As filed with the Securities and Exchange Commission on April 30, 1999
Registration No.:
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SIRCO INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
New York 13-2511270
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
24 Richmond Hill Avenue
Stamford, Connecticut 06901
(203) 359-4100
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
JOEL DUPRE
Chairman of the Board and Chief Executive Officer
Sirco International Corp.
24 Richmond Hill Avenue
Stamford, Connecticut 06901
(203) 359-4100
(Name, address, including zip code and telephone number,
including area code, of agent for service)
Copy To:
Eric M. Hellige, Esq.
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
(212) 421-4100
Approximate date of commencement of proposed sale of the securities to
the public: As soon as possible after this Registration Statement becomes
effective.
<PAGE>
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. [X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
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Calculation Of Registration Fee
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============================================ ===================== =============== ================= ===================
Proposed Proposed
Maximum Maximum
Offering Aggregate
Title of Each Class of Amount to Price Per Offering Amount of
Securities to be Registered be Registered Share* Price* Registration Fee
============================================ ===================== =============== ================= ===================
<S> <C> <C> <C> <C> <C>
Common Stock, $.10 par value............... 3,311,696 shares $1.75 $5,795,468.00 $1,159.09
============================================ ===================== =============== ================= ===================
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* Calculated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee (based on the closing price per share of
the Registrant's common stock as reported on the NASDAQ Small Cap market on
April 28, 1999.)
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 30, 1999
PROSPECTUS
3,311,696 Shares
SIRCO INTERNATIONAL CORP.
Common Stock
(Par value $.10 Per Share)
---------------------
The shareholders listed in this prospectus are offering and selling up to
3,311,696 shares of common stock of Sirco International Corp. We will not
receive any proceeds from such sale.
Our common stock is listed on the NASDAQ Small Cap market under the symbol
"SIRC." The last reported bid price for the common stock on April 28, 1999, was
$1.719 per share. The last reported ask price for the common stock on such date
was $1.781 per share.
The selling shareholders may offer their shares of common stock through
public or private transactions in the over-the-counter markets, on or off the
United States exchanges, at prevailing market prices or at privately negotiated
prices. The selling shareholders may engage brokers or dealers who may receive
commissions or discounts from the selling shareholders.
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See "Risk Factors" at page 7 of this prospectus for a discussion of certain
material factors which you should consider before investing in the common stock
offered by this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is _______________, 1999.
<PAGE>
This prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We are not offering to
sell or buy the common stock offered in this document to any person unauthorized
or prohibited to do so. The selling shareholders will not make an offer of these
shares in any state where the offer is not permitted. You should not assume that
the information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities Exchange Commission (the "SEC"). You may
read and copy any document we file at the SEC's public reference room located
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-0330 for further information on the operation of such public reference
room. You may also request copies of such documents, upon payment of a
duplicating fee, by writing to the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 or obtain copies of such documents from the SEC's web site at
http://www.sec.gov.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be part of this prospectus and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we make with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended:
(1) Annual Report on Form 10-K for the fiscal year ended November 30,
1998; and
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1999.
You may request a copy of these filings (excluding exhibits to such
filings which we have not specifically incorporated by reference in such
filings), at no cost, by writing or telephoning us at the following address:
Sirco International Corp.
24 Richmond Hill Avenue
Stamford, Connecticut 06901
Attn: Mr. Paul H. Riss, Chief Financial Officer
(203) 359-4100
<PAGE>
The following discussion and analysis contains forward-looking
statements. Such statements generally discuss future expectations. You can
identify such statements by the use of forward looking terminology as "may,"
"will," "expect," "anticipate" or other similar words. You should be aware that
any such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties. Actual results may differ materially from those
in the forward-looking statements as a result of various factors. Factors that
might cause such a difference include, among others, general economic and
business conditions. See "Risk Factors."
ABOUT THE COMPANY
We, Sirco International Corp., are a diversified entity with operations
organized into three industry segments. Our telecommunications division focuses
on developing integrated telephone service in the emerging competitive local
exchange carrier industry and offers a bundled package of telecommunications
products, including local and long distance telephone, voice mail, paging,
Internet access, dedicated access, Web site design, Web site hosting, and other
enhanced and value-added telecommunications services tailored to meet the needs
of its customers. Our retail division sells travel products, uniforms and study
guides via retail stores, E-commerce sites and a Web site primarily to
professional airline crew members. Our luggage division designs, manufactures
and markets on a wholesale basis a broad line of soft luggage, sports bags,
backpacks, children's bags, tote bags and related products.
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Our Telecommunications Business
We first made an investment in a local telephone company in October
1997, when we acquired approximately 28% of Access One Communications, Inc.
("Access One"), a Florida-based competitive local exchange carrier ("CLEC"). We
began our own CLEC business in February 1998 when we acquired 100% of Essex
Communications, Inc. ("Essex"), which was a newly-formed, New York-based CLEC.
Both Essex and Access One resell local telephone service purchased from a
regional Bell operating company ("RBOC"), such as Bell Atlantic Corporation
("Bell Atlantic") or BellSouth Corporation ("BellSouth"). The Telecommunications
Act of 1996 mandated, among other things, that the large incumbent local
telephone companies, such as the RBOCs, allow competitors to use their
telecommunications facilities in such a manner that the RBOCs would no longer
hold a monopoly over the local telephone service business. Essex and Access One
were formed in response to such mandate, and we plan to build Essex and to help
build Access One into a local telephone business with certain niches that will
allow them to effectively compete as a telecommunications entity. Although we
have a representative on the Board of Directors of Access One, and Essex and
Access One plan to work together in instances where it makes business sense, due
to our minority shareholder position in Access One, we can only control the
operations of Essex.
We are focusing the marketing efforts of Essex on small and
medium-sized businesses with telecommunications usage of less than $2,000 per
month. Our telecommunications strategy is to continue to increase Essex's
customer base by being more flexible, responsive and
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innovative to the needs of its target customers than the RBOCs, which have
historically concentrated their sales and marketing efforts on residential and
large business customers. We plan to expand our telecommunications customer base
without any significant capital expenditures on telecommunications facilities
(such as switches, fiber and other telecommunications equipment), as we believe
it is more cost efficient to quickly grow a telecommunications entity with a
"leased facilities" or "virtual facilities" strategy in which the necessary
telecommunications facilities are leased from an RBOC. Since its inception,
Essex, like virtually all other non-facilities based CLECs, was primarily a
reseller of local telephone service from an RBOC. Following a recent Supreme
Court ruling that upheld the Federal Communications Commission ("FCC")
requirements that RBOCs open local phone service to competition, we have been
able to refocus our sales strategy by beginning to sell direct local access and
related products and services as a facilities-based carrier through facilities
leased from Bell Atlantic. As a result, we are in the process of converting our
resold customer base to leased facilities with Bell Atlantic in the State of New
York. Access One has secured a leased facilities agreement with respect to all
nine states covered by BellSouth.
We have received certification by the applicable state Public Service
Commission and we currently operate Essex as a CLEC in New York, New Jersey and
Virginia. In addition, we have received certification for Essex to operate as a
CLEC in Connecticut and Massachusetts. We may also consider the acquisition of
other CLECs to increase the number of states within which we can operate. We
have determined that multi-site customer organizations greatly desire
consolidated billing for all their locations. Currently, none of the RBOCs and
only a limited number of CLECs provide multi-site organizations with the option
to consolidate their invoices into a single bill. We offer customers the ability
to receive one invoice for all their locations in a format conducive to internal
accounting systems requirements and on a medium of their choice.
In addition to the local telephone service that we provide, we also
offer a bundled package of telecommunications products. We have additional
agreements with other telephone companies pursuant to which Essex can resell a
variety of other telephone services, including long distance service, voice
mail, paging, calling cards, and other value added features. We believe that our
ability to offer one-stop, integrated communications services will help us to
capture a larger portion of our customers' total expenditures on communication
services and will reduce customer turnover. In furtherance of our bundling
strategy, in August 1998, we acquired WebQuill Internet Services LLC
("WebQuill") to provide Internet access, Web design, E-commerce design and Web
hosting for the customers of Essex and Access One. During 1998, WebQuill entered
into a frame relay cloud agreement with Southern New England Telephone ("SNET")
that allows WebQuill to provide local dial-up access, dedicated 56K frame relay
access and dedicated T-1 access to customers located throughout Connecticut via
a single point of presence ("POP") located in Norwalk, Connecticut. In order to
expand the geographic coverage of our Internet access services, in December
1998, we signed an agreement with another Internet service provider with over
450 POPs, which allows WebQuill's customers to have nationwide dial-up access
throughout the United States. We intend to enter into additional regional
Internet access arrangements and deploy one or more additional Company-owned
POPs during 1999, in order to increase the density of our Internet access
coverage.
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In order to provide an additional service to our small business
customers, we have initiated the development of a virtual mall marketing and
Web-hosting program for the Internet. In January 1999, we registered 48 Internet
site names incorporating the same state postal abbreviation formats (e.g.,
"www.nj-search.com"). We plan to market sites on these virtual malls to medium
and small businesses that are seeking a lower cost option for selling their
products and services on the Internet. We plan to market these sites directly to
existing Access One and Essex customers and primarily through third-party
telemarketers to new customers.
We also design and host more complex and expensive Web sites for larger
businesses and those smaller businesses that intend to concentrate more of their
resources on the development of Internet customer bases. These sites, commonly
referred to as E-commerce sites, facilitate the purchase of goods and services
with minimal need for human intervention. E-commerce sites can feature products
and services databases, online database search capabilities, real time inventory
availability and real time credit card processing. In addition, we have
introduced an E-commerce fulfillment service, which we call "E-Complete", that
provides warehousing and shipping services to our E-commerce hosting customers.
We obtain new customers for our telephone services primarily through
telemarketing agencies that are paid only if we are successful in provisioning
the prospect into a customer. We do not intend to hire a significant direct
sales staff, as the per line cost of acquiring new accounts is currently
substantially lower using third-party telemarketers than it would be by direct
marketing with our own employees. To ensure customer satisfaction, we emphasize
personalized care, with each customer having a single point of contact who is
responsible for solving problems and responding to customer inquiries.
Our Specialty Retail Business
We also operate a specialty retail business that sells travel products,
uniforms and study guides via retail stores, E-commerce sites and a Web site
primarily to professional airline crew members. Our objective is for this
division to become a leading supplier of travel-related and telecommunications
products to pilots and flight attendants. We lease space from American Airlines
for two retail stores that sell travel-related products to American Airline
employees, including the official pilot uniform and study guides for pilots. We
also sell identification cards, uniform supplies and travel needs to flight
attendants at our retail stores. In addition, we rent pagers to flight
attendants who are on reserve duty and offer Internet access services and local
and long distance telephone services. We plan to use the knowledge and
experience gained with American Airlines to provide similar products and
services to employees of other airlines. We currently have small programs with
Delta Airlines and Southwest Airlines to sell products in employee lounges.
We believe professional airline crew members are excellent targets for
online retail purchases, as they are constantly mobile and frequently stay in
touch with family and job-related duties via the Internet. We have developed and
will continue to develop E-commerce sites to augment our in-store sales with
sales to these and other online purchasers. We currently market
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our travel-related products through the E-commerce sites, www.avishop.com and
www.800bags.com, and our Web site, www.tagintl.com.
Our Wholesale Luggage Business
We have announced that we intend to sell our wholesale luggage division
in order to focus our corporate resources on the development of our
telecommunications business, Internet-related businesses, and online retail
operations. We believe the growth opportunities and the ability to create
shareholder value are much greater in our telecommunications and
Internet-related businesses than they are in our wholesale luggage operation.
However, we cannot guarantee that we will be successful in our efforts to
dispose of our wholesale luggage division. In certain instances, potential
acquirers have asked us to consider acquiring them so that we can operate the
division with a larger revenue base over which to spread our fixed overhead
costs.
In our wholesale luggage division, we design, manufacturer and market a
broad line of soft luggage, sports bags, backpacks, children's bags, tote bags
and related products. Our strategy is to produce a diverse line of high quality,
fashionable products at competitive prices. We believe our creative design,
manufacturing and sourcing capabilities facilitate our ability to merchandise
high quality products.
As part of our strategy, we
o sell our products under many registered trade names, including
"Cross Trainer," "J.T. Madison," "Mondo" and "Mountain Gear;
o sell our products under certain trademarked names we license from
others, including "Dunlop," "Generra," "Gold's Gym," "Hedgren,"
"Koosh," "Maui and Sons," "Perry Ellis" and "S>>M" (Sport Music
by MTV); and
o design and manufacture soft luggage and sports bags on a contract
basis for unaffiliated retailers and sportswear companies.
We sell our sport bags, backpacks and related products primarily to
large national retail chain stores, including Target, Sears and Kmart, and to
regional discount store chains, such as ShopKo and Bradlees. We also sell to
department stores and other specialty stores, including Federated Stores
(Filene's and Stern's), Innovation Luggage and Bentley's Luggage, to apparel
chain stores, such as The Marmaxx Group and Ross Stores, and to fitness-related
stores, such as Gold's Gym.
The following table sets forth the respective percentages of our net
sales to Target, Kmart and The Marmaxx Group for the fiscal years ended November
30 1998, 1997 and 1996. No other customers purchased products representing 10%
or more of our net sales during those fiscal years.
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Fiscal Year
Customer Ended November 30
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1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Target 19% 27% 23%
Kmart 11% 17% 23%
The Marmaxx Group --- 14% ---
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We use full-time sales persons and independent sales representatives to
solicit business directly from our customers. The independent sales
representatives also represent several other manufacturers or wholesalers. We
pay them commissions for their services, typically pursuant to the terms of
non-exclusive sales representative contracts. We fill orders on the terms and
conditions of standard purchase orders we receive from customers.
After extensive negotiations with FILA Sport S.p.A. ("FILA"), in
February 1996, we agreed to stop shipping FILA product under a non-exclusive
license with FILA during fiscal 1996. Net sales of the FILA product for the
fiscal year ended November 30, 1996 were approximately $8,584,000, or
approximately 30.9% of our total net sales. We did not sell any products bearing
the FILA name or logo in fiscal 1997. The loss of the FILA trademark adversely
affected our results of operations in the fiscal years ended November 30, 1998
and 1997.
During fiscal 1996, Airway Industries Inc. ("Airway") refused to renew
its license agreement with our Canadian subsidiary, Sirco International (Canada)
Limited ("Sirco Canada"). Sirco Canada had an exclusive license to sell in
Canada through December 31, 1996, luggage and luggage related products under the
trade names "Atlantic" and "Oleg Cassini." During the first quarter of fiscal
1997 (prior to the December 31, 1996 termination date), sales of Atlantic
product approximated $472,000, which represented approximately 2.9% of our total
net sales and approximately 63.8% of Sirco Canada's total net sales for that
period. During the fiscal year ended November 30, 1996, sales of such product
approximated $5,782,000, which represented approximately 20.8% of our total net
sales and approximately 95.4% of Sirco Canada's total net sales for that period.
The loss of this license agreement adversely affected our results of operations
for the years ended November 30, 1998 and 1997.
Executive Offices
Sirco International Corp. was incorporated under the laws of New York
on July 22, 1964. Our executive offices are located at 24 Richmond Hill Avenue,
Stamford, Connecticut 06901 and our telephone number at that address is (203)
359-4100.
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RISK FACTORS
The purchase of our common stock involves a high degree of risk. You
should carefully consider the following risk factors and other information in
this prospectus before deciding to invest in such stock.
Limited Operating History
Although our wholesale luggage division has been in existence since
1984, we have announced our intention to sell that division and are currently
seeking a purchaser. Our retail and telecommunications divisions were
established in August 1997 and February 1998, respectively. Accordingly, in the
event we sell off our wholesale luggage division, our remaining businesses will
have a limited operating history upon which you may evaluate us. In addition,
substantially all of our revenues currently are generated by our wholesale
luggage division. In the future, following the sale of that division, we will be
dependent solely on the revenues of our retail and telecommunications divisions
and the proceeds of additional financings to fund our operations. There can be
no assurance that our future revenues will ever be significant or that our
operations will ever be profitable.
Anticipated Continued Losses
We have not been profitable since fiscal 1996. We may not become
profitable again or, if we become profitable, we may be unable to sustain
profitability. We reported net losses of approximately $1,518,000, $4,977,000,
and $2,868,000 for the three months ended February 28, 1999 and the fiscal years
ended November 30, 1998 and 1997, respectively. We expect to continue to incur
significant losses until we can dispose of our wholesale luggage division, and
to continue to incur losses thereafter as we continue to develop our remaining
businesses. The limited operating history of our retail and telecommunications
divisions makes predicting our future operating results difficult.
Need for Additional Financing
Due to our recent losses and our additional requirements for working
capital to establish and grow our retail and telecommunications businesses, over
the past two fiscal years we have sold additional shares of capital stock to
fund our working capital needs. We expect that we will continue to sell our
capital stock to fund the anticipated growth of our telecommunications business
and implement our business objectives. There can be no assurance that we will be
able to obtain additional funding when needed, or that such funding, if
available, will be available on terms acceptable to us. If we cannot obtain
additional funds when needed, we may be forced to curtail or cease our
activities, which may result in the loss of all or a substantial portion of your
investment.
<PAGE>
Qualified Auditors Report
The report of our independent auditors on our financial statements for
the year ended November 30, 1998 noted that we are experiencing difficulty in
generating sufficient cash flow to meet our obligations and sustain our
operations and that we have incurred significant losses from our operations. Our
auditors also noted we were in default of certain debt covenants contained in
our financing agreement which could result in termination of the agreement and
the debt becoming due and payable immediately. The report concluded that these
factors, among others, raise substantial doubt about our ability to continue as
a going concern. We continue to incur operating losses, primarily from our
wholesale luggage division. We have announced our intention to sell that
division and are currently in discussions with several interested parties.
However, if we are unable to successfully divest that division, and the
depressed levels of sales of that division continue to generate operating
losses, we may continue to experience temporary cash shortages, which will have
an adverse effect on our financial condition and the results of operations of
our retail and telecommunications divisions.
Impact of Year 2000
The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time sensitive software may recognize a date using "00" as
the year 1900 instead of the year 2000. This reading could result in a system
failure or miscalculations and cause a disruption in operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activity.
Based on a recent assessment, the Company determined that it will be
required to modify or replace portions of its software and hardware so that its
systems will function properly with respect to the dates in the year 2000 and
thereafter. The Company presently believes that with modifications to existing
software and hardware, the Year 2000 issue will not pose significant operational
problems for its systems. The modifications required primarily affect the
information systems utilized by the luggage division, which the Company plans to
divest. The Company believes its retail division's computer-controlled system is
complaint, and the telecommunication's computer-controlled system is in the
process of transferring to computer programs which are compliant.
The Company is in the process of contacting all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The Company's total Year 2000 project cost and
estimates to complete include the estimated costs and time associated with the
impact of third party Year 2000 issues based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted and would not have a
material adverse effect in the Company's systems. The telecommunications
division has identified that the third party which processes Essex's customer
invoices is not compliant with the Year 2000 issues. The Company has identified
another third party which is compliant, and if needed, the Company will utilize
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the new third party source for customer invoicing by June 1999 should its
current billing provider fail to convert is system six months before the year
2000.
The Company will utilize both internal and external resources to
reprogram, or replace, an test the software and hardware for Year 2000
compliance. The Company's objective is to complete the Year 2000 project not
later than June 30, 1999, which is prior to any anticipated impact on its
operating systems. The total cost of the Year 2000 project for the Company is
estimated to be less than $100,000. Through year-end 1998, the Company has
incurred approximately $40,000 in expenses related to the assessment of, and
preliminary efforts on, its Year 2000 project and the development and
implementation of various plans for systems modifications and testing.
All costs associated with the Year 2000 project are being funded
through operating cash flow. Costs and timetables for Year 2000 projected
associated with corporate mergers and acquisitions are not included in the above
estimates, and will be funded on a case-by-case basis as they occur.
The costs of the project and the date which the Company has established
to complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans, and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes,
unanticipated mergers and acquisitions, and similar uncertainties.
Risks Associated with Telecommunications Division. In the fourth quarter of
fiscal 1997, our Board of Directors decided to diversify our business by
expanding into the telecommunications industry. Since October 1997, we have made
several investments in Access One, a CLEC based in Florida. In February 1998, we
acquired Essex, a newly-formed CLEC, and in August 1998, we acquired WebQuill to
add an Internet service provider. See "About The Company -- the
Telecommunication Division." Our diversification strategy involves significant
risks, including, but not limited to, the factors set forth below.
Short Operating History; Net Losses. Since its inception, Essex has
focused on organizational activities, including securing the proper
authorizations to operate as a telephone reseller in the States of Connecticut,
New Jersey, New York, Virginia and Massachusetts. Consequently, in fiscal 1998,
our telecommunications division incurred an operating loss of approximately
$721,000. Essex began marketing its telecommunications products in May 1998 and
by April 1, 1999 had approximately 2,200 local access lines. At April 1, 1999,
WebQuill had approximately 1,000 Internet customers. Because of its limited
operating history, we cannot accurately predict if we will be able to compete
successfully in the telecommunications business. Accordingly, you should
consider the likelihood of our telecommunications division's success in view of
all of the risks,
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expenses and delays inherent in establishing a new business, including, but not
limited to, the following:
o general expenses;
o unforeseeable complications and delays;
o implementation of marketing strategies and activities;
o the uncertainty of market acceptance of new products and
services;
o intense competition from larger, more established competitors;
and
o incurring additional net losses before establishing an adequate
customer base.
Raising Additional Capital. We anticipate that the continued expansion
of our telecommunications business will require us to raise additional equity
and/or debt by the end of fiscal 1999. We cannot be certain, however, that we
will be successful in raising sufficient debt or equity on terms that we
consider acceptable. If we are unable to generate sufficient funds, we may be
required to delay or abandon some of our expansion plans, which would have a
material adverse effect on our growth and our ability to compete in the
telecommunications industry.
Risks of Acquisitions. We intend to develop and expand our
telecommunications business. Initially, we intend to acquire additional
telecommunications and related businesses to enter new markets. Among the risks
associated with such strategy, which could materially adversely affect our
business, financial condition, results of operations and profitability, are the
following:
o we may not be able to identify, acquire or profitably manage such
additional businesses;
o we may incur substantial costs, delays or other operational or
financial problems in integrating acquired businesses; o such
acquisitions may adversely affect our operating results;
o such acquisitions may divert management's attention;
o we may not be able to retain acquired key personnel;
o we may encounter unanticipated events, circumstances or legal
liabilities; and
o the value of acquired intangible assets could decrease.
Implementation and Suitable Resale Arrangements. Our development and
expansion of the telecommunications business and our entry into new markets will
depend on our ability to, among other things:
o lease or purchase suitable sites;
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o obtain equipment on a timely basis;
o negotiate suitable resale or interconnect arrangements with
incumbent local exchange carriers, or "ILECs," on satisfactory
terms and conditions; and
o finance the expansion of the telecommunications business.
Dependence on Key Personnel and Consultants. A small number of key
management and operating employees and consultants manage our telecommunications
business. Our loss of such employees or consultants could materially adversely
impact our telecommunications business. We believe that our future success in
the telecommunications business significantly depends on our ability to attract
and retain highly skilled and qualified telecommunications personnel.
Reliance on Others. To limit our capital expenditures and support
staff, we rely extensively on third parties. We do not own any part of a local
exchange network or a long distance network. As a result, we depend entirely on
facilities-based carriers for the transmission of customer telephone calls.
Under the Telecommunications Act of 1996, we may purchase capacity from
facilities-based carriers by entering into resale agreements with such carriers,
or we may lease the required facilities from such carriers. The risk factors
inherent in this approach include, but are not limited to, the following:
o the inability to negotiate and renew favorable lease or resale
agreements;
o lack of timeliness of the ILEC in processing our orders for
customers seeking to utilize our services;
o dependence on the effectiveness of outside telemarketing services
to attract new customers; and
o dependence on a facilities-based carrier to provide our customers
with repair services and new installation services.
Dependence on Billing Services and Implementation. The accurate and
prompt billing of our customers is essential to our operations and future
profitability. We rely on a third-party vendor to provide billing services for
Essex. Although our affiliate, Access One, has recently developed its own
billing system and is not relying on a third-party, we have not yet commenced
procedures to develop our own management information systems to be capable of
billing our customers by ourselves. This strategy exposes us to various risk
factors which include, but are not limited to, the following:
o the inability to control the management of our billing services,
o the failure of a third party vendor to provide all of the billing
services that we require,
o dependence upon a third party to rate and print our bills; and
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o the possibility of Year 2000 issues of the third-party not being
corrected in time to process our bills properly in the year 2000.
Competition. We may be competing for local telephone and Internet
access services with ILECs, which currently dominate their local
telecommunications markets, other CLECs and several other local exchange
carriers. The following factors may, among other things, prevent us from
obtaining the share of the telecommunications market necessary to achieve
profitable telecommunications operations:
o ILECs' long-standing relationships with their customers;
o the increase in business combinations and alliances in the
telecommunications industry which may create significant new
competitors;
o the greater financial, personnel and other resources of existing
and potential competitors; and
o the ability of competitors with greater resources and capital to
meet or undercut our proposed lower price structure.
Rapid Technological Change. The telecommunications industry is subject
to rapid and significant changes in technology. While we believe that these
changes will not materially affect our ability to acquire necessary
technologies, we cannot predict the effect of technological changes on our
business.
Regulation. Federal, state and local regulation may affect our
telecommunications business. Since regulation of the telecommunications industry
in general, and the CLEC industry in particular, is frequently changing, we
cannot predict whether, when and to what extent new regulations will affect us.
The following factors, among others, may adversely affect our business,
financial condition and results of operations:
o delays in obtaining required regulatory approvals;
o new court decisions;
o the enactment of new adverse regulations; and
o the establishment of strict regulatory requirements.
Risks Associated with Retail Division. In August 1997, we began a retail
operation known as Airline Ventures, Inc. ("AVI"), which sells travel products,
uniforms and study guides via retail stores, E-commerce sites and a Web site
primarily to professional airline crew members. We lease space from American
Airlines for two of our stores, and from a Ramada Inn for a third store. The
Ramada Inn provides lodging facilities to American Airlines employees when they
are training at an American Airlines' training facility in Dallas. We plan to
use our physical presence in the American Airlines' facilities and the Ramada
Inn to build a trusted relationship with airline employees so they continuously
make purchases from us at our stores and from our
12
newly-formed Internet shopping sites. Our strategy includes, but is not limited
to, the following risks:
Short Operating History; Net Losses. Since its inception, AVI has not
generated positive cash flow. In fiscal 1998, its first full year of operations,
AVI incurred an operating loss of approximately $170,000. The operating losses
were primarily attributable to expenses related to sales, marketing and a
management information infrastructure that we needed to build in order to serve
our customer base. Because of our limited operating history with AVI, we cannot
accurately predict if AVI will be able to compete successfully as a specialty
retailer or as an online retailer. Accordingly, you should consider the
likelihood of AVI's success in view of all of the risks, expenses and delays
inherent in establishing a new business, including, but not limited to, the
following:
o general expenses;
o unforeseeable complications and delays;
o implementation of marketing strategies and activities;
o the uncertainty of market acceptance of new products and
services;
o intense competition from larger, more established competitors;
and
o incurring additional net losses before establishing an adequate
customer base.
Reliance on American Airlines. Our relationship with American Airlines
is crucial to the successful operation of our retail business. We have written
contracts or verbal agreements with American Airlines that allow us to perform
several services for employees of American Airlines. The elimination of one or
more of the following items could have a material impact on our operations:
o agreement to lease retail space in American Airlines' facilities;
o ability to sell products in pilots' and flight attendants'
lounges;
o ability to allow a crew member to buy products on a
payroll-deduct program;
o maintenance of a link between our E-commerce site and an internal
site that is frequently used by American Airlines employees;
o ability to sell study guides and job-related necessities;
o agreement to sell pilot uniforms directly to pilots; and
o the ability to sell American Airlines' logo product.
Dependence on Key Personnel and Consultants. A small number of key
management and operating employees manage our specialty retail business. Our
loss of such employees could materially adversely impact our business. We
believe that our future success in this business will
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also depend on our ability to attract and retain additional key personnel who
are also being sought by other businesses.
Ability to Manage Growth. We plan to grow AVI's business by expanding
our presence in a number of geographical locations and by promoting our
E-commerce sites and Web site. The continued growth of this division will depend
on various factors, including, but not limited to, the following:
o the ability to lease additional stores within airports;
o the ability to expand sales of products to airline employees of
several airlines;
o enhancement of operational, managerial, financial and information
systems;
o the ability to find high quality, low cost sources to manufacture
pilot uniforms;
o continued popularity of airline travel in the United States; and
o the ability to manage and grow our retail Internet business. o
Competition. We compete with many other companies that are selling
travel and job related products to professional airline crew members. We have no
significant market share in this business. The following factors may, among
other things, prevent us from obtaining the share of the specialty retail market
necessary for AVI to achieve profitable operations:
o long-standing relationships our competitors have with their
customers;
o long-standing relationships our competitors have with various
airlines;
o the greater financial, personnel and other resources of existing
and potential competitors; and
o the ability of competitors with greater resources and capital to
meet or undercut our proposed price structure.
Risks Associated with Wholesale Luggage Division. Our wholesale luggage division
has incurred substantial operating losses over the last nine quarters and our
Board of Directors has announced that we intend to sell this division and focus
our resources on the retail, telecommunications and Internet-related businesses
that we have been developing since August 1997. The divestiture of the wholesale
luggage division requires significant amounts of management time to prepare the
division for sale and to aid prospective purchasers in performing their due
diligence procedures. Our divestiture strategy comes with several risks,
including, but not limited to, the following;
o continued losses if the division is not sold in a timely manner;
o erosion of capital if the division is not sold in a timely
manner;
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<PAGE>
o significant management involvement that could detract from the
growth of our other divisions; and
o the ability to receive adequate compensation for the assets that
are being sold.
Dividend Policy
Generally. We expect to retain earnings, if any, to finance the
expansion and development of our business. Our Board of Directors will decide
whether to make future cash dividend payments. Such decision will depend on,
among other things, the following factors:
o our earnings;
o our capital requirements;
o our operating condition;
o our financial condition; and
o our compliance with various financing covenants to which we are
or may become a party.
No Dividend Payments in Near Future. We are currently a party to a
credit facility with Coast Business Credit, a division of Southern Pacific
Thrift & Loan Association, that prohibits dividend payments without Coast
Business Credit's prior consent. See "Item 5. Market for the Company's Common
Equity and Related Stockholder Matters" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in our Annual Report on Form 10-K for the year ended November
30, 1998, which we have incorporated herein by reference.
Limited Public Market and Possible Volatility of Stock Price. Although there is
a public market for our common stock, the market for our common stock is thinly
traded. The trading prices of our common stock could be subject to wide
fluctuations in response to, among other events and factors, the following:
o variations in our operating results;
o announcements by us or others;
o developments affecting us or our competitors; and
o extreme price and volume fluctuations in the stock market.
Effect of Certain Charter Provisions.
Authority of Board of Directors to Issue Preferred Stock. Pursuant to
the terms of our charter, our Board of Directors has the authority to issue up
to 1,000,000 shares of preferred stock in one or more series. Our Board of
Directors may also determine the prices, rights,
15
<PAGE>
preferences, privileges and restrictions, including voting rights, of the shares
within each series without any further shareholder vote or action. In June 1998,
our Board of Directors authorized the issuance of up to 700 shares of Series A
preferred stock, which shares were subsequently issued. In February 1999, our
Board of Directors approved the issuance of up to 1,300 shares of Series B
preferred stock to prospective investors, of which 196 shares were subsequently
issued. The rights of the holders of preferred stock that our Board of Directors
may issue may adversely affect the rights of the holders of common stock. While
the issuance of such preferred stock could facilitate possible acquisitions and
other corporate activities, it could also impede a third party's ability to
acquire control of our company.
Limitation of Liability of Directors. Pursuant to the terms of our
charter and to the extent New York law permits, we and our shareholders may not
hold our directors personally liable for monetary damages in the event of a
breach of fiduciary duty.
Anti-takeover Effects of New York Law. Certain anti-takeover provisions of New
York law could delay or hinder a change of control of our company. While such
provisions generally facilitate our Board of Directors' ability to maximize
shareholder value, they may discourage takeovers that could be in the best
interest of certain shareholders. Such provisions could adversely affect the
market value of our stock in the future.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the
account of the selling shareholders identified in this prospectus. See "Selling
Shareholders." All net proceeds from the sale of the common stock will go to the
shareholders who offer and sell their shares. Accordingly, we will not receive
any part of the proceeds from such sales of the common stock.
SELLING SHAREHOLDERS
The selling shareholders have informed us that the name, address,
maximum number of shares of common stock to be sold and total number of shares
of common stock that each selling shareholder owns are as set forth in the
following table. The selling shareholders may sell all or part of their shares
of common stock pursuant to this prospectus. The offering of such shares of
common stock is not being underwritten on a firm commitment basis. As a result,
we cannot give you estimates as to the number and percentage of shares of common
stock each selling shareholder will hold upon termination of this offering.
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<PAGE>
<TABLE>
<CAPTION>
Selling Shareholders
--------------------
No. of Shares
No. of Shares of Maximum No. of Percentage of
Common Stock of Shares of Common Stock Common Stock
Beneficially Owned Common Stock to be Owned to be Owned
Name and Address Prior to Offering to be Offered After Offering After Offering (#)
---------------- ----------------- ------------- -------------- ------------------
<S> <C> <C> <C> <C>
Henry Azer(a).............. 375,000 125,000 250,000 2.62%
9 Forest Drive
Westport, CT 06880
Access One Communi-cations 1,820,000 1,820,000 -- --
Corp.(b)................
4205 Vineland Road
Suite L15
Orlando, FL 32811
Ideal Pacific Ltd.(c)...... 211,978 145,311 66,667 *
Block N 4/F
Guangdong Production I/E 203,875 203,875 -- --
Trading Corporation(c)...
11 Hok Yuen St., Hunghom
Kowloon Hong Kong
Winner Camping Goods Mfy 133,220 133,220 -- --
Ltd.(c)..................
13/F Block N-O Wah Lik
Ind. Centre
459-469 Castle Peak Road
Tsuen Wan, N.T.
Kowloon, Hong Kong
Koon Hing Plastic 100,841 100,841 -- --
Factory(c)................
Fuk Tsun Fty. Bldg., 4F
66-68 Fuk Tsun Street
Kowloon, Hong Kong
Cheng-Sen Wang(c).......... 357,720 268,831 88,889 *
9F Jen-ai Road, Sec. 4
Taipei, Taiwan R.O.C.
Albert H. Cheng(c)......... 389,590 300,702 88,888 *
199 Chung Ching North Road
11th Floor, Section 3
Taipei, Taiwan R.O.C.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Selling Shareholders
--------------------
No. of Shares
No. of Shares of Maximum No. of Percentage of
Common Stock of Shares of Common Stock Common Stock
Beneficially Owned Common Stock to be Owned to be Owned
Name and Address Prior to Offering to be Offered After Offering After Offering (#)
---------------- ----------------- ------------- -------------- ------------------
<S> <C> <C> <C> <C>
Riderpoint Inc.(d)......... 250,000 150,000 100,000 1.05%
14 Madison Avenue
Valhalla, NY 10595
Geils & Co. Inc.(e)........ 30,916 30,916 -- --
54 Danbury Road
Suite 318
Ridgefield, CT 06877
Eric M. Hellige(f)......... 58,000 33,000 25,000 *
410 Park Avenue
New York, NY 10022
</TABLE>
- -------------------
# Based upon 9,538,306 shares of common stock outstanding at April 30, 1999.
* Less than 1%.
(a) Mr. Azer is the Chief Technology Officer and a director of Essex. Mr. Azer
was the principal of WebQuill and American Telecom, each of which was
purchased by Essex in August 1998. See "About the Company - - Our
Telecommunications Business." The amount included in the table does not
include certain shares that may be issued to Mr. Azer upon the attainment
of certain performance objectives.
(b) Access One acquired 1,420,000 shares of common stock from us on March 4,
1999. We received 1,750,000 shares of common stock of Access One in
consideration for our shares of common stock. Previously in October 1997,
we purchased 3,000,000 shares of common stock of Access One in exchange for
425,000 shares of our common stock. In connection therewith, we received
the right to nominate one director to the Board of Directors of Access One.
We used this right to effect the election of Mr. Paul Riss, our Chief
Financial Officer, to the Board of Access One. In connection with his
election, Mr. Riss received three-year options to purchase up to 100,000
shares of common stock of Access One with an exercise price of $1.00 per
share.
Prior to our investment in Access One, in September 1997, Access One
borrowed from Joel Dupre, our Chairman of the Board and Chief Executive
Officer, $150,000 under a promissory note that matured on November 10, 1997
and bore interest at the rate of 12% per annum. At maturity, Mr. Dupre
converted the promissory note plus accrued interest into 306,000 shares of
common stock of Access One. In addition, Mr. Dupre was granted five-year
warrants to purchase up to 150,000 shares of common stock of Access One at
$1.20 per share. Of the $150,000 originally loaned by Mr. Dupre to Access
One, Mr. Dupre borrowed $100,000 from Joseph Takada, a shareholder of the
Company and the Managing Director of Ideal Pacific Ltd., our manufacturing
agent in Hong Kong, and $50,000 from Albert Cheng, a shareholder of the
Company and the President of Constellation Enterprise Co., Ltd., a supplier
of certain of our luggage and backpack products.
(c) These entities and individuals are manufacturers, or principals thereof, of
products sold by our wholesale luggage division (the "Manufacturers"). In
April 1999, we issued to the Manufacturers the shares to be sold by the
Manufacturers hereunder in satisfaction of outstanding debt owed to the
Manufacturers.
(d) Riderpoint, Inc. ("Riderpoint") acquired 250,000 shares of common stock
from us in April 1999. In exchange for shares, we received 19% of the
outstanding equity of Riderpoint. Prior to our investment, Mr. Paul Riss,
our Chief Financial Officer, was a member of the Board of Directors of
Riderpoint and held three-year options to purchase up to 50,000 shares of
common stock of Riderpoint with an exercise price of $1.00 per share
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<PAGE>
(e) Geils & Co., Inc., an entity that provides us consulting services to from
time to time, received the shares to be sold by it hereunder as
compensation for consulting services rendered.
(f) Mr. Hellige is one of our directors, is our corporate secretary and is a
member of Pryor Cashman Sherman & Flynn LLP, our counsel. The shares to be
sold by Mr. Hellige hereunder are shares issuable upon the conversion of
Series A Preferred Stock owned by Mr. Hellige.
PLAN OF DISTRIBUTION
The selling shareholders may offer their shares of common stock
directly or through pledgees, donees, transferees or other successors in
interest in one or more of the following types of transactions:
o in the over-the-counter market;
o on any stock exchange on which shares of common stock may be
listed at the time of sale;
o in negotiated transactions; or
o in a combination of any of the above transactions.
The selling shareholders may offer their shares of common stock at any
of the following prices:
o fixed prices which may be changed;
o market prices prevailing at the time of sale;
o prices related to such prevailing market prices; or
o at negotiated prices.
The selling shareholders may sell their shares of common stock by one
or more of the following methods, without limitation:
o a block trade in which the broker-dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
o a broker or dealer may purchase as principal and resell for its
account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
o face-to-face transactions between the selling shareholders and
purchasers without a broker-dealer.
19
<PAGE>
In effecting sales, brokers or dealers that the selling shareholders
engage may arrange for other brokers or dealers to participate. The selling
shareholders may give such brokers or dealers commissions or discounts in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act in
connection with such sales.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 might be sold under Rule 144 rather than pursuant to
this prospectus. The selling shareholders and any broker-dealers acting in
connection with the sale of shares of common stock hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit realized by them on the resale
of shares of common stock as principals may be deemed underwriting compensation
under the Securities Act.
If and when a selling shareholder notifies us of that he or she has
entered into a material arrangement with a broker-dealer for the sale of shares
of common stock through a block trade, special offering or secondary
distribution or a purchase by a broker or dealer, we will file a supplemental
prospectus, if required pursuant to Rule 424(c) under the Securities Act,
disclosing (1) the name of the selling shareholder and of the participating
broker-dealer(s); (2) the number of shares of common stock involved; (3) the
price at which such shares of common stock were sold; (4) the commissions paid
or discounts or concessions allowed to such broker-dealer(s), where applicable;
(5) that such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus; and (6)
other facts material to the transaction.
<PAGE>
The selling shareholders reserve the sole right to accept and, together
with any agent of any selling shareholder, to reject in whole or in part any
proposed purchase of the shares of common stock. The selling shareholders will
pay any sales commissions or other seller's compensation applicable to such
transactions.
We have not registered or qualified offers and sales of shares of the
common stock under the laws of any country, other than the United States. To
comply with certain states' securities laws, if applicable, the selling
shareholders will offer and sell their shares of common stock in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the selling shareholders may not offer or sell
shares of common stock unless we have registered or qualified such shares for
sale in such states or we have complied with an available exemption from
registration or qualification.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of shares of the common stock may not
simultaneously engage in market-making activities with respect to such shares of
common stock for a period of two to nine business days prior to the commencement
of such distribution. In addition, the selling shareholders and any other person
participating in a distribution will be subject to applicable provisions of the
20
<PAGE>
Exchange Act and the rules and regulations thereunder, including without
limitation, Rules 10b-2, 10b-6 and 10b-7. Such provisions may limit the timing
of purchases and sales of any of the shares of common stock by the selling
shareholders or any such other person. This may affect the marketability of the
common stock and the brokers' and dealers' ability to engage in market-marking
activities with respect to the common stock.
We will pay substantially all of the expenses incident to the
registration of the shares of common stock by filing the registration statement
of which this prospectus is a part, estimated to be approximately $16,000.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Our authorized capital stock consists of 20,000,000 shares of common
stock, par value $.10 per share, and 1,000,000 shares of preferred stock, par
value $.10 per share. As of April 30, 1999, 9,538,306 shares of common stock
were issued and outstanding , 196 shares of Series A preferred stock were issued
and outstanding and 700 shares of Series B preferred stock were issued and
outstanding.
Common Stock
Voting, Dividend and Other Rights. Each outstanding share of common
stock will entitle the holder to one vote on all matters presented to the
shareholders for a vote. Holders of shares of common stock will have no
preemptive, subscription or conversion rights. All shares of common stock to be
outstanding following this offering will be duly authorized, fully paid and
nonassessable. Our Board of Directors will determine if and when distributions
may be paid out of legally available funds to the holders. We have not declared
any cash dividends during the past fiscal year with respect to the common stock.
Our declaration of any cash dividends in the future will depend on our Board of
Directors' determination as to whether, in light of our earnings, financial
position, cash requirements and other relevant factors existing at the time, it
appears advisable to do so. In addition, we are a party to a credit facility
that prohibits the payment of dividends without the lender's prior consent.
Rights Upon Liquidation. Upon liquidation, subject to the right of any
holders of the preferred stock to receive preferential distributions, each
outstanding share of common stock may participate pro rata in the assets
remaining after payment of, or adequate provision for, all our known debts and
liabilities.
Majority Voting. The holders of a majority of the outstanding shares of
common stock constitute a quorum at any meeting of the shareholders. A plurality
of the votes cast at a meeting of shareholders elects our directors. The common
stock does not have cumulative voting rights. Therefore, the holders of a
majority of the outstanding shares of common stock can elect all of our
directors. In general, a majority of the votes cast at a meeting of shareholders
must authorize shareholders action other than the election of directors.
However, the Business Corporation Law of the State of New York provides that
certain extraordinary matters, such as a merger or
21
<PAGE>
consolidation in which we are a constituent corporation, a sale or other
disposition of all or substantially all of our assets, and our dissolution,
require the vote of the holders of two-thirds of all outstanding voting shares.
Most amendments to our certificate of incorporation require the vote of the
holders of a majority of all outstanding voting shares.
Preferred Stock
Authority of Board of Directors to Create Series and Fix Rights. Under
our certificate of incorporation, as amended, our Board of Directors can issue
up to 1,000,000 shares of preferred stock from time to time in one or more
series. The Board of Directors is authorized to fix by resolution as to any
series the designation and number of shares of the series, the voting rights,
the dividend rights, the redemption price, the amount payable upon liquidation
or dissolution, the conversion rights, and any other designations, preferences
or special rights or restrictions as may be permitted by law. Unless the nature
of a particular transaction and the rules of law applicable thereto require such
approval, the Board of Directors has the authority to issue these shares of
preferred stock without shareholder approval. As described below, our Board of
Directors has authorized the issuance of 700 shares of Series A preferred stock
and up to 1,300 shares of Series B preferred stock.
Series A Preferred Stock. We have designated 700 preferred shares as
"Series A Preferred Stock". The Series A preferred stock is entitled to receive
dividends when, as and if dividends are declared by our Board of Directors on
our common stock. Each holder of Series A preferred stock has the right, at the
option of the holder at any time, to convert each share of Series A preferred
stock into approximately 300 shares of common stock, except that our Board of
Directors has authorized the issuance of 1,000 shares of common stock upon the
conversion of each of the 33 shares of Class A preferred stock owned by Eric M.
Hellige, one of our directors. After May 31, 1999, we have the right to convert
each share of Series A preferred stock into not less than 300 shares of common
stock and not more than 600 shares of common stock (depending upon the average
closing price of the common stock for the 20 trading days immediately preceding
May 31, 1999). The conversion price of shares of Series A Preferred Stock is
subject to adjustment in the event of any reclassification, subdivision or
combination of our outstanding common stock into a greater or smaller number of
shares by a stock split, stock dividend or other similar event.
Series B Preferred Stock. We have designated 1,300 preferred shares as
"Series B Preferred Stock". The Series B preferred stock is entitled to receive
dividends when, as and if dividends are declared by our Board of Directors on
our common stock. Each holder of Series B preferred stock has the right, at the
option of the holder, to convert each share of Series B preferred stock into
1,000 shares of common stock at any time prior to November 18, 1999, or into not
more than 2,000 shares of common stock nor less than 1,000 shares of common
stock (depending on the average closing price of the common stock for the 20
trading days immediately preceding November 18, 1999) at any time on or after
November 18, 1999. After November 18, 1999, we have the right to convert each
share of Series B preferred stock into common stock. The conversion price of
shares of Series B preferred stock is subject to adjustment in the event of any
reclassification, subdivision or combination of our outstanding
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<PAGE>
common stock into a greater or smaller number of shares by a stock split, stock
dividend or other similar event.
In the event of a dissolution, liquidation or winding up of the
Company, the holders of Series A preferred stock and Series B preferred stock
are entitled to receive, prior and in preference to the holders of common stock,
an amount equal to $1,000 per share. Thereafter, our remaining assets will be
distributed ratably to the holders of common stock. The holders of shares of
Series A preferred stock and Series B preferred stock are entitled to that
number of votes on all matters presented to shareholders equal to the number of
shares of common stock then issuable upon conversion of such shares of preferred
stock. Without the approval of the holders of at least a majority of the Series
A preferred stock and Series B preferred stock then outstanding voting
separately as a class, we may not amend our Certificate of Incorporation in any
way that adversely affects the rights and preferences of the holders of the
Series A preferred stock or the Series B preferred stock as a class.
Potential Dilution of Share Value; Preferences. Any additional issuance
of shares of preferred stock could dilute the earnings per share and book value
of existing shares of common stock. Because our Board of Directors has the
authority to fix the voting rights for any series of preferred stock, the
holders of shares of a new series of preferred stock could be entitled to vote
separately as a class in connection with the approval of certain extraordinary
corporate transactions where New York law does not require such class vote, or
might be given a disproportionately large number of votes. The issuance of
shares of preferred stock could also result in a class of securities outstanding
that would have certain preferences (for example, with respect to dividends or
liquidation), or would enjoy certain voting rights in addition to those of the
common stock.
Potential Frustration in Change of Control . Although we currently have
no such intention, we could use authorized but unissued shares of preferred
stock to hinder a change in control of our company. Any issuance of shares of
preferred stock could dilute the stock ownership of persons seeking to gain
control. Shares of a new series of preferred stock could also be convertible
into a large number of shares of common stock or have other terms that might
make more difficult or costly the acquisition of a controlling interest in our
company. Under certain circumstances, such shares could be used to create voting
impediments or to frustrate persons attempting to effect a takeover or otherwise
gain control. Such shares could be privately placed with purchasers who might
side with the Board of Directors in opposing a hostile takeover bid. In
addition, the Board of Directors could authorize holders of a series of
preferred stock to vote as a class, either separately or with the holders of the
common stock, on any merger, sale or exchange of assets by us or any other
extraordinary corporate transactions. The ability of the Board of Directors to
take such actions might be considered as having an effect of discouraging any
attempt by another person or entity to acquire control of our company.
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Transfer Agent
The registrar and transfer agent for our common stock is Registrar and
Transfer Company.
LEGAL MATTERS
Pryor Cashman Sherman & Flynn LLP, New York, New York, will pass upon
certain legal matters in connection with this offering, including the validity
of the issuance of the shares of common stock offered by this prospectus.
EXPERTS
Our consolidated balance sheets as of November 30, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the three years ended November 30, 1998 appearing in our Annual Report
on Form 10-K for the year ended November 30, 1998, have been audited by Nussbaum
Yates & Wolpow, P.C., independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. The financial statements
referred to above are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
24
<PAGE>
- --------------------------------------------------------------------------------
No dealer, sales representative, or other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof or that the information contained herein is correct as of any time
subsequent to the date hereof.
---------------
| 3,311,696 Shares
TABLE OF CONTENTS |
|
Page |
|
Where You Can Find More Information | SIRCO INTERNATIONAL CORP.
1 |
|
Incorporation of Certain |
Documents by Reference........... 1 | Common Stock
|
About the Company................... 2 |
|
Risk Factors ....................... 7 |
| ---------------
Use of Proceeds....................... 16 | PROSPECTUS
| ---------------
Selling Shareholders................ 16 |
|
Plan of Distribution................ 19 |
| __________, 1999
Description of Securities to be |
Registered........................ 21 |
Legal Matters......................... 24
Experts............................... 24
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
Estimated expenses to be paid by the Company in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<CAPTION>
<S> <C>
Registration Fee...................................................................... $ 1,159.09
Legal Fees and Expenses............................................................... $ 10,000.00
Accounting Fees and Expenses.......................................................... $ 5,000.00
Miscellaneous......................................................................... $ 840.91
------------
Total $ 17,000.00
</TABLE>
ITEM 15. Indemnification of Directors and Officers
Reference is made to Sections 721 through 725 of the Business
Corporation Law of the State of New York (the "BCL"), which provides for
indemnification of directors and officers of New York corporations under certain
circumstances.
Section 722 of the BCL provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, in connection with actions or proceedings, whether civil or
criminal (other than an action by or in the right of the corporation, a
"derivation action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to amounts paid in settlement and reasonable expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions, and the statute does not apply in respect of a threatened action, or a
pending action that is settled or otherwise disposed of, and requires court
approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Section 721 of the BCL
provides that Article 7 of the BCL is not exclusive of other indemnification
that may be granted by a corporation's certificate of incorporation,
disinterested director vote, shareholders vote, agreement or otherwise.
Article XII of the Registrant's by-laws requires the Registrant to
indemnify its officers and directors to the fullest extent permitted under the
BCL. Article XII of the Registrant's by-laws further provides that no director
of the Registrant shall be personally liable to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except that no indemnification shall be made in respect of (1) a threatened
action, or a pending action which is settled or otherwise disposed of, or (2)
any claim, issue or matter as to which
<PAGE>
such person shall have been adjudged to be liable to the Registrant unless and
only to the extent that the court in which such action or suit was brought or,
if no action was brought, any court of competent jurisdiction determines upon
application that, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such portion of the settlement
and expenses as the court deems proper.
Section 402(b) of the BCL provides that a corporation's certificate of
incorporation may include a provision that eliminates or limits the personal
liability of the corporation's directors to the corporation or its shareholders
for damages for any breach of a director's duty, provided that such provision
does not eliminate or limit (1) the liability of any director if a judgment or
other final adjudication adverse to the director establishes that the director's
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that the director personally gained a financial
profit or other advantage to which the director was not legally entitled or that
the director's acts violated Section 719 of the BCL; or (2) the liability of any
director for any act or omission prior to the adoption of a provision authorized
by Section 402(b) of the BCL. Article Sixth of the Registrant's Certificate of
Incorporation, as amended, provides that no director of the Registrant shall be
liable to the Registrant or its shareholders for any breach of duty in such
capacity except as provided in Section 402(b) of the BCL.
Any amendment to or repeal of the Registrant's Certificate of
Incorporation or by-laws shall not adversely affect any right or protection of a
director or officer of the Registrant for or with respect to any acts or
omissions of such director or officer occurring prior to such amendment or
repeal.
The Registrant maintains directors and officers insurance which,
subject to certain exclusions, insures the directors and officers of the
Registrant against certain losses which arise out of any neglect or breach of
duty (including, but not limited to, any error, misstatement, act, or omission)
by the directors or officers in the discharge of their duties, and insures the
Registrant against amounts which it has paid or may become obligated to pay as
indemnification to its directors and/or officers to cover such losses.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing, the Registrant has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Item 16. Exhibits
Exhibit No. Description
5 Opinion of Pryor Cashman Sherman & Flynn LLP
II-2
<PAGE>
23.1 Consent of Pryor Cashman Sherman & Flynn LLP
(included as part of Exhibit 5.1)
23.2 Consent of Nussbaum Yates & Wolpow, P.C.
24 Powers of Attorney (included in the signature
page of this Registration Statement)
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the SEC
by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York on this 30th day of
April, 1999.
SIRCO INTERNATIONAL CORP.
By:
----------------------
Joel Dupre
Chairman of the Board and
Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes Joel
Dupre, Eric M. Hellige and Paul H. Riss, and each of them singly, his true and
lawful attorneys-in-fact with full power to execute in the name of such person,
in the capacities stated below, and to file, such one or more amendments to this
Registration Statement as the Registrant deems appropriate, and generally to do
all such things in the name and on behalf of such person, in the capacities
stated below, to enable the Registrant to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming the signature of such
person as may be signed by said attorneys-in-fact, or any one of them, to any
and all amendments to this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Dated: April 30, 1999 /s/ Joel Dupre
-------------------------------------------------
(Joel Dupre)
Chairman of the Board and Chief Executive Officer
Dated: April 30, 1999 /s/ Paul H. Ris
-------------------------------------------------
(Paul H. Riss)
Chief Financial Officer and Director
Dated: April 30, 1999 /s/ Eric M. Hellige
-------------------------------------------------
(Eric M. Hellige)
Director
Dated: April 30, 1999 /s/ Eric Smith
-------------------------------------------------
(Eric Smith)
Director
Dated: April 30, 1999 /s/ Barrie Sommerfield
-------------------------------------------------
(Barrie Sommerfield)
Director
Dated: April 30, 1999 /s/ Anthony Scalice
-------------------------------------------------
(Anthony Scalice)
Director
EXHIBIT 5
April 30, 1999
Sirco International Corp.
24 Richmond Hill Avenue
Stamford, Connecticut 06901
Gentlemen:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), to be filed by you with the Securities and Exchange Commission with
respect to the registration under the Securities Act of 1933, as amended (the
"Act"), of 3,311,696 shares of common stock, par value $.10 per share (the
"Shares"), of Sirco International Corp. (the "Company") for resale by the
Selling Shareholders (as defined in the Registration Statement).
We are qualified to practice law in the State of New York. We express
no opinion as to, and, for the purposes of the opinion set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any laws
other than the laws of the State of New York and the federal laws of the United
States of America.
We have examined such documents as we considered necessary for the
purposes of this opinion. Based on such examination, it is our opinion that the
Shares have been duly authorized and are legally issued, fully-paid and
non-assessable under the laws of the State of New York (the state of
incorporation of the Company).
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
PRYOR CASHMAN SHERMAN & FLYNN LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated February 12, 1999 (except for the last paragraph
of Note 2, as to which the date is February 25, 1999) accompanying the
consolidated financial statements and schedule of Sirco International Corp. and
subsidiaries included in the Annual Report on Form 10-K for the year ended
November 30, 1998 which are incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned report and schedule and to the use of our name
as it appears under the caption "Experts."
/s/ Nussbaum Yates & Wolpow, P.C.
---------------------------------
NUSSBAUM YATES & WOLPOW, P.C.
Melville, New York
April 30, 1999
