<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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>
<CAPTION>
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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
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Common Stock, $0.01 par value(4)(5)......... 523,250 $ 1.984(2) $ 1,038,128(2) $ 358(6)
- ------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value(7)............ 180,000 $ 1.984(2) $ 357,120(2) $ 124
- ------------------------------------------------------------------------------------------------------------
Total Registration Fee...................................................................... $ 4,063
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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) Issuable upon the exercise of the Underwriter's Common Stock Purchase
Warrants (assumes the Underwriter's over-allotment option has been exercised
in full), subject, however, to approval by the Registrant's shareholders of
an increase in the Registrant's authorized shares. See "UNDERWRITING."
(5) Pursuant to Rule 416, this registration statement also covers such
indeterminable additional shares as may become issuable as a result of anti-
dilution adjustments in accordance with the terms of the Underwriter's
Common Stock Purchase Warrants.
(6) The registration fee with respect to the Common Stock to be issued upon the
exercise of the Underwriter's Common Stock Purchase Warrants has been
computed pursuant to Rule 457(g).
(7) Shares of Common Stock underlying existing warrants which are being
registered for future sale. See "CONCURRENT REGISTRATION OF SHARES FOR
FUTURE SALE BY WARRANT HOLDERS."
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 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 APRIL 17, 1995
PRELIMINARY PROSPECTUS
(ALL AMERICAN)(LOGO)
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 April 11, 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).......................... $ $ $
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</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% of the public offering price of the Common
Stock (the "Underwriter's Purchase Warrants"); (c) a consulting agreement
for twenty-four months after the Effective Date at the rate of $3,000 per
month commencing on the Effective Date; and (d) a right of first refusal
with respect to the underwriting or placement of certain sales of
securities by the Company during the two year period following the
Effective Date. 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."
(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 May , 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
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)
(2) After deducting discounts and commissions payable to the Underwriter, but
before deducting estimated expenses of $ 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 has 21 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. 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 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.
4
<PAGE> 8
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, Irvine 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." In addition, in April 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" and "DESCRIPTION OF
SECURITIES -- Existing Warrants."
6
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data for the Company for the years 1990
through 1994 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>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net Sales................................... $101,085 $ 67,510 $ 49,015 $ 45,332 $ 41,315
Cost of Sales............................... (74,632) (49,010) (35,083) (32,001) (29,007)
-------- -------- -------- -------- --------
Gross Profit................................ 26,453 18,500 13,932 13,331 12,308
Selling, General and Administrative
Expenses.................................. (23,335) (14,821) (11,366) (11,577) (11,177)
-------- -------- -------- -------- --------
Income from Operations...................... 3,118 3,679 2,566 1,754 1,131
Interest Expense............................ (1,772) (1,103) (1,153) (1,407) (1,205)
Other Income (Expense) -- Net(1)............ (39) 281 (18) 47 149
-------- -------- -------- -------- --------
Income Before Nonrecurring Expenses and
Income Taxes.............................. 1,307 2,857 1,395 394 75
Nonrecurring Expenses(2).................... (548) (61) (114) (124) --
-------- -------- -------- -------- --------
Income Before Income Taxes.................. 759 2,796 1,281 270 75
Provision for Income Taxes.................. (407) (1,094) (525) (153) (57)
-------- -------- -------- -------- --------
Net Income.................................. $ 352 $ 1,702 $ 756 $ 117 $ 18
======== ======== ======== ======== ========
Earnings Per Share(3):
Primary................................... $ .03 $ .19 $ .12 $ .03 $ .01
======== ======== ======== ======== ========
Fully Diluted............................. $ .03 $ .18 $ .12 $ .03 $ .01
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------
1994
AS ADJUSTED(4)
1994 1993 1992 1991 1990 (UNAUDITED)
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital..................... $39,800 $27,534 $19,427 $15,112 $14,745 $
Total Assets........................ 57,858 37,968 28,595 24,977 22,806
Long-Term Debt (including current
portion).......................... 27,775 14,928 13,850 13,405 12,149 27,775
Shareholders' Equity................ 16,950 15,612 8,517 4,633 4,516
Book Value Per Common Share......... $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $
</TABLE>
- ---------------
(1) 1993 and 1990 include approximately $237,000 and $180,000, respectively, of
income from the settlements of the Company's business interruption claims.
(2) 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) Weighted average shares (including common share equivalents) outstanding for
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.
(4) As adjusted to reflect as of December 31, 1994, the receipt of the net
proceeds of this Offering in the estimated amount of $ 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. 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, 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 April 3, 1995, $21,896,000 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. See
"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 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
8
<PAGE> 12
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 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."
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
<PAGE> 13
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 (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" and "MANAGEMENT."
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 in the near future to seek approval of its shareholders to increase the
number of shares of Common Stock and preferred stock authorized to be issued. 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
10
<PAGE> 14
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 restricts
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. 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."
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
11
<PAGE> 15
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. See "SHARES ELIGIBLE FOR FUTURE SALE" 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 December 31,
1994, was approximately $16.4 million or $1.32 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 $ 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 $ of net proceeds, the pro forma net
tangible book value would have been approximately $ million or $ per
share of Common Stock. This amount represents an immediate increase in net
tangible book value of $ per share to existing shareholders and an immediate
dilution in net tangible book value of $ per share to new investors purchasing
shares in the Offering. See "DILUTION."
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 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."
12
<PAGE> 16
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
$ if the Over-Allotment Option is exercised in full by the
Underwriter), based on an assumed public offering price of $ per share of
Common Stock. The Company intends initially to use such net proceeds to
temporarily reduce the amount outstanding (approximately $21,896,000 as of April
3, 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. 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 restricts the payment
of dividends without the prior written consent of the Senior Lender. See Note 5
to Notes to Consolidated Financial Statements.
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
</TABLE>
13
<PAGE> 17
As of March 31, 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 April 11, 1995, the last sale price, as reported by The Nasdaq Stock
Market, for the Common Stock was $2.00 per share.
CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization of the Company at
December 31, 1994, 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 $ 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>
DECEMBER 31, 1994
-------------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
Long-Term Debt (including current portion)(1)........................ $27,775 $27,775
------- -----------
Shareholders' Equity
Preferred Stock(2)................................................. -- --
Common Stock(3).................................................... 124 170
Capital in Excess of Par Value..................................... 11,764
Retained Earnings.................................................. 5,122 5,122
Less Treasury Stock, at cost, 19,592 shares........................ (60) (60)
------- -----------
Total Shareholders' Equity......................................... 16,950
------- -----------
$44,725 $
======= =========
</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, 12,416,791
shares of which were issued and outstanding as of December 31, 1994,
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."
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<PAGE> 18
DILUTION
The net tangible book value of the Company at December 31, 1994, was
approximately $16.4 million or $1.32 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 $ 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 $ of net proceeds, the pro forma net tangible
book value would have been approximately $ million or $ per share of
Common Stock. This amount represents an immediate increase in net tangible book
value of $ per share to existing shareholders and an immediate dilution in net
tangible book value of $ 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.............................. $
Net tangible book value per share before the Offering.............. $1.32
Increase attributable to the Offering..............................
-----
Pro forma net tangible book value per share after the Offering.......
-----
Dilution in net tangible book value per share to new investors....... $
=====
</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."
15
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data for the Company 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. Such information
should be read in conjunction with such 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>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Net Sales................................... $101,085 $ 67,510 $ 49,015 $ 45,332 $ 41,315
Cost of Sales............................... (74,632) (49,010) (35,083) (32,001) (29,007)
-------- -------- -------- -------- --------
Gross Profit................................ 26,453 18,500 13,932 13,331 12,308
Selling, General and Administrative
Expenses.................................. (23,335) (14,821) (11,366) (11,577) (11,177)
-------- -------- -------- -------- --------
Income from Operations...................... 3,118 3,679 2,566 1,754 1,131
Interest Expense............................ (1,772) (1,103) (1,153) (1,407) (1,205)
Other Income (Expense) -- Net(1)............ (39) 281 (18) 47 149
-------- -------- -------- -------- --------
Income Before Nonrecurring Expenses and
Income Taxes.............................. 1,307 2,857 1,395 394 75
Nonrecurring Expenses(2).................... (548) (61) (114) (124) --
-------- -------- -------- -------- --------
Income Before Income Taxes.................. 759 2,796 1,281 270 75
Provision for Income Taxes.................. (407) (1,094) (525) (153) (57)
-------- -------- -------- -------- --------
Net Income.................................. $ 352 $ 1,702 $ 756 $ 117 $ 18
======== ======== ======== ======== ========
Earnings Per Share(3):
Primary................................... $ .03 $ .19 $ .12 $ .03 $ .01
======== ======== ======== ======== ========
Fully Diluted............................. $ .03 $ .18 $ .12 $ .03 $ .01
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------
1994 AS
ADJUSTED(4)
1994 1993 1992 1991 1990 (UNAUDITED)
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital..................... $39,800 $27,534 $19,427 $15,112 $14,745 $
Total Assets........................ 57,858 37,968 28,595 24,977 22,806
Long-Term Debt (including current
portion).......................... 27,775 14,928 13,850 13,405 12,149 27,775
Shareholders' Equity................ 16,950 15,612 8,517 4,633 4,516
Book Value Per Common Share......... $ 1.37 $ 1.30 $ 1.10 $ 1.24 $ 1.21 $
</TABLE>
- ---------------
(1) 1993 and 1990 include approximately $237,000 and $180,000, respectively, of
income from the settlements of the Company's business interruption claims.
(2) 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) Weighted average shares (including common share equivalents) outstanding for
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.
(4) As adjusted to reflect as of December 31, 1994, the receipt of the net
proceeds of this Offering in the estimated amount of $ before the
application thereof. See "USE OF PROCEEDS" and "CAPITALIZATION."
16
<PAGE> 20
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 (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.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
ITEMS AS A PERCENTAGE PERCENTAGE INCREASE
OF NET SALES (DECREASE)
------------------------- -------------------
YEARS ENDED YEARS ENDED
DECEMBER 31 DECEMBER 31
------------------------- -------------------
1994 1993 1992 1993-94 1992-93
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales........................................ 100.0% 100.0% 100.0% 49.7% 37.7%
Gross Profit..................................... 26.2 27.4 28.4 43.0 32.8
Selling, General and Administrative Expenses..... 23.1 22.0 23.2 57.4 30.4
Income from Operations........................... 3.1 5.4 5.2 (15.2) 43.4
Interest Expense................................. 1.8 1.6 2.4 60.7 (4.3)
Income Before Nonrecurring Expenses and
Income Taxes................................... 1.3 4.2 2.8 (54.3) 104.8
Nonrecurring Expenses............................ .5 .1 .2 798.4 (46.5)
Income Before Income Taxes....................... .8 4.1 2.6 (72.9) 118.3
Net Income....................................... .3 2.5 1.5 (79.3) 125.1
</TABLE>
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. 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 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. See
"BUSINESS -- Products" and "-- Competition." This downward trend is expected to
continue, and possibly accelerate, in the future. See "RISK FACTORS -- Declining
Gross Profit Margins."
Selling, General and Administrative Expenses
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.
17
<PAGE> 21
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, income from
operations was impacted and decreased to $3.1 million in 1994 compared to $3.7
million in 1993. The Company expects that the aggressive expansion discussed
above positions the Company to process dramatic increases in revenues without
significant additional fixed costs.
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 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. See
18
<PAGE> 22
"BUSINESS -- Facilities and Systems" and "-- Licensed Technology" and Notes 4
and 8 to Notes to Consolidated Financial Statements.
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 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 43.4% in 1993 to $3.7 million compared to
$2.6 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.
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
19
<PAGE> 23
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) attributable to employee
benefits incurred from the elimination of duplicate tasks associated with the
relocation and consolidation of the Company's warehouse.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1994, increased to approximately $39.8
million from working capital of approximately $27.5 million at December 31,
1993. The current ratio was 3.94:1 at December 31, 1994, as compared to 4.43:1
at December 31, 1993. Accounts receivable levels at December 31, 1994, were
$16.6 million, up from accounts receivable levels of $11.5 million at December
31, 1993. The increase in accounts receivable reflects the record level of sales
for 1994. However, the average number of days that accounts receivable were
outstanding as of December 31, 1994, was 56 days, an improvement from 59 days as
of December 31, 1993. Inventory increased to $35.0 million at December 31, 1994,
from inventory of $23.3 million at December 31, 1993. The increase in inventory
was 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. Accounts payable and accrued expenses increased by $5.8 million
to $13.0 million in 1994 as compared to $7.2 million in 1993, primarily as a
result of the increase in inventory in 1994 over 1993.
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. It is
contemplated that certain additional improvements to the new facility
aggregating approximately $100,000 will also 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, 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
20
<PAGE> 24
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. 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 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 and $21,896,000 on April 3, 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
21
<PAGE> 25
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; 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 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
22
<PAGE> 26
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 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. 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> 27
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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<PAGE> 28
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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<PAGE> 29
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. By 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
26
<PAGE> 30
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 operating at its newly acquired Chicago
location. American Assemblies is expected to dramati-
27
<PAGE> 31
cally 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 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 March 1, 1995, the Company employed on a full-time basis 76 inside
and 96 outside salespeople with approximately 19 more management employees
involved in sales. The Company also had 9 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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<PAGE> 32
Sales Office Locations
The Company currently operates 21 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
- ----------
Irvine............................................................................ 1994
San Diego......................................................................... 1993
San Fernando Valley (Simi)........................................................ 1994
San Jose.......................................................................... 1985
Torrance.......................................................................... 1981
Connecticut
- -----------
Danbury........................................................................... 1994
Florida
- -------
Fort Lauderdale (Deerfield/Sunrise)(1)............................................ 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)(2)......................................... 1993
Texas
- -----
Austin............................................................................ 1994
Dallas (Richardson)............................................................... 1988
Houston........................................................................... 1994
Utah
- ----
Salt Lake City.................................................................... 1992
</TABLE>
- ---------------
(1) This office was moved from Sunrise to Deerfield in 1994.
(2) 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 expects to relocate its
Torrance, Irvine and San Fernando Valley, California offices into two much
larger facilities in Calabasas and Cypress, California. The 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
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<PAGE> 33
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 offices in a number of markets throughout the United States (see
"Corporate Strategy -- Expansion" and
30
<PAGE> 34
"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 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
approximately 13,000 square feet of the sublet space from and after the
eighteenth month of the three year
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<PAGE> 35
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 18 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.
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
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<PAGE> 36
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 March 1, 1995, the Company employed 340 persons: 34 are involved in
management; 34 are involved in marketing; 172 are involved in sales; 46 are
involved in warehouse and shipping; 13 are involved in operations and kitting;
33 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 21 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.
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
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<PAGE> 37
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. 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.
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<PAGE> 38
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. See "UNDERWRITING."
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.
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.
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<PAGE> 39
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."
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
36
<PAGE> 40
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, any nonvested advances owed to the Company will become
immediately vested and any remaining security will be released. In addition,
beginning 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 $11,500. The
Company's obligations to make premium payments in connection with Howard L.
Flanders' and Rick Gordon's policies are expected to last for a maximum of ten
years. After Howard L. Flanders and Rick Gordon have been with the Company for a
period of five years from the year in which the policy was acquired (1993) and
provided they each remain in the employ of the Company, the advances will be
deemed cancelled and the security released thereafter ratably over a five year
vesting period until such time as all advances are deemed cancelled.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options during its fiscal year ended
December 31, 1994, to any executive officer of the Company.
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<PAGE> 41
AGGREGATED OPTION EXERCISES IN LATEST FISCAL YEAR AND FISCAL YEAR-ENDED OPTION
VALUES
The following table sets forth information concerning the aggregate option
exercises in the fiscal year ended December 31, 1994, and the value of
unexercised stock options as of December 31, 1994 for the individual executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FY-END(#) FY-END ($)
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 shares or, if
not exercised in full, a lesser reduction will be made. Notwithstanding the
foregoing reduction, in April 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. 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, this 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 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
38
<PAGE> 42
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, the Company will be seeking the
approval of the Company's shareholders to certain eliminations or modifications
of the above limitations, as well as certain other amendments to the Option
Plan. 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). 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.
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 March 31, 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 1994 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."
39
<PAGE> 43
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.
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 April 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
40
<PAGE> 44
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 $135,000,000.
The 1995 Employment Agreements, together with the new employment agreements
between the Company and each of Howard L. Flanders and Rick Gordon described
below, provide for the granting of an aggregate of 1,000,000 stock options
pursuant to the Option Plan as additional incentive compensation for such four
executive officers (collectively, the "New Options"). Paul Goldberg and Bruce M.
Goldberg will be granted New Options covering 250,000 and 450,000 shares of
Common Stock, respectively, out of the aggregate of 1,000,000 New Options. All
of the New Options are to be granted on the earlier to occur of the date that
the registration statement of which this Prospectus is a part becomes effective,
or June 1, 1995. The New Options will be exercisable over a 10 year period from
the date of grant, subject to the vesting schedule set forth below and generally
maintaining as many of the New Options as possible as incentive stock options.
Each of the New Options will have an exercise price equal to 100% of the fair
market value of a share of Common Stock on the date of grant. If the date of
grant is the effective date of the registration statement, the exercise price
will be the public offering price per share of the Common Stock offered hereby.
The New Options granted to each of the executive officers will vest, if at all,
in the following percentage increments based upon the Company attaining net
earnings per share on a primary basis in any year between 1995 and 2000 in at
least the following amounts:
<TABLE>
<CAPTION>
PERCENTAGE OF NET EARNINGS
OPTIONS VESTED (%) PER SHARE($)
----------------------------------------------------------- ------------
<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 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 April
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.
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 of the
term of the 1995 Agreement, the Company will be obligated to pay Paul Goldberg,
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
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<PAGE> 45
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 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 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 April 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
42
<PAGE> 46
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 April 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. Mr. Gordon 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. 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 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."
43
<PAGE> 47
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 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
AMOUNT AND NATURE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP SHARES(1)
- ------------------------------------- -------------------- --------------------
BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C>
Paul Goldberg(2).................................................. 939,976 7.6% 5.5%
Bruce M. Goldberg(3).............................................. 918,841 7.4% 5.4%
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)....... 1,866,442 15.0% 11.0%
</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 200,000 options held by Paul
Goldberg, 175,000 options held by Bruce M. 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, Paul Goldberg, Bruce M. Goldberg,
Howard L. Flanders, Rick Gordon and all executive officers and directors of
the Company as a group would own 7.9%, 7.5%, .9%, .9% and 17.2%,
respectively, of the Company's outstanding Common Stock (and assuming the
completion of the Offering 6.0%, 5.7%, .7%, .7% and 13.1%, respectively, of
the Company's outstanding Common Stock).
(2) 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 175,398 shares held of record
by Robin Phelan, the daughter of Paul and Lola Goldberg, over which
securities Paul and Lola Goldberg disclaim beneficial ownership.
(3) Includes 35,880, 8,500, 51,996, 51,996 and 51,996 shares held of record by
Bruce M. Goldberg as trustee for Matthew Goldberg, Alec Goldberg, 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
9,725 shares held of record by Jayne Goldberg, as trustee for Matthew
Goldberg. Bruce M. Goldberg disclaims beneficial ownership over all of the
above securities.
(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 respect to or
otherwise dispose of (collectively "Dispositions") any shares of Common Stock or
any securities
44
<PAGE> 48
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. In addition, during the two
year period following the Effective Date, the Underwriter shall have a right of
first refusal to purchase for its own account or to sell for the account of the
executive officers and directors any of the Company's securities sold by them
pursuant to Rule 144 under the Act.
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 March 31, 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 its next
shareholders 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
45
<PAGE> 49
shares of preferred stock outstanding and has no current plans to issue any such
shares. See "RISK FACTORS -- Possible Issuance of Additional Shares."
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 RE-
46
<PAGE> 50
SULTS OF OPERATIONS -- Acquisitions" and "EXECUTIVE COMPENSATION -- Employees',
Officers', Directors' Stock Option Plan" and "-- Employment Agreements."
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.
47
<PAGE> 51
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 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, 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
48
<PAGE> 52
request by an Indemnitee, to create a trust for the benefit of such Indemnitee.
The Company must fund such 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 are subject to the lock-up agreements described
below. See "RISK FACTORS -- Shares Available for Future Resale."
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 are being registered for future sale by the
holders thereof. See "CONCURRENT REGISTRATION OF SHARES FOR FUTURE SALE BY
WARRANT HOLDERS."
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.
49
<PAGE> 53
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.
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 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
50
<PAGE> 54
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 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 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 granted the Underwriter the right of first refusal to
underwrite or place any public or private sale of the Company's equity
securities during the two year period after the Effective Date. The Underwriter
has also obtained the right of first refusal to purchase for its own account or
to sell for the account of any executive officer or director (the "Insiders")
any securities sold by the Insiders during the two year period after the
Effective Date.
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 at a monthly rate of $3,000
(plus reimbursement of out-of-pocket expenses) payable monthly in advance.
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. None of these Existing
Warrants have been exercised to date and none of the shares underlying these
Existing Warrants 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 shares of Common Stock being registered 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
51
<PAGE> 55
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. 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, 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."
52
<PAGE> 56
ALL AMERICAN SEMICONDUCTOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1993............................. F-3
Consolidated Statements of Income for each of the three years ended December 31,
1994................................................................................ F-4
Consolidated Statements of Changes in Shareholders' Equity for each of the three years
ended December 31, 1994............................................................. F-5
Consolidated Statements of Cash Flows for each of the three years ended December 31,
1994................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 57
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.
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> 58
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 200,000 $ 180,000
Accounts receivable, less allowances for doubtful accounts of
$425,000 and $400,000.......................................... 16,615,000 11,498,000
Inventories....................................................... 34,971,000 23,254,000
Other current assets.............................................. 1,543,000 619,000
----------- -----------
Total current assets........................................... 53,329,000 35,551,000
Property, plant and equipment -- net................................ 2,832,000 1,534,000
Deposits and other assets........................................... 1,178,000 751,000
Excess of cost over fair value of net assets acquired -- net........ 519,000 132,000
----------- -----------
$57,858,000 $37,968,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 396,000 $ 589,000
Accounts payable and accrued expenses............................. 13,007,000 7,239,000
Income taxes payable.............................................. -- 109,000
Other current liabilities......................................... 126,000 80,000
----------- -----------
Total current liabilities...................................... 13,529,000 8,017,000
Long-term debt:
Notes payable..................................................... 20,507,000 14,339,000
Subordinated debt................................................. 6,872,000 --
----------- -----------
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,
12,416,791 and 12,017,750 shares issued and outstanding........ 124,000 120,000
Capital in excess of par value.................................... 11,764,000 10,782,000
Retained earnings................................................. 5,122,000 4,770,000
Treasury stock, at cost, 19,592 shares............................ (60,000) (60,000)
----------- -----------
16,950,000 15,612,000
----------- -----------
$57,858,000 $37,968,000
========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 59
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES........................................ $101,085,000 $ 67,510,000 $ 49,015,000
Cost of sales.................................... (74,632,000) (49,010,000) (35,083,000)
------------ ------------ ------------
Gross profit..................................... 26,453,000 18,500,000 13,932,000
Selling, general and administrative expenses..... (23,335,000) (14,821,000) (11,366,000)
------------ ------------ ------------
INCOME FROM OPERATIONS........................... 3,118,000 3,679,000 2,566,000
Interest expense................................. (1,772,000) (1,103,000) (1,153,000)
Other income (expense) -- net.................... (39,000) 281,000 (18,000)
------------ ------------ ------------
Income before nonrecurring expenses and income
taxes.......................................... 1,307,000 2,857,000 1,395,000
Nonrecurring expenses:
Relocation of plant facilities................. (185,000) (61,000) (114,000)
Write-off of product development investment.... (363,000) -- --
------------ ------------ ------------
Income before income taxes....................... 759,000 2,796,000 1,281,000
Provision for income taxes....................... (407,000) (1,094,000) (525,000)
------------ ------------ ------------
NET INCOME....................................... $ 352,000 $ 1,702,000 $ 756,000
=========== =========== ===========
Earnings Per Share:
Primary........................................ $ .03 $ .19 $ .12
=========== =========== ===========
Fully diluted.................................. $ .03 $ .18 $ .12
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 60
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
========= ======== ========== ========= ======== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 61
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 352,000 $ 1,702,000 $ 756,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 677,000 384,000 408,000
Non-cash interest expense.......................... 47,000 -- --
Nonrecurring expenses.............................. 363,000 -- (124,000)
Other expense, net................................. -- 31,000 82,000
Changes in assets and liabilities:
Increase in accounts receivable.................. (3,019,000) (2,835,000) (1,170,000)
Increase in inventories.......................... (9,508,000) (5,228,000) (2,850,000)
Decrease (increase) in other current assets...... (904,000) (411,000) 67,000
Increase (decrease) in accounts payable and
accrued expenses.............................. 4,702,000 708,000 (618,000)
Increase (decrease) in other current
liabilities................................... (63,000) 85,000 31,000
----------- ----------- -----------
Net cash used for operating activities........ (7,353,000) (5,564,000) (3,418,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................. (1,618,000) (250,000) (159,000)
Decrease (increase) in other assets................... (712,000) (134,000) 113,000
Purchases of net assets of acquired companies......... (1,084,000) -- --
----------- ----------- -----------
Net cash used for investing activities........ (3,414,000) (384,000) (46,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of equity securities....... 742,000 5,393,000 3,128,000
Increase in notes payable............................. 6,088,000 -- 1,050,000
Repayments of notes payable........................... (2,119,000) (964,000) (1,463,000)
Net borrowings under line of credit agreements........ 6,076,000 1,536,000 858,000
----------- ----------- -----------
Net cash provided by financing activities..... 10,787,000 5,965,000 3,573,000
----------- ----------- -----------
Increase in cash...................................... 20,000 17,000 109,000
Cash, beginning of year............................... 180,000 163,000 54,000
----------- ----------- -----------
Cash, end of year..................................... $ 200,000 $ 180,000 $ 163,000
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid......................................... $ 1,604,000 $ 1,102,000 $ 1,150,000
========== ========== ==========
Income taxes paid..................................... $ 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
during 1994.
During 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, during
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> 62
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 years' financial statements have been reclassified to conform with
the current year'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.
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.
F-7
<PAGE> 63
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following average shares were used for the computation of primary and
fully diluted earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---------- --------- ---------
<S> <C> <C> <C>
Primary.......................................... 13,029,714 9,166,908 6,514,481
Fully diluted.................................... 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
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Office furniture and equipment.................................... $ 2,210,000 $ 1,793,000
Computer equipment................................................ 1,321,000 1,587,000
Leasehold improvements............................................ 1,058,000 69,000
Motor vehicles.................................................... 25,000 25,000
----------- -----------
4,614,000 3,474,000
Accumulated depreciation and amortization......................... (1,782,000) (1,940,000)
----------- -----------
$ 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 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
F-8
<PAGE> 64
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-9
<PAGE> 65
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 years presented:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Net sales...................................... $107,539,000 $81,341,000 $61,617,000
Net income..................................... 578,000 1,879,000 819,000
Primary earnings per share..................... $.04 $.21 $.13
Fully diluted earnings per share............... $.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, 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, subsequent to the balance sheet date, 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.
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. 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 $19,991,000 at December 31, 1994.
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 December 31, 1994, the
Company was in compliance with the required financial ratios and other
covenants.
F-10
<PAGE> 66
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $133,000, of which $109,000 is classified
as long-term, 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 in 1994
approximately $10,000 was expensed.
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 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
F-11
<PAGE> 67
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-12
<PAGE> 68
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INCOME TAXES
The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable........................................ $168,000 $216,000
Inventory.................................................. 222,000 161,000
Other assets............................................... 51,000 86,000
-------- --------
441,000 463,000
Deferred tax liabilities:
Fixed assets............................................... 326,000 352,000
-------- --------
Net deferred tax asset....................................... $115,000 $111,000
======== ========
</TABLE>
The components of income tax expense for the years ended December 31, 1994,
1993 and 1992 are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1994
Federal........................................... $ 385,000 $ (3,000) $ 382,000
State............................................. 26,000 (1,000) 25,000
---------- -------- ----------
$ 411,000 $ (4,000) $ 407,000
========= ======== =========
1993
Federal........................................... $ 962,000 $(11,000) $ 951,000
State............................................. 145,000 (2,000) 143,000
---------- -------- ----------
$1,107,000 $(13,000) $1,094,000
========= ======== =========
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>
YEARS ENDED DECEMBER
31
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. Federal income tax statutory rate......................... 34.0% 34.0% 34.0%
State income tax, net of federal income tax benefit............ 4.6 3.4 3.6
Other -- including non-deductible items........................ 15.0 1.7 3.4
---- ---- ----
Effective tax rate............................................. 53.6% 39.1% 41.0%
==== ==== ====
</TABLE>
The high effective tax rate for 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
F-13
<PAGE> 69
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial Statements). The warrants are exercisable at any time between December
14, 1994 and June 13, 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. At December 31, 1994, this
warrant had not been exercised.
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 December 31, 1994, 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 December 31, 1994 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
-------------
Total outstanding.......................................... 1,165,563
Total exercised............................................ 146,127
Total available............................................ 938,310
-------------
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-14
<PAGE> 70
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
Total rent expense, including real estate taxes and net of sublease income,
amounted to approximately $753,000, $526,000 and $492,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
F-15
<PAGE> 71
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 $67,000.
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.
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.
F-16
<PAGE> 72
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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-17
<PAGE> 73
- ------------------------------------------------------
- ------------------------------------------------------
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.................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Legal Proceedings..................... 34
Management............................ 34
Executive Compensation................ 36
Certain Transactions.................. 43
Principal Shareholders................ 44
Description of Securities............. 45
Shares Eligible for Future Sale....... 49
Underwriting.......................... 50
Concurrent Registration of Shares for
Future Sale by Warrant Holders...... 51
Legal Matters......................... 52
Experts............................... 52
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,550,000 SHARES
$ PER SHARE
ALL AMERICAN (R)(LOGO)
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
PROSPECTUS
------------------------------
LEW LIEBERBAUM & CO., INC. (LOGO)
, 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 74
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 APRIL 17, 1995
PRELIMINARY PROSPECTUS
[ALL AMERICAN LOGO]
180,000 SHARES
COMMON STOCK
This Prospectus relates to 180,000 shares of Common Stock, $.01 par value
per share (the "Common Stock") of All American Semiconductor, Inc., a Delaware
corporation (the "Company"), which are issuable upon exercise of warrants
previously issued by the Company.
All 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 (the "Selling Holders") 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".) 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. In the event all of the warrants are
exercised, the Company will receive gross proceeds of $265,500 relating to the
shares covered by this Prospectus.
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "SEMI." On April 11, 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> 75
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. None of these Existing Warrants have been exercised to date and none
of the shares underlying these Existing Warrants 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 shares of Common Stock being registered in this Prospectus 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. 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 will
receive the proceeds upon the exercise of such warrants. 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 in "DESCRIPTION OF
SECURITIES -- Existing Warrants."
The sale of the Common Stock underlying the warrants held by the Selling
Holders may be effected from time to time, 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, 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).
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
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-2
<PAGE> 76
ALTERNATE
- ------------------------------------------------------
- ------------------------------------------------------
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.................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 24
Legal Proceedings..................... 34
Management............................ 34
Executive Compensation................ 36
Certain Transactions.................. 43
Principal Shareholders................ 44
Description of Securities............. 45
Shares Eligible for Future Sale....... 49
Concurrent Registration of Shares for
Future Sale by Warrant Holders...... A-2
Concurrent Public Offering............ A-2
Legal Matters......................... 52
Experts............................... 52
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
180,000 SHARES
[ALL AMERICAN LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------------
PROSPECTUS
------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 77
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 December 31, 1991, the Registrant has issued and sold or agreed to
issue and sell the following unregistered securities:
(1) The options described in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Acquisitions," with
respect to the Company's acquisitions of Components and GCI Corp;
(2) The warrants described in "DESCRIPTION OF SECURITIES -- Existing
Warrants" other than the 1992 Units and the securities underlying the 1992
Units;
(3) The 9% subordinated debentures due 2004 in the aggregate principal
amount of $5,150,000 described in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources;" and
(4) In March 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.
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
II-1
<PAGE> 78
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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.*
1.2 -- Form of Selected Dealers Agreement.*
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.*
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).
</TABLE>
II-2
<PAGE> 79
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
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).
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.*
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 April , 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 April , 1995, between the Company and Bruce M.
Goldberg.**
10.25 -- Employment Agreement dated as of April , 1995, between the Company and Howard L.
Flanders.**
10.26 -- Employment Agreement dated as of April , 1995, between the Company and Rick
Gordon.**
</TABLE>
II-3
<PAGE> 80
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
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).
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).
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-7).*
24.1 -- Powers of Attorney (included as part of Signatures).*
27.1 -- Financial Data Schedule.*
</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
** To be filed by amendment
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
II-4
<PAGE> 81
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement; (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-5
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, All American
Semiconductor, Inc., has duly caused this registration statement to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Miami,
Florida on the 17th day of April, 1995.
ALL AMERICAN SEMICONDUCTOR, INC.
By: /s/ PAUL GOLDBERG
------------------------------------
Paul Goldberg,
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Each person whose signature appears below on this registration statement
hereby constitutes and appoints Paul Goldberg and Bruce M. Goldberg, and each of
them, with full power to act as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place, and stead, in any and all capacities (until revoked in writing) to
sign any and all amendments (including post-effective amendments and amendments
thereto) to this registration statement on Form S-1 of All American
Semiconductor, Inc. and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully for all intents and purposes, as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, or either of them (or his respective substitutes), may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 April 17, 1995
- --------------------------------------------- Executive Officer (Principal
Paul Goldberg Executive Officer)
/s/ BRUCE M. GOLDBERG President and Chief Operating April 17, 1995
- --------------------------------------------- Officer and Director
Bruce M. Goldberg
/s/ HOWARD L. FLANDERS Vice President, Chief Financial April 17, 1995
- --------------------------------------------- Officer and Director
Howard L. Flanders (Principal Financial and
Accounting Officer)
/s/ RICK GORDON Senior Vice President of Sales April 17, 1995
- --------------------------------------------- and Marketing and Director
Rick Gordon
/s/ SHELDON LIEBERBAUM Director April 17, 1995
- ---------------------------------------------
Sheldon Lieberbaum
/s/ S. CYE MANDEL Director April 17, 1995
- ---------------------------------------------
S. Cye Mandel
</TABLE>
II-6
<PAGE> 83
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."
LAZAR, LEVINE & COMPANY LLP
New York, NY
April 17, 1995
II-7
<PAGE> 84
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> 85
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement...........................................
1.2 -- Form of Selected Dealers Agreement.......................................
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..................................
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).....
</TABLE>
i
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
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)....................................................................
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.............................................
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 April , 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 April , 1995, between the Company and
Bruce M. Goldberg.*......................................................
</TABLE>
ii
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C> <C>
10.25 -- Employment Agreement dated as of April , 1995, between the Company and
Howard L. Flanders.*.....................................................
10.26 -- Employment Agreement dated as of April , 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). ...........................................
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). .......................................
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-7)......................................
24.1 -- Powers of Attorney (included as part of Signatures)......................
27.1 -- Financial Data Schedule..................................................
</TABLE>
- ---------------
* To be filed by amendment
iii
<PAGE> 1
EXHIBIT 1.1
ALL AMERICAN SEMICONDUCTOR, INC.
____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 [ ] 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 [ ] 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-____ ), 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 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 Prospectus, or
in any amendment thereof or supplement thereto. It is understood and
acknowledged by the Company that the statements set forth under the
<PAGE> 3
heading "Underwriting" in the Prospectus with respect to the amounts of the
selling concession and reallowance 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 22 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, its subsidiaries, and its
employees have all material and 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. 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 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.
(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. The Shares to be sold
in the Offering and the Underwriter's Warrants to be issued and sold by the
Company pursuant to this Agreement, and the shares of Common Stock issuable
upon exercise of the Underwriter's Warrants, have been duly authorized (and, in
the case of the shares of Common Stock underlying the Underwriter's Warrant
have been duly reserved for issuance) and, when issued and paid for in
accordance with this Agreement (and, in the case of the shares of Common Stock
underlying the Underwriter's Warrant, upon exercise of the Underwriter's
Warrant and payment to the Company of the exercise price thereof) the shares of
Common Stock will be validly issued, fully paid and non-assessable with no
personal liability attaching to the ownership thereof. The Shares and
Underwriter's Warrant 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
-3-
<PAGE> 4
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 [ ]. 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.
(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 and warrants 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, 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.
(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 Information",
"Capitalization", "Selected Financial Information", "Managements' Discussion
and Analysis of Financial
-4-
<PAGE> 5
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 of Regulations to be
included in the Registration Statement or the Prospectus.
(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 any indenture, mortgage, dead 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 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 financial
statements as owned by it, free and clear of all liens, charges, encumbrances,
claims, security interests, restrictions and defects of any material nature
whatsoever, except such as are described or referred to in the Prospectus and
liens for taxes not yet due and payable. All of the leases and subleases under
which the Company or any of its subsidiaries is the lessor or sublessor of
properties or assets or under which the Company or any of its subsidiaries
holds 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
terms or provisions of any of such leases or subleases and no 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 the leased or
subleased premises or assets under any such lease or 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, 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
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<PAGE> 6
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.
(m) Lazar, Levine & Company ("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, 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 the subsidiaries of the
Company, 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 incurred in the ordinary course of
business that are not material to the Company; (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; (iv) the Company has not purchased any of its capital stock
and there has been no dividend or distribution of any kind declared, made 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 reflected in the Registration
Statement and the Prospectus as outstanding 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 that are 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
or any of its subsidiaries. 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, and no labor
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<PAGE> 7
disturbances by the employees of the Company or any of its subsidiaries exist
or, to the knowledge of the Company, have been threatened.
(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 officers and directors 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 violation of any law, rule or
regulation.
(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,
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<PAGE> 8
patents and technology necessary to conduct its business 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 any trademarks,
service marks, service names, trade names, patents or technology used in the
conduct of the Company's or any of its subsidiaries business. The Company has
no knowledge of any infringement by it of any trademarks, servicemarks,
tradenames, patents or technology of others.
(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 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
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<PAGE> 9
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, 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.
(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 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 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 you 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:
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<PAGE> 10
(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 if, in the opinion of
counsel for the Underwriter, the Prospectus is required by law 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.
(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 and 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
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<PAGE> 11
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 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,
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
commission 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
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 and
of each fiscal year of the Company, a consolidated balance sheet of the Company
and its then consolidated subsidiaries and a separate balance sheet of each
subsidiary of the Company the accounts of which are not included in such
consolidated balance sheet as of the end of such fiscal
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<PAGE> 12
year, and consolidated statements of operations, stockholder's equity and cash
flows of the Company and its consolidated subsidiaries and separate statements
of operations, stockholder's equity and cash flows of each of the subsidiaries
of the Company the accounts of which are not included in such consolidated
statements, 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), (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, stockholder's equity
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, (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.
(i) For a period of two years from the Closing Date, 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) business days after the
Effective Date, the Company shall not issue, directly or indirectly, without
the Underwriter's prior written consent, which consent shall not be
unreasonably withheld, any press release or other public announcement or hold
any press conference with respect to the Company or its financial condition or
its activities or with respect to this Offering.
(k) The Company shall deliver to you 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 you 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
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<PAGE> 13
any of the Shares or the Company's Common Stock.
(m) For a period of 180 days after the commencement of the
Offering, the Company shall not, without your prior written consent, issue or
sell, or contract to sell or otherwise dispose of any of its debt or equity
securities (or announce the offering of any such securities), except (i) sales
of the Shares and the Underwriter's Warrant pursuant to this Agreement and (ii)
grants of stock options under the Company's stock option plan (iii) sales of
securities pursuant to the exercise of outstanding options or warrants and (iv)
securities issued in connection with a merger, consolidation or acquisition.
(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.
(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, whether
pursuant to subsection 3(e) herein or otherwise, such counsel, such
accountants, such officers and directors shall, at the time of such filing or
at such subsequent time as the Underwriter shall specify, so long as securities
being registered by such amendment or supplement are being underwritten by the
Underwriter, 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 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. 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 solicitation
firm acceptable to the Underwriter.]
(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. If
the Underwriter's designee is not elected to the board or if the Underwriter
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<PAGE> 14
chooses not to designate a nominee, the Underwriter shall have the right to
designate one nonvoting advisor to attend meetings of the Board for a period of
three years from the Effective Date. The Underwriter's nominee to the Board
shall be appointed to the Company's Compensation Committee. Such designee
shall receive no more or 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.
(s) Commencing on the Effective Date, the Company shall have
entered into a merger and acquisition agreement (the "Merger and Acquisition
Agreement") and 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 substantially in the forms 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) Prior to the Effective Date, the Company shall register
for listing in Standard and Poors Corporation Reports and shall use its best
efforts to have the Company included in such publications for at least five
years thereafter.
(v) No person who is currently an officer or director of the
Company nor, to the Company's knowledge, any stockholder who immediately after
the offering will beneficially own 5% or more of the Company's Common Stock (as
beneficial ownership is defined by Regulation 13d-3 promulgated pursuant to the
Exchange Act) 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 stockholder on the date of this
Agreement or hereafter acquired for a period of six months from the Effective
Date, provided, however, that gifts to family members shall not require any
such consent. The Company has and will cause each of its officers, directors
and 5% or more stockholders (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 thirty-six months following the
Effective Date without prior written approval of the Underwriter, except for an
aggregate of [ ] additional shares underlying options. In addition, the
Underwriter shall have the right for a period of two years from the Effective
Date to purchase for the Underwriter's account or to sell for the account of
the Insiders, any securities sold pursuant to Rule 144 under the Act. Each of
such Insiders will agree to consult with the Underwriter with regard to any
such sales and will offer the Underwriter the exclusive opportunity to purchase
or sell such securities on terms at least as favorable to such stockholders as
they can secure elsewhere. If the Underwriter fails to accept in writing any
such proposal for sale by such
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<PAGE> 15
Insiders within three full business days after receipt of a notice containing
such proposal, then the Underwriter shall have no claim or right with respect
to any such sales contained in any such notice. If thereafter, such proposal
is modified in any material respect, such Insiders shall adopt the same
procedure as with respect to the original proposal.
(w) The Company agrees that it will not negotiate with or
engage any investment banking firm or underwriter other than the
Underwriter with respect to any private or public financing for the Company
prior to [ ], 1997, unless the Underwriter elects not to proceed in
accordance with the terms of this Section. The Underwriter shall have a right
of first refusal to underwrite or place any public or private sale of debt or
equity securities (excluding sales to employees or in connection with a merger,
consolidation, reorganization, exchange offer, acquisition or stock rights or
dividend reinvestment plan) of the Company, any subsidiary or successor of the
Company during a two year period following the Effective Date. If such a
proposed financing is offered to the Underwriter, the Underwriter shall have
ten (10) business days in which to determine whether or not to accept such
offer. If the Underwriter fails to accept the proposal and if thereafter such
proposal is modified in any material respect, then the Underwriter shall have
an additional ten (10) business day period to accept the new offer. It is
understood that if such a proposed financing is offered and the Underwriter
refuses, and provided that such a financing is consummated (a) with another
underwriter or placement agent upon terms and conditions not different in
material respect from those offered to the Underwriter, and (b) within six
months after the end of the aforesaid ten business day period, this right of
first refusal shall terminate solely with respect to such offering.
(x) The Company agrees that no options or warrants shall be
granted below the greater of the fair market value or the public offering price
of the Shares for a period of two years from the Effective Date without the
Underwriter's prior written consent.
(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.
(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 two years from the Closing Date, the
Company shall not without the Underwriter's prior written consent, directly or
indirectly, enter into any acquisition, merger, consolidation, exchange offer
or other business combination or recommend in favor of a tender offer for
Shares of the Company's Common Stock, if the consideration to be received in
such transaction by a holder of Common Stock 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
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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 five 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 __________________________Firm
Shares at a price of $________ per Share less an underwriting discount of nine
percent (9%) of the offering price for each Share ($.____________). 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.
(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 two business days 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
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<PAGE> 17
conditions of this Agreement, the Underwriter shall have the option (the
"Option) to purchase from the Company all or part of up to [ ] 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 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 date of 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 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
two business days 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.
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<PAGE> 18
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,
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 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
Warrant, including any transfer or other taxes payable thereon in connection
with the original issuance thereof; (iv) the qualification of the Shares under
the state or foreign securities or "Blue S $10,000 shall have been paid such
counsel upon initial filing of the Registration Statement and another
$10,000.00 of which shall have been paid upon the effectiveness of the
Registration Statement; (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 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 at Closing 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 of the Offering (including the Option). This 3% non-accountable
expense allowance shall cover the fees of your 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, or the
Underwriter elects not to proceed with the offering for any reason whatsoever,
or in the event that the Company does not or cannot, for any reason whatsoever,
expeditiously proceed with the Offering, or if any of the representations,
warranties or covenants contained in this Agreement are not materially correct
or cannot be complied with by the Company, or business prospects or obligations
of the Company are adversely affected and the Company does not commence or
continue with the Offering any time 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
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<PAGE> 19
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. In addition, if the Company elects
not to proceed with the proposed offering for any reason and subsequently
engages in any public offering, private placement, merger, acquisition of
securities, joint venture or other similar transaction within twelve (12)
months following the Company's election not to proceed ("Subsequent
Transactions"), then the Underwriter shall have the right to act as the
Company's investment banker in connection with the Subsequent Transaction and
to receive a fee in connection therewith equal to five percent (5%) of the
consideration paid or received in any such transaction.
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 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
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<PAGE> 20
or proceeding an unfavorable ruling, decision or finding could have a material
adverse effect on the Company or its business, business prospects or
properties, or have a material adverse effect on the financial condition or
results of operations of the Company.
(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 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.
(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, 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 has all governmental licenses,
permits, certifications, consents, registrations, approvals franchises
necessary to carry on its business 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;
(ii) The Company has the requisite power and authority
(corporate or other) to execute, deliver and perform the Underwriting
Agreement, the Consulting Agreement, The M&A Agreement and the Underwriter's
Warrants (together the "Transaction Documents") and to consummate the
transactions contemplated thereby. 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
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<PAGE> 21
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) to the
best of our knowledge, have any material adverse effect on any permit,
certification, 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;
(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) 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. All
of the Company's outstanding shares of
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Common Stock, have been duly authorized and validly issued and are fully paid
an nonassessable with no personal liability attaching to the ownership thereof.
None of the outstanding shares of Common Stock has been issued in violation of
the preemptive rights of any shareholder of the Company. The offers and sales
of the outstanding shares of Common Stock were at all relevant times either
registered under the Act and the applicable state securities or Blue Sky laws
or exempt from such registration requirements. 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 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) 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
[ ]. 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
over-allotment 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
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<PAGE> 23
than litigation incident to the kind of business conducted by the Company
which, individually and in the aggregate, is not material, and, 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 after due inquiry, the
Company has not infringed and is not infringing with the rights of others with
respect to its intangible or intellectual property rights; and, to the best of
our knowledge after due inquiry, 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 their business, results of operations or financial condition;
(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 under the captions,
[list], 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 or to the best of such counsel's knowledge after due
inquiry the Company is not in default in any 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 of a 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
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<PAGE> 24
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 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, 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 Company's business or financial condition;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness;
(iv) No material amount of the assets of the Company or its
subsidiaries 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
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<PAGE> 25
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, (iii) as of the Closing Date, the
obligations of the Company to be performed hereunder on or prior thereto has
been duly performed; (iv) no Stop Order suspending the effectiveness of the
Registration Statement has been issued and not 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 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 reviewed 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
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<PAGE> 26
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;
(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 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
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<PAGE> 27
Shares and the Option Shares shall not have objected to the Underwriter's
participation in such offering.
(o) 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 6 months 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.
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 and to
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.
10. 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,
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<PAGE> 28
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 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 9). 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
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<PAGE> 29
counsel shall be at the expense of such indemnified party or parties unless (i)
the 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 Underwriters, 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 (c), 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
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<PAGE> 30
contribution as the Underwriter, and each person who controls the Company
within the meaning 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 (c).
(e) Any party entitled to contributor 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. 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 10 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 Company 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, 9, and 11(d) 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 first full business
day following the day on which you and the Company receive notification that
the Registration Statement become 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
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<PAGE> 31
NASDAQ or by order of the Commission or any other governmental authority having
jurisdiction; or (iii) if a banking moratorium has been declared by state or
federal authorities or if any new restriction 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 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 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) then 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.
(d) If this Agreement shall not become effective by reason of
an election of the Underwriter pursuant to this Section 11 or if this Agreement
shall not be carried out within the time specified herein by reason of any
failure on the part of the Company to perform any undertaking, or to satisfy
any condition of this Agreement by it to be performed or satisfied, the
Company, in addition to the obligations assumed by the Company pursuant to
Section [7] herein, shall be obligated to reimburse the Underwriter for the
following: (i) Blue Sky counsel fees and expenses to the extent set forth in
Paragraph 8; (ii) Blue Sky filing fees; and (iii) such reasonable out-of-pocket
expenses of the Underwriter (including the fees and disbursements of their
counsel) in connection with this Agreement and the proposed offering of the
Shares.
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 mailed, delivered or telegraphed and confirmed 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 be mailed, delivered or telegraphed
and confirmed 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.
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<PAGE> 32
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.
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 agrees that the courts of the
State of New York shall have jurisdiction over any litigation arising from this
Agreement, and venue shall be proper in the Southern or Eastern Districts of
New York.
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.
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.
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<PAGE> 33
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 letter 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.
_________ 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 [ ] 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 _____ 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.
You hereby 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. In purchasing Shares, you will rely
only on the Prospectus and on no other statement whatsoever, written or oral.
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
1
<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, shares of Common Stock (the "Common Stock") 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 on 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 opinions 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.
2
<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 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 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, 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 supplemental) 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: [NAME OF CONTACT], 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 to 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
---------- ----------------------------
6
<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"), 5,232,500 shares of its Common Stock, par value $.01
per share (the "Common Stock"), to the Underwriter.
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 an
aggregate of 523,500 shares of Common Stock. 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 (as
defined in the Underwriting Agreement) the Company will issue and deliver the
Warrants 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, 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.
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
<PAGE> 2
the close of business on the fifth anniversary of the Effective Date, except as
otherwise provided in Article 4 (such period is sometimes referred to herein as
the "Exercise Period"). [; provided, however, that the Warrants may not be
exercised on or after such first anniversary unless and until the number of
authorized shares of the Company's Common Stock is increased to 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], 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) 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
office of the transfer agent for the Common Stock (the "Transfer Agent") or at
the principal office of the Company.
(b) 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, and cash as provided in Section 3.09 in respect
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.
Section 2.04. Common Stock Issued Upon Exercise of Warrants.
(a) All Warrant Shares shall be duly authorized,
validly issued, fully paid and nonassessable. 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.
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<PAGE> 3
(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 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, 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.
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
Exercise Price or 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 lower of the prices determined as follows:
(I) 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 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 and (II) by multiplying the
Exercise Price in effect at the time of such issuance or sale by a fraction,
whose numerator shall be (A) the sum of (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 issue and 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, and whose denominator shall be (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 multiplied by the Current Market
Price in effect immediately prior to 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
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<PAGE> 4
Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sale takes place on such day, 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 closing
bid price as furnished by the NASD through NASDAQ or 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 Exercise Price or Current Market Price in
effect as of the time of the issuance, sale 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 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
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<PAGE> 5
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 Exercise Price or 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
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, (ii) the issuance of all shares of Common Stock and all other options
or convertible securities and the total consideration received therefor and
(iii) the original issuance at the time of such change of exercise price or
rate of any such options or convertible securities then outstanding 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 (iv) 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 actually delivered and the total
consideration received therefor upon the exercise of such options or upon the
conversion or exchange of such convertible securities and (v) had adjustments
been made on the basis of the Exercise Price as adjusted under clause (iv) of
this Section 3.03(c) for all issues or sales of shares of Common Stock, options
or convertible securities made after the issuance of such options or
convertible securities. 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 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
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<PAGE> 6
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 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 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 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, 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(c)) 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(c)) to be outstanding immediately after such
declaration. All shares of Common Stock and all 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 (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 or convertible
securities, then and in each such case, the Exercise Price shall be reduced by
an
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<PAGE> 7
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 otherwise 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.
Section 3.8. 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
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<PAGE> 8
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. Cash in Lieu of Fractional Shares. The
Company shall not be required to issue fractional shares of Common Stock upon
exercise of Warrants. If the holder of any Warrant would be entitled, upon
exercise, to receive a fractional interest in a share, the Company shall, upon
such exercise, purchase such fractional interest for an amount in cash equal to
the Current Market Price of such fractional interest.
Section 3.10. Notice of Change in Shares Issuable, etc..
Whenever the security issuable or deliverable upon exercise of the Warrants is
changed pursuant to this Article 3, the Company shall promptly file with the
Transfer Agent 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 and to each holder of Warrants at the address registered with
the Company. 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 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 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
-8-
<PAGE> 9
action as may be necessary or appropriate in order to protect the rights of
each holder of a Warrant against dilution or other impairment.
ARTICLE 4. LIQUIDATION, MERGER, ETC.
Section 4.01. Notice to Warrantholders. If:
(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
(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 filed with the Transfer Agent and 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 20 calendar days before the record date specified and in the
case of a notice pursuant to clause (ii) above at least 25 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
-9-
<PAGE> 10
Warrants regardless of the provisions of Section 2.01 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. 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]. 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), 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
-10-
<PAGE> 11
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 transferable by the holders thereof prior to the
first anniversary of the Effective Date except (a) to successors of the holder
and persons who are shareholders, officers and directors of the Underwriter or
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. For the purposes of this
Section 6.01, the terms "shareholders," "officers," or "directors" shall refer
to those persons who are shareholders, officers and directors of Lew Lieberbaum
& Co., Inc. on the date hereof and those persons who become shareholders,
officers or directors at any time before the expiration of the Warrants
regardless of whether such persons are shareholders, officers or directors 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.
Section 6.02. Exchange of Warrants. Upon the issuance and
prior to the expiration thereof, one or more Warrants may be surrendered at the
office of the Transfer Agent or 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.
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."
-11-
<PAGE> 12
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 OR AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THAT ACT."
ARTICLE 8. REGISTRATION RIGHTS.
Section 8.01 Piggyback Registration. If, at any time during the
Exercise Period, 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 or pursuant to a form S-8 or a registered exchange offer) it will
give written notice by certified mail, return receipt requested at least thirty
(30) 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 twenty (20) 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. 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
-12-
<PAGE> 13
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 of the Underwriters' counsel and other than the
underwriting discounts and commissions).
Section 8.02 Demand Registration.
(a) At any time during the Exercise Period, 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,
any Holder of Warrants and/or Warrant Shares shall have the right, exercisable
by written request to the Company, to have the Company prepare and file, on one
occasion, 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 incident
thereto shall be at the expense of the Holder or Holders making such request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrants and/or
Warrant Shares within the time period specified in Section 8.03(a) hereof
pursuant to the written notice specified in Section 8.02(a) of a Majority of
the Holders of the Warrants and/or Warrant Shares, the Company agrees that upon
the written notice of election of a majority of the Holders of the Warrants
and/or Warrant Shares it shall repurchase (i) the shares of Common Stock
constituting the Warrant Shares for a price per share equal to 93% of the
greater of Current Market Price of such shares on (x) the date of
-13-
<PAGE> 14
the notice sent pursuant to Section 8.02(a) or (y) the expiration of the period
specified in Section 8.03(a), and (ii) the 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 in (x) above
and the then applicable Exercise Price of such Warrant. Such repurchase shall
be in immediately available funds and shall close within two (2) days after the
later of (i) the expiration of the period specified in Section 8.03(a) or (ii)
the delivery of the written notice of election specified in this Section
8.02(d). The Company shall not be obligated to repurchase any Warrants or
Warrant Shares pursuant to this section if such repurchase would violate the
terms of the Company's senior financing.
Section 8.03 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 8.01 or 8.02 hereof, the
Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, 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 not be required to accelerate the
completion of its annual audit in order to register the Warrants or Warrant
Shares, the Company shall have ninety (90) days within which to file a
registration statement).
(b) The Company shall pay all costs (excluding fees and expenses of
Holders' counsel and any underwriting discounts, commissions or expenses on the
sale of the Warrants and/or Warrant Shares), fees and expenses in connection
with all registration statements filed 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). 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), be liable for any damages
sustained by the Holders requesting registration of their Warrants and/or
Warrant Shares.
(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.
-14-
<PAGE> 15
(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).
(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 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 hereof, without the
prior written consent of the Holders of the Warrants and Warrant Shares
representing a Majority of such securities.
(g) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
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
-15-
<PAGE> 16
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 or the underwriters except as they may relate to such Holders and their
intended methods of distribution.
(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, creditor, 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.
-16-
<PAGE> 17
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. 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
Section 9.03. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company shall bind and inure to
the benefit of its respective successors and assigns hereunder.
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 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 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 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 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).
-17-
<PAGE> 18
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 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
-18-
<PAGE> 19
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.
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.
---------------
-------------------------
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 Warrant Agreement hereinafter described)
by surrendering this Warrant, with the subscription form on the reverse side
hereof duly executed, at the corporate
<PAGE> 20
trust office of the transfer agent for the Common Stock or 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 the
conditions set forth herein and in the 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 Agreement authorized by the Board of
Directors of the Company and dated as of ______, 1995 (the "Warrant Agreement")
and is subject to the terms and provisions contained in the Warrant Agreement,
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 pay
cash, 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 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.
ALL AMERICAN SEMICONDUCTOR, INC.
By:
----------------------------
President
[Seal]
Attest:
- --------------------
Secretary
<PAGE> 21
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 right to purchase the Common Stock evidenced by the within Warrant, and do
irrevocably constitute and appoint
______________________________________________________ to transfer the said
right on the books of the Company, with full power of substitution.
Dated, , 19
------------ --
SIGNATURE
----------------------
- -----------------------------------------------------------------------------
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.
<PAGE> 22
(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) subscribes for ___ 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
------------------------------
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.
<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. 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 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 for the Consultant's
services hereunder, the Company shall pay to the Consultant the sum of
seventy-two thousand ($72,000) dollars, payable at the rate of $3,000 per
month. All monthly payments shall be made in advance on the first day of each
month for which the Consultant is engaged, to be made in respect of services
for the immediately following month. In the event the Company defaults in the
payments required to be made hereunder and written notice of such default is
mailed to the Company by the Consultant, the unpaid balance of all monies due
hereunder shall become immediately due and payable.
5. EXPENSES. The Company shall pay and reimburse
the Consultant for all reasonable out-of-pocket expenses incurred by the
Consultant 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.
8. FINDER'S OR BROKER'S FEES. The Company acknowledges
and agrees that the Consultant may act as a finder or financial consultant in
various business transactions in
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<PAGE> 3
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 including pursuant to
the terms of the Merger and Acquisition Agreement of even date herewith between
the Company and 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 successors to all or substantially all of
the business of either party for any reason whatsoever 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 deemed sufficiently given when personally delivered or
five (5) days after when mailed by first class certified or registered mail,
postage prepaid, 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. 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.
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
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<PAGE> 4
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:
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED DECEMBER
31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 17,040
<ALLOWANCES> 425
<INVENTORY> 34,971
<CURRENT-ASSETS> 53,329
<PP&E> 4,614
<DEPRECIATION> 1,782
<TOTAL-ASSETS> 57,858
<CURRENT-LIABILITIES> 13,529
<BONDS> 27,379
<COMMON> 124
0
0
<OTHER-SE> 16,826
<TOTAL-LIABILITY-AND-EQUITY> 57,858
<SALES> 101,085
<TOTAL-REVENUES> 101,085
<CGS> 74,632
<TOTAL-COSTS> 74,632
<OTHER-EXPENSES> 23,310
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 1,772
<INCOME-PRETAX> 759
<INCOME-TAX> 407
<INCOME-CONTINUING> 352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
