holders in connection with the registration of their
securities, (iii) third, any securities requested to be included therein by the
holder requesting such registration pursuant to a demand registration right,
pro rata among such holders, and (iv) fourth, any Warrant Shares or other
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<PAGE> 14
securities requested to be included, pro rata (calculated on the basis of the
shares requested to be registered) among the Holders and any security holders
or shareholders which have requested registration pursuant to piggyback
registration rights granted to them. Each holder of Warrants and/or Warrant
Shares for the account of which any such securities are included in such
registration statement shall agree, if requested by the Company not to sell any
other shares of Common Stock, or securities through which Common Stock may be
acquired, for a period of ninety (90) days after the effective date of such
post-effective amendment or new registration statement. The Company shall bear
all fees and expenses incurred by it in connection with the preparation and
filing of such post-effective amendment or new registration statement (other
than the fees and costs of the Underwriters' counsel, if any, and other than
the underwriting discounts and commissions).
Notwithstanding the above provisions of this Section 8.01, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 8.01 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement or to withdraw the same after the
filing but prior to the effective date thereof.
Section 8.02. Demand Registration.
(a) At any time during the Exercise Period after which the Company's
authorized shares of Common Stock have been increased to at least 35,000,000,
the Holders of the Warrants and/or Warrant Shares representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Warrants) shall have the right (which right is in addition to the registration
rights under Section 8.01 hereof), exercisable by written notice to the
Company, to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission") on one occasion only, a registration statement
and such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Underwriter and
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Warrants and/or Warrant Shares for
six (6) consecutive months by Holders and any other Holders of the Warrants
and/or Warrant Shares who notify the Company within ten (10) days after
receiving notice from the Company of such request. The Company covenants and
agrees to give written notice of any registration request under this Section
8.02 by any Holder or Holders to all other registered Holders of the Warrants
and the Warrant Shares within ten (10) days from the date of the receipt of any
such registration request.
(b) In addition to the registration rights under Section 8.01 and
subsection (a) of this Section 8.02, at any time during the Exercise Period
after which the Company's authorized shares of Common Stock have been increased
to at least 35,000,000, the Holders of Warrants and/or Warrant Shares
representing a Majority of such securities shall have the right on one
additional occasion only, exercisable by written request to the Company, to
have the Company
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<PAGE> 15
prepare and file, with the Commission a registration statement so as to permit
a public offering and sale for six (6) consecutive months by any such Holder of
its Warrants and/or Warrant Shares; provided, however, that the costs and
expenses incident thereto (other than fees and expenses of any other selling
holder, if any) shall be at the expense of the Holder or Holders making such
request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company, in lieu of filing a registration statement for the Warrants and/or
Warrant Shares pursuant to the written notice specified in Section 8.02(a) or
8.02(b) of a Majority of the Holders of the Warrants and/or Warrant Shares,
elects in writing within 10 days after receipt of such notice, it shall
repurchase from the Holders requesting such registration (i) the shares of
Common Stock constituting the Warrant Shares which are outstanding for a price
per share equal to 93% of the greater of Current Market Price of such shares on
the date of the notice sent pursuant to Section 8.02(a) or 8.02(b), as the case
may be, and (ii) the outstanding Warrants for a price per Warrant equal to the
positive difference, if any, between the 93% Current Market Price of the Common
Stock underlying such Warrant on the dates specified above and the then
applicable Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within twenty (20) days after the
later of the delivery of the written notice of election specified in this
Section.
(d) Notwithstanding anything to the contrary contained herein, the
Underwriter acknowledges that the registration rights granted by the Company
under this Agreement are subject to certain rights heretofore granted by the
Company under the 1992 Underwriting Agreement (as defined in the Underwriting
Agreement).
Section 8.03. Covenants With Respect to Registration. In connection
with any registration under Section 8.01 or 8.02 hereof, the Company and/or
the Holders, as the case may be, covenant and agree as follows:
(a) The Company shall use its best efforts to file a registration
statement within ninety (90) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time but in any event within 180 days after receipt of such
demand therefor, and shall furnish each Holder desiring to sell Warrants and/or
Warrant Shares such number of prospectuses as shall reasonably be requested
(provided that, if the Company would be required to accelerate the completion
of its annual audit in order to register the Warrants or Warrant Shares, the
Company shall have one hundred twenty (120) days within which to file a
registration statement). Time is of the essence in connection with the
Company's obligation under this Section.
(b) The Company shall pay all costs (excluding fees and expenses of
Holders' counsel and any underwriting or selling discounts, commissions or
expenses on the sale of the Warrants and/or Warrant Shares), fees and expenses
in connection with all registration statements filed
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<PAGE> 16
pursuant to Sections 8.01 and 8.02(a) hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, blue sky fees and
expenses. The Holder(s) will pay all costs, fees and expenses in connection
with any registration statement filed pursuant to Section 8.02(b) (other than
fees and expenses of any other selling holder). If the Company shall fail to
comply with the provisions of Section 8.03(a), the Company shall, in addition
to any other equitable or other relief available to the Holder(s), extend the
Exercise Period by such number of days as shall equal the delay caused by the
Company's failure.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrants and/or Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of states identified by the Holder(s), provided that the Company shall not
be obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrants and/or
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in the Underwriting Agreement.
(e) The Holder(s) of the Warrants and/or Warrant Share to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, in writing for specific inclusion in such registration statement
with respect to the Holders and the plan of distribution of securities held by
the Holder(s) to the same extent and with the same effect as the provisions
contained in the Underwriting Agreement pursuant to which the Underwriter has
agreed to indemnify the Company.
(f) The Company shall not permit the inclusion of any securities
other than the Warrants and/or Warrant Shares to be included in any
registration statement filed pursuant to Section 8.02(a) hereof, or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 8.02(a) hereof, without
the prior written consent of the Holders of the Warrants and Warrant Shares
representing a Majority
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<PAGE> 17
of such securities except to the extent an existing agreement as of the date
hereof requires the Company to permit any securities to be included in such
registration statement.
(g) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
each such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and the accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(h) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event by the 90th day after
completion of the full fiscal year subsequent to the fiscal year in which the
registration statement becomes effective, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(i) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below and
the managing underwriters copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriters to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. ("NASD"). Such investigation shall include reasonable
access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(j) The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrants and/or Warrant Shares and
may, at their option, require that any or all the representations, warranties
and covenants of the Company to or for the benefit of such underwriters shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company
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<PAGE> 18
or the underwriters except as they may relate to such Holders and their
intended methods of distribution or otherwise requested strictly in connection
with applicable securities laws.
(k) For purposes of this Agreement, the term " Majority" in reference
to the Holders of Warrants and/or Warrant Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants and Warrant Shares that (i) are
not held by the Company, an affiliate, officer, director (except a designee of
the Underwriter), employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(l) Holders of Warrants and Warrant Shares agree that if there is a
currently effective registration statement covering such Holders Warrants
and/or Warrant Shares, then such Holder will not be able to demand registration
or exercise piggyback registration rights with respect to such Warrants and/or
Warrant Shares covered by such registration statement during the period that
such registration statement is effective.
ARTICLE 9. MISCELLANEOUS PROVISIONS.
Section 9.01. Applicable Law. This Agreement and the
Warrants shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the conflict of laws provisions
thereof.
Section 9.02. Notices. (a) Any notice pursuant to this
Agreement to be given to the Company shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed (until another address is sent in
writing by the Company to the holders) as follows:
All American Semiconductor, Inc.
16115 Northwest 52nd Avenue
Miami, Florida 33014
Attention: President
(b) All notices pursuant to this Agreement to be given to a
Holder shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed to a Holder, at its address as shown on the books of the
Company.
Section 9.03. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Underwriter shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
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<PAGE> 19
Section 9.04. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than
the Company and the Underwriter and the holders of the Warrants or Warrant
Shares any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sole and exclusive benefit of the Company and
the Underwriter and the holders of the Warrants or Warrant Shares.
Section 9.05. Headings. The section headings herein are
for convenience only and are not part of this Agreement and shall not affect
the interpretation hereof.
Section 9.06. Counterparts. This Agreement may be executed
in any number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument. It shall not be necessary in
making proof of this Agreement to account for more than one counterpart.
Section 9.07. Specific Performance. The Company stipulates
that the remedies at law for the holders of Warrants or Warrant Shares in the
event of any default or threatened default by the Company in compliance with
any of the terms of this Agreement or a Warrant or Warrant Shares are not and
will not be adequate, and that, to the extent permitted by applicable law, such
terms may be specifically enforced (by injunction or decree of specific
enforcement or otherwise).
Section 9.08. Entire Agreement. This Agreement (including
the Exhibits) and the Warrant certificates embodies the entire agreement and
understanding relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 9.09. Submission to Jurisdiction. The Company, the
Underwriter and the Holders hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern or Eastern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum and
also hereby irrevocably waive any right or claim to trial by jury in connection
with any such action, proceeding or claim. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to such other party at the address set
forth in Section 9.02 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Underwriter and the Holders agree that
the prevailing party(ies) shall be entitled to recover all of its/their
reasonable legal costs and
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<PAGE> 20
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
ARTICLE 10. TERMINATION AND AMENDMENT.
Section 10.01. Termination upon Failure of Closing. Anything
herein contained to the contrary notwithstanding, this Agreement shall
terminate and all Warrants granted hereunder shall be null and void in the
event that the Underwriting Agreement shall have been terminated prior to the
closing on the Closing Date.
Section 10.02. Amendment. This Agreement may only be amended
by a written instrument executed by the Company and by (a) the holders of at
least 90% of the then outstanding Warrants in the case of amendments to Article
2 or Article 3 and (b) the holders of at least two-thirds of the then
outstanding Warrants in the case of any other amendment, provided that, if any
such amendment affects the rights of holders of Warrant Shares as well, then
such amendment must be executed by the holders of Warrants or Warrant Shares or
both representing two-thirds of the total number of such Warrants and Warrant
Shares.
IN WITNESS WHEREOF, the parties hereto have caused this Underwriter's
Warrant Agreement to be duly executed, all as of the day and year first above
written.
ALL AMERICAN SEMICONDUCTOR, INC.
By:__________________________
Bruce M. Goldberg
President
[CORPORATE SEAL]
Attest:
_________________________
LEW LIEBERBAUM & CO., INC.
By:__________________________
Leonard A. Neuhaus
Chief Financial Officer and
Chief Operating Officer
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<PAGE> 21
EXHIBIT A
THIS WARRANT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
AGREEMENT, DATED ________, 1995, BETWEEN ALL AMERICAN
SEMICONDUCTOR, INC. AND LEW LIEBERBAUM & CO., INC. NO TRANSFER
IN VIOLATION OF SAID AGREEMENT SHALL BE EFFECTIVE. THE
WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE SOLD OR
TRANSFERRED WITHOUT AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT OR POST-EFFECTIVE AMENDMENT THERETO FOR SUCH
WARRANTS AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE
THEREOF (AS THE CASE MAY BE) UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS OR EXCEPT, PURSUANT TO THE EXTENT APPLICABLE, RULE 144
UNDER SUCH ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER THAT ACT OR SUCH APPLICABLE STATE SECURITIES LAWS.
Warrant to Purchase
_______________________
shares of Common Stock,
as herein described
No. W(U) - __________________
ALL AMERICAN SEMICONDUCTOR, INC.
(a Delaware corporation)
_________________________
COMMON STOCK PURCHASE WARRANT
_________________________
This Warrant Will Be Void After _______________, 2000.
_________________________
<PAGE> 22
This certifies that
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(herein called the Holder)
is entitled to purchase, at any time after _______, 1996 and on or before
_______, 2000, _________ fully paid and nonassessable shares of Common Stock,
par value $.01 per share, of ALL AMERICAN SEMICONDUCTOR, INC., a corporation
duly organized and existing under the laws of the State of Delaware (the
"Company"), at the exercise price of $___ per share [140% of public offering
price] (but the number of shares issuable in exchange for this Warrant and the
exercise price therefor may be changed from time to time, upon the occurrence
of certain events as provided in the Underwriter's Warrant Agreement
hereinafter described) by surrendering this Warrant, with the subscription form
on the reverse side hereof duly executed, at the principal office of the
Company, and by paying, in lawful money of the United States or by certified or
official bank check, the exercise price for the number of shares in exchange
for which this Warrant is exercised, but only subject to and in compliance with
all of the conditions set forth herein and in the Underwriter's Warrant
Agreement.
This Warrant is one of a duly executed issue of Common Stock Purchase
Warrants evidencing the right to purchase Common Stock of the Company, and is
issued under and in accordance with an Underwriter's Warrant Agreement
authorized by the Board of Directors of the Company and dated as of ______,
1995 (the "Warrant Agreement") and is subject to the terms, provisions,
limitations and restrictions contained in the Warrant Agreement all of which
are hereby incorporated by reference and made part hereof and, to all of which
the holder of this Warrant, by acceptance hereof, consents. A copy of the
Warrant Agreement may be obtained by the holder upon written request to the
Secretary of the Company.
In certain events provided for in the Warrant Agreement, the shares of
Common Stock issuable upon the exercise of this Warrant may be changed as
therein provided. No fractional shares will be issued upon the exercise of
this Warrant, but in lieu of any fractional interest the Company shall round
upward to the next whole number, as provided in the Warrant Agreement. Upon
any partial exercise of this Warrant, there shall be executed and issued to or
upon the order of the holder a new Warrant in respect of the shares of Common
Stock as to which this Warrant shall not have been exercised.
Warrants shall be transferable of record only by the Company.
This Warrant does not entitle any holder to any of the rights of a
shareholder of the Company.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Common Stock Purchase Warrant (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose
of exercise hereof or for any and all other purposes, and the Company shall not
be effected by any notice to the contrary.
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Common Stock Purchase
Warrant Certificate to be duly executed under its corporate seal.
Dated as of _______________, 1995.
ALL AMERICAN SEMICONDUCTOR, INC.
By:_________________________
President
[Seal]
Attest:
______________________
Secretary
<PAGE> 24
ASSIGNMENT
(To be executed by the registered holder to effect a transfer
of the within Warrant)
FOR VALUE RECEIVED, . . . hereby sell, assign and transfer unto
__________________________________________
(Name)
_________________________________________
(Address)
the Common Stock Purchase Warrant and the right to purchase the Common Stock
evidenced by the within Warrant, and do irrevocably constitute and appoint
__________________________ Attorney to transfer the within Warrant and said
right on the books of the Company, with full power of substitution.
Dated, ____________, 19__
SIGNATURE_______________________
________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
_________________________________
Signature Guaranteed
________________________________________________________________________________
NOTICE: The signature to this Assignment must correspond with the
name as written upon the face of the within Warrant, in every particular,
without alteration or change whatsoever and must, if it is not executed by an
entity which may guarantee signatures as set forth herein, be guaranteed by a
member of a national securities exchange, a commercial bank or trust company
located in the United States, a member of the National Association of
Securities Dealers, Inc. or any other eligible guarantor institution which is a
participant in the signature guarantee program (as such terms are defined in
Reg 240.17 Ad-15 under the Securities Act of 1934, as amended).
<PAGE> 25
(SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned, registered holder or assignee of such registered
holder of the within Warrant, hereby (1) purchases ______ shares of Common
Stock which the undersigned is entitled to purchase under the terms of the
within Warrant, (2) makes the full cash payment therefor called for by the
within Warrant, and (3) directs that the Common Stock issuable upon exercise of
said Warrant be issued as follows:
______________________________
(Name)
______________________________
(Address)
SIGNATURE ______________________________
______________________________
(Social Security or Other
Identifying Number)
______________________________
Signature Guaranteed
Dated: _______________________
________________________________________________________________________________
NOTICE: The signature on this subscription form must correspond with
the name as written upon the face of the within Warrant, or upon the assignment
form on the reverse side thereof, in every particular, without alteration or
enlargement, or any change whatsoever and must, if it is not executed by an
entity which may guarantee signatures as set forth herein, be guaranteed by a
member of a national securities exchange, a commercial bank or trust company
located in the United States, a member of the National Association of
Securities Dealers, Inc. or any other eligible guarantor institution which is a
participant in the signature guarantee program (as such terms are defined in
Reg 240.17 Ad-15 under the Securities Act of 1934, as amended).
<PAGE> 1
EXHIBIT 5.1
RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN
A PARTNERSHIP INCLUDING PROFESSIONAL ASSOCIATIONS
2500 FIRST UNION FINANCIAL CENTER * MIAMI, FLORIDA 33131-2336
TELEPHONE: (305) 374-7580
FAX: (305) 374-7593 * BROWARD: (305) 462-6808
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10112
TELEPHONE: (212) 698-7700 * FAX: (212) 698-7825
---------------
90 WOODBRIDGE CENTER DRIVE, SUITE 150, WOODBRIDGE, NEW JERSEY 07095
TELEPHONE: (908) 855-2220 * FAX: (908) 855-2221
[LETTERHEAD]
May 25, 1995
All American Semiconductor, Inc.
16115 Northwest 52nd Avenue
Miami, Florida 33014
Re: Registration Statement on Form S-1
Dear Ladies and Gentlemen:
In connection with the Registration Statement on Form S-1 (No.
33-58661), as amended (the "Registration Statement"), initially filed on April
17, 1995, by All American Semiconductor, Inc., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
promulgated thereunder (the "Rules"), you have requested us to furnish you our
opinion as to the legality of the 5,442,500 shares of common stock, par value
$.01 per share, of the Company (the "Shares") being registered thereunder.
In this connection, we have reviewed (a) the Registration Statement
and the exhibits thereto; (b) the Certificate of Incorporation, as amended, and
the By-laws of the Company; and (c) certain records of the Company's corporate
proceedings as reflected in its minute books. In our examination, we have
assumed the genuineness of signatures, the authenticity of all documents
submitted to us as originals and the conformity with the originals of all
documents submitted to us as copies thereof. In addition, we have made such
other examinations of law and fact as we considered necessary in order to form
a basis for the opinion hereinafter expressed.
Based on the foregoing, we are of the opinion that the Shares have
been duly and validly authorized and are [or, in the case of the 5,232,500
Shares being registered for sale by the Company and the 180,000 Shares being
registered by holders of certain existing warrants issued by the Company
(collectively the "Existing Warrants"), when such Shares are issued and
delivered by the Company and paid for as contemplated in the Registration
Statement or pursuant to the Existing Warrants, will be] validly issued, fully
paid and non-assessable.
<PAGE> 2
RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN
All American Semiconductor, Inc.
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. In giving this consent we do not thereby admit that we
come within the category of persons whose consent is required by the Act of the
Rules.
Very truly yours,
/s/ RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN
RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN
<PAGE> 1
EXHIBIT 10.19
LEW LIEBERBAUM & CO., INC.
600 OLD COUNTRY ROAD
GARDEN CITY, NEW YORK 11530
CONSULTING AGREEMENT
_________________, 1995
All American Semiconductor, Inc.
16115 N.W. 52 Avenue
Miami, Florida 33014
Attention: Bruce M. Goldberg
President
Gentlemen/Ladies:
This will confirm the arrangements, terms and conditions pursuant to
which Lew Lieberbaum & Co., Inc. (the "Consultant") has been retained to serve
as consultant and advisor to All American Semiconductor, Inc., a Delaware
corporation (the "Company"), for the term set forth in Section 3 below. The
undersigned hereby agree to the following terms and conditions:
1. ENGAGEMENT. The Company hereby retains the
Consultant to perform consulting and advisory services, and the Consultant
hereby accepts such retention and agrees to do and perform consulting and
advisory services, upon the terms and conditions set forth herein.
2. DUTIES OF THE CONSULTANT.
(a) CONSULTING SERVICES. The Consultant will
provide such general financial consulting services and advice pertaining to the
Company's business affairs (as further set forth below), as and when the
Company may from time to time reasonably request upon reasonable notice.
Without limiting the generality of the foregoing, the Consultant will assist
the Company in developing, studying and evaluating financing and capital
structure and corporate financing proposals, prepare reports and studies
thereon when advisable, and assist in negotiations and discussions pertaining
thereto.
<PAGE> 2
(b) FINANCING. The Consultant will assist and
represent the Company in obtaining both short and long- term financing, when so
requested by the Company in the Company's sole discretion. The Consultant will
be entitled to additional compensation under such terms as may be agreed to by
the parties in connection therewith.
(c) WALL STREET LIAISON. The Consultant will, when
appropriate, arrange meetings between representatives of the Company and
individuals and financial institutions in the investment community, such as
security analysts, portfolio managers and market makers.
The services described in this Section 2 shall be rendered by the
Consultant in consultation with the Company at such time and place and in such
manner (whether by conference, telephone, letter or otherwise) as the
Consultant may reasonably determine.
3. TERM. The term of this Agreement shall commence on
the date hereof and continue for a period of two years from the date hereof
(the "TERM").
4. COMPENSATION. As compensation in full for the
Consultant's services hereunder during the Term, the Company shall pay to the
Consultant the sum of sixty-six thousand ($66,000) dollars, which amount shall
be paid at the closing of the public offering contemplated by the Underwriting
Agreement, dated _____, 1995 between the parties.
5. EXPENSES. The Company shall pay and reimburse
the Consultant for all reasonable out-of-pocket expenses incurred by the
Consultant and approved in advance in writing by the Company in the performance
of its services under this Agreement.
6. RELATIONSHIP. Nothing herein shall constitute the
Consultant as an employee or agent of the Company, except to such extent as
might hereinafter be agreed upon for a particular purpose. Except as might
hereinafter be expressly agreed, the Consultant shall not have the authority to
obligate or commit the Company in any manner whatsoever.
7. CONFIDENTIALITY. Except in the course of the
performance of its duties hereunder, and in such case, only upon express
written consent of the Company, the Consultant agrees that it shall not
disclose any trade secrets, know-how, or other proprietary information not in
the public domain learned as a result of this Agreement unless and until such
information becomes generally known or is in the public domain.
8. FINDER'S OR BROKER'S FEES. The Company acknowledges
and agrees that, with the written agreement and at the request of the Company,
the Consultant may act as a finder or financial consultant in various business
transactions in which the Company or any of its subsidiaries may be involved,
such as mergers, acquisitions, joint ventures or investments, and that the
Consultant may be entitled to receive a finder's fee or brokerage commission or
other rights, profits or payments in connection with such transactions
provided, however, that
-2-
<PAGE> 3
the Company and the Consultant have entered into an agreement prior thereto
regarding the services to be performed by and the fee to be paid to the
Consultant.
9. PERMITTED ACTIVITIES. Nothing contained in this
Agreement shall limit or restrict the right of the Consultant or of any
officer, director, shareholder, employee, agent or representative of the
Consultant to be a partner, owner, director, officer, employee, agent or
representative of, or engage in, any other business, whether of a similar
nature or not, or limit or restrict the right of the Consultant to render
services of any kind to any other corporation, firm, individual or other
entity.
10. ASSIGNMENT AND TERMINATION. This Agreement shall not
be assignable by any party except to a successor to all or substantially all of
the business of either party without the prior written consent of the other
party, which consent may be arbitrarily withheld by the party whose consent is
required.
11. ATTORNEY'S FEES. In the event of any litigation
concerning any controversy, claim or dispute between the parties hereto arising
out of or relating to this Agreement or the breach or interpretation hereof,
the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees, and costs incurred therein or in the
enforcement or collection of any judgment or award rendered therein. The
"prevailing party" means the party determined by the court to have most nearly
prevailed, even if such party did not prevail in all matters, not necessarily
the one in whose favor a judgment is rendered.
12. NOTICES. All notices hereunder shall be in
writing and shall be validly given, made or served if in writing and delivered
personally or five days after being sent first class certified or registered
mail, postage prepaid or one day after being sent by nationally recognized
overnight courier to the party for whom intended at the addresses as set forth
above or at such other address as may be provided.
13. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
agreement shall be interpreted, construed, governed and enforced according to
the laws of the State of New York without giving effect to the conflicts of law
rules thereof. The Company and the Consultant hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Eastern or Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company and the Consultant hereby irrevocably waive any
objection to such exclusive jurisdiction or inconvenient forum and also hereby
irrevocably waive any right or claim to trial by jury in connection with any
such action, proceeding or claim. Any such process or summons to be served
upon the Company or the Consultant at the option of the party bringing such
action, proceeding or claim may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to such other party at the address and as set forth in
-3-
<PAGE> 4
Section 12 hereof. Such mailing shall be deemed personal service and shall be
legal and binding upon the party so served in any action, proceeding or claim.
The Company and the Consultant agree that the prevailing party shall be
entitled to recover all of its reasonable legal costs and expenses to such
action or proceeding and/or incurred in connection with the preparation
therefor.
14. AMENDMENTS. No amendment or modification of the
terms or conditions of this Agreement shall be valid unless in writing and
signed by the parties hereto.
15. INDEMNIFICATION. As a consultant for the Company,
the Consultant must at times rely upon the information supplied to the
Consultant by the Company's officers, directors, agents and employees as to
accuracy and completeness. Therefore, the Company agrees to indemnify, hold
harmless and defend the Consultant, its directors, officers, employees and
agents from and against any and all claims, actions, proceedings, losses,
liabilities, costs and expenses (including without limitation, reasonable
attorney's fees) incurred by any of them in connection with or as a result of
any inaccuracy, incompleteness or omission of information given to the
Consultant by the Company's officers, directors, agents or employees.
16. COUNTERPARTS. This Agreement may be executed in one or
more counterparts which, taken together, shall constitute one and the same
instrument, and this Agreement shall become effective when one or more
counterparts have been signed by each of the parties. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to
account for more than one such counterpart.
Very truly yours,
LEW LIEBERBAUM & CO., INC.
By:__________________________________
Leonard A. Neuhaus,
Chief Financial Officer
Chief Operating Officer
AGREED AND ACCEPTED:
ALL AMERICAN SEMICONDUCTOR, INC.
By:_________________________________
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
on May 24th, 1995, but is effective as of the 1st day of June, 1995 (the
"Effective Date"), by and between All American Semiconductor, Inc., a Delaware
corporation (the "Company"), and Paul Goldberg ("Employee").
WHEREAS, the Company is engaged in the distribution of electronic
components and its principal office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014;
WHEREAS, Employee has experience in the distribution of electronic
components and valuable knowledge and expertise that is useful to the Company;
and
WHEREAS, the Company desires to continue the employment of Employee on
the terms and conditions set forth herein and Employee desires to continue to
work for the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the promises
hereinafter contained, the sufficiency of which is hereby acknowledged, the
parties covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company agrees to employ Employee,
and Employee agrees to be so employed, for a term of five (5) years and seven
months. Accordingly, the term of this employment shall, subject to the terms
and conditions of this Agreement concerning earlier termination by each of the
parties, and the automatic renewals of the term as set forth in the next
sentence, commence as of the Effective Date and continue until December 31,
2000. The term of this Agreement shall automatically renew each year for an
additional one (1) year term unless the Company (by a resolution passed by a
majority of the Board of Directors of the Company) or Employee notifies the
other of its or his intention not to renew this Agreement no later than sixty
(60) days prior to the expiration of the then-current term.
2. DUTIES. Employee accepts employment with the Company to serve
as Chairman of the Board and Chief Executive Officer of the Company and agrees
to perform such services as are commensurate with his offices. Employee shall
work full-time for the Company. The Company may not require Employee to
perform duties which are not commensurate with such offices, or which
materially differ from Employee's duties as they presently exist. Any attempt
by the Company to do so shall constitute a total breach of this Agreement,
whereupon Employee shall be entitled to terminate his employment hereunder and
to treat such termination as a termination of employment by the Company
pursuant to Section 5(b) of this Agreement.
<PAGE> 2
3. COMPENSATION. Employee shall be entitled to the following,
all of which shall be deemed compensation, as that term is used in this
Agreement (provided, however, that the use of the term "compensation" in this
Agreement is not intended to have any effect whatever with respect to
determining Employee's taxable income):
(a) The Company agrees to pay to Employee, as base
salary, for the balance of the 1995 calendar year, gross annual salary at a
rate equal to $250,000 per annum. For calendar year 1996, Employee's gross
annual salary shall be increased from the $250,000 per annum salary in effect
during the last seven months of 1995 by 58.33% of the greater of (i) 4% of
$250,000 and (ii) the amount of the percentage increase in the Consumer Price
Index for the most currently available twelve (12) month period over the
preceding twelve (12) month period (the "CPI Increase") multiplied by $250,000.
For each calendar year during the term of this Agreement after 1996, Employee's
gross annual salary shall be increased by the greater of (A) 4% of the prior
year's gross annual salary and (B) the CPI Increase multiplied by the prior
year's gross annual salary. The base salary shall be payable on the same basis
(including appropriate payroll withholding) as the Company, from time to time,
generally pays its employees. Employee shall, in addition to base salary,
receive, in respect of each calendar year (or partial calendar year) during
which this Agreement is in effect, an annual cash bonus (the "Cash Bonus")
equal to three percent (3%) of the pre-tax net income of the Company before
non-recurring and extraordinary charges ("pre-tax net income") for such
calendar year in excess of $1 million. The maximum amount of the Cash Bonus
for any year shall be limited to two times Employee's base salary for such year
(the Cash Bonus in respect of the 1995 calendar year shall not exceed
$500,000). The Cash Bonus shall be paid to Employee within thirty (30) days
following completion of each annual audit of the Company, including calendar
year 1995, and shall be calculated in accordance with generally accepted
accounting principles, consistently applied, without taking any Cash Bonus of
Employee, or any similar bonus based on the earnings or performance of the
Company paid to any other executive officer of the Company, into account as an
expense. It is anticipated by the Company that none of the grant, vesting or
exercise of any of the New Options (as later defined) or similar options
granted and/or contemplated to be granted to other executive employees, or of
any other options, warrants or similar rights issued by the Company from time
to time, will constitute or result in an expense or charge against the
Company's income. However, if such turns out not to be the case, no such
expense or charge shall be taken into account when computing pre-tax net income
for purposes of determining the Cash Bonus. If being computed for a partial
calendar year, the Cash Bonus shall be appropriately and equitably prorated (no
proration shall be made for the 1995 year). Consumer Price Index as used
herein shall mean the Consumer Price Index shown on the U.S. City Average for
all urban consumers, unadjusted,
2
<PAGE> 3
all items, as promulgated by the Bureau of Labor Statistics of the U.S.
Department of Labor, using the year 1993 as the base year. In the event that
the Consumer Price Index referred to herein ceases to incorporate a significant
number of the items as currently set forth therein, or if a substantial change
is made in the method of establishing said Consumer Price Index, then the
Consumer Price Index shall be adjusted to the figure that would have resulted
had no change occurred in the manner of computing the Consumer Price Index. In
the event that the Consumer Price Index (or successor or substitute index) is
not available, then the Company may use another governmental or nonpartisan
publication evaluating the information theretofore used in determining the
Consumer Price Index in lieu of said Consumer Price Index.
(b) Employee shall be entitled to participate in any and
all employee benefit plans and programs offered by the Company from time to
time to other employees, including, without limitation, medical insurance,
dental insurance, pension and/or profit sharing plans, 401(k) plans, stock
option plans and cafeteria plans. Additionally, Employee shall be entitled to
five (5) weeks paid vacation per calendar year.
(c) The Company will provide to Employee, without cost to
Employee, full-time use of a Company owned or leased automobile of a make and
model reasonably chosen by Employee, not to exceed a cost of $1,000 per month
(for lease payments if the automobile is leased, for financing payments if the
automobile is owned by the Company and financed, or for depreciation if the
automobile is owned by the Company and has not been financed, as the case may
be). The Company shall further pay all other expenses related thereto,
including, but not limited to, all costs of fuel, maintenance, repairs and
comprehensive automobile insurance, including liability insurance of no less
than $1 million.
(d) (i) The Company shall continue to provide to
Employee or his designee, without cost to Employee, no less than $550,000 of
universal or similar life insurance with the beneficiary thereof to be at the
sole and unquestionable discretion of Employee or his designee. Such insurance
policy shall be maintained in full force and effect at no cost to Employee
through and until Employee's death, whether or not he remains an employee.
(ii) In addition to said $550,000 of life
insurance, Employee may obtain or cause to be obtained a "split-dollar" life
insurance policy on the life of Employee or Lola Goldberg, or any other policy
which builds cash value, providing for a death benefit of $1,000,000, with the
owner and beneficiary thereof to be the Paul Goldberg Family Insurance Trust or
such other trust as may be established for the benefit of Employee's family or
such other beneficiary designated by Employee or Lola Goldberg (as the case may
be) in his or her sole and unquestionable discretion (the "$1 Million Policy").
If the $1 Million Policy is obtained, the
3
<PAGE> 4
Company shall pay all premiums due thereon as long as the $1 Million Policy is
in effect (including after employment hereunder terminates or expires). Upon
the insured's death, the Company shall first receive out of the proceeds of the
$1 Million Policy the higher of (A) the sum of all premiums paid by the Company
plus accrued interest thereon at the rate of 5% per annum and (B) the policy's
cash surrender value. The balance of the proceeds shall then be distributed to
the policy's beneficiary. The $1 Million Policy shall be collaterally assigned
to the Company [and the aforementioned family trust and/or Employee shall (or
Employee shall cause Lola Goldberg to), in this regard, execute such collateral
assignments and other documents as the Company may reasonably request] in order
to secure and protect the Company's right to receive such amount from said
proceeds. Lola Goldberg is an intended third-party beneficiary of these
provisions and may enforce them directly in her own name.
(iii) In addition to the life insurance policies
described in Subsections (d)(i) and (d)(ii) above, Employee may obtain, with
Lola Goldberg, a "second to die" life insurance policy, or any other insurance
policy which builds cash value, on the lives of Employee and Lola Goldberg,
providing for a death benefit of $1,000,000, with the owner and beneficiary
thereof to be the Paul Goldberg Family Insurance Trust or such other trust as
may be established for the benefit of Employee's family or such other
beneficiary designated by Employee in his sole and unquestionable discretion
("Second To Die Policy"). If the Second to Die Policy is obtained, the Company
shall pay all premiums due thereon as long as the Second To Die Policy is in
effect (including after employment hereunder terminates or expires and
including after the death of Employee if he is the first of he and Lola
Goldberg to die). Upon the second to die of Employee and Lola Goldberg, the
Company shall first receive out of the proceeds of the Second To Die Policy the
higher of (A) the sum of all premiums paid by the Company plus accrued interest
thereon at the rate of 5% per annum and (B) the policy's cash surrender value.
The balance of the proceeds shall then be distributed to the policy's
beneficiary. The Second To Die Policy shall be collaterally assigned to the
Company (and the aforementioned trust and/or Employee and Lola Goldberg shall,
in this regard, execute such collateral assignments and other documents as the
Company may reasonably request) in order to secure and protect the Company's
right to receive such amount from said proceeds. Lola Goldberg is an intended
third-party beneficiary of these provisions and may enforce them directly in
her own name.
(e) The Company shall continue to make payments in
respect of, and keep in full force and effect, as directed by Employee, the
Company's deferred compensation plan presently offered to, and enjoyed by,
Employee.
4
<PAGE> 5
(f) Notwithstanding anything to the contrary contained in
this Agreement, Employee may elect, in his sole and unquestionable discretion,
to retire at any time on or after January 1, 1999 ("Retirement Election"), by
giving the Company at least 30 days written notice to that effect, specifying
the retirement date. Upon the earlier to occur of the retirement date
specified in the Retirement Election and the expiration or other termination
for any reason, including but not limited to Employee's death, of this
Agreement, the Company will become obligated, in addition to all other sums and
benefits accrued and to be paid to Employee:
(i) to pay to Employee and Lola Goldberg,
jointly, the amount of $100,000 per annum until the later of their respective
deaths (with no reduction in the amount of the payment after the first of them
to die dies or for any other reason), payable on a monthly basis on the first
day of each month (collectively, the "Retirement Payments"), and
(ii) to provide to Employee and Lola Goldberg, for
the remainder of each of their lives, without cost to, or contribution by,
either of them, at least the same level of health insurance benefits as was
provided to them prior to Employee's retirement, and, if for any reason such
medical or health insurance is unable to be continued, to self-insure all
health care costs of Employee and Lola Goldberg which are not covered by
Medicare until their respective deaths, and to continue to observe all payment
obligations under Section 3(d).
Notwithstanding any of the foregoing to the contrary, if
Employee's employment terminates pursuant to Section 5(b), Employee shall
continue to receive all compensation hereunder for the period stated in Section
5(b), and, immediately following completion of such payments, the compensation
specified in subsections (i) and (ii) above.
Lola Goldberg is an intended third-party beneficiary of the
provisions contained in this Subsection (f) and may enforce them directly in
her own name.
(g) The following provisions shall apply in the event of
a Change in Control (as defined below).
(i) In the event of a Change in Control occurring
at any time while Employee is employed hereunder, Employee shall have the
option in his sole discretion to terminate his employment under this Agreement
by giving written notice thereof to the Company within 180 days following the
date of the Change in Control. If a Change in Control occurs, and (x) within
the 180-day period prior to the date of the Change in Control, or at any time
on or after the date of the Change in Control, Employee's employment is or has
been terminated by the Company pursuant to
5
<PAGE> 6
Section 5(b) or the Company gives or has given notice of its refusal to renew
for any one-year term, or (y) Employee elects to terminate his employment under
this Agreement as aforesaid, Employee and/or Lola Goldberg shall receive all of
the following:
(A) all compensation described in
Sections 3(a), (b), (c) and (e) which would be due through the end of the
initial term of this Agreement or which would be due to Employee if employment
under this Agreement continued for three (3) years after the termination of
Employee's employment, whichever is greater; and
(B) the Retirement Payments payable to
Employee and his spouse, commencing on the date which is the first day of the
month following the date on which Employee last receives an installment of
gross annual salary pursuant to (A) above; and
(C) notwithstanding any time period
limitations on compensation set forth in Subsection (g)(i)(A), all health and
life insurance benefits as required under Sections 3(d) and 3(f)(ii).
(ii) In the event of a Change in Control occurring
at any time (i.e., whether Employee is then employed hereunder or not),
Employee (or, if Employee has died, Lola Goldberg) may elect, by giving written
notice to Employer at any time during the 180-day period following the date of
the Change in Control, or the 180-day period following the date of termination
of his employment, whichever is later, to receive the compensation described in
Subsection (g)(i) above, or, if Subsection (g)(i) is inapplicable, all
compensation to which Employee is then and thereafter entitled, as follows:
(A) if Subsection (g)(i) is applicable,
(1) a lump-sum payment equal to Employee's aggregate compensation described in
Sections 3(a), 3(b) 3(c) and 3(e) which would be due through the end of the
initial term of this Agreement or which would be due to Employee if his
employment hereunder continued for three years following the date of Employee's
termination of employment, whichever is greater, plus (2) a lump-sum payment
equal to the present value of the Retirement Payments over the period
commencing with the date that the last payment of base salary under the
preceding clause (1) would have been made if Employee had remained employed
throughout the period specified and ending with the later of the death of
Employee and Lola Goldberg, plus (3) a lump-sum payment equal to the amount
necessary to pay for, until Employee's or his spouse's death (whichever is
later) at least the same level of health insurance benefits from at least the
same quality or choice of health providers as were provided by the Company to
Employee and his spouse prior to the Change in Control (provided however, if no
health insurance provider acceptable to Employee and Lola Goldberg will issue
such coverage under terms which will provide non-cancelable coverage for the
remainder of
6
<PAGE> 7
their respective lives, or, alternatively, the then-current health insurer will
not unconditionally commit to continue to provide such coverage to Employee and
Lola Goldberg until their respective deaths, the Company will be obligated to
self-insure all health care costs of Employee and Lola Goldberg not paid for by
Medicare until their respective deaths), and (4) a lump-sum payment equal to
the present value of all life insurance premiums required to be paid pursuant
to Section 3(d) for the remainder of the insured's life under each such policy.
(B) if Employee's employment has
terminated prior to the date of the Change in Control and Subsection (g)(i) is
inapplicable, a lump-sum amount equal to the remaining compensation to be paid
under Sections 3(a), (b), (c) and (e) which may be owed as a result of
Employee's employment having terminated pursuant to Section 5(b), if
applicable, plus the lump-sum amounts under Subsections (ii)(A)(2), (3) and (4)
above.
All lump-sum payments required above shall be paid to Employee within
thirty (30) days following the date of his election to receive them.
(iii) In calculating the lump-sum payments
hereunder: (A) the Cash Bonus payable for each of the remaining years it is to
be paid shall be deemed to be, in respect of each such year, the largest annual
cash bonus paid under this Agreement or its predecessor, (B) such lump-sum
payment shall include credit for all unused vacation time and any other similar
items or incentives earned as of the date that employment terminated, (C) all
non-cash benefits and benefit programs and plans (other than health insurance,
which is covered by the above specific provisions concerning same), will be
given a cash value sufficient to permit the equivalent non-cash benefits and
programs to be obtained by Employee after the Change in Control during the
period described in Subsection (i)(A) above, unless any such non-cash benefit
or program is otherwise to be continued for and made available by the Company
to Employee at no cost or contribution by Employee for such period after the
Change in Control, and adequate assurances by the Company of such continuation
reasonably satisfactory to Employee are also provided to Employee, (D) the
present value of the Retirement Payments and life insurance premiums shall be
calculated assuming a discount rate equal to the lowest applicable federal rate
on the date that Employee or Lola Goldberg, as applicable, has made the
election under subsection (g)(ii) assuming the life expectancy of Employee or
Lola Goldberg (whichever is longer), as determined under the mortality tables
used (or which would have been used, as the case may be) by the insurance
company which issues the Second To Die Policy, or, if it was not issued, the $1
Million Policy, and (E) the amount payable for the health benefits shall assume
the same life expectancy as described in the preceding clause (D), but shall
neither be discounted to a present value nor increased by an inflation factor.
7
<PAGE> 8
(iv) For purposes of this Agreement, a Change in
Control shall be deemed to occur (A) when individuals who, as of the date of
the execution of this Agreement, constitute the Company's Board of Directors
cease for any reason to constitute at least a majority of the members of the
Company's Board of Directors, unless the election, or the nomination for
election, by the Company's stockholders of a new director was voted for by
Employee, in which event such new director will be deemed for the purposes of
this definition a director as of the date of execution of this Agreement, or
(B) if Employee and Bruce Goldberg are forced by a merger, consolidation,
reorganization, by operation of law or other form of transaction to sell their
shares of voting capital stock in the Company, or (C) if 50% or more of the
consolidated assets, properties and businesses of the Company is sold or
otherwise transferred to a third party without the approval of Employee or (D)
if an individual (other than a member of Employee's or Bruce Goldberg's
immediate family) or a company or other entity, or a group acting in concert,
becomes the beneficial owner of 15% or more of the outstanding voting capital
stock of the Company as a result of acquisitions made from any person or
persons or entity or entities (other than Employee or his immediate family) or
from the Company (unless such acquisitions from the Company were approved by
Employee).
(v) Upon a Change in Control, as well as upon any
termination of Employee's employment pursuant to Section 5(b), or as a result
of non-renewal for a one-year term, all options granted by the Company to
Employee to acquire shares of capital stock of the Company (including, but not
limited to, all New Options, as defined and described below) shall
automatically vest, and all existing stock option agreements between the
Company and Employee are hereby amended to provide for such automatic vesting.
(vi) The Company shall not be entitled to assert
or take any credit against, or otherwise assert or make any reduction to, any
payment to Employee required under this Subsection (g) for any reason whatever.
(h) Employee shall, on the earlier of (i) June 15, 1995
and (ii) the effective date of the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on April 17, 1995, be granted
stock options to acquire 250,000 shares of common stock of the Company (the
"New Options") pursuant to the Company's Employees', Officers', Directors'
Stock Option Plan, as same has been or may be amended (the "Option Plan"),
pursuant to the terms, provisions and conditions of the stock option agreement
attached hereto as Exhibit "A" (the "Option Agreement"). The Option Agreement
and the New Options become, on the first anniversary of the date hereof, null
and void automatically and without further action on the part of any party
being required unless, on or before said first anniversary, the Company's
shareholders approve (i) certain amendments to the Option Plan
8
<PAGE> 9
which were necessary to permit the grant of the New Options in accordance with
the terms described in the Option Agreement, and (ii) an amendment to the
Company's charter to provide for an increase in the number of authorized shares
of the Company to a number sufficient to be available for issuance upon
exercise of the New Options. The New Options and the Option Agreement will
become null and void earlier than such first anniversary if and when the
shareholders of the Company refuse to approve either of the aforesaid
amendments. If the Option Agreement and New Options do become null and void,
the Cash Bonus shall then automatically be calculated on the basis of five
percent (5%), rather than three percent (3%), of pre-tax net income,
retroactive to the 1995 calendar year.
In addition to the foregoing, but as a separate matter, Employee
agrees that unless and until the amendments described above are approved by the
Company's shareholders, in the event and to the extent that exercise by
Employee of his existing stock options would cause a violation of any
requirement in the Option Plan that the total number of options granted to
directors of the Company under the Option Plan not exceed 35% of the total
shares reserved for issuance under the Option Plan, Employee agrees not to
exercise his existing options, up to an aggregate of 50,000 options, in order
that such 35% limitation may continue to be observed. Such undertaking by
Employee shall be made on a pro rata basis with Bruce Goldberg, who has,
concurrently herewith, made an identical undertaking.
4. EXPENSES OF EMPLOYEE. The Company shall pay or reimburse
Employee for reasonable expenses incurred by Employee in connection with the
business of the Company.
5. TERMINATION BY THE COMPANY.
(a) Except as set forth in subparagraph (b) of this
Section, the Company shall have no right to terminate Employee's employment
unless and until the occurrence of any of the following:
(i) Employee is convicted (by a formal plea of
guilty or a jury verdict) of embezzlement or other felonious theft of money or
property from the Company; or
(ii) Employee's refusal, after thirty (30) days
written notice, to cure a material default of any of the provisions of this
Agreement unless said material default is caused by physical or mental
infirmity or disability which renders Employee incapable of performing the
customary duties for which Employee is being employed. In order to be
effective said notice must clearly specify the material default and must notify
Employee of the Company's intention to terminate this Agreement in the event
the described material default is not cured within said thirty (30) days.
9
<PAGE> 10
(b) The Company shall have the right to terminate
Employee's employment with the Company at any time without cause provided the
Company continues to pay Employee all of the compensation set forth in Section
3 of this Agreement, as if this Agreement had been continued in accordance with
its terms to its stated expiration date, or the expiration date of the one-year
renewal term in effect, as the case may be, as well as all compensation set
forth in Section 3, including but not limited to Sections 3(d) and 3(f),
payable on or after such expiration date, all subject, if applicable, to the
relevant provisions of Section 3(g).
(c) In the event Employee becomes permanently incapable
of performing the customary duties for which Employee is being employed due to
a physical or mental infirmity or disability, the Company shall not terminate
Employee (other than under Section 5(a), if applicable, or Section 5(b)), and
the Company shall continue to pay Employee all compensation due under Sections
3(a) through (e), inclusive, of this Agreement until two (2) years after the
effective date of said infirmity or disability (as defined below) or January 1,
1999, whichever is first to occur (and at which time Employee's employment
hereunder shall be deemed terminated), and to provide thereafter the Retirement
Payments and the health insurance benefits and life insurance benefits as
described in Sections 3(f)(ii) and 3(d), all subject, if applicable, to the
relevant provisions of Section 3(g). The effective date of Employee's
permanent infirmity or disability shall be the 30th day following receipt by
Employee from the Company of written notice stating the Company's determination
that Employee has such infirmity or disability, provided that Employee has not
disputed such determination in writing within such 30-day period, and, if
Employee has so disputed such determination, the date by which three medical
doctors or psychiatrists (as applicable) selected by the Company, but
reasonably acceptable to Employee, have examined Employee and concluded (as set
forth in a letter delivered to the Company) that he has a permanent infirmity
or disability which renders him incapable of performing his customary duties.
6. COVENANT NOT TO COMPETE. Employee acknowledges, represents
and warrants that (a) he possesses valuable trade secrets and proprietary and
confidential information of the Company and (b) the Company has expended
substantial amounts of time, effort and money to develop Employee's abilities
and skills for the benefit of the Company. In consideration of the Company
entering into this Agreement, Employee covenants and agrees that during the
term of his employment, and for a period of two (2) years thereafter, Employee
will not, without the express prior written consent of the Company, directly or
indirectly engage in any activity competitive with the Company's business,
whether alone, as a partner, or as an officer, director, employee, agent,
consultant or shareholder of any other entity, or as a trustee, fiduciary, or
10
<PAGE> 11
other representative of any other person or entity. None of the foregoing
shall prohibit passive ownership by Employee of less than 5% of the beneficial
ownership of any public company. In the event of a breach or threatened breach
by Employee of the covenants contained in this Section, Employee acknowledges
that the Company will not have an adequate remedy at law and that the Company
shall be entitled to such equitable and injunctive relief as may be available
to restrain Employee from the violation of the provisions hereof. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from Employee. Employee acknowledges and agrees that the
covenants contained in this Section are essential to the preservation of the
good will of the Company, that each of such covenants is reasonable and
necessary to protect and preserve the interests, trade secrets, proprietary
information and properties of the Company and the business of the Company, and
that irreparable loss and damage will be suffered by the Company should
Employee breach any of such covenants. The restrictions in this Section shall
not apply in the event that Employee's employment is terminated by the Company
unless: (i) such termination is for one of the items set forth in Section 5(a);
or (ii) said termination is pursuant to Section 5(b) or the refusal of the
Company to renew this Agreement at the end of the initial term or any one-year
renewal term and the Company continues to pay Employee all compensation set
forth in this Agreement for a period equal to the greater of two (2) years
after said termination or non-renewal and the remainder of the term hereof.
After a Change in Control, this Section 6 shall become void and of no further
force or effect.
7. NOTICES. Whenever any notice, payment, or other communication
is required to be given or delivered pursuant to this Agreement, such notice
shall be given in writing, and shall be delivered in person or by certified
mail, return receipt requested, and shall be sufficiently given if received,
delivered personally or if mailed, addressed as follows: If to the Company, to
All American Semiconductor, Inc., 16115 N.W. 52nd Avenue, Miami, Florida
33014, Attention: Chairman of the Board and President; and if to Employee,
to his residence with a copy to his office at the Company, or such other
address as either party hereto may by written notice designate to the other
party in accordance with this Section. Notices delivered personally or by
courier shall be deemed given as of actual receipt; mailed notices shall be
deemed given as of four (4) days after mailing.
8. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida.
9. LEGAL PROCEEDINGS. Any and all legal proceedings between the
parties hereto arising from this Agreement shall be commenced only in Dade
County, Florida. Both parties agree to jurisdiction and venue in the courts of
Dade County, Florida.
11
<PAGE> 12
10. ATTORNEYS' FEES AND COSTS. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it or he may
be entitled, before and at trial, whether or not trial on the merits occurs,
and at all tribunal levels.
11. SEVERABILITY. If any provision of this Agreement shall be
held void, voidable, invalid, or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any provision is held
void, voidable, invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect with
respect to all other circumstances.
12. HEADINGS. Titles or headings of paragraphs contained in this
Agreement are inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or prescribe the scope of this Agreement or the
intent of any provision.
13. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written understandings and agreements between the parties. The provisions of
this Agreement may not be waived, modified or amended except by a writing
signed by the party sought to be bound. Waiver by either of the parties of a
breach by the other of the parties of any of the terms of this Agreement shall
not be deemed a waiver of future non-compliance herewith. An attempted
modification that fails to comply with this Section shall not operate as a
waiver.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and which
together shall constitute one and the same instrument.
15. SURVIVABILITY. No termination of Employee's employment or any
purported termination of this Agreement shall terminate any obligation of the
Company or Employee which, by its terms, applies to a stated period following
termination of employment. Specifically, but without limiting the generality
of the foregoing, no such termination shall relieve Employee of any of his
12
<PAGE> 13
obligations under Section 6, or shall relieve the Company of any of its
obligations under Sections 3 and 5.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the day and year first above written.
COMPANY:
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Bruce Goldberg
---------------------------------
Bruce Goldberg, President
EMPLOYEE:
/s/ Paul Goldberg
-------------------------------------
PAUL GOLDBERG
13
<PAGE> 14
EXHIBIT "A"
STOCK OPTION AGREEMENT
<PAGE> 15
EXHIBIT "A"
ALL AMERICAN SEMICONDUCTOR, INC.
STOCK OPTION AGREEMENT
Agreement dated as of the ____ day of ________________, 1995 (the
"Date of Grant") between All American Semiconductor, Inc., a Delaware
corporation (and, collectively with its subsidiaries, if any, the "Company")
with its principal office at 16115 N.W. 52nd Avenue, Miami, Florida 33014, and
Paul Goldberg, at the address set forth beneath such person's signature on the
signature page of this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 250,000 shares
(individually a "Share" and collectively the "Shares") of All American
Semiconductor, Inc. common stock (the "Common Stock"), par value $.01 per
share, for a price of $_____ per Share (the "Option Price"), subject to
adjustment as provided in Paragraph 3 below. Each of the Options are granted
as non-qualified stock options pursuant to the Amended and Restated All
American Semiconductor, Inc. Employees', Officers', Directors' Stock Option
Plan (the "Plan"), a copy of which is attached hereto and incorporated herein
by reference, and are subject to the provisions of the Plan. The granting of
the Options hereunder shall be void and a nullity and this Agreement shall have
no further force or effect whatsoever in the event that the Company does not
obtain approval of the Company's shareholders within twelve (12) months of May
23, 1995 to (i) certain material amendments to the Plan which were made as part
of the Plan being amended and restated and which are necessary to permit the
granting of the Options, including the increase in the number of shares
reserved for issuance under the Plan to 3,250,000 in the aggregate, and (ii)
the increase in the number of shares of Common Stock authorized to be issued by
the Company to enable the Company to have sufficient shares of Common Stock
available for issuance upon exercise of the Options.
2. Terms and Conditions of Options
(a) Option Price
Subject to paragraph 3 hereof, the Option Price shall
be not less than the Fair Market Value (as defined in the Plan) per share of
Common Stock on the Date of Grant, but in no event less than the par value per
Share.
<PAGE> 16
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, the Options shall vest, if at all (and then be exercisable in
accordance with the provisions contained in paragraph (d) below) in the
following percentage increments based upon the Company attaining net earnings
per share on a primary (not fully diluted) basis (as determined in accordance
with generally accepted accounting principles and as reported in the audited
consolidated financial statements for the Company) in any calendar year from
1995 through 2000, inclusive, in at least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
------------------ ------------
<S> <C>
25% $ .18
50 .22
75 .28
100 .38
</TABLE>
For purposes hereof, net earnings per share may be
determined subsequent to a calendar year end, however, the Optionee shall be
deemed vested effective as of December 31 of the year in which the target net
earnings per share was achieved. It is anticipated by the Company that none of
the grant, vesting or exercise of any options under the Plan will constitute or
result in an expense or charge against the Company's earnings. However, if the
grant, vesting or exercise of any of the options under the Plan does constitute
or result in an expense or charge against the Company's earnings, no such
expense or charge shall be taken into account in computing whether the target
net earnings per share have been achieved in connection with the vesting
schedule above.
Notwithstanding anything contained herein to the
contrary (including the vesting schedule set forth above), in the event that
either (i) the Optionee's employment is terminated without "cause" (as
hereinafter defined) by the Company, (ii) there is a "Change in Control" (as
hereinafter defined) of the Company, or (iii) the Options granted hereunder
shall not have vested by the ninth anniversary of the date of their grant, the
Optionee shall become immediately 100% vested in all outstanding Options.
(c) Definitions of "Change in Control", "cause" and
"disability".
"Change in Control," "cause," and "disability" shall have the
meanings ascribed to such terms as set forth in Optionee's Employment Agreement
with the Company effective as of the first day of June, 1995.
2
<PAGE> 17
(d) Installment Exercise
All Options granted hereunder shall become
immediately exercisable by Optionee as and when they vest in accordance with
subparagraph (b) above.
Notwithstanding anything contained herein to the
contrary, to the extent such Options have vested or otherwise vest in
accordance with subparagraph (b) above within the time frames permitted for
exercise under subparagraph (g), if the Optionee's employment is terminated due
to those events described in subparagraphs (g)(2), (3), (4) or (5), the vested
Options shall become immediately exercisable and may be exercised by the
Optionee within the time frames set forth in subparagraphs (g)(2), (3), (4) or
(5) (as the case may be).
(e) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning on the date
of this Agreement and ending May ___, 2005, subject in all cases, however, to
subparagraphs (b), (d) and (g) of this paragraph 2 and the other provisions of
this Agreement and the Plan. In no event shall any of the Options granted
under this Agreement be exercisable after the expiration of 10 years from the
Date of Grant of such Options.
(f) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employment Retirement Income
Security Act, or the rules thereunder, and, except with respect to a qualified
domestic relations order as aforesaid, may be exercised during Optionee's
lifetime only by Optionee. If any Options are exercised after Optionee's
death, the Company may require evidence reasonably satisfactory to it of the
appointment and qualification of Optionee's personal representatives and their
authority and of the right of any heir or distributee to exercise such Options.
(g) Termination of Employment
If Optionee's employment with the Company terminates
the unexercised portion of any of the Options granted under this Agreement
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:
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<PAGE> 18
(1) The expiration of ten (10) years from the
Date of Grant;
(2) The expiration of two (2) years from the date
of termination or cessation of the Optionee's employment with the Company for
any reason [including, without limitation, as a result of disability (however,
if the completion of the Company's audit for the calendar year after the year
in which the termination or cessation occurs is later than two (2) years from
the termination or cessation of Optionee's employment, such expiration date
shall be extended until ten (10) business days after the completion of such
audit and the Optionee's receipt of a copy thereof), voluntary resignation
within one-hundred eighty (180) days after a Change in Control or retirement]
other than a termination or cessation as a result of death or described in
subparagraph (4) or (5) below; provided that for purposes hereof "retirement"
shall mean voluntarily resigning as an employee of the Company after the
Optionee has reached the age of 65;
(3) The expiration of the later of (i) two (2)
years after the Optionee's death or (ii) ten (10) business days after the
completion of the Company's annual audit for the calendar year after the year
in which the death occurs and the receipt of a copy thereof by the personal
representative, executor or administrator of a deceased Optionee, if the
Optionee's death occurs during his employment with the Company;
(4) The termination of the Optionee's employment
by the Company with cause; or
(5) The expiration of three (3) months from the
date of termination or cessation of the Optionee's employment with the Company
as a result of the Optionee's voluntary resignation other than within
one-hundred eighty (180) days after a Change in Control or as a result of
retirement; provided that, if the Optionee shall die during such three-month
period, the time of termination of the unexpired portion of such Option shall
be eighteen (18) months following issuance of letters testamentary or letters
of administration to the personal representative, executor or administrator of
a deceased Optionee, but in no event later than two years after the Optionee's
death.
Neither this Agreement nor any Option granted hereunder shall confer
on Optionee any right to continue in the Company's employ, or limit in any
respect the Company's right (in the absence of a specific written agreement to
the contrary) to terminate Optionee's employment at any time with or without
cause.
4
<PAGE> 19
(h) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee (as defined in the Plan) may from
time to time prescribe and shall specify the number of optioned Shares being
purchased. Subsequent to the grant of any Options which are not immediately
exercisable in full, the Committee, at any time before complete termination of
such Options, may accelerate the time or times at which such Options may be
exercised in whole or in part. Any notice of exercise of Options shall be
accompanied by payment of the full purchase price for the Shares being
purchased: (i) by check payable to the Company; or (ii) by tendering previously
acquired shares of Common Stock having a fair market value (determined as of
the date such Options are exercised and in the same manner as the Fair Market
Value of the Option Price is determined under the Plan) equal to all of the
purchase price or (iii) by any combination of (i) and (ii). The Company shall
have no obligation to deliver the Shares being purchased pursuant to the
exercise of any Options, in whole or in part, until the aforesaid payment in
full of the purchase price therefor is received by the Company.
(i) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any securities exchange or under any
state or federal law is necessary as a condition of or in connection with the
purchase or delivery of Shares, the delivery of any or all Shares pursuant to
exercise of the Options may be withheld unless and until such listing,
registration or qualification shall have been effected; provided, however, upon
written request from the Optionee the Company agrees to use its best efforts at
all times on and after the time any of the Options become vested and
exercisable to effect and continuously maintain any and all such listings,
registrations and qualifications. Optionee agrees to comply with any and all
legal requirements relating to Optionee's resale or other disposition of any
Shares acquired under this Agreement. In the event that the Company using its
best efforts is unable to effect and maintain an effective registration
statement under the Securities Act of 1933, as amended, and any required
qualifications under applicable state securities laws at the time any Option is
exercised, the Committee may require, as a condition of exercise of any
Options, that the Optionee represent, in writing, that the Shares received upon
exercise of the Options are being acquired for investment and not with a view
to distribution and agree that the Shares will not be disposed of except
pursuant to an effective registration statement
5
<PAGE> 20
under the Securities Act of 1933, as amended, and only after any required
qualifications under applicable state securities laws, unless the Company shall
have received an opinion of counsel satisfactory to the Company that such
disposition is exempt from such registration and qualification. There may be
endorsed on certificates representing Shares issued upon the exercise of
Options such legends referring to the foregoing representations or any
applicable restrictions on resale as the Committee, in its discretion, shall
deem reasonably appropriate, as well as place such stop transfer orders with
its registrar and transfer agent as it deems reasonably appropriate.
(j) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
(k) Six-Month Holding Period
Optionee acknowledges that in no event may any Shares
acquired upon exercise of any Options be sold or otherwise disposed of until
after six (6) months have elapsed from the Date of Grant except, in the event
of Optionee's death during such period, for a sale by the executors or
administrators of Optionee's estate relying on Rule 16a-2(d)(1)(i) of the
Securities Exchange Act of 1934, as amended.
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of
Shares subject to such Options and in the Option Price as shall be equitable
and appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; provided, however,
that no such adjustment shall give any Optionee any additional benefits under
this Agreement; and provided further, that, if any such adjustment is made by
reason of a transaction described in section 424(a) of the Code, it shall be
made so as to conform to the requirements of that section and the regulations
thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any unexercised Option theretofore granted
hereunder (hereinafter for purposes of this paragraph 3 referred to as the "old
option"), the Committee or
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any surviving or acquiring corporation may take such action as it deems
appropriate, and in conformity with the requirements of that section and the
regulations thereunder, to substitute a new option for the old option, in order
to make the new option, as nearly as may be practicable, equivalent to the old
option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by certified or
registered mail, return receipt requested, to Optionee at his or her address
listed on the signature page hereof or such other address of which Optionee
shall have advised by similar notice, or to the Company or Committee at the
Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Delaware. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine,
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<PAGE> 22
the feminine or the neuter gender shall include the masculine, feminine and
neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: ALL AMERICAN SEMICONDUCTOR,
---------
INC., a Delaware corporation
By:
------------------------------ --------------------------
Paul Goldberg Bruce M. Goldberg
All American Semiconductor, Inc. President
16115 N.W. 52nd Avenue
Miami, Florida 33140
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<PAGE> 1
EXHIBIT 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
May 24th, 1995, but is effective as of the 1st day of June, 1995 (the
"Effective Date"), by and between All American Semiconductor, Inc., a Delaware
corporation (the "Company"), and Bruce M. Goldberg ("Employee").
WHEREAS, the Company is engaged in the distribution of electronic
components and its principal office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014;
WHEREAS, Employee has experience in the distribution of electronic
components and valuable knowledge and expertise that is useful to the Company;
and
WHEREAS, the Company desires to continue the employment of Employee on
the terms and conditions set forth herein and Employee desires to continue to
work for the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the promises
hereinafter contained, the sufficiency of which is hereby acknowledged, the
parties covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company agrees to employ Employee,
and Employee agrees to be so employed, for a term of five (5) years and seven
months. Accordingly, the term of this employment shall, subject to the terms
and conditions of this Agreement concerning earlier termination by each of the
parties, and the automatic renewals of the term as set forth in the next
sentence, commence as of the Effective Date and continue until December 31,
2000. The term of this Agreement shall automatically renew each year for an
additional one (1) year term unless the Company (by a resolution passed by a
majority of the Board of Directors of the Company) or Employee notifies the
other of its or his intention not to renew this Agreement no later than sixty
(60) days prior to the expiration of the then-current term.
2. DUTIES. Employee accepts employment with the Company to serve
as President and Chief Operating Officer of the Company and agrees to perform
such services as are commensurate with his offices. Employee shall work
full-time for the Company. The Company may not require Employee to perform
duties which are not commensurate with such offices, or which materially differ
from Employee's duties as they presently exist. Any attempt by the Company to
do so shall constitute a total breach of this Agreement, whereupon Employee
shall be entitled to terminate his employment hereunder and to treat such
termination as a termination of employment by the Company pursuant to Section
5(b) of this Agreement.
<PAGE> 2
3. COMPENSATION. Employee shall be entitled to the following,
all of which shall be deemed compensation, as that term is used in this
Agreement (provided, however, that the use of the term "compensation" in this
Agreement is not intended to have any effect whatever with respect to
determining Employee's taxable income):
(a) The Company agrees to pay to Employee, as base
salary, for the balance of the 1995 calendar year, gross annual salary at a
rate equal to $275,000 per annum. For calendar year 1996, Employee's gross
annual salary shall be increased from the $275,000 per annum salary in effect
during the last seven months of 1995 by 58.33% of the greater of (i) 4% of
$275,000 and (ii) the amount of the percentage increase in the Consumer Price
Index for the most currently available twelve (12) month period over the
preceding twelve (12) month period (the "CPI Increase") multiplied by $275,000.
For each calendar year during the term of this Agreement after 1996, Employee's
gross annual salary shall be increased by the greater of (A) 4% of the prior
year's gross annual salary and (B) the CPI Increase multiplied by the prior
year's gross annual salary. The base salary shall be payable on the same basis
(including appropriate payroll withholding) as the Company, from time to time,
generally pays its employees. Employee shall, in addition to base salary,
receive, in respect of each calendar year (or partial calendar year) during
which this Agreement is in effect, an annual cash bonus (the "Cash Bonus")
equal to the sum of three percent (3%) of the pre-tax net income of the Company
before non-recurring and extraordinary charges ("pre-tax net income") for such
calendar year in excess of $1 million. The maximum amount of the Cash Bonus
for any year shall be limited to two times Employee's base salary for such year
(the Cash Bonus in respect of the 1995 calendar year shall not exceed
$550,000). The Cash Bonus shall be paid to Employee within thirty (30) days
following completion of each annual audit of the Company, including calendar
year 1995, and shall be calculated in accordance with generally accepted
accounting principles, consistently applied, without taking any Cash Bonus of
Employee, or any similar bonus based on the earnings or performance of the
Company paid to any other executive officer of the Company, into account as an
expense. It is anticipated by the Company that none of the grant, vesting or
exercise of any of the New Options (as later defined) or similar options
granted and/or contemplated to be granted to other executive employees, or of
any other options, warrants or similar rights issued by the Company from time
to time, will constitute or result in an expense or charge against the
Company's income. However, if such turns out not to be the case, no such
expense or charge shall be taken into account when computing pre-tax net income
for purposes of determining the Cash Bonus. If being computed for a partial
calendar year, the Cash Bonus shall be appropriately and equitably prorated (no
proration shall be made for the 1995 year). Consumer Price Index as used
herein shall mean the Consumer Price Index shown on the U.S. City Average for
all
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<PAGE> 3
urban consumers, unadjusted, all items, as promulgated by the Bureau of Labor
Statistics of the U.S. Department of Labor, using the year 1993 as the base
year. In the event that the Consumer Price Index referred to herein ceases to
incorporate a significant number of the items as currently set forth therein,
or if a substantial change is made in the method of establishing said Consumer
Price Index, then the Consumer Price Index shall be adjusted to the figure that
would have resulted had no change occurred in the manner of computing the
Consumer Price Index. In the event that the Consumer Price Index (or successor
or substitute index) is not available, then the Company may use another
governmental or nonpartisan publication evaluating the information theretofore
used in determining the Consumer Price Index in lieu of said Consumer Price
Index.
(b) Employee shall be entitled to participate in any and
all employee benefit plans and programs offered by the Company from time to
time to other employees, including, without limitation, medical insurance,
dental insurance, pension and/or profit sharing plans, 401(k) plans, stock
option plans and cafeteria plans. Additionally, Employee shall be entitled to
five (5) weeks paid vacation per calendar year.
(c) The Company will provide to Employee, without cost to
Employee, full-time use of a Company owned or leased automobile of a make and
model reasonably chosen by Employee, not to exceed a cost of $1,000 per month
(for lease payments if the automobile is leased, for financing payments if the
automobile is owned by the Company and financed, or for depreciation if the
automobile is owned by the Company and has not been financed, as the case may
be). The Company shall further pay all other expenses related thereto,
including, but not limited to, all costs of fuel, maintenance, repairs and
comprehensive automobile insurance, including liability insurance of no less
than $1 million.
(d) Employee is the owner of a whole life insurance
policy on the life of Employee, providing for a death benefit of $1,000,000,
with the beneficiary thereof designated and to be designated at the sole and
unquestionable discretion of Employee (the "$1 Million Policy"). The Company
shall pay all premiums hereafter due thereon as provided for, and subject to
all terms and conditions of, that certain Life Insurance Agreement between the
Company and Employee, as supplemented by that certain Supplemental Letter
Agreement between the Company and Employee, copies of which are attached hereto
as Exhibit "A" (collectively, the "Life Insurance Agreement"). With respect to
the $1 Million Policy, in lieu of the Company paying the entire annual premium
on the policy, the Company may elect to require Employee to pay an amount equal
to the P.S. 58 cost for such insurance coverage (or the net premium due, if
less). Any balance shall be paid by the Company (and payment solely of such
balance, if any, shall be deemed an advance by the Company to Employee under
the Life Insurance Agreement). In
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<PAGE> 4
the event Employee is required to pay such P.S. 58 amount, the Company shall
give Employee an additional bonus each year sufficient to enable Employee to
pay such P.S. 58 amount and any additional tax liability resulting from such
P.S. 58 amount being included in Employee's income for federal and state income
tax purposes, and any additional tax liability on those amounts, so that
Employee receives, on an after-tax basis, an amount each year equal to such
P.S. 58 amount.
(e) Employee shall receive a one-time bonus in the amount
of $30,000 on January 15, 1996 if, and only if, the Company's net sales for
calendar year 1995 equal or exceed $135,000,000.
(f) The Company shall continue to make payments in
respect of, and keep in full force and effect, as directed by Employee, the
Company's deferred compensation plan presently offered to, and enjoyed by,
Employee.
(g) The following provisions shall apply in the event of
a Change in Control (as defined below).
(i) In the event of a Change in Control occurring
at any time while Employee is employed hereunder, Employee shall have the
option in his sole discretion to terminate his employment under this Agreement,
by giving written notice thereof to the Company within 180 days following the
date of the Change in Control. If a Change in Control occurs, and (x) within
the 180-day period prior to the date of the Change in Control, or at any time
on or after the date of the Change in Control, Employee's employment is or has
been terminated by the Company pursuant to Section 5(b) or the Company gives or
has given notice of its refusal to renew employment for any one-year term, or
(y) Employee elects to terminate his employment under this Agreement as
aforesaid, Employee shall receive all compensation described in Sections 3(a),
(b), (c) and (f), and subsection (e) (if the bonus under (e) is earned but has
not been paid) which would be due through the end of the initial term of this
Agreement or which would be due to Employee if employment under this Agreement
continued for three (3) years after the termination of Employee's employment,
whichever is greater, and shall receive the amount of all unpaid insurance
premiums payable for the Minimum Period (as defined in the Life Insurance
Agreement).
(ii) In the event of a Change in Control occurring
at any time (i.e., whether Employee is then employed hereunder or not),
Employee may elect, by giving written notice to Employer at any time during the
180-day period following the date of the Change in Control, or the 180-day
period following the date of termination of his employment, whichever is later,
to receive the compensation described in Subsection (g)(i) above or, if
Subsection (g)(i) above is inapplicable, all compensation to which Employee is
then and
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<PAGE> 5
thereafter entitled, as follows: If Subsection (g)(i) is applicable, Employee
shall receive a lump-sum payment equal to Employee's aggregate compensation
described in Sections 3(a), 3(b), 3(c), 3(f) (and 3(e), if earned and not yet
paid) which would be due through the end of the initial term of this Agreement
or which would be due to Employee if his employment hereunder continued for
three years following the date of Employee's termination of employment,
whichever is greater, and the unpaid premiums for the Minimum Period under the
Life Insurance Agreement. In the event Employee's employment hereunder
terminates pursuant to Section 5(c) prior to the date of the Change in Control,
or pursuant to Section 5(b) or receipt by Employee of a notice of non-renewal
prior to the 180-day period preceding the date of the Change in Control,
Employee shall receive a lump-sum payment of all then remaining compensation to
be paid to him pursuant to Section 5(b) or 5(c), as the case may be.
(iii) In calculating any such lump-sum payment
hereunder: (A) the Cash Bonus payable for each of the remaining years it is to
be paid shall be deemed to be, in respect of each such year, the largest annual
cash bonus paid under this Agreement or its predecessor, (B) such lump-sum
payment shall include credit for all unused vacation time and any other similar
items or incentives earned as of the date that employment terminated, and (C)
all non-cash benefits and benefit programs and plans will be given a cash value
sufficient to permit the equivalent non-cash benefits and programs to be
obtained by Employee after the Change in Control during the applicable period
described in Subsection (ii) above, unless any such non-cash benefit or program
is otherwise to be continued for and made available by the Company to Employee
at no cost or contribution by Employee for such period after the Change in
Control, and adequate assurances by the Company of such continuation reasonably
satisfactory to Employee are also provided to Employee. The lump-sum payment
shall not be discounted to present value. Any lump-sum payments elected by
Employee shall be paid to Employee within thirty (30) days following the date
of his election to receive them.
(iv) For purposes of this Agreement, a Change in
Control shall be deemed to occur (A) when individuals who, as of the date of
the execution of this Agreement, constitute the Company's Board of Directors
cease for any reason to constitute at least a majority of the members of the
Company's Board of Directors, unless the election, or the nomination for
election, by the Company's stockholders of a new director was voted for by
Employee, in which event such new director will be deemed for the purposes of
this definition a director as of the date of execution of this Agreement, or
(B) if Employee and Paul Goldberg are forced by a merger, consolidation,
reorganization, by operation of law or other form of transaction to sell their
shares of voting capital stock in the Company, or (C) if 50% or more of the
consolidated assets, properties and businesses of the Company is sold or
5
<PAGE> 6
otherwise transferred to a third party without the approval of Employee or (D)
if an individual (other than a member of Employee's or Paul Goldberg's
immediate family) or a company or other entity, or a group acting in concert,
becomes the beneficial owner of 15% or more of the outstanding voting capital
stock of the Company as a result of acquisitions made from any person or
persons or entity or entities (other than Employee or his immediate family) or
from the Company (unless such acquisitions from the Company were approved by
Employee).
(v) Upon a Change in Control, as well as upon any
termination of Employee's employment pursuant to Section 5(b), or as a result
of non-renewal for a one-year term, all options granted by the Company to
Employee to acquire shares of capital stock of the Company (including, but not
limited to, all New Options as defined and described below) shall automatically
vest, and all existing stock option agreements between the Company and Employee
are hereby amended to provide for such automatic vesting. In addition, upon a
Change in Control, as well as upon any termination of Employee's employment
pursuant to Section 5(b), or as a result of non-renewal of a one-year term, or
pursuant to Section 5(c), Employee shall automatically vest in and acquire
unencumbered ownership of the cash surrender value of the $1 Million Policy, as
provided for in the Life Insurance Agreement.
(vi) The Company shall not be entitled to assert
or take any credit against, or otherwise assert or make any reduction to, any
payment to Employee required under this Subsection (g) for any reason whatever.
(h) Employee shall, on the earlier of (i) June 15, 1995
and (ii) the effective date of the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on April 17, 1995, be granted
stock options to acquire 450,000 shares of common stock of the Company (the
"New Options") pursuant to the Company's Employees', Officers', Directors'
Stock Option Plan, as same has been or may be amended (the "Option Plan"),
pursuant to the terms, provisions and conditions of the stock option agreement
attached hereto as Exhibit "B" (the "Option Agreement"). The Option Agreement
and the New Options become, on the first anniversary of the date hereof, null
and void automatically and without further action on the part of any party
being required unless, on or before said first anniversary, the Company's
shareholders approve (i) certain amendments to the Option Plan which were
necessary to permit the grant of the New Options in accordance with the terms
described in the Option Agreement, and (ii) an amendment to the Company's
charter to provide for an increase in the number of authorized shares of the
Company to a number sufficient to be available for issuance upon exercise of
the New Options. The New Options and the Option Agreement will become null
and void earlier than such first anniversary if and when the shareholders of
the Company refuse to approve either of the
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<PAGE> 7
aforesaid amendments. If the Option Agreement and New Options do become null
and void, the Cash Bonus shall then automatically be calculated on the basis of
five percent (5%), rather than three percent (3%), of pre-tax net income,
retroactive to the 1995 calendar year.
In addition to the foregoing, but as a separate
matter, Employee agrees that unless and until the applicable amendments
described above are approved by the Company's shareholders, in the event and to
the extent that exercise by Employee of his existing stock options would cause
a violation of any requirement in the Option Plan that the total number of
options granted to directors of the Company under the Option Plan not exceed
35% of the total shares reserved for issuance under the Option Plan, Employee
agrees not to exercise his existing options, up to an aggregate of 50,000
options, in order that such 35% limitation may continue to be observed. Such
undertaking by Employee shall be made on a pro rata basis with Paul Goldberg,
who has, concurrently herewith, made an identical undertaking.
4. EXPENSES OF EMPLOYEE. The Company shall pay or reimburse
Employee for reasonable expenses incurred by Employee in connection with the
business of the Company.
5. TERMINATION BY THE COMPANY.
(a) Except as set forth in subparagraph (b) of this
Section, the Company shall have no right to terminate Employee's employment
unless and until the occurrence of any of the following:
(i) Employee is convicted (by formal plea of
guilty or a jury verdict) of embezzlement or other felonious theft of money or
property from the Company; or
(ii) Employee's refusal, after thirty (30) days
written notice, to cure a material default of any of the provisions of this
Agreement unless said material default is caused by physical or mental
infirmity or disability which renders Employee incapable of performing the
customary duties for which Employee is being employed. In order to be
effective said notice must clearly specify the material default and must notify
Employee of the Company's intention to terminate this Agreement in the event
the described material default is not cured within said thirty (30) days.
(b) The Company shall have the right to terminate
Employee's employment with the Company at any time without cause or to refuse
to renew Employee's employment for any one-year renewal term (in accordance
with Section 1), provided that, in either event, the Company continues to pay
Employee all of the compensation set forth in Section 3 of this Agreement, as
if this Agreement had been continued in accordance with its terms, to the
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<PAGE> 8
later of (i) the expiration date of the initial term and (ii) the second
anniversary of the effective date of termination of employment (except that all
unpaid premiums for the $1 Million Policy for the Minimum Period shall continue
to be paid as required by the Life Insurance Agreement), all subject to, if
applicable, the relevant provisions of Section 3(g).
(c) In the event Employee becomes permanently incapable
of performing the customary duties for which Employee is being employed due to
a physical or mental infirmity or disability, the Company shall not terminate
Employee (other than under Section 5(a), if applicable, or Section 5(b)), and
the Company shall continue to pay Employee all compensation due under Section 3
of this Agreement for two (2) years after the effective date of said infirmity
or disability (as defined below), and, if earned and not paid, the bonus
described in Section 3(e). At the end of such two-year period, Employee's
employment shall be deemed terminated, subject to the Company's continuing
payment requirements during the Minimum Period under the Life Insurance
Agreement. All of the foregoing is subject, if applicable, to the relevant
provisions of Section 3(g). The effective date of Employee's permanent
infirmity or disability shall be the 30th day following receipt by Employee
from the Company of written notice stating the Company's determination that
Employee has such infirmity or disability, provided that Employee has not
disputed such determination in writing within such 30-day period, and, if
Employee has so disputed such determination, the date by which three medical
doctors or psychiatrists (as applicable) selected by the Company, but
reasonably acceptable to Employee, have examined Employee and concluded (as set
forth in a letter delivered to the Company) that he has a permanent infirmity
or disability which renders him incapable of performing his customary duties.
(d) Notwithstanding anything to the contrary contained in
this Agreement, in the event that Employee's employment is terminated pursuant
to Section 5(b), including by reason of the Company's refusal to renew
employment for any one-year term, pursuant to Section 5(c), or because of
Employee's death, Employee and his dependents (wife and children), or, in the
case of Employee's death, his dependents, shall continue to be covered under
the Company's health and medical insurance plans and programs and receive the
same level of benefits which they now receive thereunder unless and until
Employee and his dependents are covered by another employer-paid health and
medical insurance plan providing for at least the same level of benefits as
those now being enjoyed. If such other coverage is obtained, the Company will
be obligated to continue to cover or provide for coverage of any pre-existing
conditions excluded from coverage under the new plan and during any waiting
periods applicable under the new plan. In the event that, for any reason, the
Company is unable to provide the coverage required by this subsection, it shall
self-insure, and otherwise be directly responsible for, all medical and health
costs
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<PAGE> 9
which are covered and would be paid for under the Company's existing health and
medical plans covering Employee and his dependents. In the event of a
termination of employment pursuant to Section 5(b), after the applicable period
set forth in Section 5(b) (or Section 3(g), if applicable), Employee shall be
obligated to reimburse to the Company a portion of the health coverage premium
equal to the amount paid or deemed paid by the Company for such coverage on the
date hereof. Upon Employee's death, commencing with the fifth anniversary of
Employee's death, Employee's dependents shall be obligated to reimburse to the
Company the portion of the health coverage premium equal to the amount paid or
deemed paid by the Company to cover such dependents on the date hereof. If
Employee's employment terminates pursuant to Section 5(c), the Company shall at
no time be entitled to any premium reimbursement.
6. COVENANT NOT TO COMPETE. Employee acknowledges, represents
and warrants that (a) he possesses valuable trade secrets and proprietary and
confidential information of the Company and (b) the Company has expended
substantial amounts of time, effort and money to develop Employee's abilities
and skills for the benefit of the Company. In consideration of the Company
entering into this Agreement, Employee covenants and agrees that during the
term of his employment, and for a period of two (2) years thereafter, Employee
will not, without the express prior written consent of the Company, directly or
indirectly engage in any activity competitive with the Company's business,
whether alone, as a partner, or as an officer, director, employee, agent,
consultant or shareholder of any other entity, or as a trustee, fiduciary, or
other representative of any other person or entity. None of the foregoing
shall prohibit passive ownership by Employee of less than 5% of the beneficial
ownership of any public company. In the event of a breach or threatened breach
by Employee of the covenants contained in this Section, Employee acknowledges
that the Company will not have an adequate remedy at law and that the Company
shall be entitled to such equitable and injunctive relief as may be available
to restrain Employee from the violation of the provisions hereof. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from Employee. Employee acknowledges and agrees that the
covenants contained in this Section are essential to the preservation of the
good will of the Company, that each of such covenants is reasonable and
necessary to protect and preserve the interests, trade secrets, proprietary
information and properties of the Company and the business of the Company, and
that irreparable loss and damage will be suffered by the Company should
Employee breach any of such covenants. The restrictions in this Section shall
not apply in the event that Employee's employment is terminated by the Company
unless: (i) such termination is for one of the items set forth in Section 5(a);
or (ii) said termination is pursuant to Section 5(b) or the refusal of the
Company to renew this Agreement at the end of
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<PAGE> 10
the initial term or any one-year renewal term and the Company continues to pay
Employee all compensation set forth in this Agreement for a period equal to the
greater of two (2) years after said termination or non-renewal and the
remainder of the term hereof. After a Change in Control, this Section 6 shall
become void and of no further force or effect.
7. NOTICES. Whenever any notice, payment, or other communication
is required to be given or delivered pursuant to this Agreement, such notice
shall be given in writing, and shall be delivered in person or by certified
mail, return receipt requested, and shall be sufficiently given if received,
delivered personally or if mailed, addressed as follows: If to the Company, to
All American Semiconductor, Inc., 16115 N.W. 52nd Avenue, Miami, Florida 33014,
Attention: Chairman of the Board and President; and if to Employee, to his
residence with a copy to his office at the Company, or such other address as
either party hereto may by written notice designate to the other party in
accordance with this Section. Notices delivered personally or by courier shall
be deemed given as of actual receipt; mailed notices shall be deemed given as
of four (4) days after mailing.
8. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida.
9. LEGAL PROCEEDINGS. Any and all legal proceedings between the
parties hereto arising from this Agreement shall be commenced only in Dade
County, Florida. Both parties agree to jurisdiction and venue in the courts of
Dade County, Florida.
10. ATTORNEYS' FEES AND COSTS. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it or he may
be entitled, before and at trial, whether or not trial on the merits occurs,
and at all tribunal levels.
11. SEVERABILITY. If any provision of this Agreement shall be
held void, voidable, invalid, or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any provision is held
void, voidable, invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect with
respect to all other circumstances.
12. HEADINGS. Titles or headings of paragraphs contained in this
Agreement are inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or prescribe the scope of this Agreement or the
intent of any provision.
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13. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written understandings and agreements between the parties. The provisions of
this Agreement may not be waived, modified or amended except by a writing
signed by the party sought to be bound. Waiver by either of the parties of a
breach by the other of the parties of any of the terms of this Agreement shall
not be deemed a waiver of future non-compliance herewith. An attempted
modification that fails to comply with this Section shall not operate as a
waiver.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and which
together shall constitute one and the same instrument.
15. SURVIVABILITY. No termination of Employee's employment or any
purported termination of this Agreement shall terminate any obligation of the
Company or Employee which, by its terms, applies to a stated period following
termination of employment. Specifically, but without limiting the generality
of the foregoing, no such termination shall relieve Employee of any of his
obligations under Section 6, or shall relieve the Company of any of its
obligations under Sections 3 and 5.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the day and year first above written.
COMPANY:
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Paul Goldberg
--------------------------------------
Paul Goldberg, Chief Executive Officer
EMPLOYEE:
/s/ Bruce M. Goldberg
--------------------------------------------
BRUCE M. GOLDBERG
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EXHIBIT "A"
LIFE INSURANCE AGREEMENT
<PAGE> 13
EXHIBIT "A"
LIFE INSURANCE AGREEMENT
THIS AGREEMENT dated effective as of the 1st day of January, 1993, by
and between All American Semiconductor, Inc., a Delaware corporation
(hereinafter called "the Corporation") and Bruce M. Goldberg (hereinafter
called "the Employee").
WHEREAS, the Employee wants to insure his life, for the benefit and
protection of his family, under a policy issued by The Equitable Life Assurance
Society; and
WHEREAS, the Corporation is willing to pay the premiums on a life
insurance policy for Employee subject to the terms contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, it is agreed between the parties as follows:
1. Application for Insurance. The Corporation has obtained and
transferred ownership to the Employee of a Equitable Life Assurance Society
Life Insurance Policy on his life in the face amount of $1,000,000.00. The
policy number, face amount, and place of insurance shall be recorded on
Schedule A attached hereto and the policy shall then be subject to the terms of
this Agreement.
2. Ownership of Insurance. The Employee shall be the owner of
the policy on his life acquired pursuant to the terms of this Agreement, and he
may exercise all the rights of ownership with respect to the policy except as
otherwise hereinafter provided. Employee shall have the right to borrow from
the policy, subject to any collateral assignment of the policy cash surrender
value.
<PAGE> 14
3. Payment of Premiums on Policy. Corporation shall pay to
Employee or directly to the Equitable Life Assurance Society an aggregate
annual premium amount of $11,995.00 for the first year, $32,515.00 for the
second year and $22,995.00 for each year thereafter. Each premium on the
policy shall be paid by the Corporation twenty (20) days before it becomes due
and payable.
4. Employee's Obligation to Corporation. The Employee shall be
obligated to repay to the Corporation the amount which the Corporation pays to
the Employee under Article 3 of this Agreement.
5. Collateral Assignment of Policy. The Employee hereby
collaterally assigns the policy on his life, acquired pursuant to the terms of
this Agreement, to the Corporation as security for the repayment of the amounts
which the Corporation will pay to the Employee under Article 3 of this
Agreement. This collateral assignment will not be altered or changed without
the consent of the Corporation.
6. Surrender or Termination of Policy. While this Agreement is
in force and effect, the Employee will neither sell, surrender nor otherwise
terminate the policy on his life, acquired pursuant to the terms of this
Agreement without the Corporation's prior written consent.
7. Assignment of Employee's Interest. Employee may designate a
beneficiary or beneficiaries to receive any proceeds payable on the death of
the Employee which are in excess of the Corporation's share of such proceeds.
In the event the Employee has transferred or shall transfer all of his right
and interest in
2
<PAGE> 15
the policy (other than rights assigned to the Corporation pursuant to this
Agreement), then all of the Employee's interest in the policy and this
Agreement shall be vested in his transferee, and the Employee shall have no
further interest in the policy or this Agreement.
8. Additional Policy Benefits and Riders. The Employee may add a
rider to the policy on his life, acquired pursuant to the terms of this
Agreement, for his own benefit. Upon written request by the Corporation, the
Employee may add a rider to the policy for the benefit of the Corporation. Any
additional premium for any rider which is added to the policy shall be paid by
the party which will be entitled to receive the proceeds of the rider.
9. Death Claims.
A. When the Employee dies, the Corporation shall be
entitled to receive a portion of the death benefits provided under the policy
on the Employee's life acquired pursuant to the terms of this Agreement. The
amount to which the Corporation will be entitled shall be the amount of its
contributions, pursuant to Article 3 of this Agreement, toward payment of the
premiums due on the policy on the Employee's life. The amount to which the
Corporation will be entitled will not, however, exceed the cash value of the
policy at the end of the policy year in which the Employee's death occurs. The
receipt of this amount by the Corporation shall constitute satisfaction of the
Employee's obligation under Article 4 of this Agreement. If, upon the death of
the Employee, there is a refund of any unearned premiums under
3
<PAGE> 16
the policy provisions, then in such event, any refund shall be refunded in
total to the Corporation.
B. When the Employee dies, the beneficiary or
beneficiaries named by the Employee shall be entitled to receive the amount of
the death benefits provided under the policy on the Employee's life in excess
of the amount payable to the Corporation under paragraph A of this Article.
This amount shall be paid under the settlement option elected by the Employee
or Employee's designated beneficiary.
10. Termination of Agreement. This Agreement shall terminate on
the occurrence of any of the following events:
(a) cessation of the corporate business;
(b) termination of the employment of the Employee;
(c) repayment in full or satisfaction by the
Employee of the contributions made by the Corporation under Article 3 of this
Agreement toward payment of the premiums due on the policy on the Employee's
life acquired pursuant to the terms of this Agreement, and upon receipt of such
repayment the Corporation shall release the collateral assignment of the policy
made by the Employee pursuant to Article 5 of this Agreement; and
(d) Employee's failure to apply Corporation's
premium loans to the policy premiums as agreed upon herein.
11. Disposition of Policy on Termination of Agreement. If this
Agreement is terminated under Article 10, the Employee shall have thirty days
in which to repay the Corporation the amount which it has contributed toward
payment of the premiums due on the policy
4
<PAGE> 17
on the Employee's life acquired pursuant to the terms of this Agreement. Upon
receipt of this amount, the Corporation shall release the collateral assignment
of the policy. If the Employee does not repay the amount which the Corporation
has contributed within this thirty-day period, the Corporation shall refund to
the Employee that part of any payment made by the Employee for the unexpired
portion of the premium payment period in which termination occurred and the
Employee shall execute any and all instruments that may be required to vest
ownership of said policy in the Corporation. Thereafter, the Employee shall
not have any further interest in the policy.
12. Insurance Company Not a Party. The Equitable Life Assurance
Society:
(a) shall not be deemed to be a party to this
Agreement for any purpose nor in any way responsible for its validity;
(b) shall not be obligated to inquire as to the
distribution of any monies payable or paid by it under the policy on the
Employee's life acquired pursuant to the terms of this Agreement;
(c) shall be fully discharged from any and all
liability under the terms of any policy issued by it, which is subject to the
terms of this Agreement, upon payment or other performance of its obligations
in accordance with the terms of such policy.
5
<PAGE> 18
13. Amendment of Agreement. This Agreement shall not be modified
or amended except by a writing signed by the Corporation and the Employee.
This Agreement shall be binding upon the heirs, administrators or executors and
the successors and assigns of each party to this Agreement.
14. State Law. This Agreement shall be subject to and shall be
construed under the laws of the State of Florida.
15. Corporate Funding. The Corporation shall have no obligation
to set aside, earmark or entrust any fund or money with which to pay its
obligations under this Agreement. The Employee, his beneficiaries or any
successor in interest to him shall be and remain simply a general creditor of
the Corporation in the same manner as any other creditor having a general claim
for matured and unpaid compensation. The benefits provided to Employee
hereunder are maintained by the Corporation primarily for the purpose of
providing benefits for a select group of management. The Corporation reserves
the absolute right at its sole discretion to either fund the obligations
undertaken by this Agreement or to refrain from funding the same and to
determine the extent nature and method of such funding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Miami, Florida.
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Paul Goldberg
--------------------------------
/s/ Bruce M. Goldberg
-----------------------------------
Bruce M. Goldberg - Employee
6
<PAGE> 19
SCHEDULE "A"
Insurer:
Insured:
Policy Number:
Face Amount of Policy:
Assignor - Owner:
Assignee-Owner:
<PAGE> 20
EXHIBIT "A"
ALL AMERICAN SEMICONDUCTOR, INC.
MIAMI, FLORIDA
Mr. Bruce Goldberg
All American Semiconductor, Inc.
Miami, Florida
RE: ALL AMERICAN SEMICONDUCTOR, INC. ("ALL AMERICAN") -
SUPPLEMENTAL LETTER AGREEMENT TO LIFE INSURANCE
AGREEMENT WITH BRUCE GOLDBERG
Dear Bruce:
Please be advised that in connection with your continued employment
with All American, and in accordance with the terms of your Life Insurance
Agreement (a copy of which is attached hereto and made a part hereof) (the
"Agreement"), All American shall make periodic loans to you to pay the premiums
on a $1,000,000.00 face amount whole life insurance policy on your life (the
"Policy"). The annual loan amount to be provided by All American shall be
$11,995.00 for year 1, $32,515.00 for year 2 and $22,995.00 for each year
thereafter. The premium loan amount shall be paid for as long as you remain an
employee of All American or its successors or assigns but in no event less than
a period of ten (10) years (the "Minimum Period"). You shall collaterally
assign the Policy acquired pursuant to the terms of the Agreement to All
American as security for the repayment of the amounts loaned by All American
for payment of the premiums. Notwithstanding the terms contained in the
Agreement and provided you continue in the employ of All American, it
successors, subsidiaries, or assigns, the cash surrender value of the policy
shall commence to vest in you or your designated owner of the Policy upon the
following dates and percentages:
January 1, 1995 - 50%
May 30, 1995 - 60%
November 30, 1995 - 70%
May 30, 1996 - 80%
November 30, 1996 - 90%
May 30, 1997 - 100%
<PAGE> 21
Mr. Bruce M. Goldberg
Page 2
----------------
In lieu of All American paying the entire annual premium on the
policy, All American may elect to require you to pay an amount equal to the
P.S. 58 cost for such insurance coverage (or the net premium due, if less).
Any balance shall be paid by you (and payment solely of such balance, if any,
shall be deemed an advance by All American to you under the Agreement). In the
event you are required to pay such P.S. 58 amount, All American shall give you
an additional bonus each year sufficient to enable you to pay such P.S. 58
amount and any additional tax liability resulting from such P.S. 58 amount
being included in your income for federal and state income tax purposes, and
any additional tax liability on those amounts, so that you receive, on an
after-tax basis, an amount each year equal to such P.S. 58 amount.
On May 30, 1997, the cash surrender value of the policy shall be fully
vested in you and All American shall release the collateral assignment of the
Policy. It is understood that as you become vested in the cash surrender value
of the Policy, such vested amount shall be included in your income and subject
to appropriate taxation and withholding requirements. Moreover, any premiums
paid to you or on your behalf after you become fully vested in the Policy shall
also be included in your income and subject to any applicable income tax and
withholding requirements.
If your employment with All American, its successors or assigns is
terminated without cause (including, your voluntary retirement within one
hundred eighty (180) days after a Change in Control, as hereinafter defined),
All American its successors and assigns shall be obligated to pay the premiums
on the Policy for the Minimum Period or at your option pay immediately the
present value of such premium payments due for the remainder of the Minimum
Period and you shall become immediately fully vested in the cash surrender
value of the Policy including any future premium payments made by or on your
behalf by All American. If your employment with All American, its successors
or assigns is terminated for "cause" as hereinafter defined, you will be
entitled to pay off the nonvested advances owed to All American and obtain a
release of any collateral assignment and All American's obligation to continue
to fund premiums shall cease.
For purposes of this letter agreement, a Change in Control shall be
deemed to occur (A) when individuals who, as of the date of the execution of
this letter agreement, constitute the All American's Board of Directors cease
for any reason to constitute at least a majority of the members of All
American's Board of Directors, unless the election, or the nomination for
election, by All American's stockholders of a new director was approved by a
vote of at least 2/3rds of the directors who were directors as of
<PAGE> 22
Mr. Bruce M. Goldberg
Page 3
----------------
the date of execution of this letter agreement, or with your approval, in which
event such new director will be deemed for the purposes of this definition a
director as of the date of execution of this Agreement, or (B) if you and Paul
Goldberg are forced by a merger, consolidation, reorganization, by operation of
law or other form of transaction to sell your shares of voting capital stock in
All American, or (C) if 50% or more of the consolidated assets, properties and
businesses of All American is sold or otherwise transferred to a third party
without your approval or (D) if an individual (other than a member of your or
Paul Goldberg's immediate family) or a company or other entity, or a group
acting in concert, becomes the beneficial owner of 15% or more of the
outstanding voting capital stock of All American as a result of acquisitions
made from any person or entity (other than you or your immediate family) or
from All American (unless such acquisitions from All American were approved by
you).
For purposes of this letter agreement, termination for "cause"
shall be deemed to occur if:
(i) you are convicted (by formal plea of guilty or a
jury verdict) of embezzlement or other felonious theft of money or property
from All American; or
(ii) your refusal, after thirty (30) days written
notice, to cure a material default of any of the provisions of any employment
agreement between you and All American from time to time existing unless said
material default is caused by physical or mental infirmity or disability which
renders you incapable of performing the customary duties for which you are
being employed in which event the termination shall be deemed to be without
cause. In order to be effective said notice must clearly specify the material
default and must notify you of All American's intention to terminate your
employment in the event the described material default is not cured within said
thirty (30) days.
<PAGE> 23
Mr. Bruce M. Goldberg
Page 4
----------------
To the extent of any inconsistencies among the Agreement, any
employment agreement and this letter agreement, the terms of this letter
agreement shall supersede the Agreement and any employment agreement and this
letter agreement shall control.
Please indicate your agreement to the provisions contained herein by
executing the appropriate signature line below.
ALL AMERICAN SEMICONDUCTOR, INC.
a Delaware corporation
By: /s/ Paul Goldberg
-----------------------------
Paul Goldberg
AGREED TO AND ACCEPTED BY:
/s/ Bruce M. Goldberg
--------------------------
Bruce M. Goldberg
<PAGE> 24
EXHIBIT "B"
STOCK OPTION AGREEMENT
<PAGE> 25
EXHIBIT "B"
ALL AMERICAN SEMICONDUCTOR, INC.
STOCK OPTION AGREEMENT
Agreement dated as of the ____ day of ________________, 1995 (the
"Date of Grant") between All American Semiconductor, Inc., a Delaware
corporation (and, collectively with its subsidiaries, if any, the "Company")
with its principal office at 16115 N.W. 52nd Avenue, Miami, Florida 33014, and
Bruce M. Goldberg, at the address set forth beneath such person's signature on
the signature page of this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 450,000 shares
(individually a "Share" and collectively the "Shares") of All American
Semiconductor, Inc. common stock (the "Common Stock"), par value $.01 per
share, for a price of $_____ per Share (the "Option Price"), subject to
adjustment as provided in Paragraph 3 below. Each of the Options are granted
as non-qualified stock options pursuant to the Amended and Restated All
American Semiconductor, Inc. Employees', Officers', Directors' Stock Option
Plan (the "Plan"), a copy of which is attached hereto and incorporated herein
by reference, and are subject to the provisions of the Plan. The granting of
the Options hereunder shall be void and a nullity and this Agreement shall have
no further force or effect whatsoever in the event that the Company does not
obtain approval of the Company's shareholders within twelve (12) months of May
23, 1995 to (i) certain material amendments to the Plan which were made as part
of the Plan being amended and restated and which are necessary to permit the
granting of the Options, including the increase in the number of shares
reserved for issuance under the Plan to 3,250,000 in the aggregate, and (ii)
the increase in the number of shares of Common Stock authorized to be issued by
the Company to enable the Company to have sufficient shares of Common Stock
available for issuance upon exercise of the Options.
2. Terms and Conditions of Options
(a) Option Price
Subject to paragraph 3 hereof, the Option Price shall
be not less than the Fair Market Value (as defined in the Plan) per share of
Common Stock on the Date of Grant, but in no event less than the par value per
Share.
<PAGE> 26
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, the Options shall vest, if at all (and then be exercisable in
accordance with the provisions contained in paragraph (d) below) in the
following percentage increments based upon the Company attaining net earnings
per share on a primary (not fully diluted) basis (as determined in accordance
with generally accepted accounting principles and as reported in the audited
consolidated financial statements for the Company) in any calendar year from
1995 through 2000, inclusive, in at least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
------------------ ------------
<S> <C>
25% $ .18
50 .22
75 .28
100 .38
</TABLE>
For purposes hereof, net earnings per share may be
determined subsequent to a calendar year end, however, the Optionee shall be
deemed vested effective as of December 31 of the year in which the target net
earnings per share was achieved. It is anticipated by the Company that none of
the grant, vesting or exercise of any options under the Plan will constitute or
result in an expense or charge against the Company's earnings. However, if the
grant, vesting or exercise of any of the options under the Plan does constitute
or result in an expense or charge against the Company's earnings, no such
expense or charge shall be taken into account in computing whether the target
net earnings per share have been achieved in connection with the vesting
schedule above.
Notwithstanding anything contained herein to the
contrary (including the vesting schedule set forth above), in the event that
either (i) the Optionee's employment is terminated without "cause" (as
hereinafter defined) by the Company, (ii) there is a "Change in Control" (as
hereinafter defined) of the Company, or (iii) the Options granted hereunder
shall not have vested by the ninth anniversary of the date of their grant, the
Optionee shall become immediately 100% vested in all outstanding Options.
(c) Definitions of "Change in Control", "cause" and
"disability".
"Change in Control," "cause," and "disability" shall have the
meanings ascribed to such terms as set forth in Optionee's Employment Agreement
with the Company effective as of the first day of June, 1995.
2
<PAGE> 27
(d) Installment Exercise
All Options granted hereunder shall become
immediately exercisable by Optionee as and when they vest in accordance with
subparagraph (b) above.
Notwithstanding anything contained herein to the
contrary, to the extent such Options have vested or otherwise vest in
accordance with subparagraph (b) above within the time frames permitted for
exercise under subparagraph (g), if the Optionee's employment is terminated due
to those events described in subparagraphs (g)(2), (3), (4) or (5), the vested
Options shall become immediately exercisable and may be exercised by the
Optionee within the time frames set forth in subparagraphs (g)(2), (3), (4) or
(5) (as the case may be).
(e) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning on the date
of this Agreement and ending May ___, 2005, subject in all cases, however, to
subparagraphs (b), (d) and (g) of this paragraph 2 and the other provisions of
this Agreement and the Plan. In no event shall any of the Options granted
under this Agreement be exercisable after the expiration of 10 years from the
Date of Grant of such Options.
(f) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employment Retirement Income
Security Act, or the rules thereunder, and, except with respect to a qualified
domestic relations order as aforesaid, may be exercised during Optionee's
lifetime only by Optionee. If any Options are exercised after Optionee's
death, the Company may require evidence reasonably satisfactory to it of the
appointment and qualification of Optionee's personal representatives and their
authority and of the right of any heir or distributee to exercise such Options.
(g) Termination of Employment
If Optionee's employment with the Company terminates
the unexercised portion of any of the Options granted under this Agreement
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:
3
<PAGE> 28
(1) The expiration of ten (10) years from the
Date of Grant;
(2) The expiration of two (2) years from the date
of termination or cessation of the Optionee's employment with the Company for
any reason [including, without limitation, as a result of disability (however,
if the completion of the Company's audit for the calendar year after the year
in which the termination or cessation occurs is later than two (2) years from
the termination or cessation of Optionee's employment, such expiration date
shall be extended until ten (10) business days after the completion of such
audit and the Optionee's receipt of a copy thereof), voluntary resignation
within one-hundred eighty (180) days after a Change in Control or retirement]
other than a termination or cessation as a result of death or described in
subparagraph (4) or (5) below; provided that for purposes hereof "retirement"
shall mean voluntarily resigning as an employee of the Company after the
Optionee has reached the age of 65;
(3) The expiration of the later of (i) two (2)
years after the Optionee's death or (ii) ten (10) business days after the
completion of the Company's annual audit for the calendar year after the year
in which the death occurs and the receipt of a copy thereof by the personal
representative, executor or administrator of a deceased Optionee, if the
Optionee's death occurs during his employment with the Company;
(4) The termination of the Optionee's employment
by the Company with cause; or
(5) The expiration of three (3) months from the
date of termination or cessation of the Optionee's employment with the Company
as a result of the Optionee's voluntary resignation other than within
one-hundred eighty (180) days after a Change in Control or as a result of
retirement; provided that, if the Optionee shall die during such three-month
period, the time of termination of the unexpired portion of such Option shall
be eighteen (18) months following issuance of letters testamentary or letters
of administration to the personal representative, executor or administrator of
a deceased Optionee, but in no event later than two years after the Optionee's
death.
Neither this Agreement nor any Option granted hereunder shall confer
on Optionee any right to continue in the Company's employ, or limit in any
respect the Company's right (in the absence of a specific written agreement to
the contrary) to terminate Optionee's employment at any time with or without
cause.
4
<PAGE> 29
(h) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee (as defined in the Plan) may from
time to time prescribe and shall specify the number of optioned Shares being
purchased. Subsequent to the grant of any Options which are not immediately
exercisable in full, the Committee, at any time before complete termination of
such Options, may accelerate the time or times at which such Options may be
exercised in whole or in part. Any notice of exercise of Options shall be
accompanied by payment of the full purchase price for the Shares being
purchased: (i) by check payable to the Company; or (ii) by tendering previously
acquired shares of Common Stock having a fair market value (determined as of
the date such Options are exercised and in the same manner as the Fair Market
Value of the Option Price is determined under the Plan) equal to all of the
purchase price or (iii) by any combination of (i) and (ii). The Company shall
have no obligation to deliver the Shares being purchased pursuant to the
exercise of any Options, in whole or in part, until the aforesaid payment in
full of the purchase price therefor is received by the Company.
(i) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any securities exchange or under any
state or federal law is necessary as a condition of or in connection with the
purchase or delivery of Shares, the delivery of any or all Shares pursuant to
exercise of the Options may be withheld unless and until such listing,
registration or qualification shall have been effected; provided, however, upon
written request from the Optionee the Company agrees to use its best efforts at
all times on and after the time any of the Options become vested and
exercisable to effect and continuously maintain any and all such listings,
registrations and qualifications. Optionee agrees to comply with any and all
legal requirements relating to Optionee's resale or other disposition of any
Shares acquired under this Agreement. In the event that the Company using its
best efforts is unable to effect and maintain an effective registration
statement under the Securities Act of 1933, as amended, and any required
qualifications under applicable state securities laws at the time any Option is
exercised, the Committee may require, as a condition of exercise of any
Options, that the Optionee represent, in writing, that the Shares received upon
exercise of the Options are being acquired for investment and not with a view
to distribution and agree that the Shares will not be disposed of except
pursuant to an effective registration statement
5
<PAGE> 30
under the Securities Act of 1933, as amended, and only after any required
qualifications under applicable state securities laws, unless the Company shall
have received an opinion of counsel satisfactory to the Company that such
disposition is exempt from such registration and qualification. There may be
endorsed on certificates representing Shares issued upon the exercise of
Options such legends referring to the foregoing representations or any
applicable restrictions on resale as the Committee, in its discretion, shall
deem reasonably appropriate, as well as place such stop transfer orders with
its registrar and transfer agent as it deems reasonably appropriate.
(j) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
(k) Six-Month Holding Period
Optionee acknowledges that in no event may any Shares
acquired upon exercise of any Options be sold or otherwise disposed of until
after six (6) months have elapsed from the Date of Grant except, in the event
of Optionee's death during such period, for a sale by the executors or
administrators of Optionee's estate relying on Rule 16a-2(d)(1)(i) of the
Securities Exchange Act of 1934, as amended.
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of
Shares subject to such Options and in the Option Price as shall be equitable
and appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; provided, however,
that no such adjustment shall give any Optionee any additional benefits under
this Agreement; and provided further, that, if any such adjustment is made by
reason of a transaction described in section 424(a) of the Code, it shall be
made so as to conform to the requirements of that section and the regulations
thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any unexercised Option theretofore granted
hereunder (hereinafter for purposes of this paragraph 3 referred to as the "old
option"), the Committee or
6
<PAGE> 31
any surviving or acquiring corporation may take such action as it deems
appropriate, and in conformity with the requirements of that section and the
regulations thereunder, to substitute a new option for the old option, in order
to make the new option, as nearly as may be practicable, equivalent to the old
option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by certified or
registered mail, return receipt requested, to Optionee at his or her address
listed on the signature page hereof or such other address of which Optionee
shall have advised by similar notice, or to the Company or Committee at the
Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Delaware. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine,
7
<PAGE> 32
the feminine or the neuter gender shall include the masculine, feminine and
neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: ALL AMERICAN SEMICONDUCTOR,
-------- INC., a Delaware corporation
By:
------------------------------ --------------------------
Bruce M. Goldberg Paul Goldberg
All American Semiconductor, Inc. Executive Officer
16115 N.W. 52nd Avenue
Miami, Florida 33140
8
<PAGE> 1
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
May 24th, 1995, but is effective as of the 1st day of March, 1995 (the
"Effective Date"), by and between All American Semiconductor, Inc., a Delaware
corporation (the "Company"), and Howard L. Flanders ("Employee").
WHEREAS, the Company is engaged in the distribution of electronic
components and its principal office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014;
WHEREAS, Employee has experience and expertise that is useful to the
Company; and
WHEREAS, the Company desires to continue the employment of Employee on
the terms and conditions set forth herein and Employee desires to continue to
work for the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the promises
hereinafter contained, the sufficiency of which is hereby acknowledged, the
parties covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company agrees to employ Employee,
and Employee agrees to be so employed, for a term of three (3) years and ten
months. Accordingly, the term of this employment shall, subject to the terms
and conditions of this Agreement concerning earlier termination by each of the
parties, commence as of the Effective Date and continue until December 31,
1998.
2. DUTIES. Employee accepts employment with the Company to serve
as Vice President and Chief Financial Officer of the Company and agrees to
perform such services as are commensurate with his offices. Employee shall
work full-time for the Company. The Company may not require Employee to
perform duties which are not commensurate with such offices, or which
materially differ from Employee's duties as they presently exist. Any attempt
by the Company to do so shall constitute a total breach of this Agreement,
whereupon Employee shall be entitled to terminate his employment hereunder and
to treat such termination as a termination of employment by the Company
pursuant to Section 5(b) of this Agreement.
3. COMPENSATION. Employee shall be entitled to the following,
all of which shall be deemed compensation, as that term is used in this
Agreement (provided, however, that the use of the term "compensation" in this
Agreement is not intended to have any effect whatever with respect to
determining Employee's taxable income):
<PAGE> 2
(a) The Company agrees to pay to Employee, as base
salary, for the balance of the 1995 calendar year, gross annual salary at a
rate equal to $157,500 per annum. For calendar year 1996, Employee's gross
annual salary shall be increased from the $157,500 per annum salary in effect
during the last seven months of 1995 by the greater of (i) 5% of $157,500 and
(ii) the amount of the percentage increase in the Consumer Price Index for the
most currently available twelve (12) month period over the preceding twelve
(12) month period (the "CPI Increase") multiplied by $157,500. For each
calendar year during the term of this Agreement after 1996, Employee's gross
annual salary shall be increased by the greater of (A) 5% of the prior year's
gross annual salary and (B) the CPI Increase multiplied by the prior year's
gross annual salary. The base salary shall be payable on the same basis
(including appropriate payroll withholding) as the Company, from time to time,
generally pays its employees. Employee shall, in addition to base salary,
receive, in respect of each calendar year (or partial calendar year) during
which this Agreement is in effect, an annual cash bonus (the "Cash Bonus")
equal to the sum of two percent (2%) of the pre-tax net income of the Company
before non-recurring and extraordinary charges ("pre-tax net income") for such
calendar year in excess of $1 million. The maximum amount of the Cash Bonus
for any year shall be limited to the amount of Employee's base salary for such
year (the Cash Bonus in respect of the 1995 calendar year shall not exceed
$157,500). The Cash Bonus shall be paid to Employee within thirty (30) days
following completion of each annual audit of the Company, including calendar
year 1995, and shall be calculated in accordance with generally accepted
accounting principles, consistently applied, without taking any Cash Bonus of
Employee, or any similar bonus based on the earnings or performance of the
Company paid to any other executive officer of the Company, into account as an
expense. It is anticipated by the Company that none of the grant, vesting or
exercise of any of the New Options (as later defined) or similar options
granted and/or contemplated to be granted to other executive employees, or of
any other options, warrants or similar rights issued by the Company from time
to time, will constitute or result in an expense or charge against the
Company's income. However, if such turns out not to be the case, no such
expense or charge shall be taken into account when computing pre-tax net income
for purposes of determining the Cash Bonus. If being computed for a partial
calendar year, the Cash Bonus shall be appropriately and equitably prorated (no
proration shall be made for the 1995 year). Consumer Price Index as used
herein shall mean the Consumer Price Index shown on the U.S. City Average for
all urban consumers, unadjusted, all items, as promulgated by the Bureau of
Labor Statistics of the U.S. Department of Labor, using the year 1993 as the
base year. In the event that the Consumer Price Index referred to herein
ceases to incorporate a significant number of the items as currently set forth
therein, or if a substantial change is made in the method of establishing said
Consumer Price Index, then the Consumer Price Index shall be
2
<PAGE> 3
adjusted to the figure that would have resulted had no change occurred in the
manner of computing the Consumer Price Index. In the event that the Consumer
Price Index (or successor or substitute index) is not available, then the
Company may use another governmental or nonpartisan publication evaluating the
information theretofore used in determining the Consumer Price Index in lieu of
said Consumer Price Index.
(b) Employee shall be entitled to participate in any and
all employee benefit plans and programs offered by the Company from time to
time to other employees, including, without limitation, medical insurance,
dental insurance, pension and/or profit sharing plans, 401(k) plans, stock
option plans and cafeteria plans. Additionally, Employee shall be entitled to
four (4) weeks paid vacation per calendar year.
(c) The Company will provide to Employee, without cost to
Employee, full-time use of a Company owned or leased automobile of a make and
model reasonably chosen by Employee, not to exceed a cost of $700 per month
(for lease payments if the automobile is leased, for financing payments if the
automobile is owned by the Company and financed, or for depreciation if the
automobile is owned by the Company and has not been financed, as the case may
be). The Company shall further pay all other expenses related thereto,
including, but not limited to, all costs of fuel, maintenance, repairs and
comprehensive automobile insurance, including liability insurance of no less
than $1 million.
(d) Employee is the owner of a life insurance policy on
the life of Employee, providing for a death benefit of $1,000,000, with the
beneficiary thereof designated and to be designated at the sole and
unquestionable discretion of Employee (the "$1 Million Policy"). The Company
shall pay the premiums due thereon as provided for, and subject to all terms
and conditions of, that certain Life Insurance Agreement between the Company
and Employee, as supplemented by that certain Supplemental Letter Agreement
between the Company and Employee, copies of which are attached hereto as
Exhibit "A" (collectively, the "Life Insurance Agreement"). With respect to the
$1 Million Policy, in lieu of the Company paying the entire annual premium on
the policy, the Company may elect to require Employee to pay an amount equal to
the P.S. 58 cost for such insurance coverage (or the net premium due, if less).
Any balance shall be paid by the Company (and payment solely of such balance,
if any, shall be deemed an advance by the Company to Employee under the Life
Insurance Agreement). In the event Employee is required to pay such P.S. 58
amount, the Company shall give Employee an additional bonus each year
sufficient to enable Employee to pay such P.S. 58 amount and any additional tax
liability resulting from such P.S. 58 amount being included in Employee's
income for federal and state income tax purposes, and any additional tax
liability on those amounts, so that Employee
3
<PAGE> 4
receives, on an after-tax basis, an amount each year equal to such P.S. 58
amount.
(e) Employee shall, on the earlier of (i) June 15, 1995
and (ii) the effective date of the Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on April 17, 1995, be granted
incentive stock options to acquire 150,000 shares of common stock of the
Company (the "New Options") pursuant to the Company's Employees', Officers',
Directors' Stock Option Plan, as same has been or may be amended (the "Option
Plan"), pursuant to the terms, provisions and conditions of the stock option
agreement attached hereto as Exhibit "B" (the "Option Agreement"). The Option
Agreement and the New Options become, on the first anniversary of the date
hereof, null and void automatically and without further action on the part of
any party being required unless, on or before said first anniversary, the
Company's shareholders approve (i) certain amendments to the Option Plan which
were necessary to permit the grant of the New Options in accordance with the
terms described in the Option Agreement, and (ii) an amendment to the Company's
charter to provide for an increase in the number of authorized shares of the
Company to a number sufficient to be available for issuance upon exercise of
the New Options. The New Options and the Option Agreement will become null
and void earlier than such first anniversary if and when the shareholders of
the Company refuse to approve either of the aforesaid amendments. If the
Option Agreement and New Options do become null and void, the Cash Bonus shall
then automatically be calculated on the basis of two and one-half percent (2
1/2%), rather than two percent (2%), of pre-tax net income, retroactive to the
1995 calendar year.
(f) The Company shall continue to make payments in
respect of, as directed by Employee, the Company's deferred compensation plan
presently offered to, and enjoyed by, Employee, for as long as such plan is
kept in effect generally.
(g) The following provisions shall apply in the event of
a Change in Control (as defined below).
(i) In the event of a Change in Control occurring
at any time while Employee is employed hereunder, Employee shall have the
option in his sole discretion to terminate his employment under this Agreement,
by giving written notice thereof to the Company within 180 days following the
date of the Change in Control. If a Change in Control occurs, and (x) within
the 180-day period prior to the date of the Change in Control, or at any time
on or during the 180-day period following the date of the Change in Control,
Employee's employment is or has been terminated by the Company pursuant to
Section 5(b), or (y) Employee elects to terminate his employment under this
Agreement as aforesaid, Employee shall receive all compensation described in
Sections 3(a), (b), (c) and (f) which would be due through the end of the
initial
4
<PAGE> 5
term of this Agreement or which would be due to Employee if employment under
this Agreement continued for two (2) years after the termination of Employee's
employment, whichever is greater, and shall receive the amount of all unpaid
insurance premiums payable for the Maximum Period (as defined in the Life
Insurance Agreement).
(ii) In the event Employee becomes entitled to the
compensation described in subsection (g)(i), Employee may elect, by giving
written notice to Employer at any time during the 180-day period following the
date of the Change in Control, or the 30-day period following the date of
termination of his employment, whichever is later, to receive a lump-sum
payment equal to Employee's aggregate compensation described in Sections 3(a),
3(b), 3(c) and 3(f) which would be due through the end of the initial term of
this Agreement or which would be due to Employee if his employment hereunder
continued for two years following the date of Employee's termination of
employment, whichever is greater, and the unpaid premiums for the Maximum
Period under the Life Insurance Agreement.
(iii) In calculating any such lump-sum payment
hereunder: (A) the Cash Bonus payable for each of the remaining years it is to
be paid shall be deemed to be, in respect of each such year, the largest annual
cash bonus paid under this Agreement or its predecessor, (B) such lump-sum
payment shall include credit for all unused vacation time and any other similar
items or incentives earned as of the date that employment terminated, and (C)
all non-cash benefits and benefit programs and plans will be given a cash value
sufficient to permit the equivalent non-cash benefits and programs to be
obtained by Employee after the Change in Control during the applicable period
described in Subsection (ii) above, unless any such non-cash benefit or program
is otherwise to be continued for and made available by the Company to Employee
at no cost or contribution by Employee for such period after the Change in
Control, and adequate assurances by the Company of such continuation reasonably
satisfactory to Employee are also provided to Employee. The lump-sum payment
shall not be discounted to present value. Any lump-sum payment elected by
Employee shall be paid to Employee within thirty (30) days following the date
of his election to receive them.
(iv) For purposes of this Agreement, a Change in
Control shall be deemed to occur only if and when (A) Paul Goldberg, Bruce
Goldberg and their respective spouses and lineal descendants (and trusts for
the benefit of any of them) directly and indirectly beneficially own, in the
aggregate, less than 10%, on a fully-diluted basis, of the issued and
outstanding capital stock of the Company, and (B) neither Paul Goldberg nor
Bruce Goldberg is the Chairman of the Board, Chief Executive Officer or
President of the Company (as long as either of them holds one of
5
<PAGE> 6
such positions, no Change in Control shall be deemed to have occurred).
(v) Upon a Change in Control, all options
granted by the Company to Employee to acquire shares of capital stock of the
Company (including, but not limited to, all New Options as defined and
described below) shall automatically vest, and all existing stock option
agreements between the Company and Employee are hereby amended to provide for
such automatic vesting. In addition, upon a Change in Control, Employee shall
automatically vest in and acquire unencumbered ownership of the cash surrender
value of the $1 Million Policy, as provided for in the Life Insurance Agreement.
(vi) The Company shall not be entitled to assert
or take any credit against, or otherwise assert or make any reduction to, any
payment to Employee required under this Subsection (g) for any reason whatever.
4. EXPENSES OF EMPLOYEE. The Company shall pay or reimburse
Employee for reasonable expenses incurred by Employee in connection with the
business of the Company.
5. TERMINATION BY THE COMPANY.
(a) Except as set forth in subparagraph (b) of this
Section, the Company shall have no right to terminate Employee's employment
unless and until the occurrence of any of the following:
(i) Employee is convicted (by formal plea of
guilty or a jury verdict) of embezzlement or other felonious theft of money or
property from the Company; or
(ii) Employee's refusal, after thirty (30) days
written notice, to cure a material default of any of the provisions of this
Agreement unless said material default is caused by physical or mental
infirmity or disability which renders Employee incapable of performing the
customary duties for which Employee is being employed. In order to be
effective said notice must clearly specify the material default and must notify
Employee of the Company's intention to terminate this Agreement in the event
the described material default is not cured within said thirty (30) days.
(b) The Company shall have the right to terminate
Employee's employment with the Company at any time without cause, provided that
the Company continues to pay Employee all of the compensation set forth in
Sections 3(a), (b), (c) and (f) of this Agreement, as if this Agreement had
been continued in accordance with its terms, to the later of (i) the expiration
date of the initial term and (ii) the second anniversary of the effective date
of termination of employment, all subject to, if applicable, the
6
<PAGE> 7
relevant provisions of Section 3(g). Notwithstanding any of the foregoing to
the contrary, such severance obligations shall be excused for the remainder of
the severance period at such time, if any, as Employee accepts new employment
providing for gross annual salary at least equal to the gross annual salary in
effect hereunder at termination of employment, and, to the extent any such new
employment is for a lower gross annual salary, from and after such time, for
the remainder of such severance period, the Company's severance obligations
shall be reduced by the amount of all compensation and benefits received by
Employee under his new employment. Subject to the provisions of Section 3(g),
if applicable, Employee shall be entitled to no other or further compensation
in respect of a termination by the Company pursuant to this Section 5(b).
(c) In the event Employee becomes permanently incapable
of performing the customary duties for which Employee is being employed due to
a physical or mental infirmity or disability, the Company shall not terminate
Employee (other than under Section 5(a), if applicable, or Section 5(b)), and
the Company shall continue to pay Employee all compensation due under Section
3(a), (b), (c), (d) and (f) of this Agreement for two (2) years after the
effective date of said infirmity or disability (as defined below). At the end
of such two-year period, Employee's employment shall be deemed terminated,
subject to the Company's continuing payment requirements during the Maximum
Period under the Life Insurance Agreement. All of the foregoing is subject, if
applicable, to the relevant provisions of Section 3(g). Subject to the
provisions of Section 3(g), if applicable, Employee shall be entitled to no
other or further compensation in respect of termination of employment pursuant
to this Section 5(c). The effective date of Employee's permanent infirmity or
disability shall be the 30th day following receipt by Employee from the Company
of written notice stating the Company's determination that Employee has such
infirmity or disability, provided that Employee has not disputed such
determination in writing within such 30-day period, and, if Employee has so
disputed such determination, the date by which two medical doctors or
psychiatrists (as applicable) selected by the Company, but reasonably
acceptable to Employee, have examined Employee and concluded (as set forth in a
letter delivered to the Company) that he has a permanent infirmity or
disability which renders him incapable of performing his customary duties.
6. COVENANT NOT TO COMPETE.
(a) Employee acknowledges, represents and warrants that
(i) he possesses valuable trade secrets and proprietary and confidential
information of the Company ("Confidential Information") and (ii) the Company
has expended substantial amounts of time, effort and money to develop
Employee's abilities and skills for the benefit of the Company. In
consideration of the Company entering into this Agreement, Employee covenants
and agrees
7
<PAGE> 8
that during the term of his employment, and for a period of two (2) years
thereafter, Employee will not, without the express prior written consent of the
Company, directly or indirectly engage in any activity competitive with the
Company's business, whether alone, as a partner, or as an officer, director,
employee, agent, consultant or shareholder of any other entity, or as a
trustee, fiduciary, or other representative of any other person or entity.
None of the foregoing shall prohibit passive ownership by Employee of less than
5% of the beneficial ownership of any public company. In the event of a breach
or threatened breach by Employee of the covenants contained in this Section,
Employee acknowledges that the Company will not have an adequate remedy at law
and that the Company shall be entitled to such equitable and injunctive relief
as may be available to restrain Employee from the violation of the provisions
hereof. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from Employee. Employee acknowledges
and agrees that the covenants contained in this Section are essential to the
preservation of the good will of the Company, that each of such covenants is
reasonable and necessary to protect and preserve the interests, trade secrets,
proprietary information and properties of the Company and the business of the
Company, and that irreparable loss and damage will be suffered by the Company
should Employee breach any of such covenants. The foregoing restrictions shall
apply in all circumstances of termination of employment; provided, however,
that (x) if Employee's employment is terminated pursuant to Section 5(b), such
restrictions are conditioned upon the Company complying in all material
respects with its severance obligations under and to the extent required by
Section 5(b), and (y) upon the expiration of the term of employment, such
restrictions are conditioned upon the Company paying to Employee during the
one-year period following expiration the gross annual salary in effect during
the last year of employment. Such obligation to pay gross annual salary for
one year shall, without affecting the validity of the restrictive covenants
herein contained, be excused at such time, if any, as Employee accepts new
employment providing for gross annual salary at least equal to the gross annual
salary in effect hereunder at termination of employment, and, to the extent any
such new employment is for a lower gross annual salary, from and after such
time, for the remainder of the one-year period, the Company's obligation shall
be reduced by the amount of the new gross annual salary. Notwithstanding the
foregoing, after a Change in Control this Section 6 shall become void and of no
further force or effect.
(b) At no time during his employment (except as necessary
to perform his duties), or at any time thereafter, shall Employee disclose to
any person or entity, or use or authorize the use of, any Confidential
Information, except as otherwise required by law.
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<PAGE> 9
(c) Without limiting any of the Company's rights or
remedies hereunder, at law or in equity (including but not limited to the right
to obtain injunctive relief), in the event that Employee breaches any of the
covenants contained in this Section 6, the Company shall have the right to set
off all damages, losses, costs and expenses (including reasonable attorneys'
fees and costs) sustained or incurred by the Company as a result thereof
against any amounts then due or owing or remaining to be paid to Employee.
7. NOTICES. Whenever any notice, payment, or other communication
is required to be given or delivered pursuant to this Agreement, such notice
shall be given in writing, and shall be delivered in person or by certified
mail, return receipt requested, and shall be sufficiently given if received,
delivered personally or if mailed, addressed as follows: If to the Company, to
All American Semiconductor, Inc., 16115 N.W. 52nd Avenue, Miami, Florida 33014,
Attention: Chairman of the Board and President; and if to Employee, to his
residence with a copy to his office at the Company, or such other address as
either party hereto may by written notice designate to the other party in
accordance with this Section. Notices delivered personally or by courier
shall be deemed given as of actual receipt; mailed notices shall be deemed
given as of four (4) days after mailing.
8. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida.
9. LEGAL PROCEEDINGS. Any and all legal proceedings between the
parties hereto arising from this Agreement shall be commenced only in Dade
County, Florida. Both parties agree to jurisdiction and venue in the courts of
Dade County, Florida.
10. ATTORNEYS' FEES AND COSTS. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it or he may
be entitled, before and at trial, whether or not trial on the merits occurs,
and at all tribunal levels.
11. SEVERABILITY. If any provision of this Agreement shall be
held void, voidable, invalid, or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any provision is held
void, voidable, invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect with
respect to all other circumstances.
12. HEADINGS. Titles or headings of paragraphs contained in this
Agreement are inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or prescribe the scope of this Agreement or the
intent of any provision.
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<PAGE> 10
13. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written understandings and agreements between the parties. The provisions of
this Agreement may not be waived, modified or amended except by a writing
signed by the party sought to be bound. Waiver by either of the parties of a
breach by the other of the parties of any of the terms of this Agreement shall
not be deemed a waiver of future non-compliance herewith. An attempted
modification that fails to comply with this Section shall not operate as a
waiver.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and which
together shall constitute one and the same instrument.
15. SURVIVABILITY. No termination of Employee's employment or any
purported termination of this Agreement shall terminate any obligation of the
Company or Employee which, by its terms, applies to a stated period following
termination of employment. Specifically, but without limiting the generality
of the foregoing, no such termination shall relieve Employee of any of his
obligations under Section 6, or shall relieve the Company of any of its
obligations under Sections 3 and 5.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the day and year first above written.
COMPANY:
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Bruce Goldberg
-------------------------------
Bruce Goldberg, President
EMPLOYEE:
/s/ Howard L. Flanders
-----------------------------------
HOWARD L. FLANDERS
10
<PAGE> 11
EXHIBIT "A"
LIFE INSURANCE AGREEMENT
<PAGE> 12
EXHIBIT "A"
LIFE INSURANCE AGREEMENT
THIS AGREEMENT dated effective as of the 1st day of January, 1993, by
and between All American Semiconductor, Inc., a Delaware corporation
(hereinafter called "the Corporation") and Howard Flanders (hereinafter called
"the Employee").
WHEREAS, the Employee wants to insure his life, for the benefit and
protection of his family, under a policy to be issued by The Equitable Life
Assurance Society; and
WHEREAS, the Corporation is willing to pay the premiums on a life
insurance policy for Employee subject to the terms contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, it is agreed between the parties as follows:
1. Application for Insurance. The Employee will apply to The
Equitable Life Assurance Society for Flexible Premium Life Insurance on his
life in the face amount of $1,000,000.00 and he will do everything necessary to
cause the policy to be issued. When the policy is issued, the policy number,
face amount, and place of insurance shall be recorded on Schedule A attached
hereto and the policy shall then be subject to the terms of this Agreement.
2. Ownership of Insurance. The Employee shall be the owner of
the policy on his life acquired pursuant to the terms of this Agreement, and he
may exercise all the rights of ownership with respect to the policy except as
otherwise hereinafter provided.
<PAGE> 13
Employee shall have the right to borrow from the policy limited to an amount
equal to the maximum loan value reduced by the cumulative premiums loaned by
the Corporation. Employee's right to withdraw from the policy cash values
under any policy "partial surrender provision" (which is defined as "the cash
value" less any indebtedness less the cost of insurance until the next
"anniversary") shall be limited to such "partial surrender value", as above
defined reduced by the cumulative premiums paid by the Corporation and subject
to any policy surrender limitations.
3. Payment of Premiums on Policy. Corporation shall pay to
Employee or directly to the Equitable Life Assurance Society an aggregate
annual premium amount of $11,500.00 for a maximum period of ten (10) years.
Each premium on the policy shall be paid by the Corporation as it becomes due
and on the date of the premium payment.
4. Employee's Obligation to Corporation. The Employee shall be
obligated to repay to the Corporation the amount which the Corporation pays to
the Employee under Article 3 of this Agreement.
5. Collateral Assignment of Policy. The Employee will
collaterally assign the policy on his life, acquired pursuant to the terms of
this Agreement, to the Corporation as security for the repayment of the amounts
which the Corporation will pay to the Employee under Article 3 of this
Agreement. This collateral assignment will not be altered or changed without
the consent of the Corporation.
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<PAGE> 14
6. Surrender or Termination of Policy. While this Agreement is
in force and effect, the Employee will neither sell, surrender nor otherwise
terminate the policy on his life, acquired pursuant to the terms of this
Agreement without the Corporation's prior written consent.
7. Assignment of Employee's Interest. Employee may designate a
beneficiary or beneficiaries to receive any proceeds payable on the death of
the Employee which are in excess of the Corporation's share of such proceeds.
In the event the Employee has transferred or shall transfer all of his right
and interest in the policy (other than rights assigned to the Corporation
pursuant to this Agreement), then all of the Employee's interest in the policy
and this Agreement shall be vested in his transferee, and the Employee shall
have no further interest in the policy or this Agreement.
8. Additional Policy Benefits and Riders. The employee may add a
rider to the policy on his life, acquired pursuant to the terms of this
Agreement, for his own benefit. Upon written request by the Corporation, the
Employee may add a rider to the policy for the benefit of the Corporation. Any
additional premium for any rider which is added to the policy shall be paid by
the party which will be entitled to receive the proceeds of the rider.
9. Death Claims.
A. When the Employee dies, the Corporation shall be
entitled to receive a portion of the death benefits provided under the policy
on the Employee's life acquired pursuant to the terms of
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<PAGE> 15
this Agreement. The amount to which the Corporation will be entitled shall be
the amount of its contributions, pursuant to Article 3 of this Agreement,
toward payment of the premiums due on the policy on the Employee's life. The
amount to which the Corporation will be entitled will not, however, exceed the
cash value of the policy at the end of the policy year in which the employee's
death occurs. The receipt of this amount by the Corporation shall constitute
satisfaction of the Employee's obligation under Article 4 of this Agreement.
If, upon the death of the Employee, there is a refund of any unearned premiums
under the policy provisions, then in such event, any refund shall be refunded
in total to the Corporation.
B. When the Employee dies, the beneficiary or
beneficiaries named by the Employee shall be entitled to receive the amount of
the death benefits provided under the policy on the Employee's life in excess
of the amount payable to the Corporation under paragraph A of this Article.
This amount shall be paid under the settlement option elected by the Employee
or Employee's designated beneficiary.
10. Termination of Agreement. This Agreement shall terminate on
the occurrence of any of the following events:
(a) cessation of the corporate business;
(b) 30 days' written notice given by either party
to the other;
(c) termination of the employment of the Employee;
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(d) bankruptcy, receivership or dissolution of
the Corporation;
(e) repayment in full by the Employee of the
contributions made by the Corporation under Article 3 of this Agreement toward
payment of the premiums due on the policy on the Employee's life acquired
pursuant to the terms of this Agreement, provided that upon receipt of such
repayment the Corporation releases the collateral assignment of the policy made
by the Employee pursuant to Article 5 of this Agreement; and
(f) Employee's failure to apply Corporation's
premium loans to the policy premiums as agreed upon herein.
11. Disposition of Policy on Termination of Agreement. If this
Agreement is terminated under Article 10, the Employee shall have thirty days
in which to repay the Corporation the amount which it has contributed toward
payment of the premiums due on the policy on the Employee's life acquired
pursuant to the terms of this Agreement. Upon receipt of this amount, the
Corporation shall release the collateral assignment of the policy. If the
Employee does not repay the amount which the Corporation has contributed within
this thirty-day period, the Corporation shall refund to the Employee that part
of any payment made by the Employee for the unexpired portion of the premium
payment period in which termination occurred and the Employee shall execute any
and all instruments that may be required to vest ownership of said policy in
the Corporation. Thereafter, the Employee shall not have any further interest
in the policy.
5
<PAGE> 17
12. Insurance Company Not a Party. The Equitable Life Assurance
Society:
(a) shall not be deemed to be a party to this
Agreement for any purpose nor in any way responsible for its validity;
(b) shall not be obligated to inquire as to the
distribution of any monies payable or paid by it under the policy on the
Employee's life acquired pursuant to the terms of this Agreement;
(c) shall be fully discharged from any and all
liability under the terms of any policy issued by it, which is subject to the
terms of this Agreement, upon payment or other performance of its obligations
in accordance with the terms of such policy.
13. Amendment of Agreement. This Agreement shall not be modified
or amended except by a writing signed by the Corporation and the Employee.
This Agreement shall be binding upon the heirs, administrators or executors and
the successors and assigns of each party to this Agreement.
14. State Law. This Agreement shall be subject to and shall be
construed under the laws of the State of Florida.
15. Corporate Funding. The Corporation shall have no obligation
to set aside, earmark or entrust any fund or money with which to pay its
obligations under this Agreement. The Employee, his beneficiaries or any
successor in interest to him shall be and remain simply a general creditor of
the Corporation in the same
6
<PAGE> 18
manner as any other creditor having a general claim for matured and unpaid
compensation. The benefits provided to Employee hereunder are maintained by
the Corporation primarily for the purpose of providing benefits for a select
group of management. The Corporation reserves the absolute right at its sole
discretion to either fund the obligations undertaken by this Agreement or to
refrain from funding the same and to determine the extent nature and method of
such funding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Miami, Florida.
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Bruce M. Goldberg
---------------------------
/s/ Howard Flanders
---------------------------
Howard Flanders - Employee
7
<PAGE> 19
SCHEDULE "A"
Insurer:
Insured:
Policy Number:
Face Amount of Policy:
Assignor - Owner:
Assignee-Owner:
<PAGE> 20
EXHIBIT "A"
ALL AMERICAN SEMICONDUCTOR, INC.
MIAMI, FLORIDA
Mr. Howard Flanders
RE: ALL AMERICAN SEMICONDUCTOR, INC. ("ALL AMERICAN") -
SUPPLEMENTAL LETTER AGREEMENT TO LIFE INSURANCE
AGREEMENT WITH HOWARD FLANDERS
Dear Howard:
Please be advised that in connection with your continued employment
with All American, and in accordance with the terms of your Life Insurance
Agreement (a copy of which is attached hereto and made a part hereof) (the
"Agreement"), All American shall make periodic loans to you to pay the premiums
on a $1,000,000.00 face amount flexible premium life insurance policy on your
life (the "Policy"). The maximum annual loan amount to be provided by All
American shall be $11,500.00. The premium loan amount shall be paid for a
maximum of ten (10) years (the "Maximum Period"). You shall collaterally
assign the Policy acquired pursuant to the terms of the Agreement to All
American as security for the repayment of the amounts loaned by All American
for payment of the premiums. Notwithstanding the terms contained in the
Agreement and provided you continue in the employ of All American, its
successors, subsidiaries, or assigns, the cash surrender value of the policy
shall commence to vest in you or your designated owner of the Policy upon the
following anniversary dates of the signing of the Agreement:
5th anniversary 10%;
6th anniversary 20%;
7th anniversary 30%;
8th anniversary 40%;
9th anniversary 50%;
10th anniversary 100%.
<PAGE> 21
Mr. Howard Flanders
Page 2
-------------------
In lieu of All American paying the entire annual premium on the
policy, All American may elect to require you to pay an amount equal to the
P.S. 58 cost for such insurance coverage (or the net premium due, if less).
Any balance shall be paid by you (and payment solely of such balance, if any,
shall be deemed an advance by All American to you under the Agreement). In the
event you are required to pay such P.S. 58 amount, All American shall give you
an additional bonus each year sufficient to enable you to pay such P.S. 58
amount and any additional tax liability resulting from such P.S. 58 amount
being included in your income for federal and state income tax purposes, and
any additional tax liability on those amounts, so that you receive, on an
after-tax basis, an amount each year equal to such P.S. 58 amount.
Upon the 10th anniversary of the signing of the Agreement, contingent
upon your continued employment by All American, the cash surrender value of the
policy shall be fully vested in you and All American shall release the
collateral assignment of the Policy. It is understood that as you become
vested in the cash surrender value of the Policy, such vested amount shall be
included in your income and subject to appropriate taxation and withholding
requirements. Moreover, any premiums paid to you or on your behalf after you
become fully vested in the Policy shall also be included in your income and
subject to any applicable income tax and withholding requirements.
Notwithstanding anything contained in this Letter Agreement to the
contrary, if at any time prior to the tenth (10th) anniversary of the Agreement
you are terminated as an employee of All American or its successor or assigns
and at the time of such termination (i) you are disabled (as such term is
defined under any existing employment agreement with All American from time to
time or you are otherwise physically or mentally incapable of performing the
duties and responsibilities assigned to you by the Board of Directors of All
American for sixty (60) days in any Three Hundred Sixty-five (365) day period)
or (ii)(a) neither Bruce Goldberg nor Paul Goldberg hold a position in All
American of Chairman of the Board, Chief Executive Officer or President and (b)
Bruce Goldberg, Paul Goldberg and all of their family members own less than ten
(10%) percent of All American's common stock or the common stock of its
successor or assigns, All American its successor and assigns shall be obligated
to pay the premiums on the Policy for the Maximum Period and you shall become
immediately fully vested in the cash surrender value of the Policy including
any future premium payments made by or on your behalf by All American.
<PAGE> 22
Mr. Howard Flanders
Page 3
-------------------
To the extent of any inconsistencies among the Agreement, any
employment agreement and this letter agreement, the terms of this letter
agreement shall supersede the Agreement and any employment agreement and this
letter agreement shall control.
Please indicate your agreement to the provisions contained herein by
executing the appropriate signature line below.
ALL AMERICAN SEMICONDUCTOR, INC.
a Delaware corporation
By: /s/ Bruce M. Goldberg
----------------------------
Bruce M. Goldberg
AGREED TO AND ACCEPTED BY:
/s/ Howard Flanders
--------------------------
Howard Flanders
<PAGE> 23
EXHIBIT "B"
STOCK OPTION AGREEMENT
<PAGE> 24
EXHIBIT "B"
ALL AMERICAN SEMICONDUCTOR, INC.
STOCK OPTION AGREEMENT
Agreement dated as of the _____ day of _____________, 1995 (the "Date
of Grant") between All American Semiconductor, Inc., a Delaware corporation
(and, collectively with its subsidiaries, if any, the "Company") with its
principal office at 16115 N.W. 52nd Avenue, Miami, Florida 33014, and Howard
Flanders, at the address set forth beneath such person's signature on the
signature page of this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 150,000 shares
(individually a "Share" and collectively the "Shares") of All American
Semiconductor, Inc. common stock (the "Common Stock"), par value $.01 per
share, for a price of $_____ per Share (the "Option Price"), subject to
adjustment as provided in Paragraph 3 below. Each of the Options are granted
as an incentive stock option under section 422 of the Internal Revenue Code of
1986, as amended (the "Code") pursuant to the Amended and Restated All American
Semiconductor, Inc. Employees', Officers', Directors' Stock Option Plan (the
"Plan"), a copy of which is attached hereto and incorporated herein by
reference, and are subject to the provisions of the Plan. The granting of the
Options hereunder shall be void and a nullity and this Agreement shall have no
further force or effect whatsoever in the event that the Company does not
obtain approval of the Company's shareholders within twelve (12) months of May
23, 1995 to (i) certain material amendments to the Plan which were made as part
of the Plan being amended and restated and which are necessary to permit the
granting of the Options, including the increase in the number of shares
reserved for issuance under the Plan to 3,250,000 in the aggregate, and (ii)
the increase in the number of shares of Common Stock authorized to be issued by
the Company to enable the Company to have sufficient shares of Common Stock
available for issuance upon exercise of the Options.
2. Terms and Conditions of Options
(a) Option Price
Subject to paragraph 3 hereof, the Option Price shall
be not less than the Fair Market Value (as defined in the Plan) per share of
Common Stock on the Date of Grant, but in no event less than the par value per
Share.
<PAGE> 25
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, the Options shall vest, if at all (and then be exercisable in
accordance with the installment exercise provisions contained in paragraph (d)
below) in the following percentage increments based upon the Company attaining
net earnings per share on a primary (not fully diluted) basis (as determined in
accordance with generally accepted accounting principles and as reported in the
audited consolidated financial statements for the Company) in any calendar year
from 1995 through 2000, inclusive, in at least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
------------------ ------------
<S> <C>
25% $ .18
50 .22
75 .28
100 .38
</TABLE>
For purposes hereof, net earnings per share may be
determined subsequent to a calendar year end, however, the Optionee shall be
deemed vested effective as of December 31 of the year in which the target net
earnings per share was achieved. It is anticipated by the Company that none of
the grant, vesting or exercise of any options under the plan will constitute or
result in an expense or charge against the Company's earnings. However, if the
grant, vesting or exercise of any of the options under the Plan does constitute
or result in an expense or charge against the Company's earnings, no such
expense or charge shall be taken into account in computing whether the target
net earnings per share have been achieved in connection with the vesting
schedule above.
Notwithstanding anything contained herein to the
contrary (including the vesting schedule set forth above and the installment
exercise provisions contained in paragraph (d) below), in the event that either
(i) there is a "Change in Control" (as hereinafter defined) of the Company, or
(ii) the Options granted hereunder shall not have vested by the ninth
anniversary of the date of their grant, the Optionee shall become immediately
100% vested in all outstanding Options and may immediately exercise such
Options subject to the time frames set forth in paragraph (g).
(c) Definitions of "Change in Control", "cause" and
"disability".
"Change in Control," "cause," and "disability" shall have the
meanings ascribed to such terms as set forth in Optionee's Employment Agreement
with the Company which is effective as of the first day of March, 1995.
2
<PAGE> 26
(d) Installment Exercise
Subject to such further limitations as are provided
herein (including the vesting of Options provided in paragraph (b) above, it
being specifically agreed that no Option may be exercised unless and until it
becomes vested) the Options granted hereunder shall become exercisable by
Optionee on January 1 of each calendar year as follows: 10% in 1996; an
additional 10% which is 20% in the aggregate in 1997; and additional 10% which
is 30% in the aggregate in 1998; an additional 10% which is 40% in the
aggregate in 1999; an additional 10% which is 50% in the aggregate in 2000; an
additional 25% which is 75% in the aggregate in 2001; and additional 25% which
is 100% in the aggregate in 2002, provided, however, that the aggregate Fair
Market Value of all shares (determined as of the date the incentive stock
options were granted) exercisable for the first time by Optionee under the Plan
during any calendar year from 1995 through 2002, inclusive, shall not exceed
$100,000 (such $100,000 limitation shall apply to the aggregate number of
shares for which incentive stock options may be granted under the Plan) and any
other incentive stock option plan of the Company.
Notwithstanding anything contained herein to the
contrary, to the extent such Options have vested or otherwise vest in
accordance with subparagraph (b) above within the time frames permitted for
exercise under subparagraph (g), if the Optionee's employment is terminated due
to disability, Change in Control or retirement [as described in subparagraph
(g)(2)], or death as described in subparagraph (g)(3), the vested Options shall
become immediately exercisable (disregarding the installment exercise schedule
above) and may be exercised by the Optionee within the time frames set forth in
said subparagraphs (g)(2) or (g)(3) (as the case may be). As to those events
described in subparagraph (g)(2) (other than disability, Change in Control or
retirement) subparagraph (g)(4) or subparagraph (g)(5), to the extent the
Options have vested or otherwise vest in accordance with subparagraph (b) above
within the time frames permitted under subparagraph (g) and subject further to
the installment exercise schedule set forth in this subparagraph (d), the
vested Options may be exercised by the Optionee within the time frames set
forth in said subparagraphs (g)(2), (g)(4) or (g)(5).
(e) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning on the date
of this Agreement and ending _________, 2005, subject in all cases, however, to
subparagraphs (b), (d) and (g) of this paragraph 2 and the other provisions of
this Agreement and the Plan. In no event shall any of the Options
granted under
3
<PAGE> 27
this Agreement be exercisable after the expiration of 10 years from the Date of
Grant of such Options.
(f) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employment Retirement Income Security Act, or the rules thereunder, and, except
with respect to a qualified domestic relations order as aforesaid, may be
exercised during Optionee's lifetime only by Optionee. If any Options are
exercised after Optionee's death, the Company may require evidence reasonably
satisfactory to it of the appointment and qualification of Optionee's personal
representatives and their authority and of the right of any heir or distributee
to exercise such Options.
(g) Termination of Employment
If Optionee's employment with the Company terminates
the unexercised portion of any of the Options granted under this Agreement
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:
(1) The expiration of ten (10) years from the
Date of Grant;
(2) The expiration of two (2) years from the date
of termination or cessation of the Optionee's employment with the Company for
any reason [including, without limitation, as a result of disability (however,
if the completion of the Company's audit for the calendar year after the year
in which the termination or cessation occurs is later than two (2) years from
the termination or cessation of Optionee's employment, such expiration date
shall be extended until ten (10) business days after the completion of such
audit and the Optionee's receipt of a copy thereof), voluntary resignation
within one-hundred eighty (180) days after a Change in Control or retirement]
other than a termination or cessation as a result of death or described in
subparagraph (4) or (5) below; provided that for purposes hereof "retirement"
shall mean voluntarily resigning as an employee of the Company after the
Optionee has reached the age of 65;
(3) The expiration of the later of (i) two (2)
years after the Optionee's death or (ii) ten (10) business days after the
completion of the Company's annual audit for the calendar year after the year
in which the death occurs and the receipt of a copy thereof by the personal
representative, executor or administrator of a deceased Optionee, if the
Optionee's death occurs during his employment with the Company;
4
<PAGE> 28
(4) The termination of the Optionee's employment
by the Company with cause; or
(5) The expiration of three (3) months from the date
of termination or cessation of the Optionee's employment with the Company as a
result of the Optionee's voluntary resignation other than within one-hundred
eighty (180) days after a Change in Control or as a result of retirement;
provided that, if the Optionee shall die during such three-month period, the
time of termination of the unexpired portion of such Option shall be eighteen
(18) months following issuance of letters testamentary or letters of
administration to the personal representative, executor or administrator of a
deceased Optionee, but in no event later than two years after the Optionee's
death.
Neither this Agreement nor any Option granted hereunder shall confer
on Optionee any right to continue in the Company's employ, or limit in any
respect the Company's right (in the absence of a specific written agreement to
the contrary) to terminate Optionee's employment at any time with or without
cause.
(h) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee (as defined in the Plan) may from
time to time prescribe and shall specify the number of optioned Shares being
purchased. Subsequent to the grant of any Options which are not immediately
exercisable in full, the Committee, at any time before complete termination of
such Options, may accelerate the time or times at which such Options may be
exercised in whole or in part. Any notice of exercise of Options shall be
accompanied by payment of the full purchase price for the Shares being
purchased: (i) by check payable to the Company; or (ii) by tendering previously
acquired shares of Common Stock having a fair market value (determined as of
the date such Options are exercised and in the same manner as the Fair Market
Value of the Option Price is determined under the Plan) equal to all of the
purchase price or (iii) by any combination of (i) and (ii). The Company shall
have no obligation to deliver the Shares being purchased pursuant to the
exercise of any Options, in whole or in part, until the aforesaid payment in
full of the purchase price therefor is received by the Company.
(i) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any
5
<PAGE> 29
securities exchange or under any state or federal law is necessary as a
condition of or in connection with the purchase or delivery of Shares, the
delivery of any or all Shares pursuant to exercise of the Options may be
withheld unless and until such listing, registration or qualification shall
have been effected; provided, however, upon written request from the Optionee
the Company agrees to use its best efforts at all times on and after the time
any of the Options become vested and exercisable to effect and continuously
maintain any and all such listings, registrations and qualifications. Optionee
agrees to comply with any and all legal requirements relating to Optionee's
resale or other disposition of any Shares acquired under this Agreement. In
the event that the Company using its best efforts is unable to effect and
maintain an effective registration statement under the Securities Act of 1933,
as amended, and any required qualifications under applicable state securities
laws at the time any Option is exercised, the Committee may require, as a
condition of exercise of any Options, that the Optionee represent, in writing,
that the Shares received upon exercise of the Options are being acquired for
investment and not with a view to distribution and agree that the Shares will
not be disposed of except pursuant to an effective registration statement under
the Securities Act of 1933, as amended, and only after any required
qualifications under applicable state securities laws, unless the Company shall
have received an opinion of counsel satisfactory to the Company that such
disposition is exempt from such registration and qualification. There may be
endorsed on certificates representing Shares issued upon the exercise of
Options such legends referring to the foregoing representations or any
applicable restrictions on resale as the Committee, in its discretion, shall
deem reasonably appropriate, as well as place such stop transfer orders with
its registrar and transfer agent as it deems reasonably appropriate.
(j) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
(k) Six-Month Holding Period
Optionee acknowledges that in no event may any Shares
acquired upon exercise of any Options be sold or otherwise disposed of until
after six (6) months have elapsed from the Date of Grant except, in the event
of Optionee's death during such period, for a sale by the executors or
administrators of Optionee's estate relying on Rule 16a-2(d)(1)(i) of the
Securities Exchange Act of 1934, as amended.
6
<PAGE> 30
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of
Shares subject to such Options and in the Option Price as shall be equitable
and appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; provided, however,
that no such adjustment shall give any Optionee any additional benefits under
this Agreement; and provided further, that, if any such adjustment is made by
reason of a transaction described in section 424(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), it shall be made so as to conform to the
requirements of that section and the regulations thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any unexercised Option theretofore granted
hereunder (hereinafter for purposes of this paragraph 3 referred to as the "old
option"), the Committee or any surviving or acquiring corporation may take such
action as it deems appropriate, and in conformity with the requirements of that
section and the regulations thereunder, to substitute a new option for the old
option, in order to make the new option, as nearly as may be practicable,
equivalent to the old option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by
7
<PAGE> 31
certified or registered mail, return receipt requested, to Optionee at his or
her address listed on the signature page hereof or such other address of which
Optionee shall have advised by similar notice, or to the Company or Committee
at the Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Delaware. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine, the feminine or
the neuter gender shall include the masculine, feminine and neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: ALL AMERICAN SEMICONDUCTOR, INC., a
-------- Delaware corporation
By:
-------------------------------- ---------------------------
Howard Flanders Bruce M. Goldberg
All American Semiconductor, Inc. President
16115 N.W. 52nd Avenue
Miami, Florida 33140
8
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
May 24, 1995, but is effective as of the 1st day of March, 1995 (the "Effective
Date"), by and between All American Semiconductor, Inc., a Delaware corporation
(the "Company"), and Rick Gordon ("Employee").
WHEREAS, the Company is engaged in the distribution of electronic
components and its principal office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014;
WHEREAS, Employee has experience and expertise that is useful to the
Company; and
WHEREAS, the Company desires to continue the employment of Employee on
the terms and conditions set forth herein and Employee desires to continue to
work for the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the promises
hereinafter contained, the sufficiency of which is hereby acknowledged, the
parties covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company agrees to employ Employee,
and Employee agrees to be so employed, for a term of three (3) years and ten
months. Accordingly, the term of this employment shall, subject to the terms
and conditions of this Agreement concerning earlier termination by each of the
parties, commence as of the Effective Date and continue until December 31,
1998.
2. DUTIES. Employee accepts employment with the Company to serve
in, and fulfill, such executive and administrative sales and marketing
capacities and functions as may be directed from time to time by the Company's
Board of Directors, Chief Executive Officer, President or Chief Operating
Officer. Employee shall work full time for the Company.
3. COMPENSATION. Employee shall be entitled to the following,
all of which shall be deemed compensation, as that term is used in this
Agreement (provided, however, that the use of the term "compensation" in this
Agreement is not intended to have any effect whatever with respect to
determining Employee's taxable income):
(a) The Company agrees to pay to Employee, as base
salary, for the balance of the 1995 calendar year, gross annual salary at a
rate equal to $163,000 per annum. For calendar year 1996, Employee's gross
annual salary shall be increased from the $163,000 per annum salary in effect
during the last seven months of 1995 by the greater of (i) 5% of $163,000 and
(ii) the amount of the percentage increase in the Consumer Price Index for the
most
<PAGE> 2
currently available twelve (12) month period over the preceding twelve (12)
month period (the "CPI Increase") multiplied by $163,000. For each calendar
year during the term of this Agreement after 1996, Employee's gross annual
salary shall be increased by the greater of (A) 5% of the prior year's gross
annual salary and (B) the CPI Increase multiplied by the prior year's gross
annual salary. The base salary shall be payable on the same basis (including
appropriate payroll withholding) as the Company, from time to time, generally
pays its employees. Employee shall, in addition to base salary, receive, in
respect of each calendar year (or partial calendar year) during which this
Agreement is in effect, an annual cash bonus (the "Cash Bonus") equal to the
sum of two percent (2%) of the pre-tax net income of the Company before
non-recurring and extraordinary charges ("pre-tax net income") for such
calendar year in excess of $1 million. The maximum amount of the Cash Bonus
for any year shall be limited to the amount of Employee's base salary for such
year (the Cash Bonus in respect of the 1995 calendar year shall not exceed
$163,000). The Cash Bonus shall be paid to Employee within thirty (30) days
following completion of each annual audit of the Company, including calendar
year 1995, and shall be calculated in accordance with generally accepted
accounting principles, consistently applied, without taking any Cash Bonus of
Employee, or any similar bonus based on the earnings or performance of the
Company paid to any other executive officer of the Company, into account as an
expense. It is anticipated by the Company that none of the grant, vesting or
exercise of any of the New Options (as later defined) or similar options
granted and/or contemplated to be granted to other executive employees, or of
any other options, warrants or similar rights issued by the Company from time
to time, will constitute or result in an expense or charge against the
Company's income. However, if such turns out not to be the case, no such
expense or charge shall be taken into account when computing pre-tax net income
for purposes of determining the Cash Bonus. If being computed for a partial
calendar year, the Cash Bonus shall be appropriately and equitably prorated (no
proration shall be made for the 1995 year). Consumer Price Index as used
herein shall mean the Consumer Price Index shown on the U.S. City Average for
all urban consumers, unadjusted, all items, as promulgated by the Bureau of
Labor Statistics of the U.S. Department of Labor, using the year 1993 as the
base year. In the event that the Consumer Price Index referred to herein
ceases to incorporate a significant number of the items as currently set forth
therein, or if a substantial change is made in the method of establishing said
Consumer Price Index, then the Consumer Price Index shall be adjusted to the
figure that would have resulted had no change occurred in the manner of
computing the Consumer Price Index. In the event that the Consumer Price Index
(or successor or substitute index) is not available, then the Company may use
another governmental or nonpartisan publication evaluating the information
theretofore used in determining the Consumer Price Index in lieu of said
Consumer Price Index. Employee shall receive a one-time bonus
2
<PAGE> 3
in the amount of $15,000 on January 15, 1996 if, and only if, the company's net
sales for the calendar year 1995 equal or exceed $135,000,000.
(b) Employee shall be entitled to participate in any and
all employee benefit plans and programs offered by the Company from time to
time to other employees, including, without limitation, medical insurance,
dental insurance, pension and/or profit sharing plans, 401(k) plans, stock
option plans and cafeteria plans. Additionally, Employee shall be entitled to
four (4) weeks paid vacation per calendar year.
(c) The Company will provide to Employee, without cost to
Employee, full-time use of a Company owned or leased automobile of a make and
model reasonably chosen by Employee, not to exceed a cost of $700 per month
(for lease payments if the automobile is leased, for financing payments if the
automobile is owned by the Company and financed, or for depreciation if the
automobile is owned by the Company and has not been financed, as the case may
be). The Company shall further pay all other expenses related thereto,
including, but not limited to, all costs of fuel, maintenance, repairs and
comprehensive automobile insurance, including liability insurance of no less
than $1 million.
(d) Employee is the owner of a life insurance policy on
the life of Employee, providing for a death benefit of $1,000,000, with the
beneficiary thereof designated and to be designated at the sole and
unquestionable discretion of Employee (the "$1 Million Policy"). The Company
shall pay the premiums due thereon as provided for, and subject to all terms
and conditions of, that certain Life Insurance Agreement between the Company
and Employee, as supplemented by that certain Supplemental Letter Agreement
between the Company and Employee, copies of which are attached hereto as
Exhibit "A" (collectively, the "Life Insurance Agreement"). With respect to the
$1 Million Policy, in lieu of the Company paying the entire annual premium on
the policy, the Company may elect to require Employee to pay an amount equal to
the P.S. 58 cost for such insurance coverage (or the net premium due, if less).
Any balance shall be paid by the Company (and payment solely of such balance,
if any, shall be deemed an advance by the Company to Employee under the Life
Insurance Agreement). In the event Employee is required to pay such P.S. 58
amount, the Company shall give Employee an additional bonus each year
sufficient to enable Employee to pay such P.S. 58 amount and any additional tax
liability resulting from such P.S. 58 amount being included in Employee's
income for federal and state income tax purposes, and any additional tax
liability on those amounts, so that Employee receives, on an after-tax basis,
an amount each year equal to such P.S. 58 amount.
(e) Employee shall, on the earlier of (i) June 15, 1995
and (ii) the effective date of the Company's Registration Statement
3
<PAGE> 4
on Form S-1 filed with the Securities and Exchange Commission on April 17,
1995, be granted incentive stock options to acquire 150,000 shares of common
stock of the Company (the "New Options") pursuant to the Company's Employees',
Officers', Directors' Stock Option Plan, as same has been or may be amended
(the "Option Plan"), pursuant to the terms, provisions and conditions of the
stock option agreement attached hereto as Exhibit "B" (the "Option Agreement").
The Option Agreement and the New Options become, on the first anniversary of
the date hereof, null and void automatically and without further action on the
part of any party being required unless, on or before said first anniversary,
the Company's shareholders approve (i) certain amendments to the Option Plan
which were necessary to permit the grant of the New Options in accordance with
the terms described in the Option Agreement, and (ii) an amendment to the
Company's charter to provide for an increase in the number of authorized shares
of the Company to a number sufficient to be available for issuance upon
exercise of the New Options. The New Options and the Option Agreement will
become null and void earlier than such first anniversary if and when the
shareholders of the Company refuse to approve either of the aforesaid
amendments. If the Option Agreement and New Options do become null and void,
the Cash Bonus shall then automatically be calculated on the basis of two and
one-half percent (2 1/2%), rather than two percent (2%), of pre-tax net income,
retroactive to the 1995 calendar year.
(f) The Company shall continue to make payments in
respect of, as directed by Employee, the Company's deferred compensation plan
presently offered to, and enjoyed by, Employee, for as long as such plan is
kept in effect generally.
(g) The following provisions shall apply in the event of
a Change in Control (as defined below).
(i) In the event of a Change in Control occurring
at any time while Employee is employed hereunder, Employee shall have the
option in his sole discretion to terminate his employment under this Agreement,
by giving written notice thereof to the Company within 180 days following the
date of the Change in Control. If a Change in Control occurs, and (x) within
the 180-day period prior to the date of the Change in Control, or at any time
on or during the 180-day period following the date of the Change in Control,
Employee's employment is or has been terminated by the Company pursuant to
Section 5(b), or (y) Employee elects to terminate his employment under this
Agreement as aforesaid, Employee shall receive all compensation described in
Sections 3(a), (b), (c) and (f) which would be due through the end of the
initial term of this Agreement or which would be due to Employee if employment
under this Agreement continued for two (2) years after the termination of
Employee's employment, whichever is greater, and shall receive the amount of
all unpaid insurance premiums payable
4
<PAGE> 5
for the Maximum Period (as defined in the Life Insurance Agreement).
(ii) In the event Employee becomes entitled to the
compensation described in subsection (g)(i), Employee may elect, by giving
written notice to Employer at any time during the 180-day period following the
date of the Change in Control, or the 30-day period following the date of
termination of his employment, whichever is later, to receive a lump-sum
payment equal to Employee's aggregate compensation described in Sections 3(a),
3(b), 3(c) and 3(f) which would be due through the end of the initial term of
this Agreement or which would be due to Employee if his employment hereunder
continued for two years following the date of Employee's termination of
employment, whichever is greater, and the unpaid premiums for the Maximum
Period under the Life Insurance Agreement.
(iii) In calculating any such lump-sum payment
hereunder: (A) the Cash Bonus payable for each of the remaining years it is to
be paid shall be deemed to be, in respect of each such year, the largest annual
cash bonus paid under this Agreement or its predecessor, (B) such lump-sum
payment shall include credit for all unused vacation time and any other similar
items or incentives earned as of the date that employment terminated, and (C)
all non-cash benefits and benefit programs and plans will be given a cash value
sufficient to permit the equivalent non-cash benefits and programs to be
obtained by Employee after the Change in Control during the applicable period
described in Subsection (ii) above, unless any such non-cash benefit or program
is otherwise to be continued for and made available by the Company to Employee
at no cost or contribution by Employee for such period after the Change in
Control, and adequate assurances by the Company of such continuation reasonably
satisfactory to Employee are also provided to Employee. The lump-sum payment
shall not be discounted to present value. Any lump-sum payment elected by
Employee shall be paid to Employee within thirty (30) days following the date
of his election to receive them.
(iv) For purposes of this Agreement, a Change in
Control shall be deemed to occur only if and when (A) Paul Goldberg, Bruce
Goldberg and their respective spouses and lineal descendants (and trusts for
the benefit of any of them) directly and indirectly beneficially own, in the
aggregate, less than 10%, on a fully-diluted basis, of the issued and
outstanding capital stock of the Company, and (B) neither Paul Goldberg nor
Bruce Goldberg is the Chairman of the Board, Chief Executive Officer or
President of the Company (as long as either of them holds one of such
positions, no Change in Control shall be deemed to have occurred).
(v) Upon a Change in Control, all options granted by
the Company to Employee to acquire shares of capital stock of
5
<PAGE> 6
the Company (including, but not limited to, all New Options as defined and
described below) shall automatically vest, and all existing stock option
agreements between the Company and Employee are hereby amended to provide for
such automatic vesting. In addition, upon a Change in Control, Employee shall
automatically vest in and acquire unencumbered ownership of the cash surrender
value of the $1 Million Policy, as provided for in the Life Insurance
Agreement.
(vi) The Company shall not be entitled to assert
or take any credit against, or otherwise assert or make any reduction to, any
payment to Employee required under this Subsection (g) for any reason whatever.
4. EXPENSES OF EMPLOYEE. The Company shall pay or reimburse
Employee for reasonable expenses incurred by Employee in connection with the
business of the Company.
5. TERMINATION BY THE COMPANY.
(a) Except as set forth in subparagraph (b) of this
Section, the Company shall have no right to terminate Employee's employment
unless and until the occurrence of any of the following:
(i) Employee is convicted (by formal plea of
guilty or a jury verdict) of embezzlement or other felonious theft of money or
property from the Company; or
(ii) Employee's refusal, after thirty (30) days
written notice, to cure a material default of any of the provisions of this
Agreement unless said material default is caused by physical or mental
infirmity or disability which renders Employee incapable of performing the
customary duties for which Employee is being employed. In order to be
effective said notice must clearly specify the material default and must notify
Employee of the Company's intention to terminate this Agreement in the event
the described material default is not cured within said thirty (30) days.
(b) The Company shall have the right to terminate
Employee's employment with the Company at any time without cause, provided that
the Company continues to pay Employee all of the compensation set forth in
Sections 3(a), (b), (c) and (f) of this Agreement, as if this Agreement had
been continued in accordance with its terms, to the later of (i) the expiration
date of the initial term and (ii) the second anniversary of the effective date
of termination of employment, all subject to, if applicable, the relevant
provisions of Section 3(g). Notwithstanding any of the foregoing to the
contrary, such severance obligations shall be excused for the remainder of the
severance period at such time, if any, as Employee accepts new employment
providing for gross annual salary at least equal to the gross annual salary in
effect
6
<PAGE> 7
hereunder at termination of employment, and, to the extent any such new
employment is for a lower gross annual salary, from and after such time, for
the remainder of such severance period, the Company's severance obligations
shall be reduced by the amount of all compensation and benefits received by
Employee under his new employment. Subject to the provisions of Section 3(g),
if applicable, Employee shall be entitled to no other or further compensation
in respect of a termination by the Company pursuant to this Section 5(b).
(c) In the event Employee becomes permanently incapable
of performing the customary duties for which Employee is being employed due to
a physical or mental infirmity or disability, the Company shall not terminate
Employee (other than under Section 5(a), if applicable, or Section 5(b)), and
the Company shall continue to pay Employee all compensation due under Section
3(a), (b), (c), (d) and (f) of this Agreement for two (2) years after the
effective date of said infirmity or disability (as defined below). At the end
of such two-year period, Employee's employment shall be deemed terminated,
subject to the Company's continuing payment requirements during the Maximum
Period under the Life Insurance Agreement. All of the foregoing is subject, if
applicable, to the relevant provisions of Section 3(g). Subject to the
provisions of Section 3(g), if applicable, Employee shall be entitled to no
other or further compensation in respect of termination of employment pursuant
to this Section 5(c). The effective date of Employee's permanent infirmity or
disability shall be the 30th day following receipt by Employee from the Company
of written notice stating the Company's determination that Employee has such
infirmity or disability, provided that Employee has not disputed such
determination in writing within such 30-day period, and, if Employee has so
disputed such determination, the date by which two medical doctors or
psychiatrists (as applicable) selected by the Company, but reasonably
acceptable to Employee, have examined Employee and concluded (as set forth in a
letter delivered to the Company) that he has a permanent infirmity or
disability which renders him incapable of performing his customary duties.
6. COVENANT NOT TO COMPETE.
(a) Employee acknowledges, represents and warrants that
(i) he possesses valuable trade secrets and proprietary and confidential
information of the Company ("Confidential Information"), and (ii) the Company
has expended substantial amounts of time, effort and money to develop
Employee's abilities and skills for the benefit of the Company. In
consideration of the Company entering into this Agreement, Employee covenants
and agrees that during the term of his employment, and for a period of two (2)
years thereafter, Employee will not, without the express prior written consent
of the Company, directly or indirectly engage in any activity competitive with
the Company's business, whether alone, as a partner, or as an officer,
director, employee, agent,
7
<PAGE> 8
consultant or shareholder of any other entity, or as a trustee, fiduciary, or
other representative of any other person or entity. None of the foregoing
shall prohibit passive ownership by Employee of less than 5% of the beneficial
ownership of any public company. In the event of a breach or threatened breach
by Employee of the covenants contained in this Section, Employee acknowledges
that the Company will not have an adequate remedy at law and that the Company
shall be entitled to such equitable and injunctive relief as may be available
to restrain Employee from the violation of the provisions hereof. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages from Employee. Employee acknowledges and agrees that the
covenants contained in this Section are essential to the preservation of the
good will of the Company, that each of such covenants is reasonable and
necessary to protect and preserve the interests, trade secrets, proprietary
information and properties of the Company and the business of the Company, and
that irreparable loss and damage will be suffered by the Company should
Employee breach any of such covenants. The foregoing restrictions shall apply
in all circumstances of termination of employment; provided, however, that (x)
if Employee's employment is terminated pursuant to Section 5(b), such
restrictions are conditioned upon the Company complying in all material
respects with its severance obligations under and to the extent required by
Section 5(b), and (y) upon the expiration of the term of employment, such
restrictions are conditioned upon the Company paying to Employee during the
one-year period following expiration the gross annual salary in effect during
the last year of employment. Such obligation to pay gross annual salary for
one year shall, without affecting the validity of the restrictive covenants
herein contained, be excused at such time, if any, as Employee accepts new
employment providing for gross annual salary at least equal to the gross annual
salary in effect hereunder at termination of employment, and, to the extent any
such new employment is for a lower gross annual salary, from and after such
time, for the remainder of the one-year period, the Company's obligation shall
be reduced by the amount of the new gross annual salary. Notwithstanding the
foregoing, after a Change in Control this Section 6 shall become void and of no
further force or effect.
(b) At no time during his employment (except as necessary
to perform his duties), or at any time thereafter, shall Employee disclose to
any person or entity, or use or authorize the use of, any Confidential
Information, except as otherwise required by law.
(c) Without limiting any of the Company's rights or
remedies hereunder, at law or in equity (including but not limited to the right
to obtain injunctive relief), in the event that Employee breaches any of the
covenants contained in this Section 6, the Company shall have the right to set
off all damages, losses,
8
<PAGE> 9
costs and expenses (including reasonable attorneys' fees and costs) sustained
or incurred by the Company as a result thereof against any amounts then due or
owing or remaining to be paid to Employee.
7. NOTICES. Whenever any notice, payment, or other communication
is required to be given or delivered pursuant to this Agreement, such notice
shall be given in writing, and shall be delivered in person or by certified
mail, return receipt requested, and shall be sufficiently given if received,
delivered personally or if mailed, addressed as follows: If to the Company, to
All American Semiconductor, Inc., 16115 N.W. 52nd Avenue, Miami, Florida 33014,
Attention: Chairman of the Board and President; and if to Employee, to his
residence with a copy to his office at the Company, or such other address as
either party hereto may by written notice designate to the other party in
accordance with this Section. Notices delivered personally or by courier shall
be deemed given as of actual receipt; mailed notices shall be deemed given as
of four (4) days after mailing.
8. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida.
9. LEGAL PROCEEDINGS. Any and all legal proceedings between the
parties hereto arising from this Agreement shall be commenced only in Dade
County, Florida. Both parties agree to jurisdiction and venue in the courts of
Dade County, Florida.
10. ATTORNEYS' FEES AND COSTS. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it or he may
be entitled, before and at trial, whether or not trial on the merits occurs,
and at all tribunal levels.
11. SEVERABILITY. If any provision of this Agreement shall be
held void, voidable, invalid, or unenforceable, the remainder of this Agreement
shall nevertheless remain in full force and effect. If any provision is held
void, voidable, invalid or unenforceable with respect to particular
circumstances, it shall nevertheless remain in full force and effect with
respect to all other circumstances.
12. HEADINGS. Titles or headings of paragraphs contained in this
Agreement are inserted only as a matter of convenience and for reference, and
in no way define, limit, extend or prescribe the scope of this Agreement or the
intent of any provision.
13. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior and contemporaneous oral and
written understandings and agreements
9
<PAGE> 10
between the parties. The provisions of this Agreement may not be waived,
modified or amended except by a writing signed by the party sought to be bound.
Waiver by either of the parties of a breach by the other of the parties of any
of the terms of this Agreement shall not be deemed a waiver of future
non-compliance herewith. An attempted modification that fails to comply with
this Section shall not operate as a waiver.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, and which
together shall constitute one and the same instrument.
15. SURVIVABILITY. No termination of Employee's employment or any
purported termination of this Agreement shall terminate any obligation of the
Company or Employee which, by its terms, applies to a stated period following
termination of employment. Specifically, but without limiting the generality
of the foregoing, no such termination shall relieve Employee of any of his
obligations under Section 6, or shall relieve the Company of any of its
obligations under Sections 3 and 5.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the day and year first above written.
COMPANY:
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By: /s/ Bruce Goldberg
-------------------------------
Bruce Goldberg, President
EMPLOYEE:
/s/ Rick Gordon
------------------------------------
RICK GORDON
10
<PAGE> 11
EXHIBIT "A"
LIFE INSURANCE AGREEMENT
<PAGE> 12
EXHIBIT "A"
LIFE INSURANCE AGREEMENT
THIS AGREEMENT dated effective as of the 1st day of January, 1993, by
and between All American Semiconductor, Inc., a Delaware corporation
(hereinafter called "the Corporation") and Rick Gordon (hereinafter called "the
Employee").
WHEREAS, the Employee wants to insure his life, for the benefit and
protection of his family, under a policy to be issued by The Equitable Life
Assurance Society; and
WHEREAS, the Corporation is willing to pay the premiums on a life
insurance policy for Employee subject to the terms contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, it is agreed between the parties as follows:
1. Application for Insurance. The Employee will apply to The
Equitable Life Assurance Society for Flexible Premium Life Insurance on his
life in the face amount of $1,000,000.00 and he will do everything necessary to
cause the policy to be issued. When the policy is issued, the policy number,
face amount, and place of insurance shall be recorded on Schedule A attached
hereto and the policy shall then be subject to the terms of this Agreement.
2. Ownership of Insurance. The Employee shall be the owner of
the policy on his life acquired pursuant to the terms of this Agreement, and he
may exercise all the rights of ownership with respect to the policy except as
otherwise hereinafter provided. Employee shall have the right to borrow from
the policy limited to
<PAGE> 13
an amount equal to the maximum loan value reduced by the cumulative premiums
loaned by the Corporation. Employee's right to withdraw from the policy cash
values under any policy "partial surrender provision" (which is defined as "the
cash value" less any indebtedness less the cost of insurance until the next
"anniversary") shall be limited to such "partial surrender value", as above
defined reduced by the cumulative premiums paid by the Corporation and subject
to any policy surrender limitations.
3. Payment of Premiums on Policy. Corporation shall pay to
Employee or directly to the Equitable Life Assurance Society an aggregate
annual premium amount of $11,500.00 for a maximum period of ten (10) years.
Each premium on the policy shall be paid by the Corporation as it becomes due
and on the date of the premium payment.
4. Employee's Obligation to Corporation. The Employee shall be
obligated to repay to the Corporation the amount which the Corporation pays to
the Employee under Article 3 of this Agreement.
Collateral Assignment of Policy. The Employee will collaterally
assign the policy on his life, acquired pursuant to the terms of this
Agreement, to the Corporation as security for the repayment of the amounts
which the Corporation will pay to the Employee under Article 3 of this
Agreement. This collateral assignment will not be altered or changed without
the consent of the Corporation.
6. Surrender or Termination of Policy. While this Agreement is
in force and effect, the Employee will neither sell, surrender
2
<PAGE> 14
nor otherwise terminate the policy on his life, acquired pursuant to the terms
of this Agreement without the Corporation's prior written consent.
7. Assignment of Employee's Interest. Employee may designate a
beneficiary or beneficiaries to receive any proceeds payable on the death of
the Employee which are in excess of the Corporation's share of such proceeds.
In the event the Employee has transferred or shall transfer all of his right
and interest in the policy (other than rights assigned to the Corporation
pursuant to this Agreement), then all of the Employee's interest in the policy
and this Agreement shall be vested in his transferee, and the Employee shall
have no further interest in the policy or this Agreement.
8. Additional Policy Benefits and Riders. The employee may add a
rider to the policy on his life, acquired pursuant to the terms of this
Agreement, for his own benefit. Upon written request by the Corporation, the
Employee may add a rider to the policy for the benefit of the Corporation. Any
additional premium for any rider which is added to the policy shall be paid by
the party which will be entitled to receive the proceeds of the rider.
9. Death Claims.
A. When the Employee dies, the Corporation shall be
entitled to receive a portion of the death benefits provided under the policy
on the Employee's life acquired pursuant to the terms of this Agreement. The
amount to which the Corporation will be entitled shall be the amount of its
contributions, pursuant to
3
<PAGE> 15
Article 3 of this Agreement, toward payment of the premiums due on the policy
on the Employee's life. The amount to which the Corporation will be entitled
will not, however, exceed the cash value of the policy at the end of the policy
year in which the employee's death occurs. The receipt of this amount by the
Corporation shall constitute satisfaction of the Employee's obligation under
Article 4 of this Agreement. If, upon the death of the Employee, there is a
refund of any unearned premiums under the policy provisions, then in such
event, any refund shall be refunded in total to the Corporation.
B. When the Employee dies, the beneficiary or
beneficiaries named by the Employee shall be entitled to receive the amount of
the death benefits provided under the policy on the Employee's life in excess
of the amount payable to the Corporation under paragraph A of this Article.
This amount shall be paid under the settlement option elected by the Employee
or Employee's designated beneficiary.
10. Termination of Agreement. This Agreement shall terminate on
the occurrence of any of the following events:
(a) cessation of the corporate business;
(b) 30 days' written notice given by either party
to the other;
(c) termination of the employment of the Employee;
(d) bankruptcy, receivership or dissolution of
the Corporation;
4
<PAGE> 16
(e) repayment in full by the Employee of the
contributions made by the Corporation under Article 3 of this Agreement toward
payment of the premiums due on the policy on the Employee's life acquired
pursuant to the terms of this Agreement, provided that upon receipt of such
repayment the Corporation releases the collateral assignment of the policy made
by the Employee pursuant to Article 5 of this Agreement; and
(f) Employee's failure to apply Corporation's
premium loans to the policy premiums as agreed upon herein.
11. Disposition of Policy on Termination of Agreement. If this
Agreement is terminated under Article 10, the Employee shall have thirty days
in which to repay the Corporation the amount which it has contributed toward
payment of the premiums due on the policy on the Employee's life acquired
pursuant to the terms of this Agreement. Upon receipt of this amount, the
Corporation shall release the collateral assignment of the policy. If the
Employee does not repay the amount which the Corporation has contributed within
this thirty-day period, the Corporation shall refund to the Employee that part
of any payment made by the Employee for the unexpired portion of the premium
payment period in which termination occurred and the Employee shall execute any
and all instruments that may be required to vest ownership of said policy in
the Corporation. Thereafter, the Employee shall not have any further interest
in the policy.
12. Insurance Company Not a Party. The Equitable Life Assurance
Society:
5
<PAGE> 17
(a) shall not be deemed to be a party to this
Agreement for any purpose nor in any way responsible for its validity;
(b) shall not be obligated to inquire as to the
distribution of any monies payable or paid by it under the policy on the
Employee's life acquired pursuant to the terms of this Agreement;
(c) shall be fully discharged from any and all
liability under the terms of any policy issued by it, which is subject to the
terms of this Agreement, upon payment or other performance of its obligations
in accordance with the terms of such policy.
13. Amendment of Agreement. This Agreement shall not be modified
or amended except by a writing signed by the Corporation and the Employee.
This Agreement shall be binding upon the heirs, administrators or executors and
the successors and assigns of each party to this Agreement.
14. State Law. This Agreement shall be subject to and shall be
construed under the laws of the State of Florida.
15. Corporate Funding. The Corporation shall have no obligation
to set aside, earmark or entrust any fund or money with which to pay its
obligations under this Agreement. The Employee, his beneficiaries or any
successor in interest to him shall be and remain simply a general creditor of
the Corporation in the same manner as any other creditor having a general claim
for matured and unpaid compensation. The benefits provided to Employee
hereunder
6
<PAGE> 18
are maintained by the Corporation primarily for the purpose of providing
benefits for a select group of management. The Corporation reserves the
absolute right at its sole discretion to either fund the obligations undertaken
by this Agreement or to refrain from funding the same and to determine the
extent nature and method of such funding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement at
Miami, Florida.
ALL AMERICAN SEMICONDUCTOR, INC., a
Delaware corporation
By:/s/ Bruce M. Goldberg
--------------------------------
/s/ Rick Gordon
------------------------------------
Rick Gordon - Employee
7
<PAGE> 19
SCHEDULE "A"
Insurer:
Insured:
Policy Number:
Face Amount of Policy:
Assignor - Owner:
Assignee-Owner:
<PAGE> 20
EXHIBIT "A"
ALL AMERICAN SEMICONDUCTOR, INC.
MIAMI, FLORIDA
Mr. Rick Gordon
RE: ALL AMERICAN SEMICONDUCTOR, INC. ("ALL AMERICAN") -
SUPPLEMENTAL LETTER AGREEMENT TO LIFE INSURANCE
AGREEMENT WITH RICK GORDON
Dear Rick:
Please be advised that in connection with your continued employment
with All American, and in accordance with the terms of your Life Insurance
Agreement (a copy of which is attached hereto and made a part hereof) (the
"Agreement"), All American shall make periodic loans to you to pay the premiums
on a $1,000,000.00 face amount flexible premium life insurance policy on your
life (the "Policy"). The maximum annual loan amount to be provided by All
American shall be $11,500.00. The premium loan amount shall be paid for a
maximum of ten (10) years (the "Maximum Period"). You shall collaterally
assign the Policy acquired pursuant to the terms of the Agreement to All
American as security for the repayment of the amounts loaned by All American
for payment of the premiums. Notwithstanding the terms contained in the
Agreement and provided you continue in the employ of All American, its
successors, subsidiaries, or assigns, the cash surrender value of the policy
shall commence to vest in you or your designated owner of the Policy upon the
following anniversary dates of the signing of the Agreement:
5th anniversary 10%;
6th anniversary 20%;
7th anniversary 30%;
8th anniversary 40%;
9th anniversary 50%;
10th anniversary 100%.
<PAGE> 21
Mr. Rick Gordon
Page 2
---------------
In lieu of All American paying the entire annual premium on the
policy, All American may elect to require you to pay an amount equal to the
P.S. 58 cost for such insurance coverage (or the net premium due, if less).
Any balance shall be paid by you (and payment solely of such balance, if any,
shall be deemed an advance by All American to you under the Agreement). In the
event you are required to pay such P.S. 58 amount, All American shall give you
an additional bonus each year sufficient to enable you to pay such P.S. 58
amount and any additional tax liability resulting from such P.S. 58 amount
being included in your income for federal and state income tax purposes, and
any additional tax liability on those amounts, so that you receive, on an
after-tax basis, an amount each year equal to such P.S. 58 amount.
Upon the 10th anniversary of the signing of the Agreement, contingent
upon your continued employment by All American, the cash surrender value of the
policy shall be fully vested in you and All American shall release the
collateral assignment of the Policy. It is understood that as you become
vested in the cash surrender value of the Policy, such vested amount shall be
included in your income and subject to appropriate taxation and withholding
requirements. Moreover, any premiums paid to you or on your behalf after you
become fully vested in the Policy shall also be included in your income and
subject to any applicable income tax and withholding requirements.
Notwithstanding anything contained in this Letter Agreement to the
contrary, if at any time prior to the tenth (10th) anniversary of the Agreement
you are terminated as an employee of All American or its successor or assigns
and at the time of such termination (i) you are disabled (as such term is
defined under any existing employment agreement with All American from time to
time or you are otherwise physically or mentally incapable of performing the
duties and responsibilities assigned to you by the Board of Directors of All
American for sixty (60) days in any Three Hundred Sixty-five (365) day period)
or (ii)(a) neither Bruce Goldberg nor Paul Goldberg hold a position in All
American of Chairman of the Board, Chief Executive Officer or President and (b)
Bruce Goldberg, Paul Goldberg and all of their family members own less than ten
(10%) percent of All American's common stock or the common stock of its
successor or assigns, All American its successor and assigns shall be obligated
to pay the premiums on the Policy for the Maximum Period and you shall become
immediately fully vested in the cash surrender value of the Policy including
any future premium payments made by or on your behalf by All American.
<PAGE> 22
Mr. Rick Gordon
Page 3
---------------
To the extent of any inconsistencies among the Agreement, any
employment agreement and this letter agreement, the terms of this letter
agreement shall supersede the Agreement and any employment agreement and this
letter agreement shall control.
Please indicate your agreement to the provisions contained herein by
executing the appropriate signature line below.
ALL AMERICAN SEMICONDUCTOR, INC.
a Delaware corporation
By: /s/ Bruce M. Goldberg
-------------------------------
Bruce M. Goldberg
AGREED TO AND ACCEPTED BY:
/s/ Rick Gordon
--------------------------
Rick Gordon
<PAGE> 23
EXHIBIT "B"
STOCK OPTION AGREEMENT
<PAGE> 24
EXHIBIT "B"
ALL AMERICAN SEMICONDUCTOR, INC.
STOCK OPTION AGREEMENT
Agreement dated as of the ____ day of ________________, 1995 (the
"Date of Grant") between All American Semiconductor, Inc., a Delaware
corporation (and, collectively with its subsidiaries, if any, the "Company")
with its principal office at 16115 N.W. 52nd Avenue, Miami, Florida 33014, and
Rick Gordon, at the address set forth beneath such person's signature on the
signature page of this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 150,000 shares
(individually a "Share" and collectively the "Shares") of All American
Semiconductor, Inc. common stock (the "Common Stock"), par value $.01 per
share, for a price of $_____ per Share (the "Option Price"), subject to
adjustment as provided in Paragraph 3 below. Each of the Options are granted
as an incentive stock option under section 422 of the Internal Revenue Code of
1986, as amended (the "Code") pursuant to the Amended and Restated All American
Semiconductor, Inc. Employees', Officers', Directors' Stock Option Plan (the
"Plan"), a copy of which is attached hereto and incorporated herein by
reference, and are subject to the provisions of the Plan. The granting of the
Options hereunder shall be void and a nullity and this Agreement shall have no
further force or effect whatsoever in the event that the Company does not
obtain approval of the Company's shareholders within twelve (12) months of May
23, 1995 to (i) certain material amendments to the Plan which were made as part
of the Plan being amended and restated and which are necessary to permit the
granting of the Options, including the increase in the number of shares
reserved for issuance under the Plan to 3,250,000 in the aggregate, and (ii)
the increase in the number of shares of Common Stock authorized to be issued by
the Company to enable the Company to have sufficient shares of Common Stock
available for issuance upon exercise of the Options.
2. Terms and Conditions of Options
(a) Option Price
Subject to paragraph 3 hereof, the Option Price shall
be not less than the Fair Market Value (as defined in the Plan) per share of
Common Stock on the Date of Grant, but in no event less than the par value per
Share.
<PAGE> 25
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, the Options shall vest, if at all (and then be exercisable in
accordance with the installment exercise provisions contained in paragraph (d)
below) in the following percentage increments based upon the Company attaining
net earnings per share on a primary (not fully diluted) basis (as determined in
accordance with generally accepted accounting principles and as reported in the
audited consolidated financial statements for the Company) in any calendar year
from 1995 through 2000, inclusive, in at least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
------------------ ------------
<S> <C>
25% $ .18
50 .22
75 .28
100 .38
</TABLE>
For purposes hereof, net earnings per share may be
determined subsequent to a calendar year end, however, the Optionee shall be
deemed vested effective as of December 31 of the year in which the target net
earnings per share was achieved. It is anticipated by the Company that none of
the grant, vesting or exercise of any options under the Plan will constitute or
result in an expense or charge against the Company's earnings. However, if the
grant, vesting or exercise of any of the options under the Plan does constitute
or result in an expense or charge against the Company's earnings, no such
expense or charge shall be taken into account in computing whether the target
net earnings per share have been achieved in connection with the vesting
schedule above.
Notwithstanding anything contained herein to the
contrary (including the vesting schedule set forth above and the installment
exercise provisions contained in paragraph (d) below), in the event that either
(i) there is a "Change in Control" (as hereinafter defined) of the Company, or
(ii) the Options granted hereunder shall not have vested by the ninth
anniversary of the date of their grant, the Optionee shall become immediately
100% vested in all outstanding Options and may immediately exercise such
Options subject to the time frames set forth in paragraph (g).
(c) Definitions of "Change in Control", "cause" and
"disability".
"Change in Control," "cause," and "disability" shall have the
meanings ascribed to such terms as set forth in Optionee's Employment Agreement
with the Company which is effective as of the first day of March, 1995.
2
<PAGE> 26
(d) Installment Exercise
Subject to such further limitations as are provided
herein (including the vesting of Options provided in paragraph (b) above, it
being specifically agreed that no Option may be exercised unless and until it
becomes vested) the Options granted hereunder shall become exercisable by
Optionee on January 1 of each calendar year as follows: 10% in 1996; an
additional 10% which is 20% in the aggregate in 1997; an additional 10% which
is 30% in the aggregate in 1998; an additional 10% which is 40% in the
aggregate in 1999; an additional 10% which is 50% in the aggregate in 2000; an
additional 25% which is 75% in the aggregate in 2001; and additional 25% which
is 100% in the aggregate in 2002, provided, however, that the aggregate Fair
Market Value of all shares (determined as of the date the incentive stock
options were granted) exercisable for the first time by Optionee under the Plan
during any calendar year from 1995 through 2002, inclusive, shall not exceed
$100,000 (such $100,000 limitation shall apply to the aggregate number of
shares for which incentive stock options may be granted under the Plan) and any
other incentive stock option plan of the Company.
Notwithstanding anything contained herein to the contrary, to
the extent such Options have vested or otherwise vest in accordance with
subparagraph (b) above within the time frames permitted for exercise under
subparagraph (g), if the Optionee's employment is terminated due to disability,
Change in Control or retirement [as described in subparagraph (g)(2)], or death
as described in subparagraph (g)(3), the vested Options shall become
immediately exercisable (disregarding the installment exercise schedule above)
and may be exercised by the Optionee within the time frames set forth in said
subparagraphs (g)(2) or (g)(3) (as the case may be). As to those events
described in subparagraph (g)(2) (other than disability, Change in Control or
retirement) subparagraph (g)(4) or subparagraph (g)(5), to the extent the
Options have vested or otherwise vest in accordance with subparagraph (b) above
within the time frames permitted under subparagraph (g) and subject further to
the installment exercise schedule set forth in this subparagraph (d), the
vested Options may be exercised by the Optionee within the time frames set
forth in said subparagraphs (g)(2), (g)(4) or (g)(5).
(e) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning on the date
of this Agreement and ending May ___, 2005, subject in all cases, however, to
subparagraphs (b), (d) and (g) of this paragraph 2 and the other provisions of
this Agreement and the Plan. In no event shall any of the Options granted
under this
3
<PAGE> 27
Agreement be exercisable after the expiration of 10 years from the Date of
Grant of such Options.
(f) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employment Retirement Income Security Act, or the rules thereunder, and, except
with respect to a qualified domestic relations order as aforesaid, may be
exercised during Optionee's lifetime only by Optionee. If any Options are
exercised after Optionee's death, the Company may require evidence reasonably
satisfactory to it of the appointment and qualification of Optionee's personal
representatives and their authority and of the right of any heir or distributee
to exercise such Options.
(g) Termination of Employment
If Optionee's employment with the Company terminates
the unexercised portion of any of the Options granted under this Agreement
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:
(1) The expiration of ten (10) years from the
Date of Grant;
(2) The expiration of two (2) years from the date
of termination or cessation of the Optionee's employment with the Company for
any reason [including, without limitation, as a result of disability (however,
if the completion of the Company's audit for the calendar year after the year
in which the termination or cessation occurs is later than two (2) years from
the termination or cessation of Optionee's employment, such expiration date
shall be extended until ten (10) business days after the completion of such
audit and the Optionee's receipt of a copy thereof), voluntary resignation
within one-hundred eighty (180) days after a Change in Control or retirement]
other than a termination or cessation as a result of death or described in
subparagraph (4) or (5) below; provided that for purposes hereof "retirement"
shall mean voluntarily resigning as an employee of the Company after the
Optionee has reached the age of 65;
(3) The expiration of the later of (i) two (2)
years after the Optionee's death or (ii) ten (10) business days after the
completion of the Company's annual audit for the calendar year after the year
in which the death occurs and the receipt of a copy thereof by the personal
representative, executor or administrator of a deceased Optionee, if the
Optionee's death occurs during his employment with the Company;
4
<PAGE> 28
(4) The termination of the Optionee's employment
by the Company with cause; or
(5) The expiration of three (3) months from the date
of termination or cessation of the Optionee's employment with the Company as a
result of the Optionee's voluntary resignation other than within one-hundred
eighty (180) days after a Change in Control or as a result of retirement;
provided that, if the Optionee shall die during such three-month period, the
time of termination of the unexpired portion of such Option shall be eighteen
(18) months following issuance of letters testamentary or letters of
administration to the personal representative, executor or administrator of a
deceased Optionee, but in no event later than two years after the Optionee's
death.
Neither this Agreement nor any Option granted hereunder shall confer
on Optionee any right to continue in the Company's employ, or limit in any
respect the Company's right (in the absence of a specific written agreement to
the contrary) to terminate Optionee's employment at any time with or without
cause.
(h) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee (as defined in the Plan) may from
time to time prescribe and shall specify the number of optioned Shares being
purchased. Subsequent to the grant of any Options which are not immediately
exercisable in full, the Committee, at any time before complete termination of
such Options, may accelerate the time or times at which such Options may be
exercised in whole or in part. Any notice of exercise of Options shall be
accompanied by payment of the full purchase price for the Shares being
purchased: (i) by check payable to the Company; or (ii) by tendering previously
acquired shares of Common Stock having a fair market value (determined as of
the date such Options are exercised and in the same manner as the Fair Market
Value of the Option Price is determined under the Plan) equal to all of the
purchase price or (iii) by any combination of (i) and (ii). The Company shall
have no obligation to deliver the Shares being purchased pursuant to the
exercise of any Options, in whole or in part, until the aforesaid payment in
full of the purchase price therefor is received by the Company.
(i) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any
5
<PAGE> 29
securities exchange or under any state or federal law is necessary as a
condition of or in connection with the purchase or delivery of Shares, the
delivery of any or all Shares pursuant to exercise of the Options may be
withheld unless and until such listing, registration or qualification shall
have been effected; provided, however, upon written request from the Optionee
the Company agrees to use its best efforts at all times on and after the time
any of the Options become vested and exercisable to effect and continuously
maintain any and all such listings, registrations and qualifications. Optionee
agrees to comply with any and all legal requirements relating to Optionee's
resale or other disposition of any Shares acquired under this Agreement. In
the event that the Company using its best efforts is unable to effect and
maintain an effective registration statement under the Securities Act of 1933,
as amended, and any required qualifications under applicable state securities
laws at the time any Option is exercised, the Committee may require, as a
condition of exercise of any Options, that the Optionee represent, in writing,
that the Shares received upon exercise of the Options are being acquired for
investment and not with a view to distribution and agree that the Shares will
not be disposed of except pursuant to an effective registration statement under
the Securities Act of 1933, as amended, and only after any required
qualifications under applicable state securities laws, unless the Company shall
have received an opinion of counsel satisfactory to the Company that such
disposition is exempt from such registration and qualification. There may be
endorsed on certificates representing Shares issued upon the exercise of
Options such legends referring to the foregoing representations or any
applicable restrictions on resale as the Committee, in its discretion, shall
deem reasonably appropriate, as well as place such stop transfer orders with
its registrar and transfer agent as it deems reasonably appropriate.
(j) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
(k) Six-Month Holding Period
Optionee acknowledges that in no event may any Shares
acquired upon exercise of any Options be sold or otherwise disposed of until
after six (6) months have elapsed from the Date of Grant except, in the event
of Optionee's death during such period, for a sale by the executors or
administrators of Optionee's estate relying on Rule 16a-2(d)(1)(i) of the
Securities Exchange Act of 1934, as amended.
6
<PAGE> 30
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of
Shares subject to such Options and in the Option Price as shall be equitable
and appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; provided, however,
that no such adjustment shall give any Optionee any additional benefits under
this Agreement; and provided further, that, if any such adjustment is made by
reason of a transaction described in section 424(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), it shall be made so as to conform to the
requirements of that section and the regulations thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any unexercised Option theretofore granted
hereunder (hereinafter for purposes of this paragraph 3 referred to as the "old
option"), the Committee or any surviving or acquiring corporation may take such
action as it deems appropriate, and in conformity with the requirements of that
section and the regulations thereunder, to substitute a new option for the old
option, in order to make the new option, as nearly as may be practicable,
equivalent to the old option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by
7
<PAGE> 31
certified or registered mail, return receipt requested, to Optionee at his or
her address listed on the signature page hereof or such other address of which
Optionee shall have advised by similar notice, or to the Company or Committee
at the Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Delaware. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine, the feminine or
the neuter gender shall include the masculine, feminine and neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: ALL AMERICAN SEMICONDUCTOR,
--------- INC., a Delaware corporation
By:
-------------------------------- --------------------------
Rick Gordon Bruce M. Goldberg
All American Semiconductor, Inc. President
16115 N.W. 52nd Avenue
Miami, Florida 33140
8
<PAGE> 1
EXHIBIT 10.35
PROMISSORY NOTE
$90,300.00 May 1, 1995
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay to the
order of SAM BERMAN, d/b/a DRAKE ENTERPRISES ("Holder"), at 4784 Northwest 167
Street, Miami, Florida 33014, or such other place as shall be designated by
Holder in writing, the sum of NINETY THOUSAND THREE HUNDRED DOLLARS and 00/100
($90,300) (the "Principal Balance") together with interest on the Principal
Balance outstanding from time to time at the rate of eight percent (8%) per
annum, in 240 consecutive, equal, self-amortizing monthly installments of
principal and interest of $755.31 per installment, with the first such
installment due June 1, 1995, and each subsequent installment due on the same
day of each month thereafter. The entire remaining Principal Balance, plus
accrued interest, if any, shall be fully due and payable on May 1, 2015.
Failure to pay any installment of principal and/or interest under this
Note when due, which failure continues for more than ten (10) days following
the receipt by Maker of written notice thereof, shall constitute a default
under this Note, and shall, at the election of Holder, cause the full unpaid
Principal Balance to become immediately due and payable, and shall afford
Holder all rights to collect upon the same.
Maker agrees that in the event that suit shall be brought for the
collection hereof, or the same has to be collected upon demand of an attorney,
to pay reasonable attorneys' fees for making such collection. Following a
default, all amounts then due hereunder shall bear interest at the lower of (i)
18% per annum and (ii) the highest rate allowed by law, until paid.
The happening of any of the following events shall constitute a
default hereunder: (a) Failure of Maker to pay in full any payment due
hereunder promptly when due after the applicable notice and grace period, as
set forth above; and (b) a default by Maker as lessee under that certain
business lease agreement (the "Lease") between Maker and Holder dated May 1,
1994, pertaining to premises known as 16115 N.W. 52nd Avenue, Miami, Florida,
subject to applicable notice, grace period and cure provisions set forth
therein.
Holder's right to payment of interest and principal under this Note is
subordinate to the rights to receive payment of principal or interest under any
obligation made by Maker in favor of the present or future principal
institutional lender (including any participating institutional lenders, as the
case may be) ("Superior Creditor") of Maker. The Superior Creditor shall have
the right to receive payment when due it on all obligations made by Maker in
its favor (whether now or hereafter borrowed) prior to payment of any
<PAGE> 2
amount due hereunder to Holder; provided, however, that the aforesaid
subordination shall become operative, and Maker shall have the obligation to
withhold or defer payments owed to Holder hereunder, only upon receipt by Maker
of a written notice of default from the Superior Creditor (a copy of which
shall be immediately delivered to Holder), and then, for only such time as
Maker shall remain in default of its obligations to the Superior Creditor.
Pursuant to Article 28 of the Lease, Holder, as lessor, is obligated
to provide to Maker, as Lessee, a certain Non-Disturbance and Attornment
Agreement (the "Non-Disturbance Agreement"). Notwithstanding anything to the
contrary contained in this Note, no payments of any kind or nature shall be due
or payable to Holder hereunder unless and until the Non-Disturbance Agreement
is delivered to Maker as required by the Lease; provided, however, upon
delivery to Maker of the Non-Disturbance Agreement, this Note shall be payable
in accordance with its terms, and Maker shall immediately pay to Holder any
sums withheld on account of this paragraph, as if this paragraph had not been
included herein.
This Note is being executed and delivered pursuant to that certain
letter agreement, dated May 1, 1994, captioned "Re: Additional Improvements
Loan," between Maker and Holder, and satisfies all obligations of Maker in
connection therewith.
Address:
All American Semiconductor, Inc.
16115 N.W. 52nd Avenue
Miami, Florida 33014 ALL AMERICAN SEMICONDUCTOR, INC.
By: /s/ Bruce M. Goldberg
----------------------------
Bruce M. Goldberg, President
<PAGE> 1
EXHIBIT 10.36
AMENDED AND RESTATED
ALL AMERICAN SEMICONDUCTOR, INC.
EMPLOYEES', OFFICERS', DIRECTORS'
STOCK OPTION PLAN
1. Purpose. The purpose of the Amended and Restated All American
Semiconductor, Inc. Employees', Officers', Directors' Stock Option Plan (the
"Plan") is to secure for All American Semiconductor, Inc. and its subsidiaries,
if any (hereinafter collectively the "Company") and its stockholders the
benefits of the additional incentive, inherent in the ownership of the
Company's common stock (the "Common Stock"), by selected key employees and
non-employee directors and independent contractors of the Company who are
important to the success and growth of the business of the Company and to help
the Company secure and retain the services of such employees, non-employee
directors and independent contractors. Options granted under the Plan will be
either "incentive stock options", intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as from time to
time amended (the "Code"), or "non-qualified stock options. " For purposes of
the Plan, the terms "parent" and "subsidiary" shall mean "parent corporation"
and "subsidiary corporation", "respectively, as such terms are defined in
Sections 424(e) and (f) of the Code.
2. Stock Option Committee.
2.1. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee shall consist of not less than two members of the Board of Directors,
each of whom is a "disinterested person" as defined in Rule 16b-3 promulgated
under Section 16(b) of the Securities Exchange Act of 1934, as amended. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board of Directors. From time to time the Board of Directors may increase
the size of the Committee and appoint additional members thereof, remove
members (with or without cause), and appoint new members in substitution
therefor, and fill vacancies however caused; provided, however, that at no time
shall a Committee of less than two members of the Board of Directors administer
the Plan, and provided, further, that all members of the Committee if it
consists of only two members must be "disinterested persons" as defined in Rule
16b-3.
2.2. Procedures. Subject to the provisions of this Plan, the
Committee shall adopt such rules and regulations as it shall deem appropriate
concerning the holding of its meetings and the administration of the Plan. All
determinations and actions of the Committee shall be made by not less than a
majority of its members.
2.3. Interpretation. The Committee shall have full power and
authority to interpret the provisions of the Plan, and
<PAGE> 2
its decisions shall be final and binding on all interested parties.
2.4. Liability. No member of the Board of Directors of the
Company or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any option granted under it.
3. Shares Subject to Options.
3.1. Number of Shares. Subject to the provisions of
Paragraph 12 and to any adjustments required upon changes in capitalization to
prevent dilution or enlargement of the shares issuable pursuant to the Plan by
reason of any stock split, stock dividend, combination of shares,
recapitalization, or other change in the capital structure of the Company, the
number of shares of Common Stock subject at any one time to options granted
under the Plan, plus the number of shares of Common Stock theretofore issued or
delivered pursuant to the exercise of options granted under the Plan, shall not
exceed 3,250,000 shares. If and to the extent that options granted under the
Plan terminate, expire or are cancelled without having been exercised, new
options may be granted under the Plan with respect to the shares of Common
Stock covered by such terminated, expired or cancelled options; provided that
the granting and terms of such new options shall in all respects comply with
the provisions of the Plan. In no event shall any options be granted under the
Plan after May 28, 2004.
3.2. Character of Shares. Shares of Common Stock delivered
upon the exercise of options granted under the Plan may be authorized and
unissued Common Stock, issued Common Stock held in the Company's treasury, or
both.
3.3. Reservation of Shares. Subject to timely shareholder
approval of certain amendments made to the Plan as part of it being amended and
restated (the material amendments are described in paragraph 14 hereof) and
shareholder approval of an increase in the number of shares of Common Stock
authorized to be issued by the Company to permit the increase in the number of
shares reserved for issuance hereunder, there shall be reserved at all times
for sale under the Plan a number of shares of Common Stock (authorized and
unissued Common Stock, issued Common Stock held in the Company's treasury, or
both) equal to the maximum number of shares which may be purchased pursuant to
options granted or that may be granted under the Plan.
4. Grant of Options. The Committee shall determine, within the
limitations of the Plan, the employees and non-employee directors of the
Company and independent contractors to whom options are to be granted, the
number of shares that may be purchased under each option, the option price, the
vesting and exercise schedule and any conditions or terms of vesting and
2
<PAGE> 3
exercise of each option, including, but not limited to, vesting and exercise
upon a change in control of the Company, events that may permit acceleration of
vesting and exercise and the period after termination of employment or
directorship that an Option may be exercised, and shall designate options at
the time of grant as either "incentive stock options" or "non-qualified
options;" provided that the "Fair Market Value" (as hereinafter defined)
(determined as of the time the option is granted) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under all plans of the individual's
employer corporation and its parent and subsidiary corporations) shall not
exceed $100,000; provided, further, that non-employee directors and independent
contractors may be granted only non-qualified stock options. In determining
the employees, non-employee directors and independent contractors to whom
options shall be granted, the Committee shall take into consideration the
employee's, non-employee director's and independent contractor's present and
potential contribution to the success of the Company and other such factors as
the Committee may deem proper and relevant. Each option granted under the Plan
shall be evidenced by a written agreement between the Company and the Optionee
(as defined in Paragraph 5) in such form, not inconsistent with the provisions
of the Plan, or with Section 422 of the Code for incentive stock options, as
the Committee shall provide. Options designated as incentive stock options
that fail to continue to meet the requirements of Section 422 of the Code shall
be redesignated non-qualified stock options automatically without further
action by the Committee on the date of such failure to continue to meet the
requirements of Section 422 of the Code.
"Fair Market Value" on any day shall be the average of the market
price of a share of Common Stock for each of the seven (7) consecutive business
days preceding such day; the market price on each such day shall be (i) if the
Common Stock is listed on a securities exchange (including for purposes hereof
The Nasdaq Stock Market), the closing sales price on such exchange on such day
or, in the absence of reported sales on such day, the mean between the reported
closing bid and asked prices on such exchange on such day, or (ii) if the
Common Stock is not listed on a securities exchange, the mean between the
closing bid and asked prices as quoted by the National Association of
Securities Dealers, Inc. through NASDAQ for such day; provided, however, that,
if there are no such quotations or if it is determined that the fair market
value is not properly reflected by such NASDAQ quotations or the Common Stock
is not traded on an exchange or over the counter, fair market value shall be
determined by such other method as the Committee determines to be reasonable,
provided, however, that in no event shall the fair market value be less than
the Common Stock's par value. Notwithstanding the foregoing, if on, or within
ten (10) days prior to, the date of grant of any options hereunder, a
registration statement filed by the Company with the Securities and Exchange
Commission in connection with a public offering of Common Stock becomes
effective, the fair market value of a share of such Common
3
<PAGE> 4
Stock for purposes hereof shall be the public offering price per share of
Common Stock being offered pursuant to such offering.
5. Persons Eligible. Options may be granted under the Plan to
any key employee or prospective key employee (conditioned upon, and effective
not earlier than, his or her becoming an employee) of the Company, including
without limitation by way of specification, the Chief Executive Officer, Chief
Operating Officer, President, Senior Vice Presidents, Chief Financial Officer
and other officers and non-employee directors or prospective non-employee
directors (conditioned upon, and effective not earlier than, an individual
becoming a director) and other employees of the Company as approved by the
Committee, or any person who is an independent contractor associated with and
rendering services to the Company and who, in the opinion of the Committee, is
in a position to materially contribute to the continued growth and development
of the Company and its future financial success. No incentive stock options
may be granted under the Plan to any person who owns, directly or indirectly
(within the meaning of Sections 422(b)(6) and 424(d) of the Code), at the time
the incentive stock option is granted, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
parent, if any, or its subsidiaries, if any, unless the option price is at
least 110% of the Fair Market Value of the shares subject to the option,
determined on the date of the grant, and the option by its terms is not
exercisable after the expiration of five years from the date such option is
granted.
An individual receiving any option under the Plan is
hereinafter referred to as an "Optionee. " Any reference herein to the
employment of an Optionee by the Company shall include his or her employment by
the Company or its subsidiaries, if any.
6. Option Price. Subject to Paragraph 12, the option price of
each share of Common Stock purchasable under any incentive stock option or
non-qualified stock option granted under the Plan shall be not less than the
Fair Market Value of such shares of Common Stock on the date the option is
granted. For purposes of this Paragraph, the time at which an option is
granted, in case of the grant of an option to a prospective key employee or
prospective non-employee director, shall be deemed to be the date of such
grant. The option price of any option issued in a transaction described in
Section 424(a) of the Code shall be an amount which conforms to the
requirements of that section and the regulations thereunder.
7. Expiration and Termination of the Plan.
7.1. General. Options may be granted under the Plan at any
time and from time to time on or prior to May 28, 2004 (the "Expiration Date"),
which is ten years from the effective date of the last amendment to the Plan
extending the term to such date and
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on which date the Plan will expire except as to options then outstanding under
the Plan. Such outstanding options shall remain in effect until they have been
exercised, terminated or have expired. The Plan may be terminated, modified or
amended by the Board of Directors at any time on or prior to the Expiration
Date, except with respect to any options then outstanding under the Plan;
provided, however, that the approval of the Company's shareholders will be
required for any amendment which would (i) change the class of persons eligible
for the grant of options, as specified in Paragraph 5 or otherwise materially
modify the requirements as to eligibility for participation in the Plan, (ii)
increase the maximum number of shares subject to options, as specified in
Paragraph 3 (unless made pursuant to the provisions of Paragraph 12) or (iii)
materially increase the benefits accruing to participants under the Plan,
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended ("1934 Act"). With respect to persons subject to Section
16 of the 1934 Act, transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee. Moreover, in the event the Plan does not
include a provision required by Rule 16b-3 to be stated therein, such provision
(other than one relating to eligibility requirements, or the price and amount
of awards) shall be deemed automatically to be incorporated by reference into
the Plan insofar as participants subject to Section 16 are concerned.
7.2. Modifications. The Committee may make such
modifications, extensions, renewals or other changes in any option granted
under the Plan after the grant of such option, provided such modifications,
extensions, renewals or other changes are consistent with the provisions of the
Plan and do not disqualify an incentive stock option under the provisions of
Section 422 of the Code.
8. Exercisability and Duration of Options.
8.1. Determination of Committee; Acceleration. Each option
granted under the Plan shall vest and be exercisable at such time or times, or
upon the occurrence of such events or events, and in such amounts, as the
Committee may provide upon the granting thereof. Subsequent to the grant of an
option which is not immediately exercisable in full, the Committee, at any time
before complete termination of such option, may accelerate the time or times at
which such option may be exercised in whole or in part. Any option granted
under the Plan shall be exercisable upon the death of the Optionee or upon the
termination of the Optionee's employment by or Optionee's acting as a non-
employee director of the Company by reason of his illness or disability to the
extent such option was exercisable by the Optionee immediately prior to
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such event, unless otherwise expressly provided in the option at the time it is
granted. Each option granted under the Plan shall be for a term not in excess
of ten (10) years from the date of its grant.
9. Exercise of Options; Certain Legal and Other Restrictions.
9.1. Exercise. Subject to all of the provisions of the Plan
and the terms of the applicable option agreement, options granted under the
Plan shall be exercised by the Optionee (or by his or her personal
representatives, executors or administrators, as provided in Paragraph 10) as
to all or part of the shares covered thereby, by the giving of written notice
of exercise to the Company, specifying the number of shares to be purchased,
accompanied by payment of the full purchase price for the shares being
purchased. Payment of such purchase price shall be made (a) by check payable
to the Company, or (b) with the consent of the Committee or to the extent
provided in an applicable option agreement, by delivery of shares of Common
Stock having a Fair Market Value (determined as of the date such option is
exercised) equal to all or part of the purchase price, and, if applicable, of a
check payable to the Company for any remaining portion of the purchase price.
Such notice of exercise, accompanied by such payment, shall be delivered to the
Company at its principal business office or such other office as the Committee
may from time to time direct, and shall be in such form, containing such
further provisions consistent with the provisions of the Plan, as the Committee
may from time to time prescribe. The Company shall effect the transfer of the
shares so purchased to the Optionee (or such other person exercising the option
pursuant to Paragraph 10 hereof) as soon as practicable, and within a
reasonable time thereafter. Such transfer shall be evidenced on the books of
the Company. No Optionee or other person exercising an option shall have any
of the rights of a shareholder of the Company with respect to shares subject to
an option granted under the Plan until certificates for such shares shall have
been issued following the exercise of such option. No adjustment shall be made
for cash dividends or other rights for which the record date is prior to the
date of such issuance. In no event may any option granted hereunder be
exercised for a fraction of a share.
9.2. Withholding Tax. Whenever under the Plan shares of
stock are to be delivered upon exercise of a non-qualified stock option, the
Company shall be entitled to require as a condition of delivery that the
Optionee remit or, in appropriate cases, agree to remit when due an amount
sufficient to satisfy all federal, state and local withholding tax requirements
relating thereto.
If an Optionee makes a "disposition" (within the meaning of
Section 424(c) of the Code) of shares of Common Stock issued upon exercise of
an incentive stock option within two years from
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the date of grant or within one year from the date the shares of Common Stock
are transferred to the Optionee, the Optionee shall, within ten days of
disposition, notify the Committee and deliver to it any withholding and
employment taxes due. However, if the Optionee is a person subject to Section
16(b) of the 1934 Act, delivery of any withholding and employment taxes due may
be deferred until ten days after the date any income on the disposition is
recognized under Section 83 of the Code. The Company may cause a legend to be
affixed to certificates representing shares of Common Stock issued upon
exercise of incentive stock options to ensure that the Committee receives
notice of disqualifying dispositions.
9.3. Restrictions on Delivery of Shares. In and at the
discretion of the Committee, each award granted under the Plan may be subject
to the condition that, if at any time the listing, registration or
qualification of the shares covered by such award upon any securities exchange
or under any state or federal law is necessary as a condition of or in
connection with the granting of such option or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to exercise of
the option may be withheld unless and until such listing, registration or
qualification shall have been effected; provided, however, that the Committee,
in its discretion, may agree on behalf of the Company in connection with the
granting of an award under the Plan that the Company will use its best efforts
to effect and continuously maintain any and all such listings, registrations
and qualifications. The Committee may require, as a condition of exercise of
any option, that the Optionee represent, in writing, that the shares received
upon exercise of the option are being acquired for investment and not with a
view to distribution and agree that the shares will not be disposed of except
pursuant to an effective registration statement under the Securities Act of
1933, as amended, and only after any required qualification under applicable
state securities laws, unless the Company shall have received an opinion of
counsel satisfactory to the Company that such disposition is exempt from such
registration and qualification. The Committee may require that there be
affixed on certificates representing shares issued upon the exercise of an
option such legends referring to the foregoing representations or any
applicable restrictions on resale as the Committee, in its discretion, shall
deem reasonably appropriate as well as place such stop transfer orders with its
registrar and transfer agent as it deems reasonably appropriate.
10. Non-Transferability of Options. No option granted under the
Plan or any right evidenced thereby shall be transferable by the Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employment Retirement Income Security Act, or the rules thereunder, and, except
with respect to a qualified domestic relations order as aforesaid, an option
may be
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exercised, during the lifetime of an Optionee, only by such Optionee.
11. Right to Terminate Employment. Nothing in the Plan or in any
option granted under the Plan shall confer upon any Optionee the right to
continue in the employment or as a director of the Company or affect the right
of the Company to terminate the Optionee's employment or directorship at any
time, subject, however, to the provisions of any agreement of employment
between the Optionee and the Company.
12. Adjustment Upon Changes in Capitalization, etc. In the event
of any stock split, stock dividend, combination of shares, reclassification or
recapitalization which changes the character or amount of the Company's
outstanding Common Stock while any portion of any option theretofore granted
under the Plan is outstanding but unexercised, the Committee shall make such
adjustments in the character and number of shares subject to such options and
in the option price, as shall be equitable and appropriate in order to make
the option, as nearly as may be practicable, equivalent to such option
immediately prior to such change; provided, however, that no such adjustment
shall give any Optionee any additional benefits under his or her option; and
provided further, that, with respect to any outstanding incentive stock option,
if any such adjustment is made by reason of a transaction described in section
424(a) of the Code, it shall be made so as to conform to the requirements of
that section and the regulations thereunder.
If any transaction (other than a change specified in the preceding
paragraph) described in section 424(a) of the Code affects the Company's Common
Stock subject to any unexercised option theretofore granted under the Plan
(hereinafter for purposes of this Paragraph 12 referred to as the "old
option"), the Board of Directors of the Company or any surviving or acquiring
corporation may take such action as it deems appropriate, and in conformity
with the requirements of that section and the regulations thereunder, to
substitute a new option for the old option, in order to make the new option, as
nearly as may be practicable, equivalent to the old option, or to assume the
old option.
If any such change or transaction shall occur, the number and kind of
shares for which options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
13. Application of Funds. The proceeds received by the Company
from the sale of the Common Stock may be commingled with any other corporate
funds and used for any corporate purpose.
14. Effective Date of Amendments. The material amendments (the
"Amendments") being adopted by the Board of Directors of the Company as part of
the Plan being amended and restated which
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require approval by the Company's shareholders within 12 months of their
adoption by the Board of Directors of the Company are as follows: (i) the
increase (the "Reserve Shares Increase Amendment") in the maximum number of
shares of Common Stock subject at any one time to options granted under the
Plan to 3,250,000 shares; (ii) the removal of the limitation as to
non-qualified stock options and as to incentive stock options when they no
longer qualify as such under Section 422 of the Code that the aggregate Fair
Market Value (determined at the time the option is granted) of the Common Stock
with respect to which the granted options are exercisable for the first time by
an Optionee during any calendar year shall not exceed $100,000 (under this and
all similar plans of the Company); (iii) that the option exercise price for a
non- qualified stock option granted to a shareholder beneficially owning within
the meaning of Section 422 of the Code 10% or more of the combined voting power
of the Company shall be its Fair Market Value on the date of grant and not 110%
or more of such Fair Market Value; (iv) the deletion of all of the limitations
on the number, exercise period and exercise price of options permitted to be
granted to directors under the Plan which are more restrictive than otherwise
provided in the Plan generally with respect to all other potential
participants; (v) the authorization of the Committee to determine the time
frame in which an Optionee has to exercise his options (subject to the 10 year
limitation from date of grant) in the event of his termination of employment
due to death, disability, termination without cause, retirement, voluntarily
leaving the Company and change in control; and (vi) the authorization of the
Committee, in its discretion, on behalf of the Company to agree in connection
with the granting of awards under the Plan to register and qualify under
applicable federal and state securities laws the Common Stock underlying such
awards. The Plan as amended and restated being adopted by the Board of
Directors of the Company as of May 23, 1995, shall become effective on such
date of adoption, subject, however, to the approval of the Amendments by the
Company's shareholders within 12 months of such date of adoption and, in the
case of the Reserve Share Increase Amendment only, subject further, however, to
the approval of the Company's shareholders within 12 months of such date of
adoption to an increase in the number of shares of Common Stock authorized to
be issued by the Company to permit the increase in the number of shares
reserved for issuance under the Plan (the "Authorized Share Increase").
Notwithstanding the foregoing, if the Company's shareholders do not approve the
Reserve Share Increase Amendment or do not approve the Authorized Share
Increase but do approve all other Amendments, the Plan as amended and restated
exclusive of the Reserve Share Increase Amendment shall continue to be
effective.
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