Rule
424(b)(3)
333-4614
SIMS COMMUNICATIONS, INC.
4,580,000 Shares Common Stock
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus relates to 4,580,000 shares (the "Shares") of common
stock (the "Common Stock") of SIMS Communications, Inc. (the "Company") which
may be issued pursuant to certain employee incentive plans adopted by the Com-
pany. The employee incentive plans provide for the grant, to selected em-
ployees of the Company and other persons, of either stock bonuses or options
to purchase shares of the Company's Common Stock. This Prospectus also re-
lates to 90,000 shares of the Company's Common Stock which may be issued upon
the exercise of options granted by the terms of employment contracts between
the Company and certain officers of the Company. Persons who receive Shares
pursuant to the Plans (or the employment contract options) and who are
offering such Shares to the public by means of this Prospectus are referred
to as the "Selling Shareholders".
The Company has an Incentive Stock Option Plan, a Non-Qualified
Stock Option Plan and a Stock Bonus Plan. In some cases the plans described
above are collectively referred to as the "Plans". The terms and conditions
of any stock bonus and the terms and conditions of any options, including the
price of the shares of Common Stock issuable on the exercise of options, are
gov- erned by the provisions of the respective Plans and the stock bonus or
stock option agreements between the Company and the Plan participants.
The Selling Shareholders may offer the shares from time to time in
negotiated transactions in the over-the-counter market, at fixed prices which
may be changed from time to time, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Shares to or through securities broker/dealers, and such broker/dealers may
receive compensation in the form of discounts, concessions, or commissions
from the Selling Shareholders and/or the purchasers of the Shares for whom
such broker/dealers may act as agent or to whom they sell as principal, or
both (which compensation as to a particular broker/dealer might be in excess
of customary commissions). See "Selling Shareholders" and "Plan of Distribu-
tion".
The date of this Prospectus is May 16, 1996.
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to bear
all expenses (other than underwriting discounts, selling commissions and fees
and expenses of counsel and other advisers to the Selling Shareholders). The
Company has agreed to indemnify the Selling Shareholders against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securi-
ties Exchange Act of 1934 (the "Exchange Act") and in accordance therewith,
files reports and other information with the Securities and Exchange
Commission (the "Commission"). Proxy statements, reports and other
information concerning the Company can be inspected and copied at Room 1024
of the Commission's office at 450 Fifth Street, N.W., Washington, D.C. 20549,
and the Commission's Regional Offices in New York (26 Federal Plaza, New
York, New York 10278), and Chicago (Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511), and copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. This
Prospectus does not contain all information set forth in the Registration
Statement of which this Prospec- tus forms a part and exhibits thereto which
the Company has filed with the Commission under the Securities Act and to
which reference is hereby made.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide, without charge, to each person to whom a
copy of this Prospectus is delivered, including any beneficial owner, upon
the written or oral request of such person, a copy of any or all of the
documents incorporated by reference herein (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
into this Prospectus). Requests should be directed to:
SIMS Communications, Inc.
3333 S. Congress Ave., Suite
40l Delray Beach, FL
33445
(407) 265-3701
Attention: Secretary
The following documents filed with the Commission by the Company
(Commission File No. 0-25474) are hereby incorporated by reference into this
Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1995; and
(2) The Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1995.
All documents filed with the Commission by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date
of this Prospectus and prior to the termination of the offering registered
hereby shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for the
purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Such
statement so modified or superseded shall not be deemed, except as so
modified or superse- ded, to constitute a part of this Prospectus.
TABLE OF CONTENTS
PAGE
THE COMPANY ....................................................... 5
RECENT DEVELOPMENTS CONCERNING THE COMPANY WHICH HAVE
NOT BEEN REFLECTED IN REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ........................................... 6
RISK FACTORS ...................................................... 7
DILUTION .......................................................... 13
USE OF PROCEEDS ................................................... 13
SELLING SHAREHOLDERS .............................................. 13
PLAN OF DISTRIBUTION .............................................. 16
DESCRIPTION OF COMMON STOCK ....................................... 17
GENERAL ........................................................... 18
THE COMPANY
SIMS Communications, Inc. (the "Company") has designed and markets
for its own account and franchisees a computerized system which provides unat-
tended daily rental of cellular telephones through a stand-alone dispensing
station. The Company refers to its system as an Automated Communications Dis-
tribution Center ("ACDC"). Ready access to a telephone has become a priority
for the business, and to a lesser extent, the recreational traveler. In the
Company's opinion, the automated dispensing capability of the ACDC is respon-
sive to the needs of traveling salesmen, convention and seminar participants,
and anyone else who is temporarily away from his normal communications facili-
ties and needs to maintain contact with his office or home while traveling.
An ACDC station is capable of dispensing from one to twelve cellular
phones on a user-friendly, completely automated basis. The system uses elec-
tronic funds transfer and accepts American Express, Visa and Mastercard
credit cards for payment in advance by the customer. The system is entirely
free- standing and requires no on-site support personnel.
The Company's first ACDC unit became operational in September 1993.
At March 31, 1996, the Company and its franchisees collectively had 58 ACDC
units operating in locations such as hotel lobbies, car rental agencies and
airport concourses.
The Company has introduced four new programs to diversify and
broaden the Company's product and service mix: cellular telephone
activations, sale of pre-paid calling cards, sale of long distance telephone
service and rental of cellular telephones using overnight courier service.
The cellular telephone activation program is offered to members of
the Florida, Louisiana and Mississippi AAA Clubs. This program allows a AAA
member to receive a free cellular telephone if the member agrees to a one
year service contract with a cellular telephone carrier. The Company is paid
a commission for each service contract signed by a AAA member. During the
quar- ter ending March 31, 1996 the Company activated over 1,400 cellular
phones. An additional 450 phones were activated during April 1996. This
program gen- erated about 40% of the Company's third quarter revenue and
operated at a gross profit of $158,000 for the quarter. The AAA Clubs in
Florida, Louisiana and Mississippi Clubs have approximately 1.2 million
members. The Company anticipates broadening this service to other AAA clubs.
The Company also offers AAA members pre-paid long distance calling
cards and long distance telephone service. The pre-paid long distance
calling card program has also recently been introduced to Alamo Rent-a-Car
customers. Calling cards are sold to rental car customers over the counter
and through an automated calling card dispensing machine. The Company
receives a commission for each pre-paid calling card sold.
With respect to long distance telephone service, the Company acts as
an agent for a long distance telephone company. For each AAA member who
switches their long distance service to this telephone company, the Company
receives a commission based upon the member's long distance usage.
The overnight cellular telephone rental program provides for the de-
livery of cellular telephones anywhere in the United States through Federal
Express overnight service. Customers include Florida, Louisiana and Missis-
sippi AAA members, employees of Nike Corporation and ESPN, and Alamo Rent-a-
Car customers. A person wanting to rent a cellular telephone through this
service calls the Company's toll free telephone number to arrange for the
short-term rental of a cellular telephone. The Company ships the cellular
telephone via Federal Express to the address designated by the customer, to-
gether with a Federal Express box addressed to the Company. When the
customer no longer needs the cellular telephone, the customer returns the
telephone to the Company by means of Federal Express. This program, which
started in January 1996, generated approximately $38,000 in revenue during
the quarter ending March 31, 1996. The Company believes that revenues from
this program will increase as more potential customers become aware of this
service.
The Company has also modified its method of renting cellular tele-
phones at the Alamo Car Rental locations at the Orlando, Miami and Ft. Lauder-
dale airports. Due to the demand for cellular telephone rentals at these lo-
cations, a Company employee staffs a counter adjacent to the Alamo Rental Car
counters. Rather than dispensing cellular telephones through a Company ACDC
unit, Company employees, who staff the counters 24 hours a day, handle all
cellular telephone rentals for persons wanting to rent cellular telephones at
these locations. Rentals from these three Alamo Rental Car locations accoun-
ted for approximately 20% of the Company's gross revenues during the three
months ending March 31, 1996.
The Company uses the term "INSTA FONE" to identify its ACDC machines
and services. The Company's "ACDC" trademark and "INSTA FONE" service mark
are registered with the United States Patent and Trademark Office.
The Company was incorporated in Delaware on August 15, 1991. The
Company's executive offices are located at 3333 S. Congress Avenue, Suite
401, Delray Beach, Florida 33445. The Company's telephone number is (407)
265- 3601.
In June 1995 the shareholders of the Company approved a 2 for 1 for-
ward split of the Company's Common Stock. In February 1996 the shareholders
of the Company approved a 1 for 10 reverse split of the Company's Common
Stock. Accordingly, all historical share data in this Prospectus has been
adjusted to reflect this stock split.
As of May 1, 1996 the Company had 3,685,451 shares of Common Stock
issued and outstanding.
RECENT DEVELOPMENTS CONCERNING THE COMPANY WHICH HAVE NOT BEEN
REFLECTED IN REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
In December 1995 the Company issued 43,778 shares of its Common
Stock to Melvin Leiner, Donald Marks, James Caprio and Darren Marks (175,112
shares in total) as repayment of loans, each in the amount of $90,500, made
by such persons to the Company.
Effective May 1, 1996, the Company's Board of Directors amended the
Company's Incentive Stock Option Plan, Non-Qualified Stock Option Plan and
Stock Bonus Plan such that each Plan now authorizes the issuance of 1,500,000
shares of Common Stock pursuant to options or stock bonuses granted pursuant
to these Plans.
In May 1996 the Company, in accordance with the terms of its Stock
Bonus Plan, issued 1,480,000 shares of Common Stock to certain Company offi-
cers, employees and consultants. The shares were issued in consideration for
past services rendered to the Company. The following officers received
shares of the Company's Common Stock in this transaction and such shares are
being offered to the public by means of this Prospectus. See "Selling
Shareholders".
Shares Issued
Name as Stock Bonus
Mel Leiner 250,000
James J. Caprio
250,000
Darren Marks
250,000
Don Marks
250,000
Ken Zubay
100,000
Bruce Schames
75,000
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk. Therefore, prospective investors should read
this Prospectus and carefully consider, among others, the following risk
factors in addition to the other information set forth in this Prospectus
prior to making an investment.
Offering Proceeds. This Offering is being made by certain Selling
Shareholders. The Company will not receive any proceeds from the sale of the
shares by the Selling Shareholders.
History of Losses. The Company has had a limited operating history
and has incurred losses since it was formed in 1991. From the date of its
formation through December 31, 1995, the Company incurred net losses of ap-
proximately $(8,139,000). During the three months ended December 31, 1995
the Company had losses of $(669,892). The Company expects to continue to
incur operating losses until such time, if ever, as it generates substantial
revenues directly or from franchisees and earns net income. There can be no
assurance that the Company will be able to generate sufficient revenues and
become pro- fitable in the future.
New Concept. The Company's business involves the automated rental
of cellular telephones, a new concept in a relatively new industry. The suc-
cess of this business will depend upon the ability of the Company, and its
franchisees, to derive revenues from the rental of the cellular telephones in
excess of the costs associated with such rentals. The Company and its fran-
chisees only recently began renting cellular telephones. Accordingly, the
Company does not have a sufficient history of operations for a potential in-
vestor to determine if the Company's method of renting cellular telephones
will meet with sufficient market acceptance to allow the Company and its fran-
chisees to earn a profit from this line of business. During the six months
ended December 31, 1995 approximately 19% of the ACDC units in service oper-
ated profitably.
The Company is vulnerable to a variety of business risks generally
associated with new companies, any one of which could have a material adverse
effect on its business, financial condition and results of operations. Poten-
tial investors should be aware of the difficulties encountered by a new enter-
prise and the other risk factors set forth in this section. The Company's fu-
ture operating results will also depend on a number of factors, including the
demand for its products, the level of competition, government regulation, gen-
eral economic conditions and other factors beyond the control of the Company.
Accordingly, there can be no assurance that the Company will be able to earn
a profit from its operations.
Need for Additional Capital. The Company's continued operations
will depend upon the availability of additional funding. The Company may be
forced to delay or postpone the installation of ACDC units if the Company is
unable to secure adequate sources of funds. Any such delays may have an ad-
verse effect on the Company, causing the Company to curtail its operations
and planned expansion. There can be no assurance that the Company will be
able to obtain additional funding, if needed, or if available on terms
satisfactory to the Company.
Expansion of Business. There can be no assurance that the Company
will be able to continue to expand its operations successfully and ultimately
on a profitable basis. Expansion of the Company's business depends on, among
other things, the continued growth of the cellular telephone industry, the
Company's ability to compete with much larger companies, its ability to suc-
cessfully market its product, retain qualified sales and other personnel, suc-
cessfully manage growth (including monitoring an expanded level of operations
and controlling costs) and the availability of additional financing.
The Company's operations have placed, and are expected to continue
to place, significant strain on the Company's management, staff, working
capital, and financial control systems. The failure to maintain or upgrade
financial control systems, to recruit additional staff or to respond
effectively to dif- ficulties encountered during expansion could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company's systems
and controls or staff will be adequate.
Competition. The Company competes with numerous companies involved
in the rental of cellular telephones. Many of these companies have signifi-
cantly greater financial, distribution, advertising, marketing, management
and personnel resources than the Company. The Company's future success will
de- pend to a significant degree upon its ability to remain competitive in
the areas of price, convenience, equipment quality, and marketing, while
operating within the constraints imposed by its financial resources. No
assurance can be given that other companies with substantially greater
resources will not enter this market.
During the past several years, the number of persons who either own
or lease cellular telephones on a long-term basis has increased significantly
and, in some markets, there has been a general decline in the cost of using
cellular telephones. For persons owning or leasing a cellular telephone on a
long-term basis, the cost of operating a cellular telephone includes the cost
of the cellular telephone, batteries, charging units and other accessories
(in the case of direct ownership), monthly lease payments (in the case of
leased equipment), fixed monthly charges, airtime charges for calls made or
received within the area serviced by the person's cellular carrier, and
higher "roam- ing" charges for calls made or received outside the area
serviced by the per- son's cellular carrier. Although the cost of operating
a cellular telephone will vary depending upon various factors, certain
persons who own or lease cellular telephones on a long-term basis may find
that the cost of using their cellular telephone, when traveling, is less
expensive than renting a cellular telephone from the Company, and may
therefore elect to use their own cellular telephone instead of renting a
cellular telephone from the Company.
Risks Involving Franchisees. The Company may be exposed to poten-
tial significant liability claims resulting from its franchisees. Other as-
pects of the franchisor/franchisee relationship, such as termination and non-
renewal, are not expected to have a material impact on the Company's opera-
tions. The Company's franchise agreement requires the franchisee to maintain
at least $1,000,000 of general liability insurance and such other insurance
as is reasonably requested by the Company, with the Company listed as an addi-
tional named insured on each policy, which it believes is adequate coverage
(until the Company is able to expand its operations at which point the
Company will use its best efforts to obtain coverage for claims that may be
made against it based upon the acts of its franchisees and will also use its
best efforts to obtain an umbrella liability insurance policy, although there
can be no assurance that it will be able to obtain such additional insurance
cov- erage). Even if the Company is able to obtain such coverage, there can
be no assurance that the Company will not need to increase such coverage or
that the present or future levels of coverage will be available at a
reasonable cost. A partially insured or an entirely uninsured claim against
the Company could have a material adverse effect on the Company.
ACDC Locations. The Company's ability to expand is dependent, in
part, upon its ability to locate and secure acceptable ACDC sites. Access to
suitable ACDC sites is a critical aspect of the Company's business, and there
can be no assurance that the Company will be successful in obtaining suitable
ACDC locations.
Patent, Trade and Service Marks. The Company has been granted a
design patent on its ACDC system which will expire in 2010. Since the design
patent covers only the external design of the ACDC, most of the other
features of the ACDC are not protected by the patent. The Company has also
filed two patent applications relating to other aspects of the ACDC. In
addition, the Company has a trademark and a service mark for the name ACDC
registered with the U.S. Patent and Trademark Office.
There is no assurance that the Company's pending patent applications
will result in the issuance of any patents. Furthermore, there is no assur-
ance as to the breadth and degree of protection any issued patents, trade-
marks or service marks might afford the Company. Disputes may arise between
the Company and others as to the scope and validity of the Company's patent,
trademark and service mark or the patents and trade/service marks held by
others. Any defense of the Company's patents, trademark or service mark
could prove costly and time consuming and there can be no assurance that the
Company will be in a position, or will deem it advisable, to carry on such a
defense. Also, to the extent the Company relies upon unpatented proprietary
technology, there is no assurance that others may not acquire or
independently develop the same or similar technology.
Dependence on Third Party Suppliers. The Company relies on soft-
ware provided by Telemac Cellular for certain features of its real-time bill-
ing system. At present, the Company does not have any alternative sources
for the software used with the ACDC units. Since the Company does not own
any proprietary software, if the software license between the Company and
Telemac was terminated, the Company, until replacement software could be
obtained, would be unable to provide customers with an itemized billing at
the time the cellular telephone was returned. Any termination of the
agreement between the Company and Telemac (prior to the Company obtaining an
alternative billing system) may have an adverse effect on the Company.
Agreements with Credit Card Companies. The Company's ACDC units are
capable of operating on an automatic basis as the result of a nationwide
credit card system. By means of telephone lines and computers, this system
links credit card companies, issuing banks and credit card processing firms
throughout the United States and allows the Company's customers to obtain cel-
lular telephones by merely inserting a credit card into the appropriate space
in the ACDC unit. The Company presently has agreements with credit card pro-
cessors which authorize the use of various major credit cards in the
Company's ACDC units. In order for the Company to continue to have the
services of these credit card processors available, the Company is required
to meet certain con- ditions as provided in the agreements between the credit
card processors and the Company. In the event the Company fails to meet
these conditions, the credit card processors may automatically refuse to
accept credit cards inserted into the ACDC units by the Company's customers,
in which case the Company would be unable to rent cellular telephones through
certain of its ACDC units.
Dependence on Personnel. The success of the Company is dependent
upon the personal efforts of its executive officers. The loss of the
services of any of the Company's executive officers could have a material
adverse effect on the Company. The Company believes that its future success
will also depend upon its ability to attract and retain qualified marketing
and programming personnel. There can be no assurance that the Company will
be able to hire and retain such necessary personnel in the future.
Market for Company's Securities; Volatility of Securities Prices.
Prices for the Company's Common Stock have been highly volatile and will be
influenced by a number of factors, including the depth and liquidity of the
market for the Company's Common Stock, the Company's financial results, inves-
tor perceptions of the Company, various factors affecting the cellular tele-
phone industry, and general economic and other conditions. Additionally, in
the last several years, the stock market has experienced a high level of
price and volume volatility and market prices of many companies, particularly
small
and emerging growth companies, the common stock of which trade in the over-
thecounter market, have experienced wide price fluctuations which have not
neces- sarily been related to the operating performance of such companies.
No Assurance of Continued NASDAQ Quotation. Although the Company's
Common Stock and Warrants are listed on the NASDAQ SmallCap Market, the
National Association of Securities Dealers, Inc. ("NASD") requires, for
continued inclusion on the NASDAQ SmallCap Market, that the Company must
maintain $2,000,000 in assets, $200,000 market value of the public float,
$1,000,000 in net worth and that the bid price of the Company's Common Stock,
must be at least $1.00, or in the alternative, that the Company have (i) a
net worth of at least $2,000,000 and (ii) that the value of the public float
be at least $1,000,000. As the Company does not have any control over the
market price of its Common Stock, the Company cannot assure it will be able
to comply with the requirements concerning the market value of the Company's
publicly traded se- curities. If the Company's securities were delisted from
the NASDAQ SmallCap Market, the Company's securities would trade in the
unorganized interdealer over-the-counter market through the OTC Bulletin
Board which provides signifi- cantly less liquidity than the NASDAQ SmallCap
Market. Securities which are not traded on the NASDAQ SmallCap Market may be
more difficult to sell and may be subject to more price volatility than
NASDAQ listed securities.
If the Company's Common Stock and/or Warrants were delisted from NAS-
DAQ, trades in such securities may then be subject to Rule 15g-9 under the Se-
curities Exchange Act of 1934, which rule imposes certain requirements on bro-
ker/dealers who sell securities subject to the rule to persons other than es-
tablished customers and accredited investors. For transactions covered by
the rule, brokers/dealers must make a special suitability determination for
pur- chasers of the securities and receive the purchaser's written agreement
to the transaction prior to sale. Rule 15g-9, if applicable to sales of the
Com- pany's securities, may affect the ability of broker/dealers to sell the
Com- pany's securities and may also affect the ability of investors in this
offer- ing to sell such securities in the secondary market and otherwise
affect the trading market in the Company's securities.
The Securities and Exchange Commission has rules that regulate bro-
ker/dealer practices in connection with transactions in "penny stocks".
Penny stocks generally are equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges or
quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in that security is provided by the
exchange or sys- tem). The penny stock rules, which generally became
effective January 1, 1993, require a broker/dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Commission that provides information
about penny stocks and the nature and level of risks in the penny stock
market. The bro- ker/dealer also must provide the customer with current bid
and offer quota- tions for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. The bid and offer quotations, and the broker/dealer and
salesperson compensation information, must be given to the customer orally or
in writing prior to effecting the transaction and must be given to the
customer in writing before or with the
customer's confirmation. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules.
Control by Principal Shareholders. Upon the completion of this
offering the Company's officers and directors will own approximately 25% of
the outstanding shares of Common Stock. As a result, the Company's officers
and directors are in a position to control the Company through their ability
(from a practical standpoint) to determine the outcome of elections of the
Company's directors, adopt, amend or repeal the Bylaws and take certain other
actions requiring the vote or consent of the stockholders of the Company.
Transactions with Affiliates. The Company has in the past entered
into transactions and agreements with the Company's management and certain of
their other affiliates. Although no such transactions are presently contem-
plated, the Company may in the future enter into other transactions and agree-
ments incident to its business with certain of its affiliates. Although the
Company intends that the terms of any such future transactions and agreements
will be no less favorable than those which could be obtained from
unaffiliated third parties, no assurances can be given that this will be the
case. Any fu- ture transactions between the Company and its directors,
officers, and/or principal stockholders or other affiliates that are material
to the Company and are not in the ordinary course of business will be
approved by a majority of the Company's independent and disinterested
directors.
Dilution. As of May 1, 1996, the Company had a net tangible book
value of approximately $0.01 per share. Net tangible book value per share
represents the amount of the Company's tangible net worth (i.e., tangible as-
sets less liabilities) divided by the total number of shares outstanding imme-
diately prior to the completion of this offering. Accordingly, investors in
this offering will experience an immediate dilution in their investment.
Lack of Dividends. There can be no assurance that the future oper-
ations of the Company will be profitable. At present, the Company intends to
use available funds to finance the Company's operations. Accordingly, while
payment of dividends rests within the discretion of the Board of Directors,
no dividends have been declared or paid by the Company. The Company does not
presently intend to pay dividends and there can be no assurance that
dividends will ever be paid.
Options. The Company may grant options for the purchase up to
3,000,000 shares of Common Stock pursuant to its two stock option plans. For
the term of such options, the holders thereof will have an opportunity to pro-
fit from any increase in the market price of the Company's Common Stock with-
out assuming the risks of ownership. Holders of such options may exercise
them at a time when the Company could obtain additional capital on terms more
favorable than those provided by the options which may adversely affect the
ability of the Company to obtain additional capital in the future. The exer-
cise of the options and the sale of the underlying shares of Common Stock
could adversely affect the market price of the Company's stock.
Preferred Stock. The Company's Articles of Incorporation authorize
the Company's Board of Directors to issue up to l,000,000 shares of Preferred
Stock. Although no Preferred Stock has been issued to date, the provisions
in the Company's Articles of Incorporation relating to the Preferred Stock
would allow the Company's directors to issue Preferred Stock with multiple
votes per share and dividends rights which would have priority over any
dividends paid with respect to the Company's Common Stock. The issuance of
Preferred Stock with such rights may make the removal of management difficult
even if such re- moval would be considered beneficial to shareholders
generally, and will have the effect of limiting shareholder participation in
certain transactions such as mergers or tender offers if such transactions
are not favored by incumbent management. Thus, in addition to being able to
control the vote on all matters before the Shareholders, the Preferred Stock
may be deemed to be an anti-take- over device which could be utilized as a
method of discouraging, delaying or preventing a change in control of the
Company.
Shares Available for Resale. As of May 1, 1996 there were 3,685,451
shares of the Company's Common Stock issued and outstanding. Of this amount,
approximately 1,369,000 shares have not been registered under the Securities
Act of l933, as amended (the "Act"), and are "restricted securities" as de-
fined by Rule l44 of the Act.
Rule l44 provides, in essence, that shareholders, after holding re-
stricted securities for a period of two years may, every three months, sell
in ordinary brokerage transactions an amount equal to the greater of l% of
the Company's then outstanding Common Stock or the average weekly trading
volume, if any, of the stock during the four calendar weeks preceding the
sale. Non- affiliates of the Company who hold restricted securities for a
period of three years may, under certain prescribed conditions, sell their
securities without regard to any of the requirements of the Rule.
Of the 1,369,000 shares of restricted stock which are presently out-
standing, approximately 1,200,000 shares of restricted stock have satisfied
the two year holding period required by Rule 144. The remaining shares of re-
stricted stock will become available for resale pursuant to Rule l44 in
various amounts each month, with all shares of restricted stock being
available for resale by September 1996. Notwithstanding the above, certain
of the Company's officers and directors have agreed that without the prior
consent of the Underwriter of the Company's 1995 Public Offering they will
not sell 745,650 of these restricted shares which they collectively own until
February l997.
No prediction can be made as to the effect, if any, that the sale of
Common Stock (or the availability of such Common Stock for sale) by the
holders of the Company's restricted stock will have on the market price of
the Company's securities. Nevertheless, the possibility of a substantial
number of shares of Common Stock being offered for sale in the public market
may ad- versely affect prevailing market prices for the Common Stock and
could impair investors' ability to sell the Company's Common Stock or the
Company's ability to raise capital through the sale of its equity securities.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE
PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY
PERSON CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE
AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PRIVATE OFFERING
MEMORANDUM. THE UNITS SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
ABSORB A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A
RETURN ON THEIR INVESTMENT.
DILUTION
As of May 1, 1996, the Company had 3,685,451 shares of its Common
Stock outstanding with a net tangible book value (total assets less total
liabilities and intangible assets) of approximately $0.01 per share.
The net tangible book value of a share of the Company's Common Stock
is substantially less than the price which investors will pay for the shares
offered by this Prospectus. The difference between the public offering price
and the net tangible book value of the Company's Common Stock is the dilution
attributable to each share of Common Stock.
"Net tangible book value per share" is the amount that results from
subtracting the total liabilities and intangible assets of the Company from
its total assets and dividing such amount by the shares of Common Stock then
outstanding.
USE OF PROCEEDS
All of the shares offered by this Prospectus are being offered by
certain owners of the Company's Common Stock (the Selling Shareholders) and
were issued by the Company in connection with the Company's employee stock
bonus or stock option plans. None of the proceeds from this offering will be
received by the Company. Expenses expected to be incurred by the Company in
connection with this offering are estimated to be approximately $10,000. The
Selling Shareholders have agreed to pay all commissions and other
compensation to any securities broker/dealers through whom they sell any of
the Shares.
SELLING SHAREHOLDERS
The Company has issued (or may in the future issue) shares of its
common stock to various persons pursuant to certain employee incentive plans
adopted by the Company. The employee incentive plans provide for the grant,
to selected employees of the Company and other persons, of either stock
bonuses or options to purchase shares of the Company's Common Stock. The
Company may also issue up to 90,000 shares of its common stock upon the
exercise of options granted by the terms of employment contracts between the
Company and certain of its officers. Persons who received Shares pursuant to
the Plans (or upon the exercise of the employment contract options) and who
are offering such Shares to the public by means of this Prospectus are
referred to as the "Sell- ing Shareholders".
The Company has adopted two Stock Option Plans as well as a Stock
Bonus Plan. In some cases these Plans are collectively referred to as the
"Plans". A summary description of these Plans follows.
Incentive Stock Option Plan. The Company has an Incentive Stock
Option Plans which collectively authorize the issuance of up to 1,500,000
shares of the Company's Common Stock to persons that exercise options granted
pursuant to the Plan. Only Company employees may be granted options pursuant
to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plan. The Company has a Non-Qualified
Stock Option Plan which collectively authorize the issuance of up to
1,500,000 shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plans. The Company's employees, directors,
officers, consul- tants and advisors are eligible to be granted options
pursuant to the Plans, provided however that bona fide services must be
rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee but
cannot be less than the market price of the Company's Common Stock on the
date the option is granted.
Stock Bonus Plan. The Company has a Stock Bonus Plan which allows
for the issuance of up to 1,500,000 shares of Common Stock. Such shares may
consist, in whole or in part, of authorized but unissued shares, or treasury
shares. Under the Stock Bonus Plan, the Company's employees, directors,
officers, consultants and advisors are eligible to receive a grant of the
Company's shares, provided however that bona fide services must be rendered
by consul- tants or advisors and such services must not be in connection with
the offer or sale of securities in a capital-raising transaction.
Summary. The following sets forth certain information, as of May 1,
1996, concerning the stock options and stock bonuses granted by the Company.
Each option represents the right to purchase one share of the Company's
Common Stock.
Total Shares
Remaining Shares Reserved for Shares
Options/
Reserved Outstanding Issued as Shares
Name of Plan Under Plan Options Stock Bonus Under
Plan
Incentive Stock Option Plan 1,500,000 90,000 N/A
1,410,000 Non-Qualified Stock Option
Plan 1,500,000 - N/A
1,500,000
Stock Bonus Plan 1,500,000 N/A 1,480,000
20,000
TOTAL:
The following table summarizes the options and stock bonuses granted
to the Company's officers, directors, employees and consultants pursuant to
the Plans:
Shares Subject
to Options Which Shares
Name of Have Been Granted Issued
as
Option Holder To Date (1) Stock
Bonus
Melvin Leiner 20,000 250,000
Donald M. Marks 20,000 250,000
James J. Caprio 20,000 250,000
Darren M. Marks 20,000 250,000
Kenneth J.P. Zubay 10,000 100,000
Bruce S. Schames - 75,000
Bob Stevens - 90,000
Jim Anderson - 50,000
Robert Thompson - 65,000
Jeff Leiner - 50,000
Anthony Cerniglia - 50,000
(1) The options issued to the Company's officers and directors are
exercisable at a price of $3.25 per share and expire on September 30,
1999.
In addition to the foregoing, and separate and apart from any of the
Company's Stock Option Plans, the Company has granted options to the
following officers upon the terms set forth below. These options were
granted as part of employment contracts between the Company and these
officers. The shares issuable upon the exercise of these options are also
being offered to the public by means of this Prospectus.
Shares Expiration
Subject to Exercise Date of
Option Holder Option Price Option
Melvin Leiner 20,000 $2.75 9/30/99
Donald M. Marks 20,000 $2.75
9/30/99
James J. Caprio 20,000 $2.75
9/30/99
Darren M. Marks 20,000 $2.75
9/30/99
Shares issuable upon the exercise of options granted to the
Company's officers and directors pursuant to the Plans, shares issued or
issuable pur- suant to the Stock Bonus Plan, as well as the shares issuable
upon the exercise of the employment contract options, are being offered by
means of this Prospectus. The following table provides certain information
concerning the share ownership of the Selling Shareholders and the shares
offered by means of this Prospectus.
Number of
Shares to
Number of Number of Shares be Beneficially
Name of Shares Being Offered owned on Com-
Percent
Selling Beneficially Option Bonus pletion of the of
Shareholder Owned Shares(1) Shares(2) Offering
Class
Melvin Leiner 477,413 40,000 250,000 227,413
6.2%
Donald M. Marks 477,413 40,000 250,000 227,413
6.2%
James J. Caprio 477,413 40,000 250,000 227,413
6.2%
Darren M. Marks 477,413 40,000 250,000 227,413
6.2%
Kenneth J.P. Zubay 111,452 10,000 100,000 11,452 *
Bruce S. Schames 76,500 - 75,000 1,500 *
Bob Stevens 90,000 - 90,000 - -
Jim Anderson 50,000 - 50,000 - -
Robert Thompson 65,000 - 65,000 - -
Jeff Leiner 51,500 - 50,000 1,500 *
Anthony Cerniglia 50,000 - 50,000 - -
* Less than 1%
(1) Represents shares issuable upon exercise of stock options granted
pursuant to the Plans and the employment contracts with certain officers.
(2) Represents shares received as a stock bonus.
To allow the Selling Shareholders to sell their Shares when they
deem appropriate, the Company has filed a Form S-8 registration statement
under the Securities Act of 1933, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time in the over-the-counter
market or in privately negotiated transactions.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the Shares offered by this Prospec-
tus from time to time in negotiated transactions in the over-the-counter mar-
ket at fixed prices which may be changed from time to time, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker/ dealers, and such
broker/dealers may receive compensation in the form of discounts,
concessions, or commissions from the Selling Shareholders and/or the
purchasers of the Shares for which such broker/dealers may act as agent or to
whom they may sell, as principal, or both (which compensation as to a
particular broker/ dealer may be in excess of customary compensation).
The Selling Shareholders and any broker/dealers who act in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of 2(11) of the Securities Acts of 1933,
and any commissions re- ceived by them and profit on any resale of the Shares
as principal might be deemed to be underwriting discounts and commissions
under the Securities Act. The Company has agreed to indemnify the Selling
Shareholders and any securities broker/dealers who may be deemed to be
underwriters against certain liabili-
ties, including liabilities under the Securities Act as underwriters or other-
wise.
The Company has advised the Selling Shareholders that they and any
securities broker/dealers or others who may be deemed to be statutory under-
writers will be subject to the Prospectus delivery requirements under the
Securities Act of 1933. The Company has also advised each Selling
Shareholder that in the event of a "distribution" of the shares owned by the
Selling Share- holder, such Selling Shareholder, any "affiliated purchasers",
and any broker/ dealer or other person who participates in such distribution
may be subject to Rule 10b-6 under the Securities Exchange Act of 1934 ("1934
Act") until their participation in that distribution is completed. A
"distribution" is defined in Rule 10b-6 as an offering of securities "that is
distinguished from ordinary trading transactions by the magnitude of the
offering and the presence of spe- cial selling efforts and selling methods".
The Company has also advised the Selling Shareholders that Rule 10b-7 under
the 1934 Act prohibits any "stabi- lizing bid" or "stabilizing purchase" for
the purpose of pegging, fixing or stabilizing the price of the Common Stock
in connection with this offering.
Rule 10b-6 makes it unlawful for any person who is participating in
a distribution to bid for or purchase stock of the same class as is the
subject of the distribution. If Rule 10b-6 applies to the offer and sale of
any of the Shares, then participating broker/dealers will be obligated to
cease market-making activities nine business days prior to their
participation in the offer and sale of such Shares and may not recommence
market-making activi- ties until their participation in the distribution has
been completed. If Rule 10b-6 applies to one or more of the principal market-
makers in the Company's Common Stock, the market price of such stock could be
adversely affected. See "RISK FACTORS".
DESCRIPTION OF COMMON STOCK
The shares of Common Stock offered by this Prospectus are fully paid
and non-assessable. Holders of the Common Stock do not have preemptive
rights. Each stockholder is entitled to one vote for each share of Common
stock held of record by such stockholder. There is no right to cumulate
votes for elec- tion of directors. Upon liquidation of the Company, the
assets then legally available for distribution to holders of the Common Stock
will be distributed ratably among such shareholders in proportion to their
stock holdings. Holders of Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor.
GENERAL
The Company's Bylaws provide that the Company will indemnify its
directors and officers against expense and liabilities they incur to defend,
settle or satisfy any civil or criminal action brought against them as a
result of their being or having been Company directors or officers unless, in
any such action, they have acted with gross negligence or willful misconduct.
Officers and Directors are not entitled to be indemnified for claims or
losses resulting from a breach of their duty of loyalty to the Company, for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing viola- tion of law or a transaction from which the director
derived an improper per-
sonal benefit. Insofar as indemnification for liabilities arising under the
Securities Act of l933 may be permitted to the Company's directors and offi-
cers, the Company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of l933, and is, therefore, unenforceable.
No dealer, salesman, or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus in connection with this offering and, if given or made, such
information or representations must not be relied upon as having been author-
ized by the Company or the selling shareholders. This prospectus does not
constitute an offer to sell, or a solicitation of any offer to buy, the
securities offered in any jurisdiction to any person to whom it is unlawful
to make an offer or solicication. Neither the delivery of this prospectus
nor any sale made hereunder shall, under any circumstances, create an
implication that there has not been any change in the affairs of the Company
since the date hereof or that any information contained herein is correct as
to any time subsequent to its date.
All dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver
a prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold allot-
ments or subscriptions.
2162D
