SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required)
or
For the Fiscal Year Ended December 31, 1996
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
Commission File No. 0-27210
Tech Electro Industries, Inc.
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(Name of Small Business Issuer in its Charter)
Texas 75-2408297
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
4300 Wiley Post Rd., Dallas, Texas 75244-2131
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Address of principal executive office Zip Code
Issuer's telephone number: (972) 239-7151
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
Common Stock, $0.01 Par Value
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(Title of Class)
Class A Preferred Stock, $1.00 Par Value
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(Title of Class)
Unit, consisting of one (1) share of Common
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Stock and one (1) share of Class A Preferred Stock
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(Title of Class)
Redeemable Class A Warrants
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(Title of Class)
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Check whether the issuer has (i) filed all reports required by Section 13 or
15(d) of the Exchange ACT during the past 12 months, and (ii) been subject to
such filing requirements for the past ninety (90) days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. X
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The Company's revenue for Fiscal Year ended December 31, 1996 was $3,840,075
As of March 25, 1997, 2,422,275 shares of Common Stock were outstanding and the
aggregate market value of the Common Stock (based on the latest price of known
transactions on the Nasdaq Small Cap Issues Market) held by non-affiliates
(696,226 shares) was approximately $1,740,565.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes No X
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THIS DOCUMENT IS PREPARED AND FILED UNDER THE REQUIREMENTS OF
REGULATION S-B OF THE SECURITIES AND EXCHANGE COMMISSION, EFFECTIVE
JULY 31, 1992.
Part I
Item 1. Description of Business
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General
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Tech Electro Industries, Inc. ( "TEI" or the "Company" ) was incorporated
under the laws of the State of Texas on January 10, 1992, for the purpose of
acquiring 100% of the capital stock of Computer Components Corporation ( "CCC"
), its direct, wholly-owned subsidiary. The business carried on by CCC consists
of the business begun in 1963 under the name Dunbar Associates, Inc. ( "Dunbar"
), and the business carried on by CCC since its inception in 1968. Dunbar
initially operated as an "engineering representative" organization and in 1974
expanded into importing. Dunbar terminated over 90% of its "representative"
activities in 1984. CCC has, since its inception, operated as a distributor of
electronic components and, in 1980, expanded into the battery assembly business.
In 1991, Dunbar was merged into CCC and the operations were combined. Mr. Craig
D. La Taste is the founder of both Dunbar and CCC, both of which are
predecessors of the Company.
In June, 1996 the Company acquired 100% of the issued and outstanding
shares of capital stock of Vary Brite Technologies, Inc., ("VBT") a Texas
corporation engaged in design and engineering specialized products incorporating
recent advances in technologies related to light emitting diodes ("LED"), a
lighting device used in industrial and commercial products.
On October 29, 1996 the Company incorporated Universal Battery Corporation
("UBC"), a Texas corporation, for the purpose of expanding into new markets for
batteries and battery products. TEI initially owned 67% of the issued and
outstanding capital shares of UBC with the balance owned by Randy Hardin, a
director and officer of UBC. In February 1997, the Company's interest in UBC was
transferred to CCC in accordance with the internal reorganization of the Company
described below.
In February, 1997 TEI, in an internal reorganization, transferred to CCC
all of its shares of VBT and UBC, as a result of which all present operations of
the Company are carried on by CCC and through, VBT, as a wholly-owned
subsidiary, and UBC, as a majority-owned subsidiary.
References to the Company refer to the combined operations of TEI, VBT and
UBC except where otherwise indicated.
Business of the Company and its Subsidiaries
- --------------------------------------------
The Company's operations have historically consisted of three operations:
(i) Battery and battery assembly systems for use as "stand-by" power for
electronic and/or electrical systems that may encounter a loss of AC power from
a cognizant utility; (ii) The stocking and sale of passive and active electronic
components, AC magnetic components and batteries from Asia to original equipment
manufacturers ("OEMs") and distributors in the United States, Mexico and other
countries; (iii) The stocking and sales of products, such as AC transformers,
ceramic sound sources, batteries and battery chargers, as utilized by "Security"
market installers and distributors.
3
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The Company is engaged through its subsidiary, CCC in the business of
importing, distributing and selling electronic components used in the
manufacture and assembly of high-technology products such as computers, oil
field equipment, medical instrumentation and uninterruptable power supply (
"UPS" ) systems. The Company is an authorized distributor, on a non-exclusive
basis, for two product groupings of Panasonic, USA ( "Panasonic" ) and for
Varta, USA ("Varta"). Panasonic is a subsidiary of Matsushita Electric Corp. of
Japan. One group of Panasonic products distributed by the Company includes power
supplies, printers, buzzers and other miscellaneous products; the other
Panasonic group is the Panasonic Battery Sales Group. Varta is, in certain
commercial and industrial applications, a manufacturer of battery products. The
Company also distributes products under noncontractual, long-term relationships
(exceeding 10 years) with other vendors located in Taiwan, the Philippines and
Japan from whom it imports non-proprietary electronic components and batteries
marketed under its registered trademark, "NIKKO", its own name, "Tech Electro
Industries, Inc.", and, occasionally, under the name of the Asian vendor.
With its acquisition of VBT in June 1996, the Company offers lighting
products developed for and utilizing LEDs in a distinctively packaged module
which offers advantages over traditional incandescent bulbs, primarily
consisting of increased reliability, lower power consumption and customized
light output.
The UBC division intends to sell batteries and battery products under the
name of Universal Battery Corporation in addition to the foregoing names.
Operations
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Electronic Components
---------------------
The Company imports and sells to OEM's and distributors the following
electronic components for use in the manufacture, repair and modification of
electronic equipment:
RESISTORS. Carbon film, metal film and metal oxide resistors in both
leaded and chip (surface mount) configurations.
CAPACITORS. Polyester, polypropylene and polycarbonate metalized film,
film and foil (inductive and non-inductive), aluminum electrolytic and
ceramic capacitors (leaded and chip).
RELAYS. AC and DC relays, usually for operations at less than 20
amperes contact rating and 50 volts DC coil operation.
SEMICONDUCTORS. Transistors, diodes and rectifiers.
PRINTERS. Small thermal and electrostatic printers for use in
electronic assemblies requiring miniature printers.
TERMINAL and BARRIER STRIPS. Molded plastic strips of electrical
connections (usually screw terminals) and associated voltage
protection barriers used to interconnect electronic device and
associated printed circuit boards.
MISCELLANEOUS HARDWARE. Electronic connectors, cables, and plastic
parts used in electronic assemblies.
SOUND SOURCES. Piezo and inductive drive "sounders" for the production
of alarm signals in security systems.
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TRANSFORMERS. 120 volt AC household and business wall plug
transformers for reduction of power line voltage to low voltage (12 to
24 volts AC) applications as utilized by household and business
electrical devices.
Batteries
---------
The Company sells and distributes, under agreements with Panasonic and
Varta, a broad line of industrial (as opposed to consumer-retail) batteries. The
batteries sold and distributed by the Company include sealed lead-acid,
nickel-cadmium, lithium, carbon-zinc, nickel metal hydride and alkaline
batteries. The Company also imports a line of sealed lead-acid batteries for
sale under the brand name of "NIKKO" and "Tech Electro Industries, Inc.," which
batteries are manufactured in Taiwan under a technology agreement between the
manufacturer and a Japanese battery company. In addition to the sales of
individual batteries, the Company sells "battery packs" consisting of assembled
groups of batteries combined physically and electrically into a single unit. The
Company is a Panasonic certified MOD center ("Modification Center") and, in that
capacity, creates custom-designed battery packs meeting specifications of
individual customers. In addition to providing the services necessary to produce
battery packs, such as welding and assembly, the Company supplies materials such
as wiring, connectors, buss bars and casings. CCC utilizes brands of batteries
other than Panasonic and Varta (such as Saft(R) and Eveready(R)) as requested by
customers. Completed battery packs are assembled to order in nearly all
instances and the Company maintains little or no inventory of completed packs,
although components for assembly of packs are maintained. The Company also
offers customers battery packs assembled in China to the customers'
specifications. The Company maintains a broad inventory of various sizes of
batteries and components utilized in battery package, production to serve
customer needs for immediate pack design and assembly.
On October 29, 1996 the Company incorporated UBC to expand the Company's
operations into new markets for batteries and battery products. UBC is 67% owned
by CCC and 33% by Randy T. Hardin, Vice President of marketing for UBC. For the
past fourteen years Mr. Hardin has been engaged in marketing and sales in the
battery industry. CCC will continue to service its present battery customers and
UBC will develop new markets in the Cable Television ("CATV") industry,
motorcycle battery distributors, marine and electronics as well as other OEM
customers. UBC will also supply Panasonic products as well as battery packs
manufactured by CCC.
Kitting and Contract Manufacturing; Bonded Warehouse
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Kitting Operations
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The Company accepts orders to purchase, store, collate and ship electronic
components and materials needed to manufacture certain electronic motor speed
devices. This kitting program is intended to consolidate the shipping of
materials, furnished by many different vendors, to the manufacturing facility so
as to enable the manufacturer to have all required materials on hand at the same
time.
The materials and components listed in the customer's bill-of-materials, as
well as the approved suppliers thereof, are typically supplied to the Company by
the customer. Upon purchasing the required materials for the project,
collecting, assembling and delivering the same to the pre-selected common
carrier for the transit of the products to Mexico, the Company submits
appropriate invoicing to the customer for the cost of all products purchased
from various vendors, plus a markup on the cost of the goods. In those
situations where the Company was the vendor, as opposed to an "outside vendor,"
that mark-up may be reduced.
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While no sales under the kitting program were made in 1996, the Company
believes that kitting operations represent a unique opportunity for it to reach
new customers. The Company is in a program of continuing to seek orders for
kitting operations.
Contract Manufacturing
----------------------
For the past several years the Company has sold various types of electronic
components to United States-based customers with these goods being delivered,
"in bond," to the customer's facility in Mexico located on the Texas/Mexico
border for transit into Mexico, where local Mexican facilities acting as
sub-contractors to the United States-based customers insert these components
into parted circuit ("PC") boards to customer specifications. After such
assembly, these parts are assembled into the PC boards and shipped back to the
United States. The customers own or lease these Mexican facilities which are
utilized for the manufacturing of parts or subparts which are generally
subsequently shipped back to the United States for assembly into the customer's
final product. The Mexican manufacturing process normally consists of the
attachment and electrical testing of various electronic components to PC boards
in accordance with detailed engineering specifications.
The Company believes that the Company has the ability to use certain
underutilized resources to expand its business in this area, including:
available warehouse space; an in-house U.S. Customs' Class III warehouse
certification; direct computer "ABI" (Automatic Broker Interface) communications
with U.S. Customs' headquarters in Washington, D.C.; extensive knowledge of the
components market; site location on Addison Airport (an official U.S. "Port of
Entry", Port Code 5584); Customs' personnel and offices on Addison Airport and
aircraft availability contiguous to the Company's offices and hangars. The
combination of these resources allows the Company to facilitate delivery of raw
materials to Mexico and finished goods to Dallas. As a result of these
observations, the Company will seek to expand the sales of contract
manufacturing.
As of the date of this Annual Report on Form 10-KSB no order has been
received; however, the Company is actively seeking orders in this area.
Bonded Warehouse
----------------
A portion of the Company's warehousing space is licensed as a U.S. Customs,
Class III, Bonded Warehouse (approximately 23,000 cubic feet). This facility
enables the Company to process shipments of foreign made components into and out
of the United States duty-free. The Company can thus deliver foreign made
products to its American customers who manufacture in Mexico with no U.S.
customs duties applicable (a customer servicing) and with "overnight" shipments
from the Company's Dallas warehouse. The Company believes that this facility
affords the Company a significant competitive advantage in providing an
additional service to customers at limited additional cost.
Representatives of the governments of the United States, Canada and Mexico
recently entered into a free-trade treaty, the North American Free Trade
Agreement ( "NAFTA" ). NAFTA may result in eliminating import duties on goods
produced in any of the countries to the agreement and exported to any of the
other countries. The Company anticipates that NAFTA, when fully implemented and
operational, will have a beneficial effect on the Company's business, primarily
due to the growth of electronics manufacturing activities in Mexico along the
Southern border of the United States and adjacent to the Texas and New Mexico
borders.
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U.S. Customs
------------
The Company's computer is now "modem" coupled to the U.S. Customs'
computers in Virginia via Automatic Broker Interface ("ABI"). This software and
hardware system of the Company has been "certified" operational by U.S. Customs.
The Company now handles all import and export customs functions that, in the
past, required a local independent Customer Broker and the costs thereof.
U.S. Customs has recently created a "Port of Entry" designation for Addison
Airport, Addison, Texas (Port Code 5584). The Company's offices and buildings
are physically adjacent to Addison Airport. A U.S. Custom's Port Director is now
stationed on Addison Airport in close proximity to the Company's offices.
These two actions by U.S. Customs translate into a savings in transit time
of shipments of foreign goods to the United States by five days to a week.
Paperwork preparation for customer's outbound shipments has been shortened, from
as much as 5 days, to as little as one hour. The Company believes these changes
will enhance the Company's ability to compete for customers who are sensitive to
time delays in shipments.
Marketing
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CCC utilizes a direct sales force of four independent salesmen and three
employed customer service representatives. In addition to these Company
employees, the Company utilizes sales engineering representatives (four at
present). The Company has purchased only limited advertising in trade
publications.
VBT markets its products utilizing two (2) direct sales personnel, and both
employees of UBC act in a sales capacity for UBC.
Machinery and Equipment
-----------------------
The Company, through CCC, VBT and UBC, owns the majority of the equipment
utilized in its design, manufacturing and assembly operations with the remaining
equipment leased by CCC, VBT and UBC. This includes specialized equipment such
as small electric welders, a Sonic welder, Computer Aided Design ("CAD")
computer programs, computer driven battery analyzers, battery chargers,
heat-shrink ovens, strip-chart-recorders, timers, multimeters and hand tools
utilized in operations.
Additional manufacturing equipment, capable of automated epoxy dispensing
and automated "connector to wire" attachment, is also owned by the Company. The
Company's computer hardware (DEC Mainframe and multiple PC's and terminals
hardwired thereto) and software, required for its accounting, sales, inventory
and management controls is Company owned. Office furniture and equipment, as
necessary to operate the business, are also listed among Company assets.
The Company's machinery and equipment consists of readily available items
and can be replaced without significant cost or disruption to business
activities.
Customers
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CCC's customer base is relatively broad. CCC sold goods to more than two
hundred thirty (230) different customers during the year ended December 31,
1996. CCC maintains a computer data base of over one thousand active and
potentially active customers, all of whom are believed to be potential customers
for CCC's products. The Company does not believe that the loss of any single
customer or group of related would have a materially adverse effect on its
operations.
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Since the date of its acquisition by the Company in June, 1996 through
December 31, 1996, VBT has had sales in the amount of approximately $38,000.00.
UBC, which was incorporated on October 29, 1996, had sales of approximately
$18,000 during the year ended December 31, 1996.
During the year ended December 31, 1996, two of the Company's customers
each accounted for approximately 10.5% and 10.8%, respectively, of the Company's
total sales. The Company does not expect a reduction in sales to these
customers; however, no assurance can be given that sales will remain at the same
level.
Employees
---------
The Company currently employs twenty-seven employees, twenty-one of whom
are employed by CCC, including three of the Company's officers, six clerical and
inside sales personnel, six persons in the assembly area, two persons in
warehousing and four outside sales personnel. VBT has four employees and UBC
presently has two employees.
Technology
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CCC's electronic products are all relatively low technology. The Company
believes these products are not subject to sudden obsolescence since they
represent basic elements common to a wide variety of existing electronic circuit
designs. At the same time, there can be no assurance that advances and changes
in technology, manufacturing processes and other factors will not affect the
market for the Company's products.
The products of VBT are highly technical and involve both specialty design
engineering and techniques developed by VBT to construct LED modules which
maximize and customize the light output of LEDs at a reasonable price to the
customer.
Competition
-----------
The Company competes in sales of its batteries and battery packs with many
companies located in the United States, Mexico and Asia. In sales of its
electronic components, the Company faces competition from many large electronic
distributors as well as from factory direct sale outlets throughout the United
States as well as other importers and exporters in Asia. Many competitors of the
Company are substantially larger and have greater resources than the Company.
The Company does not consider itself a significant factor in the electronic
component and battery business.
Environmental Matters
---------------------
The Company believes it is in compliance with all relevant federal, state,
and local environmental regulations and does not expect to incur any significant
costs to maintain compliance with such regulations in the foreseeable future.
Patents and Trademarks
----------------------
Although the Company is the owner in Texas of the trademark "NIKKO" for
batteries and electronic components, that trademark is not regarded as essential
or necessary for the marketing of the Company's products. The Company does
depend, in part, on the patents and trademarks of its vendors and suppliers,
over which it has little control. It is possible that the loss of these marks,
or the deregulation of their value, could have an adverse effect on the
Company's business.
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Sources and Availability of Materials
-------------------------------------
With the exception of battery products and certain electronic components
described below, the Company purchases its raw materials, such as wire, metals
and packaging materials, from a number of local sources and is not dependent on
any single source for raw materials. Except as noted below, the Company believes
that the loss of any single supplier would not adversely affect the Company's
business. All raw materials utilized by the Company are readily available from
many sources.
The Company enjoys a close and beneficial non-exclusive relationship with a
single supplier of a substantial portion of its battery products, the Panasonic
Battery Sales Group of Matsushita Electric Corp. of America ("Panasonic"). The
Company is a certified Panasonic Modification Center for the production of
battery packs. Although the Company has established relationships with other
battery manufacturers and sells their products, the loss of this relationship
with Panasonic could have a material adverse effect on the Company.
In addition to the Company's relationship with Panasonic, Nippon Electric
Corporation is the Company's largest supplier of electronic component parts. The
loss of this supplier could have a material adverse effect on the Company. The
Company believes this supplier also sells component parts to the Company's
competitors.
Research and Development
------------------------
During each of the last two Fiscal Years the Company did not expend in
excess of One Thousand Dollars ($1,000.00) on research and development of
products. During Fiscal Year 1996 VBT did not capitalize research, development
or engineering costs, and such costs were expensed during the period of their
occurrence.
Governmental Matters
--------------------
Except for usual and customary business and tax licenses and permits, and
the licenses and permits described elsewhere in this Form 10-KSB, no
governmental approval is required for the principal products/services of
Company, nor does Company know of any existing or probable governmental
regulations affecting Company's activities.
Item 2. Description of Property
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TEI, CCC and UBC occupy an industrial office building complex and parking
facility owned by La Taste Enterprises, a partnership of Craig D. La Taste, a
director and former President of the Company, and members of his family, and
leased to the Company. The lease will expire May 31, 1997. The Company utilizes
approximately 16,000 square feet of office and warehouse building and 15,000
square feet of open fenced and paved parking and storage areas. CCC has entered
into a lease to expand its use of these premises which becomes effective June 1,
1997 and terminates on December 31, 2001, for the same space at a base rental of
$5,600 per month.
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The building space includes approximately 4,000 square feet of office
space, 4,000 square feet of manufacturing and assembly space, used in the
Company's battery pack business, with the balance of the space dedicated to
warehousing, storage, shipping and receiving operations. The premises occupied
by the Company, including the facilities used by CCC and UBC are adequate to
serve its present and foreseeable future needs.
VBT occupies in Garland, Texas (a suburb of Dallas) approximately 1,125
square feet of manufacturing engineering and office space which it leases from
an unaffiliated lessor for $935.00 per month. The lease for these premises
expires June 1, 1997. While the space is suitable for engineering and design and
sample manufacturing, the Company and VBT believe that this space is inadequate
for manufacturing anticipated production orders. VBT upon receipt of such orders
will seek adequate facilities which are readily obtainable at reasonable rental
rates in the area. VBT believes adequate space is readily available to service
its needs.
Item 3. Legal Proceedings
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Part II
Item 5. Market for Company's Common Equity and Related Stockholders Matters
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The common stock of the Company commenced quotation on the OTC Bulletin
Board under the symbol "TEIL" in late December, 1992. Until the third quarter of
1995 no substantial public trading market had developed for the common stock of
the Company. Following the public offering of securities of the Company (See
below) in January, 1996, the common stock and other securities of the Company
commenced trading on the NASDAQ SMALL CAP ISSUES under the following listing
symbols:
NASDAQ Symbols
Units ........................TELU
Common Stock .................TELE
Class A Preferred Stock.......TELEP
Warrants .....................TELEW
In August, 1995 the stockholders of the Company approved a one (1) for six
(6) reverse split of the Company's Common Stock which became effective on
December 4, 1995. The par value of the Common Stock was changed to $0.01 per
share from a previous $0.001 per share. As a result of the reverse split, as of
December 5, 1995 the Company had issued and outstanding 1,088,275 shares of
common capital stock, par value $0.01 per share. In December 1995, two holders
aggregating ownership of 130,010 shares of Common Stock exchanged those shares
of Common Stock for 65,000 shares of Class B Preferred Stock, Par Value $1.00
per share.
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On January 26, 1996 the Company consummated a publicly underwritten
offering of 300,000 Units, each Unit consisting of one share of Common Stock,
Par Value $0.01 ("Common Stock") and one share of Class A Preferred Stock, Par
Value $1.00 per share ("Preferred Stock"). The offering also included the sale
of 345,000 Redeemable Class A Warrants ("Warrants") (including 45,000 sold to
underwriters with the offering, and an additional 30,000 units, 30,000 warranty
sold to the underwriters in the offering at a price of $410.72 per Unit and
$0.13 per Warrant, pursuant to the Company's agreement with the Underwriter).
Until July 26, 1996, shares of the Common Stock and Preferred Stock comprising a
Unit were not separately transferable, but could only be traded as a Unit. The
Common Stock and Class A Preferred Stock may now be separately traded. Effective
January 26, 1997, each share of Class A Preferred Stock is convertible into two
shares of Common Stock, subject to adjustment under certain conditions. The
Company may require conversion of the Preferred Stock if the average closing bid
price of the Common Stock equals or exceeds $5.25, subject to adjustment, for 30
consecutive trading days. Dividends on the Preferred Stock accrue at the annual
rate of 36 3/4 cents per share and are payable quarterly in arrears on the last
day of March, June, October and December of each year. At the option of the
Company, dividends are payable either in cash [or shares of Common Stock] on the
next trading day following the record date determining shareholders entitled to
receive such dividend shall be used to calculate the number of shares.
Fractional shares are rounded up to whole shares. The liquidation preference
applicable to each share of the Preferred Stock is equal to the sum of (i) $5.25
and (ii) the amount of accrued and unpaid dividends thereon.
Simultaneously with the sale of the Units and Warrants described above, the
Company registered for public distribution an aggregate of 1,600,000 Redeemable
Class A Warrants. Each Warrant entitles the holder to purchase, at an exercise
price of $3.50, subject to adjustment, one share of Common Stock. The Warrants
are exercisable at any time commencing July 27, 1996 through January 26, 2000.
Commencing July 27, 1996 the Warrants are subject to redemption by the Company
for $0.10 per Warrant, upon 30 days' written notice, if the average closing bid
price of the Common Stock exceeds $5.25 per share (subject to adjustment in each
case) for any 30 consecutive trading days prior to the notice of redemption.
In November 1996, the Company entered into a Letter of Intent with
Placement and Acceptance, Inc. ("PAI") a corporation of the British Virgin
Islands to sell privately to Asian investors 1,100,000 shares of common stock
and options to purchase an additional one million shares for an aggregate
purchase price of $1,870,000. On February 11, 1997 the Company consummated the
transaction and issued to six accredited foreign investors pursuant to
Regulation S an aggregate of 1,100,000 shares of common stock and options to
purchase for a period of thirteen (13) months an additional One Million
(1,000,000) shares of Common Stock at a price of $2.15 per share. The private
sale was conducted pursuant to Regulation S, as adopted by the Securities and
Exchange Commission.
The following table sets forth the high and low prices of the Company's
common stock on a quarterly basis for the calendar years 1994, 1995 and 1996.
Common Stock Price
Calendar Period High Low
1994:
First Quarter ................................. $3.75 $1.50
Second Quarter ................................ $3.75 $0.75
Third Quarter ................................. $7.68 $1.875
Fourth Quarter ................................ $7.50 $1.50
1995:
First Quarter ............................... $3.75 $2.25
Second Quarter ................................ $2.75 $0.75
Third Quarter ................................. $3.00 $1.08
Fourth Quarter ................................ $2.75 $1.50
1996:
First Quarter ................................. $4.00 $2.125
Second Quarter ................................ $1.875 $0.625
Third Quarter ................................. $1.50 $0.75
Fourth Quarter ................................ $2.25 $1.375
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No dividends were paid on the common stock during calendar years 1994 and
1995. Subsequent to January 31, 1996, the effective sale date of the Class A and
Class B Preferred Stock, unless all accrued and unpaid dividends on the Class A
and Class B Preferred Stock have been paid in cash or common stock for a
dividend period, no dividends may be declared or paid or set aside for payment
or other distribution made upon the Common Stock. On February, 16, 1996 the
Board of Directors of the Company declared a dividend of $0.03 per share on the
Class A Preferred Stock payable to shareholders of record as of February 28,
1996.
During Fiscal Year 1996, shareholders of record of the Class A and Class B
Preferred Stock on June 30, September 30 and December 31 of said year were paid
a dividend of nine (9) cents per share on the payment date for such dividend
period. Preferred Stock holders of both Class A and Class B of record date
February 28, 1997 will receive a dividend of Nine (9) cents per share payable
March 31, 1997.
The common stock of the Company was reported on the NASDAQ Small Cap Issues
on March 25, 1997, by brokers making a market, at bid $2.375, asked $2.625.
As of December 31, 1996 there were approximately 1,150 beneficial holders
of the common stock of the Company.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and is qualified in its
entirety by the foregoing and by the other more detailed financial information
included elsewhere in this Report.
Results of Operations
- ---------------------
Fiscal Year 1996 compared to Fiscal Year 1995. The Company's sales for the
year ended December 31, 1996 (Fiscal 1996) were $3,840,075, an increase of 8.37%
from sales of $3,543,357 in the year ended December 31, 1995 (Fiscal 1995). The
increase in sales was attributable primarily to increased sales of the Company's
import products of approximately 16.3%, from $2,007,436 in Fiscal 1995 compared
to $2,335,047 in Fiscal 1996, which was offset, in part, by a reduction in sales
from the Company's batteries and battery assembly line of approximately 3%, from
$1,454,934 in Fiscal 1995 compared to $1,410,842 in Fiscal 1996.
Management of the Company believes the decrease in battery and battery
assembly sales in Fiscal 1996 was due to a decline in usage by existing
customers, and by failure of the Company to attract new customers to replace
those sales. During Fiscal Year 1996, the Company took several steps to enhance
marketing and sales of battery assembly products; however, it is not yet clear
whether those steps will result in significant improvement of sales of batteries
and battery assemblies.
12
<PAGE>
The increase in sales in Fiscal 1996 was impacted by the Company's decision
in Fiscal 1995 to emphasize the sale of imported passive and active electronic
components and imported batteries. These products generally bear a higher profit
margin, which the Company believes will, over time, generate greater sales and
profits. The Company continues to believe that increasing sales of import
products will, ultimately, produce greater sales and profits.
The Company's gross profit margin in Fiscal 1996 decreased to 25.4% from
26.3% in Fiscal 1995. The decrease in gross profit margin was due largely to an
increase in the provision for obsolete and slow moving inventory described
below, offset, in part, by the increase in the gross profit margin of import
products, which increased from 26.3% in Fiscal 1995 to 29% in Fiscal 1996, as
well as an increase in the gross margin of batteries and battery assemblies,
which increased from 25.4% in Fiscal 1995 to 27.7% in Fiscal 1996.
The Company monitors potential inventory adjustments on an ongoing basis
and increased its inventory allowance periodically throughout Fiscal 1996.
During Fiscal 1996, the Company increased its reserve for obsolete and
slow-moving inventory to $182,300, from $43,500 at December 31, 1995. A
substantial portion of this increase allowance was provided in the last three
months of Fiscal 1996. The Company is actively reviewing its inventory allowance
procedures and policies and will adjust allowances as appropriate.
In June, 1996 the Company acquired 100% of the issued and outstanding
shares of capital stock of VBT a Texas corporation engaged in design and
engineering specialized products incorporating recent advances in technologies
related to LED's, a lighting device used in industrial and commercial products.
During Fiscal 1996, VBT contributed only marginally to the sales of the Company.
On October 29, 1996 the Company formed a subsidiary corporation, UBC, for
the purpose of expanding into new markets for batteries and battery products.
UBC generated a loss of approximately $38,000 in Fiscal 1996.
General and administrative expenses for Fiscal 1996 increased to $1,308,176
from $838,111 in Fiscal 1995, due primarily to legal, accounting and related
costs associated with expansion of the Company's operations, including
acquisition of VBT and formation of UBC, additional salaries and overhead
requirements relating to VBT and UBC, as well as substantially increased
advertising and marketing expenditures.
The Company realized additional interest income in Fiscal 1996 compared to
Fiscal 1995 as a result of investments of funds received in the Company's public
offering. See, "Market for the Company's Common Equity and Related Stockholders
Matters."
Fiscal Year 1995 compared to Fiscal Year 1994. The Company's gross revenues
for Fiscal 1995 were $3,543,357, a decrease of 3.5% from gross revenues of
$3,667,894 in the year ended December 31, 1994 (Fiscal 1994). The decrease in
gross revenues was attributable to a decrease in sales of the Company's battery
assembly line sales of approximately 20.4%, from $899,836 in Fiscal 1995
compared to $1,131,444 in Fiscal 1994. This reduction was offset in part by an
increase of sales of import products by approximately 2%, as described below,
and the sale of $98,000 in kitting operations. See, "Business of the Company --
Kitting Operations."
Management of the Company believes the decrease in battery assembly sales
in Fiscal 1995 was also due to lack of an effective marketing program, a decline
in usage by existing customers, and by failure of the Company to attract new
customers. During Fiscal Year 1996, the Company took several steps to enhance
marketing and sales of battery assembly products. See "Management's Discussion
and Analysis - Fiscal Year 1996 compared to Fiscal Year 1995."
13
<PAGE>
The reduction in gross revenues was also impacted by the Company's decision
in Fiscal 1995 to de-emphasize its historical reliance on distribution contracts
with Panasonic, Varta and other United States based companies, and to emphasize
instead the sale of imported passive and active electronic components and
imported batteries, which the Company believes will, over time, generate greater
sales and profits. During Fiscal 1995, import sales totaled $2,011,156, compared
to $1,971,632 in Fiscal 1994. The emphasis on import sales resulted in a
decrease in distribution sales for Fiscal 1995 to $442,807 from $496,726 for
Fiscal 1994. The Company continues to believe that increasing sales of import
products will, ultimately, produce greater sales and profits.
The Company's gross profit margin in Fiscal 1995 increased to 26.2% from
23.3% in Fiscal 1994. The increase in gross profit margin was, in large part,
due to the increase in the gross profit margin of import products, which
increased from 23.6% in Fiscal 1994 to 26.3% in Fiscal 1995.
The Company monitors potential inventory adjustments on an ongoing basis
and increased its inventory allowance periodically throughout Fiscal 1995.
Adjustments to lower of cost or market are booked when realized, and allowances
for obsolete and slow moving inventory, are adjusted as needed, in the opinion
of Management. Fiscal 1995 operations include adjustments in both write-offs and
establishment of reserves in compliance with these Company procedures.
General and administrative expenses for Fiscal 1995 increased to $838,111
from $762,359 in Fiscal 1994, due primarily to increased commissions and wages,
advertising expenditures and other increases in various miscellaneous items.
Liquidity and Capital Resources
- -------------------------------
The Company maintains a large inventory of products for off-the-shelf sales
to its customers. In addition, many of the Company's overseas vendors require
advance payments on inventory shipments. The combination of these factors has
historically caused the Company to seek working capital through bank and
shareholder loans. In order to reduce reliance on borrowings and in order to
generate additional funds for expansion of operations, marketing and
advertising, the Company consummated a publicly underwritten offering of
securities in January 1996 for which the Company raised $2,043,891 (including
funds from the sale of warrants), net of offering and other costs of $465,024.
In addition, in February 1997, the Company consummated a private sale of
securities to six accredited foreign investors, from which it raised $1,870,000
by the Company, prior to expenses. See, "Market for the Company's Common Equity
and Related Stockholders Matters."
Net cash used by operating activities was $658,029 in Fiscal 1996, compared
to net cash provided by operating activities of $97,630 for Fiscal 1995. The
decrease in cash provided by operations in Fiscal 1996 was mainly due to
purchases of inventory, payment of deferred compensation and increased general
and administrative expenses associated with the Company's expansion.
Prior to 1996, the Company has relied in part, upon financing by banks and
by its significant shareholder and his family to meet cash needs. During Fiscal
1996, the Company used funds of $32,220 to pay down loans from banks and
shareholders. In addition, as noted above, the Company raised $2,009,976 from
the sale of common and preferred stock, and the Company also raised $93,915 from
the sale of warrants. The Company also paid $109,500 in dividends. These
activities resulted in net cash provided by financing activities of $1,964,671.
During Fiscal 1995 the Company generated net cash of $185,996 in its financing
activities, resulting from net proceeds and payments on bank and shareholder
loans, and $100,000 in cash from the sale of warrants. The Company used
$1,185,102 of cash in investing activities in Fiscal 1996, compared to $263,950
in Fiscal 1995. A significant portion of cash used in Fiscal 1996, $1,012,704,
which was used to purchase marketable securities. principally treasury
securities, resulted from cash generated in its public offering.
14
<PAGE>
At December 31, 1995, the Company had net working capital of $959,332 which
had increased by year end December 31, 1996 to $2,487,945. This increase was
primarily a result of the issuance on January 26, 1997, of Units and warrants
for aggregate proceeds of $2,103,891.
The Company has a balance due of $200,000 as of December 31, 1996 payable
to Nations Bank Texas, N.A. which is due March 31, 1997. This note is secured by
a $214,336 certificate of deposit as well as a personal guarantee of the
President of the Company. The Company anticipates that this note will be paid
off at maturity. In addition, the Company owed at December 31, 1996 $147,772
under a $750,000 line of credit at Texas Central Bank, secured by accounts
receivable, inventory and automotive equipment. This loan matures on June 30,
1997, at which time any outstanding amount is likely to be repaid.
At December 31, 1996, the Company owed an aggregate of $245,000 to the
President of the Company, his wife and a family Partnership. These unsecured
notes are currently being paid as to interest only. These notes are due on March
31, 1997 and are expected to be repaid on that date.
Forward-Looking Statements
- --------------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors could cause the Company's actual results to differ
materially from those projected in forward-looking statements made by, or on
behalf of, the Company:
-- Factors related to increased competition from existing and new
competitors, including price reductions and increased spending on
marketing and product development; and limitations on the Company's
opportunities to enter into and/or renew agreements with vendors and
customers.
-- The Company's inability to manage its growth and to adapt its
administrative, operational and financial control systems to the needs
of the expanded entity; and the failure of management to anticipate,
respond to and manage changing business conditions.
-- The failure of the Company or its partners to successfully utilize
international markets; and risks inherent in doing business on an
international level, such as laws governing content that differ
greatly from those in the U.S., unexpected changes in regulatory
requirements, political risks, export restrictions, export controls
relating to technology, tariffs and other trade barriers, fluctuations
in currency exchange rates, issues regarding intellectual property and
potentially adverse tax consequences.
-- The amount and rate of growth in the Company's marketing and general
and administrative expenses; the implementation of additional pricing
programs; and the impact of unusual items resulting from the Company's
ongoing evaluation of its business strategies, asset valuations and
organizational structures.
-- Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to
ship new products and technologies when anticipated.
-- The acquisition of businesses, fixed assets and other assets and
acquisition related risks, including successful integration and
management of acquired technology, operations and personnel, the loss
of key employees of the acquired companies, and diversion of
management attention from other ongoing business concerns; the making
or incurring of any expenditures and expenses; and any revaluation of
assets or related expenses.
15
<PAGE>
-- The ability of the Company to diversify its sources of revenue through
the introduction of new products and services and through the
development of new revenue sources.
-- The effects of, and changes in, trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and
similar organizations, and social and economic conditions, such as
trade restrictions or prohibitions, inflation and monetary
fluctuations, import and other charges, or federal, state, local and
other taxes.
-- The Company's continued ability to attract and retain skilled and
qualified personnel.
-- Adoption of new, or changes in, accounting policies, practices and
estimates and the application of such policies, practices and
estimates.
-- The effects of any activities of parties with which the Company has an
agreement or understanding, including any issues affecting any
investment or joint venture in which the Company has an investment;
the amount, type and cost of the financing which the Company has, and
any changes to that financing.
Item 7. Financial Statements
- -----------------------------
Information required by this item appears in the Consolidated Financial
Statements and Report of Independent Certified Public Accountants of Tech
Electro Industries, Inc. and Subsidiary contained herein.
Item 8. Change in and Disagreement with Accountants on Accounting and Financial
- --------------------------------------------------------------------------------
Disclosure
- ----------
None.
16
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons
- ---------------------------------------------------------------------
(a) During the Fiscal Year ended December 31, 1996 the following persons
served as directors of Company:
Name and Age Position with Company Director Since
Craig D. La Taste (70) Chairman of the Board, 1992
President, Chief Executive
Officer and Director (1)
David L. Arnold (61) Vice President, Secretary (2) 1992
and Director
Jay R. Reese (70) Director(3) 1992
Jack S. Kilby (72) Director(4) 1992
E. C. Karnavas (74) Director(5) 1992
(1) Mr. La Taste resigned as Chairman of the Board, President and Chief
Executive Officer of the Company on February 11, 1997, but continues to serve as
President and director of CCC, UBC and VBT.
(2) Mr. Arnold resigned as Vice-President and Secretary of the Company on
February 11, 1997. Mr. Arnold is Vice-President and a director of CCC, President
and director of VBT and Secretary and director of UBC.
(3) Mr. Reese resigned as a director of the Company on February 11, 1997. He is
a director of CCC.
(4) Mr. Kilby resigned as a director of the Company on June 7, 1996.
(5) Mr. E. C. Karnavas resigned as a director on February 11, 1997.
On February 11, 1997 Messrs. William Kim Wah Tan, Kim Yeow Tan and Sadasuke
Gomi were elected directors of the Company replacing Messrs. Reese, Karnavas and
Kilby. Mr. William Kim Wah Tan was elected director, Chairman of the Board,
President and Chief Executive Officer, Mr. Kim Yeow Tan was elected director and
Vice President, and Mr. Gomi was elected director, Vice President and Secretary.
All directors of Company are elected at the annual shareholder meeting and
serve as such directors until the next annual meeting of shareholders. directors
may be re-elected at such succeeding annual meeting so as to succeed themselves.
All employees of Company who are also directors do not receive compensation for
serving as such directors. Outside (non-employee) directors receive Two Hundred
Dollars ($200.00) compensation for attendance at director meetings.
17
<PAGE>
(b) Executive Officers of Company:
Craig D. La Taste, (70), served as Chairman of the Board, President and
Chief Executive Officer of the Company throughout Fiscal 1996. He resigned as
Chairman of the Board, President and Chief Executive Officer of the Company on
February 11, 1997. He was replaced in these offices by Mr. William Kim Wah Tan.
Mr. La Taste is President and a director of CCC, VBT and UBC and a director of
TEI.
David L. Arnold (61) served as Secretary and Vice President of the Company
throughout Fiscal 1996. He resigned said positions on February 11, 1997. Mr.
Arnold remains a director of TEI, director, Vice President and Secretary of CCC,
President and director of VBT and Secretary and director of UBC.
William Kim Wah Tan was elected Chairman of the Board, President, Chief
Executive Officer and director of the Company on February 11, 1997.
Kim Yeow Tan was elected director and Vice-President of the Company on
February 11, 1997.
Sadasuke Gomi was elected director, Vice-President, and Secretary of the
Company on February 11, 1997.
Messrs. La Taste, William Kim Wah Tan, Arnold, Kim Yeow Tan and Gomi are
expected to be slated for re-election to the Board of directors of the Company
at the Annual Meeting of Shareholders expected to be held in June, 1997.
(c) Significant and Key Employees:
Julie A. Sansom-Reese, (34) Chief Financial Officer of TEI.
Randy Hardin (37) Vice-President of UBC.
Jim Thompson (59) Vice-President of VBT.
Bernard Silverman (43) Vice-President of VBT.
(d) Business Experience:
WILLIAM KIM WAH TAN, age 54, for the past twenty years, has been active as
an entrepreneur in the fields of finance, general insurance, property
development and management. Mr. William Kim Wah Tan has held senior management
positions in a number of financing, insurance, textile, property development and
related businesses. Mr. William Kim Wah Tan is the brother of Mr. Kim Yeow Tan.
KIM YEOW TAN, age 51, is a graduate of the Malayan Teachers Training
College and holds a Bachelor of Science Degree in Business Administration from
Century University, United States. Mr. Kim Yeow Tan has, for the past fifteen
years, been active as an entrepreneur in the fields of finance, general
insurance, property development and management. Mr. Kim Yeow Tan has held senior
management positions in finance companies, insurance companies, textile and
property development and related businesses. Mr. Kim Yeow Tan is the brother of
Mr. William Kim Wah Tan.
18
<PAGE>
CRAIG D. LA TASTE, Chairman of the Board, President and Chief Executive
Officer(in each case through Fiscal 1996) and director. Mr. La Taste was born in
Dallas, Texas, and received a public school education in Dallas. Mr. La Taste
earned a BSEE degree from Southern Methodist University, Dallas, Texas. From
1963 to July, 1991, Mr. La Taste was President of Dunbar Associates, Inc., a
Dallas, Texas-based electronic components sales firm, which merged into CCC.
From 1985 to the present, Mr. La Taste has served as President and director of
CCC. Mr. La Taste is also President and a director of VBT and UBC.
DAVID L. ARNOLD, Vice President, Secretary (throughout Fiscal 1996) and
director. Mr. Arnold was born in Portsmouth, Ohio, and received a public school
education there. Mr. Arnold earned a B.A. degree from Ohio Wesleyan University,
Delaware, Ohio, and a BSEE degree from Case Institute of Technology, Cleveland,
Ohio. Since January 1987, Mr. Arnold has served as Vice President of Dunbar
Associates, Inc., now merged into Computer Components Corporation, and serves
now as Vice President of Computer Components Corporation. As Vice President, Mr.
Arnold serves as manager of the battery pack operations.
JULIE A. SANSOM-REESE, Treasurer (throughout Fiscal 1996). Ms. Sansom-Reese
was born in Midland, Texas, and received a public school education in Odessa,
Texas. Ms. Sansom-Reese attended Odessa Junior College, Odessa, Texas, and the
University of Texas of the Permian Basin, Odessa, Texas. Ms. Sansom-Reese earned
a B.A. degree in Business from Texas Tech University, Lubbock, Texas. Since
August, 1986, Ms. Sansom-Reese has served as Comptroller and Treasurer of
Computer Components Corporation, the Company's subsidiary.
SADASUKE GOMI, age 25, is a graduate of Mejii University in Japan, where he
received a bachelor's degree in commerce. Mr. Gomi, in addition to serving as
Corporate Secretary, also serves as a Vice President and director of the
Company.
No family relationship exist among any of the executive officers or
directors of Company or persons nominated or chosen to become directors or
executive officers, except that Messrs Kim Yeow Tan and William Kim Wah Tan are
brothers.
Item 10. Executive Compensation
- --------------------------------
The following table sets forth the aggregate cash compensation paid by the
Company during its year ended December 31, 1996, to each of the Company's
executive officers whose total cash compensation from the Company exceeded
$60,000, and to all executive officers as a group.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
----------------------------------------------------
Awards Payouts
----------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Name and Fiscal Year Salary ($) Bonus ($) Other Annual Restricted Securities LTIP All other
Principal Ended Compensation stock Underlying Payouts compen-sation
Position December 31 (1)($) award(s) ($) Options/SARs ($) ($)
(#)
- ----------------------------------------------------------------------------------------------------------------------------
Craig D. 1996 $60,000.00 $4,649 35,000 $99,651
La Taste,
Chairman
of the
Board,
President
and CEO*
-------------- ------------- ------------ ---------------- ------------- --------------- ---------- -----------
1995 $41,999.89 $1,774
-------------- ------------- ------------ ---------------- ------------- --------------- ---------- -----------
1994 $42,000 $2,375
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Mr. La Taste resigned as Chairman of the Board, President and Chief Executive
Officer of TEI on February 11, 1997.
(1) Represents non-cash compensation in the form of use of a car and related
expenses and life insurance.
On February 11, 1997, CCC and Craig D. La Taste have entered into an
employment agreement replacing an agreement previously entered into by the
Company and Mr. La Taste on February 1, 1996. The Agreement has a term
commencing on January 1, 1997 and terminating on December 31, 2002, and provides
for, among other things, minimum compensation of $75,000 during the year ending
December 31, 1997, and rising to $120,000 per year during the years ending
December 31, 2000 and 2001. The Agreement also provides that if Mr. La Taste's
employment is terminated by CCC without cause, Mr. La Taste will be entitled to
receive the amount remaining unpaid for the full term of the Agreement, plus an
amount equal to twice that sum.
Deferred Compensation
In 1981, Dunbar Associates, Inc. established a non-qualified deferred
compensation plan for the benefit of its corporate officers. Computer Components
Corporation assumed such liability upon the merger with Dunbar Associates, Inc.
The accrued benefits under such plan were payable to Craig D. La Taste, the
Company's Chairman of the Board, President and Chief Executive Officer through
Fiscal 1996. The amount accrued under such plan at December 31, 1995 was
$99,651. Such amount was paid to Mr. La Taste on December 10, 1996. There were
no contributions to the plan during the year ended December 31, 1996.
Incentive Stock Option Plans
- ----------------------------
1995 Incentive Stock Option Plan. On August 16, 1995, shareholders of the
---------------------------------
Company adopted the 1995 Incentive Stock Option Plan (the "Plan") covering
125,000 shares of Common Stock of the Company. Under the Plan, the Board of
Directors may grant to officers and key employees of the Company "incentive
stock options" (intended to qualify as such under the provisions of Section 422
of the Internal Revenue Code of 1986, as amended) to purchase the number of
shares of Common Stock covered by such options through December 31, 1996. During
Fiscal 1996 119,000 options were granted under the Plan.
20
<PAGE>
1997 Incentive Stock Option Plan. On July 12, 1996 the Company's Board of
Directors approved and adopted the 1997 Incentive Stock Option Plan for an
aggregate of 250,000 shares of common stock. It is intended to be submitted to
the shareholders for approval at the annual meeting to be held in June 1997. No
options have been granted under the 1997 Plan. The 1997 Plan is substantially
identical to the 1995 Plan except as to the number of options (250,000) and the
expiration date of granting of options under the 1997 Plan is December 31, 1999.
During Fiscal 1996, the Company granted options under the 1995 to the
following executive officers of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Name Number of Percent of total Exercise or base Expiration Date
securities options/SARs price ($/share)
underlying granted to
options/SARs employees in fiscal
granted (#) year
- ----------------------------------------------------------------------------------------------------------------
Craig D. La Taste, Chairman of 35,000 28% $1.00 per share December 31, 2006
the Board, President and Chief
Executive Officer*
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
*Mr La Taste resigned as Chairman of the Board, President and Chief Executive
Officer of TEI on February 11, 1997.
The Board of Directors will administer the Plans and have the power to
determine eligibility to receive options, the terms of any options including the
exercise price, the number of shares subject to the options, the vesting
schedule and the term of any such options. The exercise price of all options
granted under the Plan must be at least equal to the fair market value of the
shares of Common Stock on the date of grant. For those holders of Common Stock
possessing more than 10% of the voting power of the Company's outstanding Common
Stock, the exercise price of any option granted must equal at least 110% of the
fair market value on the grant date and the maximum term of the option must not
exceed five years. The terms of all other options granted under the Plan may not
exceed 10 years.
The Company has not adopted any other deferred compensation or retirement
program for its employees. It may in the future adopt a pension plan, profit
sharing plan, employee stock ownership plan, stock bonus or some other deferred
compensation and/or retirement program.
21
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) The following table sets forth the number of shares of Common Stock Par
Value $0.01 of Company known to Company to be the beneficial owner of more than
five (5%) percent of such Common Stock at March 25, 1997:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership Of Class(3)
Craig D. La Taste 480,396 - Direct(1) 19.9%
4300 Wiley Post Rd.
Dallas, TX 75244
David L. Arnold 116,898 - Direct(2) 4.8%
4300 Wiley Post Rd.
Dallas, TX 75244
Synergy System Limited 385,000 - Direct(3) 14.84%
3A Lauderdale Road
Maida Vale
London W9 1LT
United Kingdom
Equador Holdings, Inc. 385,000 - Direct(3) 14.84%
Block 126 #19-372
Bukit Merah View
Singapore 151126
Fleet Security Investment Ltd. 385,000 - Direct(3) 14.84%
P.O. Box 901
Road Town
British Virgin Islands
Asian Broker Limited 385,000 - Direct(3) 14.84%
Flat 1, 51 Queens Gate Terrace
London, SW7 5PL
United Kingdom
Eurasia Securities, Ltd. 385,000 - Direct(3) 14.84%
No. 11 Jalan Medang
Bukit Bandaraya
59100 Kuala Lumpur
Malaysia
Placement & Acceptance, Inc. 190,000 - Direct(4) 7.56%
No. 18 Jalan Sri Semantan 1
Damansara Heights
50490 Kuala Lumpur
Malaysia
22
<PAGE>
(1) Mr. La Taste, formerly Chairman of the Board, President and Chief Executive
Officer of TEI and currently a director of TEI and President and a director of
CCC, VBT and UBC has direct ownership of 463,729 shares of common stock, and as
of March 1, 1995, as a partner of La Taste Enterprises (with his two children),
he is owner of 16,667 shares of common stock which shares have been included in
the shares shown above. Mr. La Taste's wife, Jacqueline Green La Taste, is the
owner of 24,212 shares of common stock which she received in 1994 as an
inheritance. Mr. La Taste disclaims any beneficial interest in these shares.
(2) Mr. Arnold, a director of the Company, on March 1, 1995, sold 16,667 shares
of common stock of the Company to La Taste Enterprises. In describing the
transaction between Mr. Arnold and La Taste Enterprises effect is given to the
one for six reverse split of the common stock of the Company which took place in
December, 1995.
(3) Includes, in each case, options to acquire 180,000 shares of common stock
which are exercisable within 60 days of March 15, 1997.
(4) Includes options to acquire 100,000 shares of common stock which are
exercisable within 60 days of March 15, 1997 and 5,000 Units.
(b) The following table sets forth the number of shares of Common Stock of
the Company owned by each director and by all directors and officers as a group
as of March 7, 1997:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Craig D. La Taste 480,396 - Direct(1) 19.9%
4300 Wiley Post Rd.
Dallas, TX 75244
Director
David L. Arnold 116,898 - Direct(2) 4.8%
4300 Wiley Post Rd.
Dallas, TX 75244
Director
23
<PAGE>
William Kim Wah Tan 190,000-Indirect(4) 7.65%
4300 Wiley Post Rd.
Dallas, TX 75244
Chairman of the Board,
President, Chief Executive
Officer, Director
Kim Yeow Tan 385,000 - Indirect(3) 14.84%
4300 Wiley Post Rd.
Dallas, TX 75244
Vice President, Director
Sadasuke Gomi 385,000 - Indirect(5) 14.84%
4300 Wiley Post Rd.
Dallas, TX 75244
Vice President, Secretary,
Director
Julie Sansom-Reese
4300 Wiley Post Rd.
Dallas, TX 75244
Chief Financial Officer 1,125(6) *
All Officers and Directors
as a Group (6 Persons) 1,558,419 64.51%
*Represents less than one percent (1%) of the Company's outstanding shares.
(1) Mr. La Taste, a director of the Company, has direct ownership of 463,729
shares of common stock. As a partner of La Taste Enterprises with his two
children, he is beneficial owner of 16,667 shares of common stock which shares
have been included in the percent of shares shown herein. Mr. La Taste's wife,
Jacqueline Green La Taste, is the owner of 24,212 shares of common stock which
she received in 1994 as an inheritance. Mr. La Taste disclaims any beneficial
interest in these shares.
(2) Mr. Arnold, a director of the Company sold 16,667 shares of common stock of
the Company to La Taste Enterprises on March 1, 1995.
(3) All shares reported hereunder are held by Eurasia Securities, Inc., of which
Mr. Kim Yeow Tan is a director.
(4) All shares reported hereunder are held by Placement and Acceptance, Inc., of
which Mr. William Kim Wah Tan is a director.
(5) All shares reported hereunder are held by Fleet Security Investments, Inc.,
of which Mr. Gomi is a director.
(6) Consists of options to acquire 1,125 shares of common stock which are
exercisable within 60 days of March 15, 1997.
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
Craig D. La Taste, while Chairman of the Board, President and Chief
Executive Officer and a director of TEI, guaranteed personally a $200,000
promissory note of TEI to Nations Bank on March 31, 1997. The note is secured by
a certificate of deposit held by the Company in a principal amount exceeding the
amount of the debt. See, "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity."
CCC is also the maker of two unsecured notes given to evidence cash loans
in like amounts in favor of Jacqueline La Taste, wife of Craig D. La Taste, in
the aggregate principal amount of $245,000. The first note is the principal
amount of $145,000, with interest accruing and payable monthly at 10.25% per
annum. The second note is in the principal amount of $100,000, with interest
accruing and payable monthly at the rate of 9.5% per annum. Interest payments
are current on both notes. In December 1995, Mrs. La Taste agreed to extend the
maturity dates of these notes to March 31, 1997. See, "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity."
The Company leases its office and warehouse premises from La Taste
Enterprises, a partnership comprised of Mr. La Taste and members of his family.
The current lease is for a three year term ending May 31, 1997 and provides for
monthly rental payments of $4,800. During the years ended December 31, 1995 and
1996, the Company paid to La Taste Enterprises rent in the amounts of $57,600.
CCC has entered into a new lease, commending June 1, 1997 and terminating on
December 31, 2001 for the same space at an annual base rent of $67,200.
24
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
- ------------------------------------------
a. The following exhibits pursuant to Rule 601 of Regulation SB are
incorporated by reference to Company's Registration Statement on Form SB-2,
Commission File No. 33-98662, filed on October 30, 1995, and amended on January
5, 1996 and January 23, 1996.
3.1 Articles of Incorporation, as amended (incorporated by reference
to the Company's Registration Statement on Form SB-2, Commission File No.
33-98662, filed on October 30, 1995 and amended on January 5, 1996 and
January 23, 1996).
3.2 Certificate of Designation (incorporated by reference to the
Company's Registration Statement on Form SB-2, Commission File No.
33-98662, filed on October 30, 1995 and amended on January 5, 1996 and
January 23, 1996).
3.2A Amended Certificate of Designation (incorporated by reference to
the Company's Registration Statement on Form SB-2, Commission File No.
33-98662, filed on October 30, 1995 and amended on January 5, 1996 and
January 23, 1996).
3.3 Bylaws (incorporated by reference to the Company's Registration
Statement on Form SB-2, Commission File No. 33-98662, filed on October 30,
1995 and amended on January 5, 1996 and January 23, 1996).
4.4 Warrant Agreement (incorporated by reference to the Company's
Registration Statement on Form SB-2, Commission File No. 33-98662, filed on
October 30, 1995 and amended on January 5, 1996 and January 23, 1996).
10.1 Sales Agent Agreement between the Company and Placement &
Acceptance, Inc., dated February 10, 1997
10.2 Subscription Agreement between the Company and Placement &
Acceptance, Inc., dated February 10, 1997
10.3 Subscription Agreement between the Company and Synergy System
Limited, dated February 10, 1997, with option to purchase shares of Company
common stock.
10.4 Subscription Agreement between the Company and Equator Holdings
Inc., dated February 10, 1997, with option to purchase shares of Company
common stock.
10.5 Subscription Agreement between the Company and Fleet Security
Investment Ltd, dated February 10, 1997, with option to purchase shares of
Company common stock.
10.6 Subscription Agreement between the Company and Asian Brokers
Limited, dated February 10, 1997, with option to purchase shares of Company
common stock.
25
<PAGE>
10.7 Subscription Agreement between the Company and Eurasia Securities
Ltd, dated February 10, 1997, with option to purchase shares of Company
common stock.
10.8 Employment Agreement between Computer Components Corporation and
Craig D. La Taste, entered into February 11, 1997. 21 Subsidiaries of
Issuer
27 Financial Data Schedule
No annual report or proxy material has been sent to security holders
of the Company. The Company intends to send an Annual Report to its
security holders subsequent to the date of the filing of this report on
this Form. The Company undertakes that it shall furnish copies of such
material to the Commission when it is sent to security holders.
26
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act the
Company has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: April 10, 1997
Tech Electro Industries, Inc.
By: /s/ William Kim Wah Tan
-----------------------------
WIlliam Kim Wah Tan, President
Pursuant to the requirements of the Securities Exchange Act, of 1934 this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signatures Capacity Date
- ---------- -------- ----
/s/ William Kim Wah Tan Chairman, President, April 10, 1997
- ----------------------- Chief Executive Officer and Director
William Kim Wah Tan
/s/ Kim Yeow Tan Vice-President and Director April 10, 1997
- ----------------
Kim Yeow Tan
/s/ Sadasuke Gomi Vice-President, Secretary, April 10, 1997
- ----------------- and Director
Sadasuke Gomi
/s/ Craig D. La Taste Director April 10, 1997
- ---------------------
Craig D. La Taste
/s/ David L. Arnold Director April 10, 1997
- -------------------
David L. Arnold
/s/ Julie Sansom-Reese Chief Financial Officer April 10, 1997
- ---------------------- (Principal Accounting Officer)
Julie Sansom-Reese
</TABLE>
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
Page
Report of Independent Certified Public Accountants F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Operations
for the years ended December 31, 1996 and 1995 F-6
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996 and 1995 F-8
Consolidated Statements of Cash Flows
for the years ended December 31, 1996 and 1995 F-9
Notes to Consolidated Financial Statements F-11
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Stockholders and Board of Directors
Tech Electro Industries, Inc. and Subsidiaries
We have audited the consolidated balance sheets of Tech Electro Industries, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tech Electro
Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ KING GRIFFIN & ADAMSON P.C.
-------------------------------
KING GRIFFIN & ADAMSON, P.C.
Dallas, Texas
February 27, 1997
F-3
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 261,973 $ 139,782
Marketable securities (including restricted certificate
of deposit of $214,336) 1,151,836 -
Accounts and note receivable
Trade, net of allowance for doubtful accounts
of $4,500 in 1996 and 1995 357,674 363,099
Note 15,000 -
Other 22,209 17,992
Inventory 1,493,132 1,152,178
Prepaid expenses and other 80,943 119,503
Deferred tax asset - 17,398
---------- -----------
Total current assets 3,382,767 1,809,952
---------- -----------
PROPERTY AND EQUIPMENT
Machinery and equipment 316,732 275,101
Furniture and fixtures 147,359 128,757
Vehicles 21,943 21,943
---------- -----------
486,034 425,801
Less accumulated depreciation (293,882) (288,890)
---------- -----------
Net property and equipment 192,152 136,911
---------- -----------
OTHER ASSETS
Notes receivable 113,538 36,486
Certificate of deposit, restricted - 203,843
Deferred tax asset - 22,070
Other 2,428 2,000
---------- -----------
Total other assets 115,966 264,399
---------- -----------
TOTAL ASSETS $ 3,690,885 $ 2,211,262
========== ===========
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------ -----------
CURRENT LIABILITIES
Notes payable to banks $ 347,772 $ 159,992
Notes payable to affiliates 245,000 -
Accounts payable - trade 267,125 271,487
Accrued liabilities 21,466 15,851
Dividends payable 13,459 -
---------- ----------
Total current liabilities 894,822 447,330
---------- ----------
LONG-TERM LIABILITIES
Notes payable to banks - 200,000
Notes payable to affiliates - 245,000
Deferred compensation payable - 99,651
---------- ----------
Total liabilities 894,822 991,981
---------- ----------
MINORITY INTEREST IN SUBSIDIARY 76,933 -
COMMITMENTS AND CONTINGENCIES (Notes D, E and J)
STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value; 1,000,000 shares authorized; 65,000
Class B issued and outstanding in 1996 and 1995, liquidation preference of
$341,250; 300,000 Class A issued and outstanding in 1996,
liquidation preference of $1,575,000. 365,000 65,000
Common stock - $0.01 par value; 10,000,000 shares
authorized, 1,308,275 and 958,275 shares issued
and outstanding during 1996 and 1995, respectively. 13,083 9,583
Additional paid-in capital 2,350,202 570,988
Retained earnings 66,049 573,710
Net unrealized loss, marketable securities (75,204) -
---------- ----------
Total stockholders' equity 2,719,130 1,219,281
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,690,885 $ 2,211,262
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------ ------------
SALES $ 3,840,075 $ 3,543,357
COST OF GOODS SOLD 2,863,318 2,615,763
--------- ----------
GROSS PROFIT 976,757 927,594
GENERAL AND ADMINISTRATIVE EXPENSES 1,308,176 838,111
--------- ----------
INCOME (LOSS) FROM OPERATIONS (331,419) 89,483
OTHER INCOME (EXPENSES)
Interest income 86,828 6,862
Interest expense (58,566) (55,886)
--------- ----------
28,262 (49,024)
MINORITY INTEREST SHARE OF LOSS OF SUBSIDIARY 6,062 -
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (297,095) 40,459
INCOME TAX EXPENSE 39,467 12,972
----------- ----------
NET INCOME (LOSS) $ (336,562) $ 27,487
=========== ==========
Net income (loss) attributable to common shareholders $ (459,521) $ 27,487
=========== ==========
Net income (loss) per share attributable to
common shareholders $ (0.36) $ 0.025
=========== ==========
Number of weighted-average shares
of common stock outstanding 1,281,974 1,105,552
=========== ==========
</TABLE>
F-6
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Preferred Stock Common Stock Additional
--------------- ------------
Number of Number of paid-in Retained Marketable
Shares Amount Shares Amount Capital Earnings Securities Total
------ ------ ------ ------ ------- -------- ---------- -----
Balances at
January 1, 1995 - $ - 958,032 $ 9,580 $148,650 $ 546,223 $ - $ 704,453
Issuance of shares in
connection with Vary
Brite Technologies, Inc.
business combination - - 50,000 500 59,818 (48,140) - 12,178
Issuance of shares for
cancellation of debt - - 130,000 1,300 386,041 - - 387,341
Issuance of Class B preferred
stock for redemption of
common stock 65,000 65,000 (130,010) (1,300) (63,700) - - -
Adjustment for
reverse split - - 253 3 (3) - - -
Issuance of 1,000,000
warrants - - - - 100,000 - - 100,000
Net income for the year - - - - - 27,487 - 27,487
---------- ------- ---------- -------- ----------- ---------- ----------- ----------
Balances at
December 31, 1995 65,000 65,000 1,008,275 10,083 630,806 525,570 - 1,231,459
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Preferred Stock Common Stock Additional
--------------- ------------
Number of Number of paid-in Retained Marketable
Shares Amount Shares Amount Capital Earnings Securities Total
------ ------ ------ ------ ------- -------- ---------- -----
Allocation of capital to
minority interest owner
resulting from dispro-
portionate contributions
of capital on formation
of UBC. - - - - (81,495) - - (81,495)
Issuance of 600,000
warrants - - - - 60,000 - - 60,000
Public offering
300,000 Units 300,000 300,000 300,000 3,000 1,706,976 - - 2,009,976
345,000 Warrants - - - - 33,915 - 33,915
Net loss for the year (336,562) - (336,562)
Net unrealized loss
on marketable
securities - - - - - - (75,204) (75,204)
Dividends paid - - - - - (122,959) - (122,959)
----------- ---------- --------- -------- ---------- -------- -------- ---------
365,000 $ 365,000 1,308,275 $ 13,083 $2,350,202 $ 66,049 $ (75,204 $2,719,130
=========== ========== ========= ======== ========== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (336,562) $ 27,487
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities
Depreciation 26,180 17,237
Provision for obsolete inventory 138,800 27,008
Deferred income taxes 39,467 7,233
Minority interest share of loss in subsidiary (6,062) -
(Increase) decrease in:
Accounts receivable - trade 20,817 36,500
Accounts receivable - other (3,261) 19,669
Federal income taxes refundable 28 (8,410)
Inventory (458,328) 117,196
Prepaid expenses and other 38,560 (55,096)
Other assets (428) -
Increase (decrease) in:
Accounts payable (19,565) (94,956)
Accrued liabilities 1,976 3,762
Deferred compensation (99,651) -
---------- ----------
Net cash provided (used) by operating activities (658,029) 97,630
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (69,853) (58,042)
Purchase of certificate of deposit (10,493) (203,843)
Advances on note receivable to shareholders (127,312) (2,065)
Payments received on note receivable to shareholder 35,260 -
Net purchase of marketable securities (1,012,704) -
---------- ----------
Net cash used by investing activities (1,185,102) (263,950)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on bank line of credit (12,220) (80,004)
Proceeds from other bank loans - 200,000
Payments on loans from affiliates - (34,000)
Proceeds from stockholder loans - 100,000
Payments on stockholder loans (20,000) (100,000)
Proceeds on sale of warrants 93,915 100,000
Net proceeds on sale of common and preferred shares 2,009,976 -
Sale of common shares in ABC to minority stockholders 1,500 -
ABC Dividends paid (109,500) -
---------- -----------
Net cash provided by financing activities 1,963,671 185,996
---------- -----------
</TABLE>
- Continued -
The accomanying notes are an integral part of these financial statements.
F-9
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Continued Years ended December 31, 1996
and 1995
1996 1995
---------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 120,540 $ 19,676
Cash and cash equivalents at beginning of year 141,433 120,106
------- -------
Cash and cash equivalents at end of year $ 261,973 $ 139,782
======= =======
SUPPLEMENTAL DISCLOSURES OF
INTEREST AND INCOME TAXES PAID
Interest paid on borrowings $ 58,084 $ 55,801
======== ========
Income taxes paid $ - $ 14,022
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued for debt cancellation $ - $ 387,341
======== ========
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Tech Electro Industries, Inc. ( TEI") was formed on January 10, 1992 as a Texas
corporation. On January 31, 1992, TEI acquired 100% of the outstanding common
stock of Computer Components Corporation ( CCC"). In February, 1996, the Company
filed a Form SB-2 Registration Statement and completed a public offering (see
Note H). The net proceeds from the public offering amounted to $2,043,891,
(including warrants). On June 1, 1996, pursuant to a Stock Exchange Agreement,
the Company acquired 100% of the outstanding common shares of Vary Brite
Technologies, Inc. ( VB") by issuing 50,000 shares of its common stock. The
business combination was accounted for using the pooling method. The historical
consolidated statements of operations prior to the date of the combination have
not be adjusted to include the operations of VB as these operations are
immaterial to the consolidated operations of the Company. Accordingly, the
accompanying consolidated statements of operations include the operations of VB
from June 1, 1996. The assets and liabilities acquired were also immaterial to
the consolidated balance sheets of the Company. On October 29, 1996, TEI
incorporated Universal Battery Corporation ( UBC") as a 67% owned subsidiary.
The Company stocks and sells electronic components, both active and passive. A
significant portion of the Company's business is involved in the stocking and
sale of batteries. Within the battery sales activity there is significant value
added to the batteries in the assembly of batteries into "packs". The Company's
sales are generated by in-house sales staff and sales representatives in areas
throughout the United States.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of TEI,
CCC, VB and UBC. All significant intercompany transactions and balances have
been eliminated in consolidation. The consolidated group is referred to as
"Company".
Cash and Cash Equivalents
- -------------------------
The Company considers all unrestricted cash on hand and in banks, certificates
of deposit and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents for purposes of the
Statements of Cash Flows.
Marketable Securities
- ---------------------
Marketable debt and equity securities are carried at market, based upon quoted
market prices. Unrealized gains and losses on trading securities are recognized
in income currently. Unrealized gains and losses on available-for-sale
securities are accumulated in the marketable securities adjustment component of
stockholder's equity, net of related deferred income taxes. Realized gains and
losses are based upon the specific identification of the securities sold.
Inventories
- -----------
Inventories consist primarily of electronic components and materials used in the
assembly of batteries into "packs". All items are stated at the lower of cost or
market using the average-cost method. Cost is determined by the average cost
method by specific part.
F-11
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Inventories at December 31, 1996 and 1995, consist of the following:
1996 1995
----------- -----------
Electronic components $ 1,618,690 $ 1,143,322
Pack materials 56,742 52,356
Reserve for obsolescence (182,300) (43,500)
$ 1,493,132 $ 1,152,178
========= =========
Property and Equipment
- ----------------------
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using an accelerated or straight line method over the
estimated useful lives of the assets ranging from five to ten years.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Income Taxes
- ------------
The Company utilizes the asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax payable
or refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Income (Loss) Per Share
- -----------------------
Income (loss) per share has been computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Net loss for the purpose of computing the loss per share for the
year ended December 31, 1996 is increased by preferred dividends paid and
declared by December 31, 1996 amounting to $122,959. Common stock equivalents
are excluded from the computation in both years because they are either
anti-dilutive or non dilutive.
Use of Estimates and Assumptions
- --------------------------------
Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
F-12
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
NOTE C - NOTES RECEIVABLE
Notes receivable consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
---------- ------------
Notes receivable from a minority shareholder;
interest at 6%, unpaid interest accrues
monthly and adds to principal, $30,000
payable at maturity in August 1999 and
$83,538 payable in February, 2000.
Secured by 1,250 shares of TEI common
stock and all future TEI dividends paid
on the common stock, if any, are to be
applied to principal and interest by the
Company on the debtor's behalf. $ 113,538 $ 36,486
Note receivable, jointly and severally from two
minority shareholders with interest at 6%, payable
at maturity on April 30, 1997. 15,000 -
-------- --------
128,538 36,486
Less current maturities 15,000 -
-------- --------
Long-term portion $ 113,538 $ 36,486
======== ========
</TABLE>
NOTE D - NOTES PAYABLE TO BANKS
Notes payable to banks at December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
---------- ----------
$200,000 term note to Nations Bank Texas, NA, due
March 31, 1997, with interest due monthly at
7.5% per annum, secured by a $214,336
certificate of deposit (see Note F) and
personally guaranteed by a significant shareholder. $ 200,000 $ 200,000
$750,000 line of credit with Texas Central Bank
payable on demand with interest at prime plus 1/2%,
maturing June 30, 1997, and secured by accounts
receivable, inventory and automotive equipment. 147,772 -
</TABLE>
- Continued -
F-13
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
NOTE D - NOTES PAYABLE TO BANKS - Continued
1996 1995
Term note to Bank One, Texas with interest at base
rate plus 1%. The note was paid off on July 31, 1996. - 159,992
--------- ---------
347,772 359,992
Less current portion 347,772 159,992
--------- ---------
Long-term portion $ - $ 200,000
========= =========
NOTE E - RELATED PARTY TRANSACTIONS
Notes Payable
Notes payable to affiliates at December 31, 1996 and 1995, consist of the
following:
1996 1995
---------- -------
Unsecured note payable to Jacqueline LaTaste,
(spouse of a significant shareholder);
interest payable at 10.25% in monthly installments
of $1,238, with principal due on March 31, 1997. $ 145,000 $ 145,000
Unsecured note payable to Jacqueline LaTaste,
(spouse of a significant shareholder);
interest payable at 9.5% in monthly installments
of $792, with principal due on March 31, 1997. 100,000 100,000
---------- --------
245,000 245,000
Less current portion (245,000) -
Long-term portion $ - $ 245,000
========== ========
</TABLE>
Lease Agreements
- ----------------
The Company leases its office and warehouse space, approximately 16,000 square
feet, from a partnership consisting of members of the family of a significant
shareholder. Rent paid to the partnership for the building lease was $57,600 for
each of the years ended December 31, 1996 and 1995.
At December 31, 1996, future minimum rental commitments for facilities under the
non-cancelable operating lease agreement including the effect of a new lease
signed in March, 1997 were as follows:
1997 $ 63,200
1998 67,200
1999 67,200
2000 67,200
2001 67,200
--------
Total $ 332,000
========
The equity securities owned by the Company (see Note F) are shares of E> which
is a company related to TEI through common shareholders.
F-14
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - MARKETABLE SECURITIES
The Company has invested a portion of its cash in various equity securities and
in various certificates of deposit and treasury securities. These marketable
securities are considered available-for-sale securities.
For the year ended December 31, 1996 and 1995, total unrealized losses amounted
to $75,204 and $0, respectively.
Amortized cost and fair value of the available-for-sale securities at December
31, 1996 are as follows.
<TABLE>
<CAPTION>
<S> <C> <C>
Unrealized
Amortized Fair (Losses)
Cost Value Gains
---- ----- -----
Treasury notes (mature July, 1998) $ 150,000 $ 149,000 $ (1,000)
Treasury bills (mature April, 1997) 493,207 493,500 293
Certificates of deposit (including restricted
certificate of deposit of $214,336) 464,336 464,336 -
Equity securities (See Note E) 119,497 45,000 (74,497)
---------- ---------- -------
$ 1,227,040 $ 1,151,836 $ (75,204)
========= ========= =======
</TABLE>
NOTE G - DEFERRED COMPENSATION PLAN
In 1981, the Company instituted a voluntary non-qualified deferred compensation
plan ( Plan") on behalf of the corporate officers. At December 31, 1995, the
accrued benefits of the Plan were payable solely to Craig D. LaTaste, the
Company's then majority shareholder. The benefits were paid in full in 1996.
There were no contributions to the Plan for the years ended December 31, 1996
and 1995 and management does not anticipate further contributions to the Plan.
NOTE H - STOCKHOLDERS= EQUITY
On March 1, 1995, the Company sold to two investors an aggregate of 130,000
shares of common stock. The consideration paid by the purchasers was the
cancellation and release of liability of the Company relating to two promissory
notes payable to First Texas Bank, Dallas, in the amount of $200,000 and
$100,000, a note payable to Central Bank, Garland in the amount of $30,000 and a
note payable to Interfederal Capital, Inc., in the amount of $57,341 totaling
$387,341. The shares are restricted shares as defined by Rule 144, promulgated
by the Securities and Exchange Commission.
The Board of Directors authorized a new par value of $0.01 per common share
effective August 21, 1995 and approved a one for six reverse split of common
shares effective December 4, 1995. The financial statements include the effect
of the reverse split from the earliest period presented. The Company also
authorized the issuance of 1,000,000 preferred shares at $1.00 per share.
Subsequently, the Company designated up to 335,225 shares as Class A preferred
stock and 65,000 shares as Class B preferred stock. The two classes rank equally
and are identical in all respects. The preferred stock bears cumulative
dividends of 36: cents per share payable annually and have a liquidation
preference of $5.25 per share.
F-15
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - STOCKHOLDERS= EQUITY - Continued
The voting rights are equal to common shares, other than with respect to certain
matters, generally amending the rights or powers of the preferred stock. The
preferred stock is convertible at the option of the holder into two shares of
common stock subject to adjustment (the AConversion Rate@) (as more fully
described in the Certificate of Designation) at any time after one year from the
date of issue. The Company may compel conversion at the Conversion Rate at any
time after one year from the date of issue if the closing market price of the
common stock is $5.25 or higher for 30 consecutive trading days.
During November 1995, through a private placement with certain Selling Security
Holders, 1,000,000 warrants were issued at $.10 per share for $100,000. Each
warrant represents a stock option for one common share at an exercise price of
$3.50 per share. In addition, in 1996, the Company sold at $0.10 per warrant an
additional 600,000 warrants to purchase 600,000 common shares at an exercise
price of $3.50 per share for total cash proceeds of $60,000.
In December 1995, the Company redeemed and canceled 130,010 common shares
through the issuance of 65,000 preferred Class B shares.
The Company completed a Form SB-2 Registration Statement ( SB2") in February
1996 to issue 300,000 units, each unit comprising 1 common share and 1 class A
preferred share. The offering price was $8.25 per unit resulting in an aggregate
offering price of $2,475,000 before underwriting fees and other costs of
$465,024 (excluding underwriters= over-allotment option of 45,000 units). The
Company received net proceeds on the sale of the units of $2,039,976. Included
in the underwriter's compensation are options to purchase up to 30,000 units and
30,000 warrants, exercisable for a four-year period commencing one year from the
date of the Registration Statement at exercise prices of $10.725 per unit and
$0.13 per warrant, respectively. In connection with the offering, 300,000
warrants (excluding underwriters= over-allotment option) were also separately
offered at $0.10 per warrant exercisable at $3.50 per share. In March 1996, the
underwriters purchased the 45,000 over-allotment warrants. The Company received
a total of $33,915 from the sale of warrants.
At December 31, 1996, total warrants outstanding are 1,945,000 with an exercise
price of $3.50 per warrant. The options expire January 26, 2000 and may be
redeemed at $0.10 per warrant on 30 days written notice if the average price of
the common stock exceeds $5.25 per share for 30 consecutive trading days prior
to the notice.
NOTE I - INCOME TAXES
Deferred tax assets and liabilities at December 31, 1996 and 1995 consist of the
following:
1996 1995
-------- -------
Current deferred tax asset $ 95,326 $ 17,398
Current deferred tax liability - -
Valuation allowance (95,326)
------- -------
-
Net current deferred tax asset $ - $ 17,398
======= ======
F-16
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - INCOME TAXES - Continued
1996 1995
------- -------
Non-current deferred tax asset $ 77,523 $ 34,878
Non-current deferred tax liability (17,503)
(12,808)
Valuation allowance (60,020)
-
Net non-current deferred tax asset $ - $ 22,070
======= ========
The current deferred tax asset results primarily from the provision for
obsolescence on inventories and marketable securities which are not currently
deductible for federal income tax purposes. The non-current deferred tax asset
results primarily from the net operating loss carryforward. The net operating
loss available at December 31, 1996 amount to approximately $228,000 and expires
in 2011. The non-current deferred tax liability arises from the accelerated
methods of depreciation of assets for federal income tax purposes. The current
and net non-current deferred tax assets have a 100% valuation allowance due to
the uncertainty of generating future taxable income.
The components of income tax expense for the years ended December 31, 1996 and
1995 are as follows:
1996 1995
-------- --------
Federal:
Current tax expense $ - $ 5,739
Deferred tax expense - 7,233
------ -------
$ - $ 12,972
====== =======
The Company's income tax expense (benefit) for the years ended December 31, 1996
and 1995 differed from the statutory federal rate of 34 percent as follows:
1996 1995
-------- -------
Statutory rate applied to income (loss)
before income taxes $ (101,012) $ 13,756
Increase (decrease) in income taxes resulting from:
Amounts not deductible for federal income
tax purposes, and other 10,702 6,486
Progressive tax rate differences - (7,270)
Increase in valuation allowance 155,346 -
Less portion applicable to marketable
securities available for sale (25,569) -
-------- -------
Income tax expense $ 39,467 $ 12,972
======== =======
NOTE J - BUSINESS AND CREDIT CONCENTRATIONS AND SIGNIFICANT CUSTOMERS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, certificates of
deposit and accounts and notes receivable.
The Company recognizes revenue upon shipment of goods and billing to a customer
and does not maintain any set policy regarding the customer's right of return.
Customer requests to return products for refund or credit are handled on an
individual basis at the discretion of management. The refunds or credits in 1996
and 1995 were not significant.
F-17
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J -BUSINESS AND CREDIT CONCENTRATIONS AND SIGNIFICANT CUSTOMERS -Continued
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers doing business in the manufacture of various
consumer and industrial electronic goods. The Company's customers are located
throughout the United States. Because of the credit risk involved, management
has provided an allowance for doubtful accounts which reflects its opinion of
amounts which will eventually become uncollectible. In the event of complete
non-performance by the Company's customers, the maximum exposure to the Company
is the outstanding accounts receivable balance at the date of non-performance.
At December 31, 1996, six accounts receivable accounts comprised approximately
57% of the total trade accounts receivable balance. Through the date of this
report, substantially all of this amount had been collected. During the year
ended December 31, 1996 two of the Company's customers each accounted for
approximately 10.5% and 10.8% of total sales.
The Company places its cash and cash equivalents and other short term
investments with high credit quality financial institutions.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 Disclosure About Fair Value
of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. At
December 31, 1996 the carrying value all of the Company's financial instruments
approximate fair value.
NOTE L - STOCK OPTION PLANS
Effective July 19, 1995 the Board of Directors, with subsequent approval of the
shareholders on August 16, 1995, adopted the Company=s Incentive Stock Option
Plan ( 1995 Plan"). In accordance with the 1995 Plan, 125,000 common shares have
been reserved. No grants shall be made under the Plan after December 31, 1996.
The options are granted at fair market value and are exercisable at 25% on the
date of grant, 50% one year later, 75% two years later and 100% three years
later and, unless otherwise provided for, may be exercised during a period of
ten years from the date of grant. At December 31, 1996 there were 119,000
options outstanding under the 1995 Plan.
On July 12, 1996, the Company implemented an Incentive Stock Option Plan ( 1996
Plan") in terms of which 250,000 shares of common stock may be issued through
December 31, 1999. The 1996 Plan is subject to the approval of the shareholders
of the Company. At December 31, 1996, there were no options outstanding under
the 1996 Plan.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for its Plans. All options are granted at fair value,
and accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had compensation cost for the
Company's stock based compensation Plans been determined consistent with FASB
statement No. 123, Accounting for Stock Based Compensation, the Company's net
income (loss) and earnings per share would have been reduced (increased) to the
pro forma amounts indicated below:
F-18
<PAGE>
TECH ELECTRO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - STOCK OPTION PLANS - Continued
Years ended December 31,
------------------------
1996 1995
---- ----
Net income (loss) attributable
to common shareholders As reported $(459,521) $27,487
Pro forma $(506,240) $27,487
Net income (loss) per share
attributable to common
shareholders As reported $ (0.36) $ 0.025
Pro forma $ (0.39) $ 0.025
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1996: dividend yield of 0 percent; expected volatility of 219%; risk
free interest rates ranging from 5.64% to 6.73% over a 13 year period; and an
expected life of 10 years.
A summary of the status of the Company's 1995 Plan as of December 31, 1996 and
changes during the years ended December 31, 1996 and 1995 is as follows:
Weighted
Average Range of
Exercise Exercise
Shares Price Price
Outstanding at December 31, 1995 - $ - -
Granted 119,000 1.18 $1.00 - $1.75
------- ----- ------------
Outstanding at December 31, 1996 119,000 1.18 $1.00 - $1.75
======= ===== ============
Options exercisable at December 31, 1996 29,750 1.18
The weighted average remaining contractual life of options outstanding at
December 31, 1996 is 9.7 years.
The weighted average fair value of options granted during 1996 amounted to
$1.61.
NOTE M - SUBSEQUENT EVENT
Effective February 10, 1997, the Company sold 1,100,000 shares of common stock
and options to acquire 1,000,000 shares of common stock for $1,870,000, (a
combined price of $1.70 net to the Company), pursuant to Regulations as
promulgated by the Securities and Exchange Commission. The options have an
exercise price per share of $2.15 and each option expires thirteen months from
the date of issuance.
F-19
<PAGE>
Exhibit 21
Subsidiaries
Computer Components Corporation - wholly owned subsidiary
Vary Brite Technologies, Inc. - wholly-owned subsidiary of Computer Components
Corporation
Universal Battery Corporation - 67%-owned subsidiary
<PAGE>
Exhibit 10.1
Agreement for Private Placement of
Common Stock and Options
TECH ELECTRO INDUSTRIES, INC.
Regulation S
Sales Agent Agreement
ACCREDITED INVESTORS ONLY
December 17, 1996
Placement & Acceptance, Inc.
c/o Wisma Stephens
#12-09, Jalan Chulan
50200
Kuala Lumpur, Malaysia
Ladies and Gentlemen:
Tech Electro Industries, Inc. (together with its subsidiaries, the
"Company"), a corporation organized under the laws of the State of Texas, hereby
confirm its agreements with Placement and Acceptance, Inc., a British Virgin
Islands corporation ("PAI"), as follows:
1. Description of the Offering. The Company proposes to offer to
prospective purchasers ("Purchasers") an aggregate of 1,100,000 shares of its
common stock, par value $.01 per share (the "Common Stock") and options to
purchase an additional 1,000,000 shares of Common Stock (the "Options") at a
combined price of $1.70 net to the Company (except as otherwise provided herein,
the combined Common Stock and Options are referred to herein as the "Shares").
The offer and sale of the Shares will be referred to herein as the "Offering".
The preferred minimum purchase per investor is 100,000 Shares; provided,
however, that the Company may, in its discretion, allow an investor to purchase
less than 100,000 Shares; provided, however, the Options may be exercised only
in blocks of 150,000 shares of Common Stock. The Company and the Offering are
more fully described in the Regulation S Offering Circular Memorandum relating
to the offering dated January 28, 1997 (the "Memorandum"). All terms used
herein, unless specifically defined herein, shall have the same meanings
assigned in the Memorandum.
2. Representations and Warranties of the Company. The Company represents
and warrants that:
(a) The Memorandum has been prepared by the Company and copies of such
Memorandum and any amendments thereto have been delivered by the Company to
1
<PAGE>
PAI for distribution to potential Purchasers. No stop order or other similar
order or decree preventing the use of the Memorandum or any amendment or
supplement thereto, or any order asserting that the transactions contemplated by
this Agreement are subject to the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), has been issued and no
proceeding for that purpose has commenced or is pending or, to the knowledge of
the Company, is contemplated.
(b) The Common Stock is duly registered under Section 12(g) of the
United States Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Company has filed all reports required by the Exchange Act
during the last 12 months.
(c) The Memorandum was, on the date of its issuance, and is, at the
date hereof, accurate in all material respects and did not and does not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at such dates, not misleading and will
be, as of the Closing Date (as herein defined) accurate in all material
respects and will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the Closing Date,
not misleading.
(d) The offer, sale and delivery of the Shares in the manner
contemplated by this Agreement and the Memorandum will comply with the
terms and conditions of Regulation S.
(e) None of the Company, its affiliates (as defined in Rule 144(a)(1)
under the Securities Act) or any person acting on its or their behalf has
engaged or will engage in any directed selling efforts (as defined in
Regulation S) with respect to the Shares or will offer or sell any Shares
in the United States or to a U.S. Person (as defined in Regulation S).
(f) The Company is, and at the Closing Date will be, a corporation
duly organized, validly existing and in good standing under the laws of
Texas. The Company has, and at the Closing will have, full power and
authority to conduct all the activities conducted by it, to own or lease
all the assets owned or leased by it and to conduct its business as
described in the Memorandum. The Company is, and at the Closing Date will
be, duly licensed or qualified to do business and in good standing as a
foreign corporation in all jurisdictions in which the nature of the
activities conducted by it or the character of the assets owned or leased
by it makes such licensing or qualification necessary. Except for Computer
Components Corporation ("CCC") and Vary Brite Technologies, Incorporated
("VBT"), the Company's wholly-owned subsidiaries, and Universal Battery
Corporation ("UBC"), the Company's majority-owned subsidiary, the Company
has no subsidiary and does not own, and at the Closing Date will not own,
directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in
any firms, partnership, joint venture, association or other entity.
Complete and correct copies of the Certificates of Incorporation and of the
By-laws of the Company and VBT, UBC, CCC and all
2
<PAGE>
amendments thereto have been delivered to PAI, and no change therein will be
made subsequent to the date hereof and prior to the Closing Date.
(g) The outstanding shares of Common Stock have been, and, the Shares
to be issued and sold by the Company upon such issuance will be, when paid
for as provided herein, duly authorized, validly issued, fully paid and
nonassessable (except for the exercise price of the Options), will not be
subject to any preemptive or similar right and are all entitled to the same
rights, preferences and privileges (including dividends). The description
of the Common Stock in the Memorandum is, and at the Closing Date will be,
complete and accurate in all respects. Except as set forth in the
Memorandum, the Company does not have outstanding, and at the Closing Date
will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of
Common Stock or any such options, rights, warrants, convertible securities
or obligations.
(h) The financial statements of the Company (including the related
notes and supporting schedules) included in the Memorandum are materially
true and correct and reflect the financial conditions of the Company, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles as applied in the
United States on a consistent basis throughout the periods involved, except
as otherwise stated therein.
(i) King, Burns & Company, P.C., which has certified certain financial
statements of the Company, whose report appears in the Memorandum is an
independent public accountant within the meaning of the Securities Act.
(j) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(k) Subsequent to the respective dates as of which information is
given in the Memorandum and prior to the Closing Date, except as set forth
in or contemplated by the Memorandum, (i) there has not been and will not
have been any change in the capitalization of the Company, or in the
business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, arising for any reason
whatsoever other than in the ordinary course of business, (ii) the Company
has not incurred and will not incur any material liabilities or
obligations, direct or contingent, nor has it entered into nor will it
enter into any material transactions other than pursuant to this Agreement
and the transactions referred to herein and (iii) the Company has not and
will not have paid or
3
<PAGE>
declared any dividends or other distributions of any kind on any class of its
capital stock, except for dividends payable on its Series A Preferred Stock and
Series B Preferred Stock. To the best of the Company's knowledge, it does not
anticipate any material adverse changes in the Company's business, prospects or
financial condition within the next twelve months.
(l) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter for, an "investment
company," as such terms are defined in the Investment Company Act of 1940,
as amended.
(m) Except as set forth in the Memorandum, there are no actions, suits
or proceedings pending or, to the Company's knowledge, threatened against
or affecting the Company or any of its respective officers in their
capacity as such, before or by any federal of state court, commission,
regulatory body, administrative agency or other governmental body, domestic
or foreign, wherein an unfavorable ruling, decision or finding might
materially and adversely affect the Company or its business, properties,
business prospects, conditions (financial or otherwise) or results of
operations taken as a whole (a "Material Adverse Effect").
(n) Except as disclosed in the Memorandum the Company has, and at the
Closing Date will have, (i) all governmental licenses, permits, consents,
orders, approval and other authorizations necessary to carry on its
business as contemplated in the Memorandum (ii) complied in all material
respects with all laws, regulations and orders applicable to it or its
business and (iii) performed all its material obligations required to be
performed by it, and is not, and at the Closing Date will not be, in
default, under any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement, lease, contract
or other agreement or instrument (collectively, a "contract or other
agreement") to which it is a party or by which its property is bound or
affected. To the best knowledge of the Company, no other party under any
contract or other agreement to which it is a party is in default in any
respect thereunder that would materially and adversely affect the Company.
The Company is not, and at the Closing Date will not be, in violation of
any provision of its certificate of incorporation or by-laws.
(o) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consideration by the Company of the transactions on its part herein
contemplated.
(p) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with the
terms hereof. The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or give any other party a right to terminate any of
4
<PAGE>
its obligations under, or result in the acceleration of any obligation under,
the Certificate or Incorporation or By-laws of the Company, any contract or
other agreement to which the Company is a party or by which the Company or any
of its properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company.
(q) The Company has good and marketable title to all properties and
assets described in the Memorandum as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such as are described
in the Memorandum or are not material to the business of the Company. The
Company has valid, subsisting and enforceable leases for the properties
described in the Memorandum as leased by it, with such exceptions as are
not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company.
(r) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required
by this Agreement was or will be, when made, inaccurate, untrue or
incorrect in any material respect.
(s) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended,
or which might reasonably be expected, to cause or result, under the
Securities Act, the Exchange Act or otherwise, in, or which has
constituted, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares.
(t) On or prior to the Closing Date the Shares (including Shares to be
issued upon exercise of the Options) will be duly authorized for quotation
on the Nasdaq Small Cap Market.
(u) The Company is not involved in any material labor dispute nor, to
the knowledge of the Company, is any such dispute threatened.
(v) The Company owns, or is licensed or otherwise has the full
exclusive right to use, all material trademarks and trade names which are
used in or necessary for the conduct of its business except as may be
described in the Memorandum. No claims have been asserted by any person to
the use of any such trademarks or trade names or challenging or questioning
the validity or effectiveness of any such trademark or trade name. The use,
in connection with the business and operations of the Company of such
trademarks and trade names does not, to the Company's knowledge, infringe
on the rights of any person.
(w) Neither the Company nor, to the Company's knowledge, any person
acting on the Company's behalf has (i) used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign
or domestic government officials or employees or
5
<PAGE>
to foreign or domestic political parties or campaigns from corporate funds;
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any other unlawful bribe, rebate, payoff, influence
payment or kickback.
(x) There are no material contracts or other agreements to which the
Company is a party which have not been described in the Memorandum
(including being listed as an Exhibit to the Form 10-KSB for the year ended
December 31, 1995). All such contracts or other agreements to which the
Company is a party have been duly authorized, executed and delivered by the
Company, constitute valid and binding agreements of the Company and are
enforceable against the Company in accordance with the terms thereof.
(y) No material relationship (as described in Item 404 of Regulation
S-X), exists between or among the Company on the one hand, and any director
or officer of the Company or any holder of 5% or more of any class of
equity security of the Company or any affiliate of any such director,
officer, stockholder, customer or supplier of the Company on the other
hand, except as described in the Memorandum.
(z) The Company has filed all income, franchise, sales and other tax
returns required to be filed through the date hereof and has paid all taxes
shown as due thereon, and no tax deficiency has been determined adversely
to the Company which has had (nor does the Company have any knowledge of
any questions or disputes pending or threatened relating to a tax
deficiency which, if determined adversely to the Company, might have) a
Material Adverse Effect.
(aa) The Company has obtained all permits, licenses and other
authorizations that are required under, and is otherwise in compliance
with, all environmental laws relating directly to the Company's
manufacture, storage, transportation and sale, and the use by others as
intended by the Company, of the Company's products, including but not
limited to the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et
seq.), Resource Conservation & Recovery Act (42 U.S.C. ss. 6901 et seq.),
Safe Drinking Water Act (21 U.S.C. ss. 349, 42 U.S.C. ss.ss. 201, 300f),
Toxic Substances Control Act (15 U.S.C. ss. 2601 at seq.), Clean Air Act
(42 U.S.C. 5 7401 et seq.), Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601 et seq.), other
appropriate laws and any other laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes, or petroleum and related products or under any regulation, code,
plan, order, decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder (collectively the
"Environmental Laws"), except as otherwise set forth in the Memorandum or
to the extent failure to have any such permit, license or authorization or
failure to comply, individually or in the aggregate, does not have a
Material Adverse Effect.
6
<PAGE>
(bb) To the best of the Company's knowledge, there are no past or
present events, conditions, circumstances, activities, practices,
incidents, actions, or plans relating to the business as presently being
conducted by the Company that interfere with or prevent compliance or
continued compliance with the Environmental Laws, or which would be
reasonably likely to give rise to any legal liability (whether statutory or
common law) or otherwise would be reasonably likely to form the basis of
any claim, action, demand, suit, proceeding, hearing, notice of violation,
study, investigation, remediation or cleanup based on or related to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release into
the workplace, the community or the environment of any pollutant,
contaminant, chemical or industrial, toxic, or hazardous substance or
waste, or petroleum and related products, except for any liabilities or any
claims, demands or other actions specified above that will not individually
or in the aggregate have a Material Adverse Effect, and except as
previously disclosed in the Memorandum, no asbestos-containing material and
no underground or above-ground tanks are, to the best of the Company's
knowledge, located on property owned or leased by the Company and none have
been previously removed or filled by the Company or any predecessor of the
Company.
(cc) There are no contracts, agreements or understandings between the
Company and any person (other than PAI) that would give rise to a valid
claim against the Company or PAI for a brokerage commission, finder's fee
or like payment in connection with the transactions contemplated by this
Agreement.
(dd) The Company causes to be maintained insurance covering the
properties, operations, personnel and businesses of the Company in such
amounts and against such losses and risks as are adequate in accordance
with customary industry practice to protect the Company and its business.
The Company has not received notice from any insurer or agent of such
insurer that substantial capital improvements or other expenditures will
have to be made in order to continue such insurance. All such insurance is
outstanding and duly in force on the date hereof, and will be outstanding
and duly in force on the Closing Date,
(ee) The Shares when issued and paid for will be issued to the
designated holder and such holder will obtain valid and marketable title to
the Shares free of any adverse claim with respect thereto and the Shares
will be free and clear of all liens, encumbrances and claims other than as
provided for in the Memorandum and herein.
(ff) The Company has not offered and will not offer the Shares to any
person in the United States, any identifiable group of U.S. citizens
abroad, nor to any U.S. Person;
(gg) At the time the buy order will be originated, the Company and/or
agents will reasonably believe each Purchaser was outside the United States
and was not a U.S. Person;
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(hh) The Company and/or its agents believe that the sale of the Shares
has not been and will not be prearranged with a buyer in the United States
or for the account or benefit of such a buyer.
3. Representations and Warranties of PAI. PAI represents, covenants, and
warrants to the Company that:
(a) PAI is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated,
with all requisite power and authority to enter into this Agreement and to
carry out its obligations hereunder.
(b) This Agreement has been duly authorized, executed and delivered by
PAI and is a valid and binding agreement on PAI's part enforceable in
accordance with its terms.
(c) The consummation of the transactions contemplated herein and those
contemplated by the Memorandum will not result in any breach of any of the
terms or conditions of or constitute a default under any indenture,
agreement or other instrument to which PAI is a party, or violate any law
or any order directed to PAI by any court or any federal or state
regulatory body or administrative agency having jurisdiction over PAI, its
affiliates, or its property.
(d) PAI acknowledges that the Shares have not been and will not be
registered under the Securities Act (except as otherwise may be provided
herein) and may not be offered or sold within the United States or to or
for the account or benefit of a U.S. Person except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of
the Securities Act. PAI has not offered or sold, and will not offer or
sell, any Shares within the United States or to any U.S. Person or for the
account or benefit of any U.S. Person. All sales of the Shares by PAI will
be made in offshore transactions and otherwise in strict compliance with
the terms and conditions set forth in the Memorandum and Regulation S
promulgated under the Securities Act. PAI or its affiliates will receive an
executed Confirmation Letter from each of the Purchasers of the Shares
substantially in the form of Exhibit A. PAI shall certify in writing at the
Closing Date that all Shares to be purchased and sold have been purchased
and sold and the Offering is terminated. None of PAI, any of its
affiliates, or any person acting on its or their behalf has engaged or will
engage in any directed selling efforts with respect to the Shares. All
offers and sales of the Shares until the fortieth day after the Closing
Date (the "Termination Date") shall be made in accordance with Rule 903 or
904 of Regulation S, pursuant to registration of the Shares under the
Securities Act, or pursuant to an available exemption from the registration
requirements under the Securities Act. Terms used in this paragraph have
the meanings given to them by Regulation S, unless the context otherwise
requires.
(e) No action is being taken or is contemplated by PAI that would
permit a public offering of the Shares or distribution of the Memorandum or
any other offering
8
<PAGE>
material relating to the Shares in any jurisdiction where, or in any other
circumstances in which, action for those purposes is required (other than in
jurisdictions where such action has been duly taken). PAI understands and agrees
that it will comply with all applicable laws and regulations in any jurisdiction
in which it may offer, sell or deliver Shares and that it will not, directly or
indirectly, offer, sell or deliver Shares or distribute or publish any
prospectus, circular, advertisement or other offering material in relation to
the Shares in or from any country or jurisdiction except under circumstances
that will result in compliance with any applicable laws and regulations, and all
offers, sales and deliveries of Shares by it will be made on the foregoing
terms.
(f) Neither PAI nor any of its directors, officers or controlling
persons has taken, directly or indirectly, any action intended, or which
might reasonably be expected, to cause or result, under the Securities Act,
the Exchange Act or otherwise, in, or which has constituted, stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares.
(g) PAI will offer and sell the Shares only to persons and entities
who are not a "U.S. person" as defined in Rule 902 of Regulation S, were
not organized under the laws of any U.S. jurisdiction, and were not formed
for the purpose of investing in securities not registered under the
Securities Act.
(h) At the time any buy order for the Shares are originated, PAI shall
believe and have reason to reasonably believe that the Purchaser was
outside the United States.
(i) Until the Termination Date PAI will not within or outside the
United States with regard to the Company's Common Stock engage in any
short-selling or other hedging transactions, such as equity swaps or other
types of derivative transactions, designed to transfer the burdens of
ownership of the Shares back to the United States market.
(j) In the event of resale of the Shares prior to the Termination
Date, PAI shall provide a written confirmation or other written notice to
any distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Shares stating that such purchaser is
subject to the same restrictions on offers and sales that apply to PAI, and
shall require that any such purchaser shall provide such written
confirmation or other notice upon resale prior to the Termination Date.
4. Covenants of the Company. As additional consideration hereunder, the
Company agrees as follows:
(a) To deliver to PAI, at the expense of the Company, as many copies
of the Memorandum (including all amendments and supplements thereto) as PAI
may reasonably request.
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<PAGE>
(b) If, at any time prior to the Closing Date, any event shall occur
as a result of which the Memorandum, as then amended or supplemented, would
include a statement of fact which is not true and accurate in all material
respects, or omit any fact the omission of which would make misleading in
any material respect any statement therein, or if for any other reason it
shall be necessary to amend or supplement the Memorandum, the Company will
so amend or supplement the Memorandum and will promptly notify PAI and
will, at the expense of the Company, supply to PAI (and to any persons
designated by PAI) such amendments or supplements to the Memorandum as may
be necessary so that the statements in the Memorandum as so amended or
supplemented will not, in the light of the circumstances existing at the
time, be misleading.
(c) To notify PAI promptly of any change having or which is likely to
have a Material Adverse Effect relating to any of the Company's
representations, warranties, covenants or agreements contained herein that
occurs at any time prior to the payment of the full purchase price for the
Shares to the Company on the Closing Date.
(d) None of the Company, any of its affiliates (as defined in Rule
144(a)(1) under the Securities Act) or any person acting on behalf of any
of the foregoing will engage in any directed selling efforts with respect
to the Shares within the meaning of Regulation S. None of the Company or
any such affiliates shall issue any advertisements or press releases or
file any documents with the Securities and Exchange Commission, Nasdaq or
otherwise publicly disclose any information with regards to the offering or
sale of the Shares without the prior approval of PAI except the Company
will promptly file a Form 8-K reporting the sale of the Shares as required
by Form 8-K and will make such other filings as required by laws and
regulations applicable to the Company. Any such advertisement, release or
filing made with the consent of PAI shall be determined not to be a
directed selling effort for purposes of this Agreement, the Memorandum and
any opinion or certificate in connection herewith.
(e) The Company will use the net proceeds received from the issuance
of the Shares in the manner specified in the Memorandum under "Use of
Proceeds."
(f) The Company will not take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Shares at any time prior
to the Closing Date.
(g) On or after the Termination Date at the request of a Purchaser who
is not an affiliate of the Company, the Company will cause its transfer
agent within two business days, (or on the Termination Date if the request
was received at least two business days prior to the Termination Date) at
the Company's expense (including transportation and insurance), to exchange
the certificate for the Shares issued to such Purchaser on the Closing Date
for new certificates for the same number of Shares, without any legends or
stop transfer notices. Prior to the Termination Date all certificates for
the Shares shall bear the following legend:
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<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
SUCH SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) IN AN OFFSHORE TRANSACTION IN ACCORDANCE
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES
ACT OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION AS
CONFIRMED IN AN OPINION OF COUNSEL SATISFACTORY TO TECH ELECTRO
INDUSTRIES, INC., AND IN EACH CASE IN ACCORDANCE WITH ANY OTHER
APPLICABLE LAW.
(h) If, as a result of any changes in Regulation S after the Closing
Date, or for any other reason, including, but not limited to the failure of
the Company or PAI to comply with any of the provisions of Regulation S in
the offer and sale of the Shares, the Shares, in the reasonable opinion of
counsels to the Company and PAI, cannot on or after the Termination Date be
resold by any of the Purchasers in the United States without registration
under the Securities Act, the Company, at its expense, will immediately
after the Termination Date, file a registration statement under the
Securities Act and use its best efforts to have such registration statement
declared effective and kept effective at least through the earlier of the
second annual anniversary of the Closing Date or the expiration of the
Company's obligation and undertaking to file post-effective amendments to
its Form SB-2 Registration Statement, File No. 33-98662, with respect to
its Redeemable Class A Warrants and underlying shares of Common Stock,
which registration statement shall provide for the sale of the Common Stock
and shares of Common Stock underlying the Options included in the Shares by
the Purchasers in the United States. Notwithstanding the above, no
registration statement will be required if a Purchaser becomes an affiliate
of the Company or fails to comply with Regulation S.
(i) For five years after the date hereof, the Company shall send to
PAI copies of all filings with the Securities and Exchange Commission
(simultaneously with such filing) and copies of all press releases (faxed
when released).
(j) On the Closing Date, a majority of the members of the board of
directors of the Company shall be individuals designated by PAI; provided,
that if, within 13 months following the Closing, either (i) the Options
have not been exercised, or (ii) PAI or purchasers of the Common Stock
hereunder or their designees have not acquired a majority of the voting
securities of the Company, PAI and the purchasers of Common Stock shall
vote their shares of Common Stock at the following annual meeting of the
Company's shareholders so that a majority of the directors of the Company
are individuals designated by Craig D. La Taste.
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<PAGE>
(k) On the Closing Date, Martin Frank and Craig D. La Taste shall have
entered into employment agreements with CCC in form and substance mutually
acceptable to the Board of Directors of CCC and the Company, and PAI.
(l) The Options may only be exercised (i) by a person who is not a
U.S. person (as defined in Regulation S), (ii) if not exercised on behalf
of a U.S. person, (iii) if no U.S. person has any interest in the Options
being exercised or the underlying securities to be issued upon exercise,
and (iv) if the Options are exercised outside the United States and the
shares underlying the Options are to be delivered outside the United
States. If the above cannot be complied with, then the Options can be
exercised only if a written opinion of counsel, the form and substance of
which is acceptable to the Company, is delivered to the Company prior to
exercise to the Options being exercised, that the underlying securities
delivered upon exercise have been registered under the Securities Act, or
the securities are exempt from registration thereunder and specifying the
exemption.
5. Purchase, Sale, and Delivery of the Shares. On the basis of the
covenants, representations, and warranties herein contained and subject to the
terms and conditions herein set forth:
(a) The Company hereby engages PAI as its agent to solicit subscrip
tions to the Shares in accordance with the terms of the Memorandum and this
Agreement, and PAI agrees to use its best efforts to solicit such
subscriptions. Such subscriptions shall be evidenced by the completion and
execution by the prospective Purchaser and acceptance by the Company of the
Subscription Agreement and related documents in the form included in the
Memorandum. It is understood that no sale shall be regarded as effective
unless and until accepted in writing by the Company and that the Company
reserves the right in its sole discretion for any reason to refuse to sell
Shares to any person at any time.
(i) PAI is obligated to place all of the Shares on a "firm commitment"
basis. If PAI or its affiliates believe they have not received firm,
irrevocable and paid orders to purchase the Shares by February 7, 1997, PAI
will be obligated to purchase such number of Shares as are necessary to
complete the offering of the Shares by February 21, 1997. (ii) The exact
number of Shares to be purchased by PAI and/or the Purchasers shall be not
less that one million one hundred thousand (1,100,000) shares of Common
Stock and one million (1,000,000) Options. The Options shall be in the form
of and contain the terms as set forth in the form of Option attached hereto
as Exhibit B and incorporated herein.
(iii) PAI shall notify the Company by no later than 5:00 p.m., Dallas
time on February 16, 1997 as to the time and date for the purchase of the
Shares (the "Closing Date") which Closing Date shall be within five
business days of giving the notice.
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<PAGE>
(b) After the Closing Date, PAI, except as otherwise specifically
provided herein, will not be considered to have any continuing or future
duty or obligation of any kind to the Company. PAI has not assumed, nor
will it assume or be permitted to assume any duties, responsibilities, or
obligations regarding the management, operations, or any of the business
affairs of the Company after the Closing Date.
6. Delivery of and Payment for the Shares. Delivery of and payment for the
Shares shall be made at the offices of Jeffer, Mangels, Butler & Marmaro LLP, at
2121 Avenue of the Stars, 10th Floor, Los Angeles, California 90067 on the
Closing Date as determined by PAI pursuant to Section 5(a)(iii) hereof, or at
such other place as the parties may agree.
Payment for the Shares (in an amount equal to the aggregate amount payable
for the Shares calculated at the purchase price set forth in Paragraph 1, above)
shall be made on the Closing Date to the Company or its order in United States
dollars in same day funds by wire transfer (or if such transfer is
impracticable, by cashier bank check) to a United States dollar account of the
Company (under the account name of Tech Electro Industries, Inc.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as PAI shall request at least
two business days prior to the Closing Date by written notice to the Company.
For the purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such certificates available for inspection at
least 12 hours prior to the Closing Date.
7. Expenses of Sale. The Company will pay all expenses incident to the
performance of its obligations hereunder, including but not limited to the fees
and expenses of its counsel and accountants. PAI will pay all expenses incident
to the performance of its obligations hereunder, including but not limited to
the fees and expenses of its counsel and accountants.
8. Conditions to PAI's Obligations. PAI's obligations hereunder shall be
subject to the accuracy of and compliance with, as of the date hereof and on the
Closing Date, the representations and warranties contained in Section 2 hereof,
the performance by the Company of its obligations hereunder required to be
performed on or before the Closing Date, and to the following further
conditions:
(a) PAI shall not have discovered and disclosed to the Company on or
prior to the Closing Date that the Memorandum or any amendment or
supplement thereto contains an untrue statement of a fact which, in the
opinion of PAI, is material or omits to state a fact which, in the opinion
of PAI, 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.
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<PAGE>
(b) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the certificates
representing the Shares and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for PAI, and the Company
shall have furnished to such counsel all documents and information that
they may reasonably request to enable then to pass upon such matters.
(c) All proceedings and legal matters incident to the sale of the
Shares shall be reasonably satisfactory in all material respects to counsel
for PAI, and each Purchaser shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) There shall have not occurred any event or occurrence constituting
a Material Adverse Effect in the financial condition, prospects, assets or
operations of the Company, taken as a whole, since November 11, 1996.
(e) There shall be no litigation, action, or proceeding pending or
threatened regarding this Agreement or the transactions contemplated
hereby.
(f) PAI shall have completed, to its satisfaction, a "due diligence"
examination of the books, records and operations of the Company and its
subsidiaries.
(g) Carl A. Generes shall have furnished to PAI its written opinion,
as counsel to the Company addressed to PAI and dated the Closing Date,
substantially in the form of Exhibit C hereto.
(h) The Company shall have furnished to PAI a certificate, dated the
Closing Date, of the President and the chief financial officer of the
Company stating that:
(i) The representations, warranties and agreements of the Company
contained herein are true and correct on and as of the Closing Date with
the same effect as if made on the Closing Date; the Company has complied in
all material respects with all its agreements contained herein to be
performed on or prior to the Closing Date; and the conditions precedent to
the obligations of PAI set forth herein have been fulfilled; and
(ii) Such officers have reviewed, or have had reviewed on their
behalf, the Memorandum and (A) as of the date hereof, and as of the Closing
Date, the Memorandum did not, and will not, include any untrue statement of
a material fact and did not, and will not, omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (B) since the date thereof no event has occurred which
should have been set forth in a supplement or amendment to the Memorandum.
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<PAGE>
(i) Subsequent to the date of the execution of this Agreement, there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or in
the United States over-the-counter market shall have been suspended or
limited or minimum prices shall have been established on any such exchange
or such market by such exchange or by any other regulatory body or
governmental authority having jurisdiction, (ii) a banking moratorium shall
have been declared by the United States Federal, New York State or Texas
State authority or authorities, (iii) the United States shall have become
engaged in any war or there shall have been a declaration of a national
emergency by the United States which makes it, in the reasonable judgment
of PAI, after consultation with the Company, impracticable or inadvisable
to proceed with the offering and distribution of the Shares in the manner
contemplated herein, (iv) any material adverse change in United States or
international financial, political or economic conditions which makes it,
in the reasonable judgment of PAI, after consultation with the Company,
impracticable or inadvisable to proceed with the offering and distribution
of the Shares in the manner contemplated herein, or (v) there shall have
been any Material Adverse Effect, otherwise than as set forth or
contemplated in the Memorandum, so as to make it, in any such case in the
reasonable judgment of PAI, after consultation with the Company,
impracticable or inadvisable to proceed with the offering and distribution
of the Shares in the manner contemplated herein.
(j) The Common Stock of the Company shall have been approved for
quotation on the Nasdaq Small Cap Market.
(k) The Company shall have furnished to PAI such further information,
certificates and documents as PAI may reasonably request.
(l) The Company shall have entered into employment agreements with
Craig D. La Taste and Martin Frank in form and substance reasonably
acceptable to PAI.
All opinions, letters, evidence and verification mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
of PAI.
9. Conditions to the Company's Obligations. The Company's obligations
hereunder shall be subject to (i) the accuracy and compliance with, as of the
date hereof and on the Closing Date, the representations, warranties and
covenants of PAI contained in Section 3 hereof to the reasonable satisfaction of
the Company and its counsel and (ii) the receipt of a Confirmation Letter from
each Purchaser, fully executed Subscription Agreements for all of the Shares and
tender of the Purchase Price.
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<PAGE>
10. Reorganization of Subsidiaries.
(a) Within thirty (30) days following the Closing, the Company shall
take all necessary steps to transfer to CCC all of the common stock of VBT
and UBC currently owned by the Company. Concurrently with such transfer,
CCC or its subsidiaries shall assume all liabilities and acquire all assets
of the Company, except for the stock of CCC and assets specified in Exhibit
D hereto, and except for a portion of the funds derived from the sale of
the Common Stock, and exercise of the Options and outstanding warrants, as
described below.
(b) The Company shall contribute to CCC as additional capital
$1,500,000 of the funds derived from the issuance of the Common Stock
promptly following the Closing. All such funds shall be used by CCC or its
subsidiaries solely to fund acquisitions, expansion and growth by such
companies; provided, that CCC shall not acquire, or cause any subsidiary or
affiliate to acquire, any business entity without the prior consent of the
Board of Directors of the Company.
(c) The Company shall, promptly after receipt thereof, contribute to
CCC as additional capital eighty-four percent (84%), or an aggregate of
approximately $1,800,000, of the funds realized by the exercise of the
Options. All such funds shall be used by CCC or its subsidiaries solely to
fund expansion and growth by such companies.
(d) The Company shall, promptly after receipt thereof, contribute to
CCC as additional capital eighty-four percent (84%) of the funds realized
by the exercise of the Company's outstanding warrants. All such funds shall
be used by CCC or its subsidiaries solely to fund expansion and growth by
such companies.
(e) If the Company is unable to meet its commitment to pay dividends
on the Series A or Series B Preferred Stock in the five years following the
Closing, CCC shall funds such dividends promptly upon TEI's request.
(f) If the Company determines to acquire a business entity, the
Company may request that the funds for such acquisition be provided by CCC;
provided, that any such request must be approved by a unanimous vote of the
Company's Board of Directors.
11. Fairness Letters and Appraisals. The parties hereto agree that,
should the Board of Directors of the Company determine it to be in the best
interests of the Company to obtain an appraisal or fairness opinion
regarding an acquisition by the Company, of assets or securities of an
affiliate of the Company (as that term is defined in Rule 144(a)(1) under
the Securities Act, the appraisal or fairness opinion shall be conducted by
a "Big Six" accounting firm or by an internationally-recognized investment
banking firm.
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12. Indemnification.
(a) The Company will indemnify and hold PAI harmless against any
losses, claims, damages or liabilities, joint or several, to which PAI may
become subject under the Securities Act, the Exchange Act, the various
state securities acts or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Memorandum, any other offering documentation authorized by
the Company or state "blue sky" application prepared on behalf of the
Company or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and will reimburse PAI for any legal or other expenses
reasonably incurred in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in the Memorandum, in any other offering documentation prepared by the
Company or in any state "blue sky" application prepared on behalf of the
Company or such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by PAI specifically for
use in the preparation thereof.
The foregoing indemnity agreement shall extend upon the same terms and
conditions to, and shall inure to the benefit of, PAI's officers and directors
and its counsel and each person, if any, who "controls" PAI within the meaning
of the Securities Act or the Exchange Act.
(b) PAI will indemnify and hold harmless the Company against any
losses, claims, damages, or liabilities, joint or several, to which it may
become subject, under the Securities Act, the Exchange Act, the various
state securities acts or otherwise insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Memorandum, in any other offering documentation or state
"blue sky" application prepared on behalf of the Company or any amendment
or supplement thereto, or arise out of or are based upon the omission to
state therein a 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, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Memorandum, in any other offering
documentation or in any state "blue sky" application prepared on behalf of
the Company or such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by PAI
specifically for use in the preparation thereof. PAI also will reimburse
the Company for such legal or other expenses reasonably incurred in
connection with investigating or defending any such loss, claim, damage,
liability or action as to which PAI is required to indemnify the Company.
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The foregoing indemnity agreement shall extend upon the same terms and
conditions to, and shall inure to the benefit of, the officers, directors,
employees, agents, accountants, counsel and affiliates of the Company and each
person, if any, who "controls" the Company within the meaning of the Securities
Act or the Exchange Act.
(c) Promptly after receipt by an indemnified person of notice of the
commencement of any action, such indemnified person shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subparagraph, notify the indemnifying party in writing of the commencement
thereof; but the omission to so notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under such subparagraph. In case any such action shall be
brought against such indemnified party, and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel selected by the indemnifying party but
satisfactory to such indemnified party, and after the indemnified party
shall have received notice from the agreed upon counsel that the defense
under such paragraph has been assumed, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation.
13. Representations and Agreements to Survive Delivery. All
representations, warranties, covenants and agreements of the Company and PAI
herein or in certificates delivered pursuant hereto, and the indemnity agreement
contained in Section 11 hereof, shall survive the delivery and execution of this
Agreement and the Closing Date and shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of PAI or any
controlling person or any controlling person thereof, the Company, or any of its
officers, directors, partners, or any controlling persons. The indemnification
provisions of Section 11 hereof are in addition to any and all remedies or
rights any of the parties hereto may have, including the right to sue and
recover damages for any breach of any representation, warranty or covenant made
or given by one or more parties to any other party.
14. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to PAI or the
Company shall be mailed, delivered or telegraphed and confirmed to PAI or the
Company at its address set forth above for PAI and for the Company at 4300 Wiley
Post Road, Dallas, Texas 75244, attention: Craig P. La Taste. PAI or the Company
may change its address for receiving notices by giving written notice to the
other parties.
15. Parties. This Agreement shall inure to the benefit of and be binding
upon PAI and the Company, and each of their respective successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person or corporation, other than the parties hereto and
their respective successors and assigns and the controlling persons, officers
and directors and counsel referred to in this Agreement, any legal
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or equitable right, remedy or claim under or in respect to this Agreement or any
provision herein contained.
16. Severability. Every provision in this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder hereof.
17. Captions. The captions or headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define, or limit the scope, extent, or intent of this Agreement or
any provisions hereof.
18. Applicable Law. This Agreement shall be governed by and construed under
Texas law.
19. Prior Agreements. This Agreement supersedes all prior agreements oral
or written, covering the same subject matter.
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If the foregoing correctly sets forth our understanding, please so indicate
in the space provided below for that purpose whereupon this letter shall
constitute a binding agreement between us.
Very truly yours,
TECH ELECTRO INDUSTRIES, INC., a Texas corporation
By _________________________________
Its: President
ACCEPTED AND AGREED TO
this 17th day of December, 1996
PLACEMENT & ACCEPTANCE, INC.
a British Virgin Islands corporation
By __________________________
Its___________________________
ACCEPTED AND AGREED TO
this 28th day of January, 1997,
as to Paragraph 10 only.
COMPUTER COMPONENTS
CORPORATION
By __________________________
Its: President
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Exhibit 10.2
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned in connection with the sale of
such number of shares of Common Stock, $0.01 par value per share ("Common
Stock") and options ("Options") to purchase Common Stock of Tech Electro
Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol: "TELE"), a
corporation organized under the laws of the State of Texas, to the Buyer whose
name and address are set forth on the signature page hereof (hereinafter
"Buyer"). As used in this Agreement, the term "Unit" means the Common Stock and
the Options, and, where the context requires, the Common Stock underlying the
Units. Seller and Buyer (hereinafter collectively, the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or the
underlying Common Stock, as a result of a regulatory development including, but
not limited to, an amendment of Regulation S, or any "no-action" or written
interpretive guidance from the Securities and Exchange Commission, which call
into question the ability of Buyer to resell the Units or the underlying Common
Stock without registration, the Company will file, and use its reasonable best
efforts to cause to become effective, a registration statement on Form S- 3 (or
any other available form) under the Securities Act covering the resale of the
Common Stock issuable upon conversion of the Options. Any such registration
statement shall remain effective for up to twelve (12) months, or until all of
the shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable upon
conversion of the Options. The Company shall bear all expenses incurred in
connection with any such registration, excluding discounts and commissions and
other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on February 10, 1997
or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in accordance with the
laws of the State of Texas. Facsimile signatures of this Agreement shall be
binding on the parties hereto. All terms used herein that are defined in
Regulation S under the Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
PLACEMENT & ACCEPTANCE, INC.
Name of Individual representing Purchaser (if an Institution):
KIM WAH TAN
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Kim Wah Tan
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 75,000 shares; 100,000 options
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS OPTION
(collectively, the "Securities") HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (the "Act")
AND MAY NOT BE EXERCISED IN THE UNITED STATES OR BY A "U.S.
PERSON" (as defined in Section 9 hereof) UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT IS APPLICABLE OR AS OTHERWISE PROVIDED
IN REGULATION S PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR
FORTY DAYS AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY
UNITS OF WHICH THIS OPTION IS A PART (the "Restricted Period"),
NO OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN) MAY
BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR TO A
U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S. PERSON,
EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Placement & Acceptance, Inc.
Number of Options: One Hundred Thousand (100,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set forth
above of Tech Electro Industries, Inc., a Texas corporation (hereinafter called
the "Company"). Upon surrender of each Option, the registered holder shall be
entitled to purchase for $2.15 one share of Common Stock of the Company ("Common
Stock"). Options may be exercised only in multiples of 250,000. This Option is
issued in connection with the acquisition of Units consisting of the Company's
Common Stock and Options to acquire Common Stock as set forth in that certain
Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder or
any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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1. Right to Exercise Options. The rights represented by this Option
may be exercised at any time commencing on January 28, 1997 (the "Exercise
Date"), and terminating at 2:00 p.m., Los Angeles time, thirteen (13)
months after the Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency
of the Company as it may designate by notice in writing to Holder at the
address of Holder appearing on the books of the Company); and (ii) payment
to the Company of the exercise price for the number of shares specified in
the above-mentioned purchase form together with applicable stock transfer
taxes, if any. This Option may be exercised only in multiples of 250,000.
This Option shall be deemed to have been exercised immediately prior to the
close of business on the date the Option is surrendered and payment is made
in accordance with the foregoing provisions of this Section 2, and the
person or persons in whose name or names the certificates for shares of
Common Stock shall be issuable upon such exercise shall become the holder
or holders of record of such Common Stock at that time and date. The
certificates for the Common Stock so purchased shall be delivered to Holder
within a reasonable time, not exceeding thirty (30) business days, after
the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on
the cover page hereof), shall bear a legend in substantially the following
form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID
SHARES MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND UNLESS (A) THEY HAVE BEEN REGISTERED
UNDER SAID ACT, OR (B) THE COMPANY HAS RECEIVED WRITTEN
REPRESENTATIONS FROM THE HOLDER AND THE PROPOSED TRANSFEREE, IN
FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY,
ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN
ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN
OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION'
OR INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be transferred,
sold, assigned or hypothecated, only (a) pursuant to a valid and effective
registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
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through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Placement & Acceptance, Inc.
Wisma Stephens #12-09
Jalan Chulan 50200
Kuala Lumpur, Malaysia
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
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By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
PLACEMENT & ACCEPTANCE, INC.
By:_________________________________
Name: Kim Wah Tan
Title:_______________________________
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PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby irrevocably
elects to exercise the purchase rights represented by such Option to exercise
___________ Options for, and to the purchase thereunder, __________ shares of
Common Stock and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the U.S.
if True Securities Act of 1933 and this exercise is not taking place within
the United States.
---------------
Dated:____________, ____
Address:
------------------------------
------------------------------
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase shares of Common Stock represented by
_________________________ Options, and appoints _________________________
attorney to transfer such rights on the books of _________________________, with
full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated under
if True the U.S. Securities Act of 1933 and this transfer is not taking
place within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
Exhibit 10.3
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned in connection with the sale of
such number of shares of Common Stock, $0.01 par value per share ("Common
Stock") and options ("Options") to purchase Common Stock of Tech Electro
Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol: "TELE"), a
corporation organized under the laws of the State of Texas, to the Buyer whose
name and address are set forth on the signature page hereof (hereinafter
"Buyer"). As used in this Agreement, the term "Unit" means the Common Stock and
the Options, and, where the context requires, the Common Stock underlying the
Units. Seller and Buyer (hereinafter collectively, the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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<PAGE>
(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or the
underlying Common Stock, as a result of a regulatory development including, but
not limited to, an amendment of Regulation S, or any "no-action" or written
interpretive guidance from the Securities and Exchange Commission, which call
into question the ability of Buyer to resell the Units or the underlying Common
Stock without registration, the Company will file, and use its reasonable best
efforts to cause to become effective, a registration statement on Form S- 3 (or
any other available form) under the Securities Act covering the resale of the
Common Stock issuable upon conversion of the Options. Any such registration
statement shall remain effective for up to twelve (12) months, or until all of
the shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable upon
conversion of the Options. The Company shall bear all expenses incurred in
connection with any such registration, excluding discounts and commissions and
other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on February 10, 1997
or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in accordance with the
laws of the State of Texas. Facsimile signatures of this Agreement shall be
binding on the parties hereto. All terms used herein that are defined in
Regulation S under the Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
SYNERGY SYSTEM LIMITED
Name of Individual representing Purchaser (if an Institution):
CHUN HOU TAN
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Chun Hou Tan
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 205,000 shares; 180,000 options
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS OPTION
(collectively, the "Securities") HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (the "Act")
AND MAY NOT BE EXERCISED IN THE UNITED STATES OR BY A "U.S.
PERSON" (as defined in Section 9 hereof) UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION UNDER THE ACT IS APPLICABLE OR AS OTHERWISE PROVIDED
IN REGULATION S PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR
FORTY DAYS AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY
UNITS OF WHICH THIS OPTION IS A PART (the "Restricted Period"),
NO OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN) MAY
BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR TO A
U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S. PERSON,
EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Synergy System Limited
Number of Options: One Hundred Eighty Thousand (180,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set forth
above of Tech Electro Industries, Inc., a Texas corporation (hereinafter called
the "Company"). Upon surrender of each Option, the registered holder shall be
entitled to purchase for $2.15 one share of Common Stock of the Company ("Common
Stock"). Options may be exercised only in multiples of 250,000. This Option is
issued in connection with the acquisition of Units consisting of the Company's
Common Stock and Options to acquire Common Stock as set forth in that certain
Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder or
any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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<PAGE>
1. Right to Exercise Options. The rights represented by this Option may be
exercised at any time commencing on January 28, 1997 (the "Exercise Date"), and
terminating at 2:00 p.m., Los Angeles time, thirteen (13) months after the
Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder at the address of
Holder appearing on the books of the Company); and (ii) payment to the Company
of the exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This Option
may be exercised only in multiples of 250,000. This Option shall be deemed to
have been exercised immediately prior to the close of business on the date the
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The certificates for the Common Stock so purchased shall be delivered
to Holder within a reasonable time, not exceeding thirty (30) business days,
after the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on the
cover page hereof), shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SHARES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE
COMPANY HAS RECEIVED WRITTEN REPRESENTATIONS FROM THE HOLDER AND THE
PROPOSED TRANSFEREE, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS
ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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<PAGE>
(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be transferred,
sold, assigned or hypothecated, only (a) pursuant to a valid and effective
registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
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<PAGE>
through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Synergy System Limited
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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<PAGE>
9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
<PAGE>
By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
SYNERGY SYSTEM LIMITED
By:______________________________
Name: Chun Hou Tan
Title: ____________________________
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby irrevocably
elects to exercise the purchase rights represented by such Option to exercise
___________ Options for, and to the purchase thereunder, __________ shares of
Common Stock and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the U.S.
if True Securities Act of 1933 and this exercise is not taking place within
the United States.
---------------
Dated:____________, ____
------------------------------
------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase shares of Common Stock represented by
_________________________ Options, and appoints _________________________
attorney to transfer such rights on the books of _________________________, with
full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated under
if True the U.S. Securities Act of 1933 and this transfer is not taking
place within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
Exhibit 10.4
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned in connection with the sale of
such number of shares of Common Stock, $0.01 par value per share ("Common
Stock") and options ("Options") to purchase Common Stock of Tech Electro
Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol: "TELE"), a
corporation organized under the laws of the State of Texas, to the Buyer whose
name and address are set forth on the signature page hereof (hereinafter
"Buyer"). As used in this Agreement, the term "Unit" means the Common Stock and
the Options, and, where the context requires, the Common Stock underlying the
Units. Seller and Buyer (hereinafter collectively, the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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<PAGE>
(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or the
underlying Common Stock, as a result of a regulatory development including, but
not limited to, an amendment of Regulation S, or any "no-action" or written
interpretive guidance from the Securities and Exchange Commission, which call
into question the ability of Buyer to resell the Units or the underlying Common
Stock without registration, the Company will file, and use its reasonable best
efforts to cause to become effective, a registration statement on Form S- 3 (or
any other available form) under the Securities Act covering the resale of the
Common Stock issuable upon conversion of the Options. Any such registration
statement shall remain effective for up to twelve (12) months, or until all of
the shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable upon
conversion of the Options. The Company shall bear all expenses incurred in
connection with any such registration, excluding discounts and commissions and
other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on February 10, 1997
or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in accordance with the
laws of the State of Texas. Facsimile signatures of this Agreement shall be
binding on the parties hereto. All terms used herein that are defined in
Regulation S under the Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
EQUATOR HOLDINGS, INC.
Name of Individual representing Purchaser (if an Institution):
MEE MEE TAN
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Mee Mee Tan
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 205,000 shares; 180,000 options
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS
OPTION (collectively, the "Securities") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (the "Act") AND MAY NOT BE EXERCISED IN THE
UNITED STATES OR BY A "U.S. PERSON" (as defined in Section 9
hereof) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE OR AS OTHERWISE PROVIDED IN REGULATION S
PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR FORTY DAYS
AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY UNITS OF
WHICH THIS OPTION IS A PART (the "Restricted Period"), NO
OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN)
MAY BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR
TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Equator Holdings, Inc.
Number of Options: One Hundred Eighty Thousand (180,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set forth
above of Tech Electro Industries, Inc., a Texas corporation (hereinafter called
the "Company"). Upon surrender of each Option, the registered holder shall be
entitled to purchase for $2.15 one share of Common Stock of the Company ("Common
Stock"). Options may be exercised only in multiples of 250,000. This Option is
issued in connection with the acquisition of Units consisting of the Company's
Common Stock and Options to acquire Common Stock as set forth in that certain
Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder or
any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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<PAGE>
1. Right to Exercise Options. The rights represented by this Option may be
exercised at any time commencing on January 28, 1997 (the "Exercise Date"), and
terminating at 2:00 p.m., Los Angeles time, thirteen (13) months after the
Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder at the address of
Holder appearing on the books of the Company); and (ii) payment to the Company
of the exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This Option
may be exercised only in multiples of 250,000. This Option shall be deemed to
have been exercised immediately prior to the close of business on the date the
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The certificates for the Common Stock so purchased shall be delivered
to Holder within a reasonable time, not exceeding thirty (30) business days,
after the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on the
cover page hereof), shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SHARES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE
COMPANY HAS RECEIVED WRITTEN REPRESENTATIONS FROM THE HOLDER AND THE
PROPOSED TRANSFEREE, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS
ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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<PAGE>
(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be transferred,
sold, assigned or hypothecated, only (a) pursuant to a valid and effective
registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
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<PAGE>
through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Equator Holdings, Inc.
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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<PAGE>
9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
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By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
EQUATOR HOLDINGS, INC.
By:______________________________
Name: Mee Mee Tan
Title:_____________________________
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PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby irrevocably
elects to exercise the purchase rights represented by such Option to exercise
___________ Options for, and to the purchase thereunder, __________ shares of
Common Stock and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the U.S.
if True Securities Act of 1933 and this exercise is not taking place within
the United States.
---------------
Dated:____________, ____
------------------------------
------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase shares of Common Stock represented by
_________________________ Options, and appoints _________________________
attorney to transfer such rights on the books of _________________________, with
full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated under
if True the U.S. Securities Act of 1933 and this transfer is not taking place
within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
Exhibit 10.5
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter the
"Agreement") has been executed by the undersigned in connection with the sale of
such number of shares of Common Stock, $0,01 par value per share ("Common
Stock") and options ("Options") to purchase Common Stock of Tech Electro
Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol: "TELE"), a
corporation organized under the laws of the State of Texas, to the Buyer whose
name and address are set forth on the signature page hereof (hereinafter
"Buyer"). As used in this Agreement, the term "Unit" means the Common Stock and
the Options, and, where the context requires, the Common Stock underlying the
Units. Seller and Buyer (hereinafter collectively, the "parties") each hereby
represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or the
underlying Common Stock, as a result of a regulatory development including, but
not limited to, an amendment of Regulation S, or any "no-action" or written
interpretive guidance from the Securities and Exchange Commission, which call
into question the ability of Buyer to resell the Units or the underlying Common
Stock without registration, the Company will file, and use its reasonable best
efforts to cause to become effective, a registration statement on Form S- 3 (or
any other available form) under the Securities Act covering the resale of the
Common Stock issuable upon conversion of the Options. Any such registration
statement shall remain effective for up to twelve (12) months, or until all of
the shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable upon
conversion of the Options. The Company shall bear all expenses incurred in
connection with any such registration, excluding discounts and commissions and
other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on February 10, 1997
or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in accordance with the
laws of the State of Texas. Facsimile signatures of this Agreement shall be
binding on the parties hereto. All terms used herein that are defined in
Regulation S under the Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
FLEET SECURITY INVESTMENT LTD.
Name of Individual representing Purchaser (if an Institution):
SADASUKA GOMI
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Sadasuka Gomi
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 205,000 shares; 180,000 options
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS
OPTION (collectively, the "Securities") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (the "Act") AND MAY NOT BE EXERCISED IN THE
UNITED STATES OR BY A "U.S. PERSON" (as defined in Section 9
hereof) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE OR AS OTHERWISE PROVIDED IN REGULATION S
PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR FORTY DAYS
AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY UNITS OF
WHICH THIS OPTION IS A PART (the "Restricted Period"), NO
OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN)
MAY BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR
TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Fleet Security Investment Ltd.
Number of Options: One Hundred Eighty Thousand (180,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set forth
above of Tech Electro Industries, Inc., a Texas corporation (hereinafter called
the "Company"). Upon surrender of each Option, the registered holder shall be
entitled to purchase for $2.15 one share of Common Stock of the Company ("Common
Stock"). Options may be exercised only in multiples of 250,000. This Option is
issued in connection with the acquisition of Units consisting of the Company's
Common Stock and Options to acquire Common Stock as set forth in that certain
Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder or
any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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1. Right to Exercise Options. The rights represented by this Option may be
exercised at any time commencing on January 28, 1997 (the "Exercise Date"), and
terminating at 2:00 p.m., Los Angeles time, thirteen (13) months after the
Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder at the address of
Holder appearing on the books of the Company); and (ii) payment to the Company
of the exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This Option
may be exercised only in multiples of 250,000. This Option shall be deemed to
have been exercised immediately prior to the close of business on the date the
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The certificates for the Common Stock so purchased shall be delivered
to Holder within a reasonable time, not exceeding thirty (30) business days,
after the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on the
cover page hereof), shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SHARES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE
COMPANY HAS RECEIVED WRITTEN REPRESENTATIONS FROM THE HOLDER AND THE
PROPOSED TRANSFEREE, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS
ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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<PAGE>
(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be transferred,
sold, assigned or hypothecated, only (a) pursuant to a valid and effective
registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of Common
Stock which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
4
<PAGE>
through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Fleet Security Investment Ltd.
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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<PAGE>
9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by its
duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
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<PAGE>
By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
FLEET SECURITY INVESTMENT LTD.
By:______________________________
Name: Sadasuka Gomi
Title:_____________________________
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PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby irrevocably
elects to exercise the purchase rights represented by such Option to exercise
___________ Options for, and to the purchase thereunder, __________ shares of
Common Stock and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the
if True U.S. Securities Act of 1933 and this exercise is not taking place
within the United States.
---------------
Dated:____________, ____
------------------------------
------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase shares of Common Stock represented by
_________________________ Options, and appoints _________________________
attorney to transfer such rights on the books of _________________________, with
full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated
if True under the U.S. Securities Act of 1933 and this transfer is not taking
place within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
Exhibit 10.6
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter
the "Agreement") has been executed by the undersigned in connection with the
sale of such number of shares of Common Stock, $0.01 par value per share
("Common Stock") and options ("Options") to purchase Common Stock of Tech
Electro Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol:
"TELE"), a corporation organized under the laws of the State of Texas, to the
Buyer whose name and address are set forth on the signature page hereof
(hereinafter "Buyer"). As used in this Agreement, the term "Unit" means the
Common Stock and the Options, and, where the context requires, the Common Stock
underlying the Units. Seller and Buyer (hereinafter collectively, the "parties")
each hereby represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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<PAGE>
(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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<PAGE>
(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or the
underlying Common Stock, as a result of a regulatory development including, but
not limited to, an amendment of Regulation S, or any "no-action" or written
interpretive guidance from the Securities and Exchange Commission, which call
into question the ability of Buyer to resell the Units or the underlying Common
Stock without registration, the Company will file, and use its reasonable best
efforts to cause to become effective, a registration statement on Form S- 3 (or
any other available form) under the Securities Act covering the resale of the
Common Stock issuable upon conversion of the Options. Any such registration
statement shall remain effective for up to twelve (12) months, or until all of
the shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable upon
conversion of the Options. The Company shall bear all expenses incurred in
connection with any such registration, excluding discounts and commissions and
other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered to
Buyer and the funds therefor shall be delivered to Seller on February 10, 1997
or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in accordance with the
laws of the State of Texas. Facsimile signatures of this Agreement shall be
binding on the parties hereto. All terms used herein that are defined in
Regulation S under the Securities Act shall have the meanings set forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
ASEAN BROKERS LIMITED
Name of Individual representing Purchaser (if an Institution):
VINCENT TAN
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Vincent Tan
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 205,000 shares; 180,000 options
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS
OPTION (collectively, the "Securities") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (the "Act") AND MAY NOT BE EXERCISED IN THE
UNITED STATES OR BY A "U.S. PERSON" (as defined in Section 9
hereof) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE OR AS OTHERWISE PROVIDED IN REGULATION S
PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR FORTY DAYS
AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY UNITS OF
WHICH THIS OPTION IS A PART (the "Restricted Period"), NO
OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN)
MAY BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR
TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Asean Brokers Limited
Number of Options: One Hundred Eighty Thousand (180,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set
forth above of Tech Electro Industries, Inc., a Texas corporation (hereinafter
called the "Company"). Upon surrender of each Option, the registered holder
shall be entitled to purchase for $2.15 one share of Common Stock of the Company
("Common Stock"). Options may be exercised only in multiples of 250,000. This
Option is issued in connection with the acquisition of Units consisting of the
Company's Common Stock and Options to acquire Common Stock as set forth in that
certain Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder
or any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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1. Right to Exercise Options. The rights represented by this Option may
be exercised at any time commencing on January 28, 1997 (the "Exercise Date"),
and terminating at 2:00 p.m., Los Angeles time, thirteen (13) months after the
Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder at the address of
Holder appearing on the books of the Company); and (ii) payment to the Company
of the exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This Option
may be exercised only in multiples of 250,000. This Option shall be deemed to
have been exercised immediately prior to the close of business on the date the
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The certificates for the Common Stock so purchased shall be delivered
to Holder within a reasonable time, not exceeding thirty (30) business days,
after the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on the
cover page hereof), shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SHARES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE
COMPANY HAS RECEIVED WRITTEN REPRESENTATIONS FROM THE HOLDER AND THE
PROPOSED TRANSFEREE, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS
ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be
transferred, sold, assigned or hypothecated, only (a) pursuant to a valid and
effective registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof. The Company further covenants and agrees
that, during the periods within which this Option may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
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<PAGE>
through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Asean Brokers Limited
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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<PAGE>
9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
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<PAGE>
By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
ASEAN BROKERS LIMITED
By:______________________________
Name: Vincent Tan
Title:_____________________________
7
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PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby irrevocably
elects to exercise the purchase rights represented by such Option to exercise
___________ Options for, and to the purchase thereunder, __________ shares of
Common Stock and herewith makes payment of $____________ thereof, and requests
that the certificates for shares of Common Stock be issued in the name(s) of,
and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the
if True U.S. Securities Act of 1933 and this exercise is not taking place
within the United States.
---------------
Dated:____________, ____
------------------------------
------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _______________ the right to purchase shares of Common Stock
represented by _________________________ Options, and appoints
_________________________ attorney to transfer such rights on the books of
_________________________, with full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated
if True under the U.S. Securities Act of 1933 and this transfer is not taking
place within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
Exhibit 10.7
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
February 10, 1997
THIS OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter
the "Agreement") has been executed by the undersigned in connection with the
sale of such number of shares of Common Stock, $0.01 par value per share
("Common Stock") and options ("Options") to purchase Common Stock of Tech
Electro Industries, Inc. (the "Seller" or the "Company") (NASDAQ symbol:
"TELE"), a corporation organized under the laws of the State of Texas, to the
Buyer whose name and address are set forth on the signature page hereof
(hereinafter "Buyer"). As used in this Agreement, the term "Unit" means the
Common Stock and the Options, and, where the context requires, the Common Stock
underlying the Units. Seller and Buyer (hereinafter collectively, the "parties")
each hereby represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE
(i) Buyer hereby subscribes for the number of shares of Common Stock
and Options at a subscription price of $1.70 U.S. per share of Common
Stock, with no additional consideration payable with respect to Options,
payable in United States Dollars, shown below its signature on page 7
hereof.
(ii) Buyer shall pay the purchase price by delivering same day funds
in United States Dollars to an agent or as otherwise agreed between the
parties, to be delivered to the order of Seller upon delivery of the Common
Stock and Options.
(iii) This Agreement has been executed in connection with an offering
by Seller of its Common Stock and Options pursuant to Regulation S (the
"Offering"). Buyer will be notified of the date of the completion of the
Offering (the "Closing Date").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants to Seller as follows:
(i) Buyer is not a "U.S. person" as defined in Rule 902 of Regulation
S promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), was not organized under the laws of any U.S. jurisdiction, and was
not formed for the purpose of investing in securities not registered under
the Securities Act;
(ii) At the time the buy order for this transaction was originated,
Buyer was outside the United States;
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(iii) No offer to purchase the Units was made in the United States nor
were any "directed selling efforts," as defined in Rule 902 of Regulation
S, made to it in the United States;
(iv) Buyer is purchasing the Units for its own account for investment
purposes and not with a view towards distribution. Buyer does not have a
contract, understanding, or arrangement with any person to sell, transfer,
or grant a participation to such person or a third party with respect to
the Units;
(v) All subsequent offers and sales of the Units and the underlying
Common Stock will be made outside the United States in compliance with Rule
903 or Rule 904 of Regulation S, pursuant to registration of the Units
under the Securities Act, or pursuant to an exemption from such
registration. Buyer understands the conditions of the exemption from
registration afforded by Section 4(1) of the Securities Act and
acknowledges that there can be no assurance that it will be able to rely on
such exemption. In any case, Buyer will not resell the Units to or for the
account or benefit of U.S. Persons or within the United States until after
the end of the forty (40) day period commencing on the date of completion
of the Offering (as defined above) (the "Restricted Period"). During the
Restricted Period Buyer will not within the United States with regard to
Seller's Common Stock engage in any short-selling or other hedging
transactions, such as equity swaps or other types of derivative
transactions, designed to transfer the burdens of ownership of the Shares
back to the United States market.
(vi) Buyer understands that the Units are being offered and sold to it
in reliance on specific provisions of federal and state securities laws and
that Seller is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of Buyer set
forth herein in order to determine the applicability of such provisions.
Accordingly, Buyer agrees to notify Seller of any events which would cause
the representations and warranties of Buyer to be untrue or breached at any
time after the execution of this Agreement by Buyer and prior to the
expiration of the Restricted Period;
(vii) This Agreement has been duly authorized, validly executed, and
delivered on behalf of Buyer and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally;
(viii) Any offering documents received by Buyer include statements to
the effect that the Units have not been registered under the Securities Act
and may not be offered or sold in the United States or to U.S. persons
during the Restricted Period, unless the Units are registered or unless
such resale is exempt from or not subject to the registration requirements
of the Securities Act;
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(ix) Buyer, in making the decision to purchase the Units subscribed
for, has relied upon solely upon the Offering Circular and the Exchange Act
documents attached thereto and relating to the Offering prepared by Seller;
(x) In the event of resale of the Units during the Restricted Period,
Buyer shall provide a written confirmation or other written notice to any
distributor, dealer, or person receiving a selling concession, fee, or
other remuneration in respect of the Units stating that such purchaser is
subject to the same restrictions on offers and sales that apply to Buyer,
and shall require that any such purchaser shall provide such written
confirmation or other notice upon resale during the Restricted Period;
(xi) Buyer has not taken any action that would cause Seller to be
subject to any claim for commission or other fee or remuneration by any
broker, finder, or other person and Buyer hereby indemnifies Seller against
any such claim caused by the actions of Buyer or any of its employees or
agents;
(xii) Buyer acknowledges that he is familiar with Regulation S and
represents and warrants that he will comply with the terms thereof.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants to Buyer as follows:
(i) Seller is a "domestic issuer" and a "reporting issuer", as such
terms are defined in Rule 902 of Regulation S. Seller has registered its
common stock pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is in full compliance with all
reporting requirements of Section 13(a) of the Exchange Act for at least
the last 12 months, and Seller's Common Stock trades on the Nasdaq Small
Cap Market;
(ii) Seller has furnished Buyer with copies of Seller's most recent
annual report on Form 10-K and the most recent quarterly report on Form
10-Q (the "SEC Filings");
(iii) Since the date of the Company's SEC Filings, except as otherwise
stated in the Offering Circular, there has been no material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company, whether or not arising in the
ordinary course of business.
(iv) Seller has not offered the Units to any person in the United
States, any identifiable group of U.S. citizens abroad, nor to any U.S.
Person;
(v) At the time the buy order was originated, Seller and/or agents
reasonably believed Buyer was outside the United States and was not a U.S.
Person;
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<PAGE>
(vi) Seller and/or its agents believe that the sale of the Units has
not been prearranged with a buyer in the United States or for the account
or benefit of such a buyer;
(vii) Seller has not conducted any "directed selling efforts" with
respect to the Units nor has Seller conducted any general solicitation (as
that term is used in Regulation D under the Securities Act) with respect to
the Units;
(viii) The Units when issued and delivered will be duly and validly
authorized and issued, fully-paid and nonassessable and will not subject
the holders thereof to personal liability by reason of being such holders.
There are no preemptive rights of any shareholder of Seller with respect to
the Units;
(ix) This Agreement has been duly authorized and validly executed and
delivered on behalf of Seller and is a valid and binding agreement in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally;
(x) The execution and delivery of this Agreement and the consummation
of the issuance of the Units and the transactions contemplated by this
Agreement do not and will not conflict with or result in a breach by Seller
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation (or charter) or bylaws of the Seller, or any
indenture, mortgage, deed of trust or other material agreement or
instrument to which Seller is a party or by which it or any of its
properties or assets are bound, or any existing applicable decree, judgment
order of any court, Federal or State regulatory body, administrative agency
or other governmental body having jurisdiction over Seller or any of its
properties or assets;
(xi) Seller is not aware of any authorization, approval or consent of
any governmental body which is legally required for the issuance and sale
of the Units as contemplated by the Agreement;
(xii) Seller will issue one or more share certificates representing
the Units without restrictive legend in the name of Buyer. Seller further
warrants that no instructions other than these instructions, and
instructions for a "stop transfer" until the end of the Restricted Period,
have been given to the transfer agent and also warrants that the Units and
the Common Stock underlying the Units shall otherwise be freely
transferable on the books and records of Seller. Seller will notify the
transfer agent of the date of completion of the Offering, a date not later
than the Closing Date, and of the date of expiration of the Restricted
Period, a date not later than forty (40) days from the Closing Date.
Nothing in this section shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Units and the underlying Common Stock, including the restrictions provided
for in section 2(v) hereof;
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<PAGE>
(xiii) Seller has taken and will take no action that will affect in
any way the running of the Restricted Period or the ability of Buyer to
resell the Units and the Common Stock underlying the Units, in accordance
with applicable securities laws and this Agreement;
(xiv) Seller will comply with all applicable securities laws with
respect to the sale of the Units, including but not limited to the filing
of all reports required to be filed in connection therewith with the
Securities and Exchange Commission or any stock exchange or the Nasdaq
stock market or any other regulatory authority.
4. COVENANTS
The Company hereby agrees that, upon demand of holders of the Units or
the underlying Common Stock, as a result of a regulatory development
including, but not limited to, an amendment of Regulation S, or any
"no-action" or written interpretive guidance from the Securities and
Exchange Commission, which call into question the ability of Buyer to
resell the Units or the underlying Common Stock without registration, the
Company will file, and use its reasonable best efforts to cause to become
effective, a registration statement on Form S- 3 (or any other available
form) under the Securities Act covering the resale of the Common Stock
issuable upon conversion of the Options. Any such registration statement
shall remain effective for up to twelve (12) months, or until all of the
shares of Common Stock are sold, whichever is earlier. The Company shall
provide the Buyer with such number of copies of the prospectus as shall be
reasonably requested to facilitate the sale of the Common Stock issuable
upon conversion of the Options. The Company shall bear all expenses
incurred in connection with any such registration, excluding discounts and
commissions and other expenses of the Buyer (including, but not limited to
Buyer's counsel's fees).
5. CLOSING
Share certificates for the Common Stock and Options shall be delivered
to Buyer and the funds therefor shall be delivered to Seller on February
10, 1997 or at such other time as the parties hereto may mutually agree.
6. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligations to sell the Units is
conditioned upon delivery into escrow or otherwise as agreed between Buyer
and Seller by Buyer of the aggregate purchase price set forth in Section 1
hereof.
(ii) Seller understands that Buyer's obligation to purchase the Units
is conditioned upon delivery of certificate(s) representing shares of Units
without restrictive legend as described herein and provision of an opinion
of counsel confirming that Seller is a "domestic issuer" and a "reporting
issuer," and that Seller has registered its Common Stock pursuant to
Section 12(g) of the Exchange Act, as set forth in Section 3(i) above, as
well as the matters set out in Section 3(vii), (viii), (ix), (x) and (xi)
above.
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7. GOVERNING LAW; INTERPRETATION
This Agreement shall be governed by an interpreted in
accordance with the laws of the State of Texas. Facsimile signatures of this
Agreement shall be binding on the parties hereto. All terms used herein that are
defined in Regulation S under the Securities Act shall have the meanings set
forth therein.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Tech Electro Industries, Inc.
By ______________________________
Craig D. La Taste, President
Name of Purchaser (Individual or Institution):
EURASIA SECURITIES LTD.
Name of Individual representing Purchaser (if an Institution):
KIM YEOW TAN
Title of Individual representing Purchaser (if an Institution):
- ------------------------------
Signature by: Individual Purchaser or Individual representing Purchaser
- ------------------------------
Kim Yeow Tan
Address:
Telephone:____________________
Telecopier:___________________
NUMBER OF UNITS 205,000 shares; 180,000 shares
AGGREGATE PURCHASE PRICE: $___________________
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THIS OPTION AND THE SHARES OF COMMON STOCK UNDERLYING THIS
OPTION (collectively, the "Securities") HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (the "Act") AND MAY NOT BE EXERCISED IN THE
UNITED STATES OR BY A "U.S. PERSON" (as defined in Section 9
hereof) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT
OR AN EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT IS
APPLICABLE OR AS OTHERWISE PROVIDED IN REGULATION S
PROMULGATED UNDER SUCH ACT. IN ADDITION, FOR FORTY DAYS
AFTER THE CLOSE OF THE SALES BY THE COMPANY OF ANY UNITS OF
WHICH THIS OPTION IS A PART (the "Restricted Period"), NO
OFFERS OR SALES OR TRANSFERS (INCLUDING INTERESTS THEREIN)
MAY BE MADE OF ANY OF THE SECURITIES IN THE UNITED STATES OR
TO A U.S. PERSON OR FOR THE ACCOUNT AND BENEFIT OF A U.S.
PERSON, EXCEPT AS PERMITTED BY REGULATION S.
OPTION
TO PURCHASE COMMON STOCK IN
TECH ELECTRO INDUSTRIES, INC.
Exercisable Commencing
February 10, 1997
Void After
March 10, 1998
Holder: Eurasia Securities Ltd.
Number of Options: One Hundred Eighty Thousand (180,000)
---------------
THIS CERTIFIES THAT Holder is the owner of the number of Options set
forth above of Tech Electro Industries, Inc., a Texas corporation (hereinafter
called the "Company"). Upon surrender of each Option, the registered holder
shall be entitled to purchase for $2.15 one share of Common Stock of the Company
("Common Stock"). Options may be exercised only in multiples of 250,000. This
Option is issued in connection with the acquisition of Units consisting of the
Company's Common Stock and Options to acquire Common Stock as set forth in that
certain Subscription Agreement dated as of January 28, 1997 (the "Agreement").
For purposes of this Option, the term "Affiliated Person" means Holder
or any entity controlled by or under common control with Holder. For purposes
hereof, a person shall be deemed to have "control" of an entity if such person
is the owner of a majority voting interest in such entity.
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<PAGE>
1. Right to Exercise Options. The rights represented by this Option may
be exercised at any time commencing on January 28, 1997 (the "Exercise Date"),
and terminating at 2:00 p.m., Los Angeles time, thirteen (13) months after the
Exercise Date.
2. Exercise of Options. Subject to the provisions of this Option, the
rights represented by this Option may be exercised by (i) surrender of this
Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to Holder at the address of
Holder appearing on the books of the Company); and (ii) payment to the Company
of the exercise price for the number of shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any. This Option
may be exercised only in multiples of 250,000. This Option shall be deemed to
have been exercised immediately prior to the close of business on the date the
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Section 2, and the person or persons in whose name or names
the certificates for shares of Common Stock shall be issuable upon such exercise
shall become the holder or holders of record of such Common Stock at that time
and date. The certificates for the Common Stock so purchased shall be delivered
to Holder within a reasonable time, not exceeding thirty (30) business days,
after the rights represented by this Option shall have been so exercised, and,
during the Restricted Period (as defined in the legend first appearing on the
cover page hereof), shall bear a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SAID SHARES MAY NOT BE
SOLD OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE
COMPANY HAS RECEIVED WRITTEN REPRESENTATIONS FROM THE HOLDER AND THE
PROPOSED TRANSFEREE, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, ESTABLISHING THAT REGISTRATION OF THE SECURITIES EVIDENCED BY
THIS CERTIFICATE IS NOT NECESSARY IN CONNECTION WITH SUCH SALE OR
TRANSFER, OR (C) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS
ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A "NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
Notwithstanding the above, except as otherwise provided in Regulation S
adopted under the United States Securities Act of 1933, as amended (the "Act"),
(a) This Option may not be exercised by a U.S. Person (as defined in
Section 9 hereof);
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<PAGE>
(b) This Option may not be exercised within the United States and the
shares of Common Stock issued upon exercise of this Option may not be
delivered upon such exercise within the United States;
(c) The person exercising this Option must either (i) certify to the
Company that he is not a U.S. Person and is not exercising this Option on
behalf of a U.S. Person or (ii) deliver an opinion of counsel that this
Option and the underlying Common Stock have been registered under the Act
or are exempt from registration under the Act.
3. Assignment. Subject to Section 2 hereof, this Option may be
transferred, sold, assigned or hypothecated, only (a) pursuant to a valid and
effective registration statement, or (b) if the Company has received written
representations from the Holder and the proposed transferee, in form and
substance reasonably acceptable to the Company, establishing that registration
of the Option or the Common Stock underlying the Option is not necessary in
connection with such transfer, sale, assignment or hypothecation, or (c) if the
Company has received from counsel to the Company (or from counsel to the Holder
that is reasonably acceptable to the Company) a written opinion, in a form
reasonably acceptable to the Company, to the effect that registration of the
Option or the Common Stock underlying the Option is not necessary in connection
with such transfer, sale, assignment or hypothecation. Any such assignment shall
be effected by Holder by (i) executing the form of assignment at the end hereof;
(ii) surrendering the Option for cancellation at the office or agency of the
Company referred to in Section 2 hereof, accompanied by the certification or
opinion of counsel to the Company referred to above; and (iii) delivery to the
Company of a statement by the transferee Holder (in a form acceptable to the
Company and its counsel) that such Option is being acquired by such Holder in
conformance with the Act and Regulation S, and is being acquired for investment
and not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by Holder (including Holder) new Options
representing in the aggregate rights to purchase the same number of Shares as
are purchasable under the Option surrendered. The term "Holder" shall be deemed
to include any person to whom this Option is transferred in accordance with the
terms herein.
4. Common Stock. The Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof. The Company further covenants and agrees
that, during the periods within which this Option may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Option and all other Options.
5. No Stockholder Rights. This Option shall not entitle Holder to any
voting rights or other rights as a stockholder of the Company.
6. Adjustment of Rights. In the event that the outstanding shares of Common
Stock of the Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of share or other security of the
Company or of another corporation
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<PAGE>
through reorganization, merger, consolidation, liquidation, recapitalization,
stock split, combination of shares or stock dividends payable with respect to
such Common Stock, appropriate adjustments in the number, kind and price of such
securities then subject to this Option shall be made effective as of the date of
such occurrence so that the position of Holder upon exercise will be the same as
it would have been had he owned immediately prior to the occurrence of such
events the Common Stock subject to this Option. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify Holder of the Option of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Option adjusted accordingly.
7. Notices. Unless applicable law requires a different method of giving
notice, any and all notices, demands or other communications required or desired
to be given hereunder by any party shall be in writing. Assuming that the
contents of a notice meet the requirements of the specific Section of this
Option which mandates the giving of that notice, a notice shall be validly given
or made to another party if served either personally or if transmitted by
telegraph, telecopy or other electronic written transmission device or if sent
by overnight courier service, and if addressed to the applicable party as set
forth below. If such notice, demand or other communication is served personally,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by overnight courier, or
electronic transmission, service shall be con clusively made at the time of
confirmation of delivery. The addresses for Holder and the Company are as
follows:
If to Holder:
Eurasia Securities Ltd.
If to the Company:
Tech Electro Industries, Inc.
4300 Wiley Post Road
Dallas, Texas 75244-2131
Attention: Chief Financial Officer
Any party hereto may change its or his address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other parties hereto.
8. Governing Law. This Option shall be governed by and construed in
accordance with the internal laws of the State of Texas.
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<PAGE>
9. Covenants During the Restricted Period.
a. The Holder of this Option agrees that during the Restricted Period
(as defined on the legend first appearing on the cover page hereof), upon
any offer, sale or transfer of the Common Stock (or any interest therein),
that the Holder, or any successor, or any Professional (as defined in
Section 9(c) hereof) (except for sales of any Common Stock registered under
the Act or otherwise exempt from such registration), (A) will not sell to a
U.S. Person or an account for the benefit of a U.S. Person or any one
believed to be a U.S. Person, (B) will not engage in any efforts to sell
the Common Stock in the United States, (C) will, at the time the buy order
or transfer is originated, believe the buyer or transferee is outside the
United States, and (D) will send to a "Professional" acting as agent or
principal, a confirmation or other notice stating that the Professional is
subject to the same restrictions on transfer to U.S. Persons or for the
account of U.S. Persons during the Restrictive Period as provided for
herein. The Company will not honor or register, and will not be obligated
to honor or register, any transfer or exercise in violation of any of the
provisions herein.
b. For purposes hereof, in general under Regulation S, a "U.S. Person"
means any natural person, resident of the United States; any partnership or
corporation organized or incorporated under the laws of the United States;
any estate of which any executor or administrator is a U.S. Person; any
trust of which any trustee is a U.S. Person; any agency or branch of a
foreign entity located in the United States; any nondiscretionary account
or similar account, other than estate or trust, held by a dealer or other
fiduciary for the benefit or account of the U.S. Person; any discretionary
account or similar account, other than estate or trust, held by dealer or
other fiduciary organized incorporated or, (if an individual) resident of
the United States; and any partnership or corporation if organized or
incorporated under the laws of any foreign jurisdiction and formed by a
U.S. Person principally for the purpose of investing in securities and not
registered under the Act unless it is organized and incorporated and owned
by "accredited investors," as defined under Rule 501(a) under the Act, who
are not natural persons, estates or trust. "U.S. Person" is further defined
in Rule 9.02(o) under the Act.
c. A "Professional" is a "distributor" as defined in Rule 9.02(c) of
Regulation S under the Act (generally any underwriter, or other person, who
participates, pursuant to a contractual arrangement, in the distribution of
the Securities); a dealer as defined in Section 2(12) of the U.S.
Securities Exchange Act of 1934, as amended (encompassing those who engage
in the business of trading or dealing in securities as agent, broker or
principal); or a person receiving a selling concession, fee or other
remuneration in respect of the Securities sold.
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officers, and to be dated as of the date set forth above.
TECH ELECTRO INDUSTRIES, INC.
6
<PAGE>
By:______________________________
Name: Craig D. La Taste
Title: President
ACKNOWLEDGED, AGREED AND ACCEPTED BY HOLDER:
EURASIA SECURITIES LTD.
By:____________________________
Name: Kim Yeow Tan
Title:___________________________
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option hereby
irrevocably elects to exercise the purchase rights represented by such Option to
exercise ___________ Options for, and to the purchase thereunder, __________
shares of Common Stock and herewith makes payment of $____________ thereof, and
requests that the certificates for shares of Common Stock be issued in the
name(s) of, and delivered to _______________ whose address(es) is (are)
_________________________.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not exercising this Option on behalf of
Initial a U.S. Person as defined in Regulation S promulgated under the
if True U.S. Securities Act of 1933 and this exercise is not taking place
within the United States.
---------------
Dated:____________, ____
------------------------------
------------------------------
Address
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _______________ the right to purchase shares of Common Stock
represented by _________________________ Options, and appoints
_________________________ attorney to transfer such rights on the books of
_________________________, with full power of substitution in the premises.
_______ The undersigned hereby certifies to Tech Electro Industries, Inc. that
Please he is not a U.S. Person and is not transferring this Option to or on
Initial behalf of a U.S. Person as defined in Regulation S promulgated
if True under the U.S. Securities Act of 1933 and this transfer is not taking
place within the United States.
Dated:____________, ____
------------------------------
Holder
------------------------------
Address
In the presence of:
- -------------------------
<PAGE>
EMPLOYMENT AGREEMENT
WHEREAS, on February 1, 1996 CRAIG D. LA TASTE ("Employee") a resident of
Dallas, Texas entered into an employment agreement with Tech Electro Industries,
Inc. ("TEI") a Texas Corporation with its principal offices at 4300 Wiley Post
Road, Dallas, Texas; and
WHEREAS, said employment agreement by its terms will expire on January 31,
1999; and
WHEREAS, it is in the best interest of the Computer Components Corporation,
a Texas Corporation with its principal office at 4300 Wiley Post Road, Dallas,
Texas, 75244 ("Company") and the Employee to provide for longer continuity of
management by Employee of the Company, a wholly owned subsidiary of TEI, through
December 31, 2001.
NOW THEREFORE IT IS AGREED AS FOLLOWS:
In consideration of the employment, or continued employment, of Craig D. La
Taste (hereinafter referred to as "Employee") by Computer Components
Corporation, (hereinafter referred to as "Company") and the attendant benefits
to the parties as a result thereof, Company and Employee agree as follows:
1. Definitions. For purposes of this Agreement, the following definitions
shall apply:
A. "Inventions" shall mean:
(i) All inventions, improvements modifications, and enhancements,
whether or not patentable, made by Employee during Employee's
employment by the Company, and
(ii) All inventions, improvements modifications and enhancements made
by employee, during a period of one year after any suspension or
termination of Employee's employment by the Company, which
relate, directly or indirectly, to the past, present or future
business of the Company.
B. "Work Product" shall mean all documentation, software, creative works,
know-how and information created, in whole or in part, by Employee
during Employee's employment by the Company, whether or not
copyrightable or otherwise protectable, excluding Inventions.
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<PAGE>
C. "Trade Secrets" shall mean all documentation, software, know-how and
information relating to the past, present or future business of the
Company or any plans therefor, or relating to the past, present or
future business of a third party or plans therefor that are disclosed
to the Company, which the Company does not disclose to third parties
without restrictions on use or further disclosure.
2. Employment. The Company hereby employees Employee and Employee hereby
accepts employment with the Company and agrees to serve the Company in the
capacities hereinafter set forth, for the term and compensation, and upon
and subject to the terms and conditions, as hereinafter set forth.
3. Capacities. Employee shall serve in the capacities and shall have such
responsibilities and duties as are set forth in Exhibit A attached hereto
and incorporated herein by reference; provided, however, that Employee
shall perform and discharge such other or further duties as may be assigned
to Employee from time to time by the Company.
3.1 Full time Nature. Employee agrees that during and throughout the term
of this Agreement, Employee will be a full-time employee of the
Company (approximately thirty-five (35) hours per week) and devote
such time and energies as are reasonably necessary or may reasonably
be required to execute, discharge and preform the duties and
responsibilities incumbent upon Employee as specifically delineated
herein or by reason of the nature of employment of Employee. The
Company, in its sole discretion, shall provide Employee an office,
staff, facilities and services that are suitable to the position and
appropriate for the performance of the Employee's duties. The
performance of duties and services by Employee for TEI shall not be
deemed a violation of the requirement of Employee to render full time
services to the Company.
4. Amount. As consideration for the services of Employee rendered or to be
rendered to the Company in the capacities hereinabove set forth, or in such
other or future capacities as may be assigned to Employee by the Company,
Employee shall be compensated by the Company as provided in Exhibit A
attached hereto and incorporated herein for all purposes. The Company shall
reimburse Employee for all reasonable accountable expenses incurred in the
performance of Employee's business, e.g. travel, entertainment, etc. for
the Company. Employee will be reimbursed upon submission of an itemized
account of such expenditures with receipts where practicable.
4.1 Payment. The Company and Employee agree that the compensation provided
herein shall be payable in accordance with the Company's customary
payroll policies.
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<PAGE>
4.2 Other Compensation. Employee shall receive such other remuneration and
benefits as are in accordance with the customary policies of the
Company, subject to the reasonable approval of TEI.
5. Term. The term of this Agreement shall commence as of January 1, 1997
(hereinafter referred to as the "Commencement Date"), and shall continue
for a period of five (5) years thereafter unless sooner terminated by the
following events: (i) Employee's death; or (ii) The Company or Employee
shall terminate this Agreement as hereinafter provided.
5.1 Act of Breach. An "Act of Breach", as that term is used herein, shall
be deemed to mean and consist of any one (1) or more of the following:
(i) Employee's dishonesty;
(ii) Employee's breach of any fiduciary obligations inhering in and
resulting from the employment relationship established by this
Agreement;
(iii)Any material breach by Employee of a covenant contained in this
Agreement.
5.2 Termination for Cause, Illness or Incapacity. The Company may at any
time after the Commencement Date, by giving to Employee thirty (30)
days' prior written notice, terminate this Agreement upon the
Company's making a good faith determination (i) that Employee has
committed an Act of Breach or, (ii) after the passage of forty-five
(45) days of continuous absence from employment by Employee after the
passage of the 30 day period of paid sick leave, that Employee has
become so physically and/or mentally impaired or incapacitated as to
preclude or impair Employee's ability to act in capacities and
discharge the duties and obligations set forth herein.
5.2.1Termination Without Cause. The Company may terminate this Agreement
without cause by giving the Employee thirty day's (30) prior written
notice. In the event the Company shall terminate the employment of
Employee during the term of this Agreement or any extinsion thereof
for any reason whatsoever except for an Act of Breach described in
Section 5.1 or illness or incapacity described in Section 5.2 above,
the Company shall pay the Employee (i) the amount remaining unpaid for
the full term of his contract plus (ii) as liquidated damages, twice
more such remaining unpaid amount.
5.2.2Effect of Attempted Suspension. Any suspension by the Company of the
employment of Employee without cause under Section 5.2 hereof shall be
deemed to constitute a termination and all provisions of Section 5.2.1
shall immediately become effective.
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<PAGE>
5.3 Effect of Delay. Any failure or delay by the Company to exercise the
Company's right to terminate Employee's employment under this
Agreement with respect to any one (1) or more of the matters referred
to in Section 5.2 hereof, shall not be deemed to be a waiver by the
Company of the Company's right of termination of this Agreement in
respect of that Act of Breach or incapacity (provided it shall be
continuing) or of any subsequent Act of Breach or incapacity.
5.4 Employee's Right to Terminate. Employee may, upon substantial breach
of this Agreement by the Company, terminate this Agreement by giving
thirty (30) days' prior written notice to the Company to correct said
breach and to bring itself into compliance hereunder. The failure of
the Company to bring itself into full compliance with its obligations
hereunder within said thirty (30) day period shall be deemed a
termination without cause pursuant to Section 5.2.1 above and all of
the provisions thereof relating to liquidated damages shall be deemed
applicable in such event
5.5 Employee's obligations concerning inventions and work product.
(i) Employee shall promptly disclose to the Company all Inventions
and keep accurate records relating to the conception and
reduction to practice of all Inventions. Such records shall be
the sole and exclusive property of the Company, and the Employee
shall surrender possession of such records to the Company upon
any suspension or termination of the Employee's employment with
the Company.
(ii) Employee hereby assigns to the Company, without additional
consideration to the Employee, the entire right, title and
interest in and to the Inventions and Work Product and in and to
all proprietary rights therein or based thereon. The employee
agrees that the Work Product shall be deemed to be a "work made
for hire". The Employee shall execute all such assignments,
oaths, declarations and other documents as may be prepared by the
Company to effect the foregoing.
(iii)Employee shall provide the Company with all information,
documentation, and assistance the Company may request to perfect,
enforce, or defend the proprietary rights in or based on the
Inventions, Work Product or Trade Secrets. The Company, in
4
<PAGE>
its sole discretion, shall determine the extent of the
proprietary rights, if any, to be protected in or based on the
Inventions and Work Product. All such information, documentation,
and assistance shall be provided at no additional expense to the
Company, except for out-of-pocket expenses which the Employee
incurred at the Company's request. If the Company, in its sole
discretion, decides not to develop or patent an Invention, it
shall for an appropriate consideration assign such Invention to
Employee upon Employee's written request made during the term of
this Agreement.
6. Employee obligations concerning trade secrets.
(i) During the term of his employment with the Company and thereafter for
10 years Employee shall treat Trade Secrets on a confidential basis
and not disclose them to others without the prior written permission
of the Company, or use Trade Secrets for any purpose, other than for
the performance of services for the Company.
(ii) Employee acknowledges that Trade Secrets are the sole and exclusive
property of the Company. The Employee shall surrender possession of
all Trade Secrets to the Company upon any suspension or termination of
Employee's employment with the Company. If after the suspension or
termination of Employee's employment Employee becomes aware of any
Trade Secrets in his possession, Employee shall immediately surrender
possession thereof to the Company.
7. Competitive activities.
(A) During the term of Employee's employment with the Company, Employee
shall not:
(i) Perform any services, directly or indirectly, for any person or
entity competing, directly or indirectly with the Company.
(ii) Own, directly or indirectly, an interest in any entity competing,
directly or indirectly, with the Company, (this Section shall not
be deemed violated if the Employee owns or controls, directly or
indirectly less than one percent (1%) of any security traded on
either the New York Stock Exchange or NASDAQ);
(iii) Compete, directly or indirectly, with any
5
<PAGE>
products or services marketed or offered by the Company; and
(iv) Engage in any activities which would be deemed to be a conflict
of interest.
(B) During the period of one year after any suspension or termination of
Employee's employment by the Company, Employee shall not contact,
directly or indirectly, any customer or supplier of the Company with
whom Employee had contact during the last 12 months of Employee's
employment hereunder.
8. Proprietary information of others. The Company understands that the
Employee may possess proprietary information of third parties and that the
Employee may have on going obligations to third parties with respect
thereto. The Company expressly requires that Employee shall honor such
ongoing obligations to such third parties and that the Employee shall not
use, for the benefit of the Company, or disclose to the Company any such
proprietary information.
9. Employee's performance of agreement. Except for such restrictions as may be
expressly set forth in any exhibit annexed hereto and made a part hereof,
Employee warrants and represents that he has the ability to enter into this
Agreement and perform all obligations hereunder, and that there are no
restrictions or obligations to third parties which would in any way detract
from or affect the Employee's performance hereunder.
10. Governing law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Texas.
11. Unenforceability. If any provision of this Agreement is deemed to be
invalid and/or unenforceable by a final decision of a court of competent
jurisdiction, it shall not effect the remainder of the Agreement which
shall survive and remain in full force and effect.
12. Survival of certain provisions. Any termination or expiration of this
Agreement or suspension of termination of Employee's employment by the
Company notwithstanding, the provisions of this Agreement which are
intended to continue and survive shall so continue and survive, including,
but not limited to, the provisions of Paragraphs 5.2.1, 5.2.2, 5.4, 5.5, 6,
7B, 9, 12, 13, 14, 15 and the Signing Bonus provision of Exhibit A hereof.
This Agreement and all rights hereunder shall inure to the benefit of the
Company, and Employee and their respective successors, assigns and heirs.
13. Cumulative remedies. All rights and remedies of the Company shall include
the right to obtain specific performance against the Employee for the
enforcement of Paragraph 5.5, 6, and 7 of this Agreement.
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14. Arbitration. Any controversy, dispute or claim between the Employee and the
Company arising out of or relating to this Agreement, or its
interpretation, application, implementation, breach or enforcement which
the parties are unable to resolve by mutual agreement, shall be settled by
submission by either party to the controversy, claim or dispute to binding
arbitration in Dallas County, Texas (unless the parties agree in writing to
a different location) before arbitrators in accordance with the rules of
the American Arbitration Association then in effect. In any such
arbitration proceeding the parties agree to provide all discovery deemed
necessary by the arbitrators. The decision and award made by the
arbitrators shall be final, binding and conclusive on all parties hereto
for all purposes, and judgement may be entered thereon in any court having
jurisdiction thereof.
15. Death Benefit. In the event Employee dies during the term of employment,
the Company shall pay to the Employee's estate the salary and any other
monies that would otherwise be payable to the end of the month in which the
Employee died.
16. Notice. Any notice required to be given shall be either (1) personally
delivered or (2) sent by U.S. Postal Service, postage pre-paid Certified
Mail, Return Receipt Requested to the Company at the place of employment
and to the Employee at the last residence address given to and on file with
Company.
The undersigned has read and understood the foregoing and agrees to be
bound thereby.
Date: December 5, 1996
Craig D. La Taste
The foregoing was executed by the Employee in the presence of and accepted on
behalf of the Company.
Date: December 5, 1996 Computer Components Corporation
-----------------------
By:
Title
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GUARANTEE OF PERFORMANCE AND PAYMENT
Tech Electro Industries, Inc. does hereby guarantee the performances and
payment of all obligations hereunder required to be carried out by Computer
Components Corporation, its wholly owned subsidiary with the same force and
effect as if it originally had entered into this Agreement as contracting party.
Date: December 5, 1996 Tech Electro Industries, Inc.
By:
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Exhibit A
Exhibit A to Craig D. La Taste Employment Agreement with Computer Components
Corporation
Salary - First year - $75,000 annually (Calendar year 1997)*
Second year - $80,000 annually (Calendar year 1998)*
Third year - $100,000 annually (Calendar year 1999)
Forth year - $120,000 annually (Calendar year 2000)
Fifth year - $120,000 annually (Calendar year 2001)
Sick Leave - Thirty days paid sick leave per annum
Vacation - Six weeks per year paid vacation.
Company vehicle - Five years old or newer.
Offices - Chairman of the Board, President and Chief Executive Officer
Duties - As provided in Company's Bylaws for these offices listed above.
Signing Bonus: Employee shall receive from the Company as and for a signing
bonus for extinsion of his employment into the years 1999, 2000, and 2001 the
sum of Fifty Thousand ($50,000) Dollars to be paid during the first quarter of
calendar 1997.
*Craig D. La Taste on February 1, 1996 entered into an employment agreement
with Tech Electro Industries, Inc, ("TEI") the parent corporation of Computer
Components Corporation ("Company") to pay his salary for calendar years 1997 and
1998. Company assumes TEI's obligation under such agreement.
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RIDER TO EMPLOYMENT AGREEMENT BETWEEN CRAIG D. LA TASTE ("EMPLOYEE") AND
COMPUTER COMPONENTS CORPORATION ("COMPANY") DATED DECEMBER 5, 1996 ("EMPLOYMENT
AGREEMENT") AND TECH ELECTRO INDUSTRIES, INC ("TEI") THE OWNER OF 100% OF THE
ISSUED AND OUTSTANDING SHARES OF THE COMPANY.
In consideration of Employee entering into the EMPLOYMENT AGREEMENT, the parties
hereto further agree and covenant as follows:
1. Throughout the term of the EMPLOYMENT AGREEMENT, EMPLOYEE shall serve as
Chairman of the Board and Chief Executive Officer of COMPANY.
2. EMPLOYEE shall have the right to select a majority of the Board of
Directors of COMPANY and TEI agrees to support the election of nominees of
Employee to the Board of Directors of COMPANY.
3. In the event TEI determines to sell or dispose of all or part of its
holdings of COMPANY then and in that event EMPLOYEE shall have the right of
first refusal to purchase the same. TEI shall give EMPLOYEE thirty days
written notice of its intention to dispose of any or all of its holdings of
COMPANY capital stock and the terms and conditions of such proposed
disposition. EMPLOYEE shall then have twenty (20) days to accept or reject
the offer. If accepted a closing shall take place ten (10) days after such
acceptance at the Dallas, Texas office of TEI at which time the
consideration will be paid and the securities delivered. In the event of
any modification of the original offer to purchase, the same shall be
conveyed to EMPLOYEE and treated as if it were the original offer to
purchase and the provisions of this paragraph relating to time shall begin
anew.
Date: December 5, 1996
EMPLOYEE: Craig D. La Taste
Computer Components Corporation
By:
David L. Arnold
Vice-President
Tech Electro Industries, Inc.
By:
David L. Arnold
Vice-President
