As filed with the Securities and Exchange Commission on October 16, 1996
Registration No. 333-
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Form S-1
Registration Statement under the Securities Act of 1933
Trans Global Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 7361 62-1544008
(State or jurisdiction (Primary Standard (IRS Employer
of incorporation or Industrial Classification Identification
organization) Code Number) No.)
1770 Motor Parkway, Hauppauge, New York 11788, (516) 582-9000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive officer)
Asher S. Levitsky P.C.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
(212) 953-6000
Fax: (212) 953-6899
(Name, address and telephone number of agent for service)
Copies to:
Lewis S. Schiller, Chief Executive Officer Stuart Neuhauser, Esq.
Trans Global Services, Inc. Bernstein & Wasserman, LLP
1770 Motor Parkway 950 Third Avenue
Hauppauge, NY 11788 New York, NY 10022
(516) 582-9000 (212) 826-0730
Fax: (516) 582-9052 Fax: (212) 371-4730
Approximate date of proposed sale to the public: As soon as practical on or
after the effective date of this Registration Statement. If any securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, check the following box. [X]
<TABLE>
<CAPTION>
Calculation of Registration Fee
====================================================================================================================================
<S> <C> <C> <C> <C>
Maximum
Amount to be Maximum Offering Aggregate Registration
Title of each class of securities to be registered Registered Price Per Unit(1) Offering Price Fee
- -------------------------------------------------- ------------ ----------------- -------------- ------------
Units, each Unit consisting of one share of Series 1,437,500 Units $8.00 $11,500,000.00 $3,965.52
Convertible Redeemable Preferred Stock, par value
$.01 per share, and two Series E Redeemable
Common Stock Purchase Warrants(2)
Common Stock, par value $.01 per share(3),(4) 5,750,000 Shs. -- -- --
Common Stock, par value $.01 per share(4),(5) 2,875,000 Shs. 3.00 8,625,000.00 2,974.14
Representative's Unit Purchase Options(6) 125,000 Optns. .001 125.00 .04
Units, each Unit consisting of one share of Series 125,000 Units 9.60 1,200,000.00 413.79
G Convertible Redeemable Preferred Stock, par
value $.01 per share, and two Series E Redeemable
Common Stock Purchase Warrants(4),(7)
Common Stock, par value $.01 per share(4),(8) 500,000 Shs. -- -- --
Common Stock, par value $.01 per share(4),(9) 250,000 Shs. 3.00 750,000.00 258.62
---------
Total.......... $7,612.11
=========
====================================================================================================================================
(Footnotes on following page)
</TABLE>
<PAGE>
(Footnotes from preceding page)
1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Includes 187,500 Units issuable upon exercise of the Underwriters'
over-allotment option.
(3) Represents shares of Common Stock issuable upon conversion of the
Series G Convertible Redeemable Preferred Stock ("Series G Preferred
Stock").
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants, the Series G Preferred Stock or the
Underwriters' Unit Purchase Options.
(5) Represents shares of Common Stock issuable upon exercise of the Series
E Redeemable Common Stock Purchase Warrants ("Warrants") included in
the Units offered pursuant to this Registration Statement.
(6) Represents options (the "Unit Purchase Options") to purchase 125,000
Units to be issued to the Representative.
(7) Represents Units issuable upon exercise of the Unit Purchase Options.
(8) Represents shares of Common Stock issuable upon conversion of the
Series G Preferred Stock issuable pursuant to the Unit Purchase
Options.
(9) Represents shares of Common Stock issuable upon exercise of the
Warrants issuable pursuant to the Unit Purchase Options.
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 Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Trans Global Services, Inc.
Cross-Reference Sheet Pursuant to Rule 404
Item No. Caption in Prospectus
-------- ---------------------
1. Forepart of the Registration Statement Registration Statement Facing
and Outside Front Cover of Prospectus Page, Prospectus Cover Page
2. Inside Front and Outside Bank Cover Inside Cover Page, Back Cover Page
Pages of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary, Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page, Risk Factors,
Underwriting
6. Dilution Dilution
7. Selling Security Holders Cover Page, Inside Cover Page,
Selling Security Holders
8. Plan of Distribution Cover Page, Inside Cover Page,
Selling Security Holders,
Underwriting
9. Description of Securities to be Description of Securities
Registered
10. Interest of Named Experts and Counsel N.A.
11. Information with Respect to the (a)-(c) Prospectus Summary, Business
Registrant (d) Cover Page
(e) Financial Statements; Pro
Forma Combined Condensed
Statements of Operations
(f) Prospectus Summary, Trans
Global Services, Inc.
Selected Financial Data
(g) N.A.
(h) Trans Global Services, Inc.
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
(i) N.A.
(j)-(k) Management
(l) Principal Stockholders
(m) Certain Transactions
12. Disclosure of Commission Position on N.A.
Indemnification for Securities Act
Liabilities
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED OCTOBER 16, 1996
1,250,000 Units
Trans Global Services, Inc.
(Each Unit consisting of one share of Series G Convertible Redeemable
Preferred Stock, par value $.01 per share, and two Series E Redeemable
Common Stock Purchase Warrants)
- ---------------
Trans Global Services, Inc. (the "Company") is offering 1,250,000
Units, each Unit consisting of one share of Series G Convertible Redeemable
Preferred Stock ("Series G Preferred Stock") and two Series E Redeemable Common
Stock Purchase Warrant (the "Warrants"). The Series G Preferred Stock and
Warrants comprising the Units will be separately transferable immediately upon
issuance. Each share of Series G Preferred Stock pays an annual dividend of $.12
per share, is convertible, commencing one year from the date of this Prospectus
or earlier with the consent of the Company, into four shares of Common Stock,
subject to adjustment, and may be redeemed by the Company for $8.00 per share
commencing one year from the date of this Prospectus on not less than 30 nor
more than 60 day's notice. Each Warrant entitles the holder to purchase one
share of Common Stock at $3.00 per share, subject to adjustment, during the
three-year period commencing on the date of this Prospectus. The Warrants are
redeemable by the Company, commencing one year from the date of this Prospectus
or earlier with the consent of Patterson Travis, Inc., the representative of the
Underwriters (the "Representative"), for $.05 per Warrant, on not more than 60
nor less than 30 days' written notice if the average closing price per share of
Common Stock is at least $4.00 (subject to adjustment) for at least 20 trading
days ending not earlier than 15 days prior to the date the Warrants are called
for redemption.
See "Description of Securities."
Prior to this Offering, there has been no public market for the Units,
Series G Preferred Stock or Warrants. The initial public offering price and
composition of the Units, the conversion rate and other terms of the Series G
Preferred Stock and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Representative, and
are not related to the Company's assets, book value, financial condition or
other recognized criteria of value. The Company's Common Stock and Callable
Common Stock Purchase Warrants ("1994 Warrants") are traded on The Nasdaq
SmallCap Market under the symbols TGSI and TGSIW, respectively. Although the
Company has applied for the inclusion of the Units, Series G Preferred Stock and
Warrants on The Nasdaq SmallCap Market under the symbols TGSIU, TGSIP and TGSIZ,
respectively, there can be no assurance that an active trading market in such
securities will develop or be sustained.
- --------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS," WHICH BEGIN ON PAGE 7.
- --------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Unit..... $8.00 $ .80 $7.20
- --------------------------------------------------------------------------------
Total (3).... $10,000,000 $1,000,000 $9,000,000
================================================================================
(footnotes on page 2)
The Units are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Series G Preferred Stock and Warrants comprising the Units will
be made against payment therefor at the offices of the Representative at One
Battery Park Plaza, New York, New York 10004 on , 1996.
Patterson Travis, Inc.
The date of this Prospectus is , 1996
<PAGE>
(footnotes from Cover Page)
(1) Excludes additional compensation to be received by the Representative
in the form of (a) a non-accountable expense allowance equal to 3% of
the gross proceeds of this Offering ($.24 per Unit) for a total of
$300,000 ($345,000 if the Underwriters' over-allotment option is
exercised in full), (b) a one-year consulting agreement pursuant to
which the Company will pay the Representative a fee of $100,000, and
(c) options (the "Unit Purchase Options") to purchase 125,000 Units at
$9.60 per Unit exercisable during the four-year period commencing one
year from the date of this Prospectus. In addition, the Company has
agreed to indemnify the Underwriters against certain liabilities,
including liability under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the Offering of approximately
$700,000 ($.56 per Unit), which are payable by the Company and relate
to the Offering by the Company and which include the Representative's
non-accountable expense allowance.
(3) The Company has granted to the Representative an option, exercisable on
its own behalf or on behalf of the Underwriters, within 45 days after
the date of this Prospectus, to purchase up to an additional 187,500
Units on the same terms solely to cover over-allotments. If the
over-allotment option is exercised in full, the Total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$11,500,000, $1,150,000 and $10,350,000, respectively.
See "Underwriting."
The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
The Company uses the calendar year as its fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
SERIES G PREFERRED STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITERS. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF
THE SECURITIES THROUGH OR WITH THE UNDERWRITERS. ALTHOUGH THEY HAVE NO
OBLIGATION TO DO SO, THE UNDERWRITERS MAY BECOME MARKET MAKERS AND OTHERWISE
EFFECT TRANSACTIONS IN THE SECURITIES, AND, IF THE UNDERWRITERS PARTICIPATE IN
SUCH MARKET, THEY MAY BE DOMINATING INFLUENCES IN THE TRADING OF THE SECURITIES.
THE PRICES AND THE LIQUIDITY OF THE SECURITIES MAY BE SIGNIFICANTLY AFFECTED BY
THE DEGREE, IF ANY, OF THE PARTICIPATION OF THE UNDERWRITERS IN SUCH MARKET,
SHOULD A MARKET DEVELOP.
- 2 -
<PAGE>
PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in
this Prospectus. It does not purport to be complete and is qualified in its
entirety by reference to more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Trans Global Services, Inc. (the "Company"), is engaged in providing
technical temporary staffing services. In performing such services, the Company
addresses the current trend of major corporations in "downsizing" and
"outsourcing" by providing engineers, designers and technical personnel on a
temporary contract assignment basis pursuant to contracts with major
corporations. The engagement may relate to a specific project or may cover an
extended period based on the client's requirements. The Company seeks to offer
its clients a cost-effective means of work force flexibility and the elimination
of the inconvenience associated with the employment of temporary personnel, such
as advertising, initial interviewing, fringe benefits and record keeping.
Although the employees provided by the Company are on temporary contract
assignment, they work with the client's permanent employees; however, they may
receive different compensation and benefits than permanent employees.
In providing its services, the Company engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Company charges
its clients for services based upon the hourly payroll cost of the personnel.
Each temporary employee submits to the Company a weekly time sheet with work
hours approved by the client. The employee is paid on the basis of such hours,
and the client is billed for those hours at agreed upon billing rates.
The Company is a Delaware corporation which was incorporated in
September 1993 under the name Concept Technologies Group, Inc. ("Concept"). The
Company's executive offices are located at 1770 Motor Parkway, Hauppauge, New
York 11788, telephone (516) 582-9000.
In May 1995, Concept acquired all of the issued and outstanding stock
of Trans Global Services, Inc., a Delaware corporation now known as TGS Services
Corp. ("TGS"), in exchange for a controlling interest in the Company. Such
transaction is referred to as the "Trans Global Transaction." See "Certain
Transactions -- The Trans Global Transaction." In March 1996, the Company
changed its corporate name to Trans Global Services, Inc. Prior to May 1995, the
Company's primary business was the operation, through WWR Technology, Inc.
("WWR"), of the Klipsch(R) professional loudspeaker business. As a result of the
Trans Global Transaction, the Company's principal business became the provision
of technical temporary staffing services. See "Certain Transactions -- The Trans
Global Transaction." As of September 30, 1995, the Company sold the stock of WWR
to an affiliated party. See "Certain Transactions -- Sale of WWR."
TGS is a Delaware corporation which was incorporated in January 1995 to
hold the stock of its two subsidiaries, Avionics Research Holdings, Inc.
("Holdings") and Resource Management International, Inc. ("RMI"). Prior to
January 1995, the stock of Holdings and RMI was held by SIS Capital Corp.
("SISC"), which is a wholly-owned subsidiary of Consolidated Technology Group
Ltd. ("Consolidated"). Consolidated is a public company whose businesses
include, in addition to the Company, the management and operation of magnetic
resonance imaging centers, the manufacture and sale of electro-mechanical and
electro-optical products, a range of telecommunications services, computerized
health information systems and related services which are offered to health care
providers, and the marketing and selling of three dimensional imaging products.
Holdings was formed to acquire the stock of two related companies, Avionics
Research Corporation of New York and Avionics Research Corp. of Florida
(collectively, "Avionics") in December 1993. RMI was formed in 1994 to acquire
assets of Job Shop Technical Services, Inc. ("Job Shop") in November 1994. RMI
conducts business under the name The RMI Group. Avionics has been engaged in the
contract engineering business since its organization in 1954, and RMI commenced
such business in November 1994, with the acquisition of assets from Job Shop.
References to the Company refer to the Company and TGS and its
subsidiaries, unless the context indicates otherwise. References to Concept
relate to the Company prior to the consummation of the Trans Global Transaction
in May 1995.
At October 11, 1996, SISC was the owner of approximately 41.1% of the
Company's outstanding Common Stock and held shares of convertible preferred
stock and warrants which, if converted and exercised, would result in SISC's
ownership of 58.4% of the Common Stock. Mr. Lewis S. Schiller, chairman of the
board and chief executive officer of the Company, is also chairman of the board
and chief executive officer of Consolidated, SISC and Netsmart Technologies,
Inc. ("Netsmart"), a public corporation of which SISC owns a majority of the
Common Stock. The Trinity Group, Inc. ("Trinity"), a wholly-owned subsidiary
- 3 -
<PAGE>
of Consolidated, has an agreement with the Company pursuant to which the Company
pays Trinity fees of $10,000 per month through March 2000. Mr. Norman J. Hoskin,
a director of the Company, is a director of Consolidated and certain
subsidiaries of Consolidated. Mr. E. Gerald Kay, a director of the Company, is a
director of Netsmart and certain subsidiaries of Consolidated. See "Management
- -- Directors and Executive Officers".
THE OFFERING
Securities Offered: 1,250,000 Units at $8.00 per Unit. Each
Unit consists of one share of Series G
Convertible Redeemable Preferred Stock
("Series G Preferred Stock") and two
Series E Redeemable Common Stock
Purchase Warrants (the "Warrants"). The
shares of Series G Preferred Stock and
Warrants comprising the Units will be
separately transferable immediately
upon issuance.
Description of Series G Preferred Stock:
Redemption: The Series G Preferred Stock is
redeemable by the Company, at its
option, for $8.00 per share, in whole
at any time and in part from time to
time commencing one year from the
Effective Date on not less than 30 nor
more than 60 days notice.
Conversion: Commencing one year from the Effective
Date or earlier with the consent of the
Company, each share of Series G
Preferred Stock will be convertible
into four shares of Common Stock,
subject to adjustment in the event of
any stock split, distribution,
dividend, combination of shares or
other transaction having the effect of
a reverse split or other
recapitalizations or similar
transactions.
Liquidation: Upon the liquidation, dissolution or
winding up of the Company, the holders
of the Series G Preferred Stock will
receive a preference of $8.00 per
share. Upon receipt of such preference,
the holders of the Series G Preferred
Stock will not be entitled to any
further payment. In the event of the
merger or consolidation of the Company,
the shares of Series G Preferred Stock
then outstanding will be deemed
converted into Common Stock immediately
prior to the effective time of the
transaction.
Seniority: The Series G Preferred Stock will be
pari passu with the existing preferred
stock upon the liquidation, dissolution
or winding up of the Company.
Dividends: Annual dividends of $.12 per share of
Series G Preferred Stock, payable
semiannually, in cash or shares of
Common Stock, as the Company shall
determine.
Description of Warrants:
Exercise of Warrants: The Warrants are immediately
exercisable upon issuance. Subject to
redemption by the Company, the Warrants
may be exercised at any time during the
three-year period commencing on the
date of this Prospectus at an exercise
price of $3.00 per share, subject to
adjustment.
Redemption: The Warrants are redeemable by the
Company commencing one year from the
date of this Prospectus at $.05 per
Warrant provided that the average
closing price per share of the Common
Stock is at least $4.00 per share,
subject to adjustment, for a period of
20 trading days ending not earlier than
15 trading days prior to the date the
board of directors calls the Warrants
for redemption.
Use of Proceeds: The net proceeds of this Offering will
be used to pay outstanding loans and
obligations and for working capital and
other corporate purposes. See "Use of
Proceeds."
Risk Factors: Purchase of the Units involves a high
degree of risk and should be considered
only by investors who can afford to
sustain a loss of their entire
investment. See "Risk Factors" and
"Dilution."
- 4 -
<PAGE>
Nasdaq Symbols:
Common Stock TGSI
1994 Warrants TGSIW
Units TGSIU (Proposed)
Series G Preferred Stock TGSIP (Proposed)
Series E Warrants TGSIZ (Proposed)
Common Stock and Warrants(1) Outstanding:
At the date of this Prospectus:
17,846,651 shares of Common Stock(2)
567,245 1994 Warrants(3)
As Adjusted(4):
17,846,651 shares of Common Stock(2)
1,250,000 shares of Series G Preferred Stock
2,500,000 Warrants
567,245 1994 Warrants(3)
__________
(1) Does not include privately held warrants to purchase an aggregate of
6,257,352 shares of Common Stock at exercise prices ranging from $.50 to
$8.45 (collectively, the "Other Warrants").
(2) Does not include a maximum of 2,792,332 shares of Common Stock which may
be issued pursuant to the Company's stock option plans, of which stock
options to purchase 1,523,950 shares are outstanding, 5,000,000 shares
of Common Stock issuable upon conversion of Company's Series F $6
Convertible Preferred Stock ("Series F Preferred Stock"), 567,245 shares
Common Stock issuable upon exercise of the 1994 Warrants, 6,257,352
shares of Common Stock issuable upon exercise of the Other Warrants, or
any shares of Common Stock issuable upon conversion of the Series G
Preferred Stock or the exercise of the Warrants, the Underwriters'
over-allotment option or Purchase Options or the securities underlying
the Unit Purchase Options.
(3) The 1994 Warrants were issued as part of the Company's initial public
offering in February 1994, have an exercise price of $7.00 per share,
and expire in November 1996.
(4) Reflects the issuance of the 1,250,000 shares of Series G Preferred
Stock and 2,500,000 Warrants comprising the Units offered hereby.
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share amounts)
Statement of Operations Data(1):
- -------------------------------
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
Revenue $28,468 $33,234 $63,152 $25,287
Net (loss) from continuing
operations (569) (583) (4,413) (411)
Net (loss) (569) (678) (4,696) (411)
Net (loss) per share of
Common Stock (.08) (.36) (1.48) (.68)
Weighted average number
of shares of Common
Stock outstanding 7,017 1,878 3,173 600
Ratio of earnings to fixed
charges 2 2 2 2
- 5 -
<PAGE>
Balance Sheet Data:
- ------------------
June 30, 1996 December 31,
-------------------------- --------------------
As Adjusted(3) Actual 1995 1994
-------------- ---------- ---- ----
Working capital (deficiency) $ 8,054 $(2,246) $(2,401) $(1,805)
Total assets 18,463 12,782 12,763 10,345
Total liabilities 3,125 7,815 8,511 9,033
Accumulated deficit (5,675) (5,675) (5,106) (411)
Stockholders' equity(4) 15,267 4,967 4,252 1,312
(1) Statement of operations data includes the operations of RMI commencing
November 22, 1994.
(2) Earnings during this period were insufficient to cover combined fixed
charges and Preferred Stock dividends. The dollar amounts of the
coverage deficiencies were as follows: $719, $733, $4,563 and $561 for
the six months ended June 30, 1996 and 1995 and the years ended December
31, 1995 and 1994.
(3) As adjusted to reflect (a) the receipt by the Company of the net
proceeds from the sale of the 1,250,000 Units offered hereby, (b) the
sale by the Company in July 1996 of 5,000,000 shares of Common Stock,
and (c) the use of a portion of the proceeds of this Offering to pay
certain debt. See "Use of Proceeds" and "Capitalization."
(4) Stockholders' equity includes $751 at June 30, 1996 and $9,051 as
adjusted, relating to Preferred Stock.
(5) Excludes the amount allocated to the liquidation preferences of the
Preferred Stock.
- 6 -
<PAGE>
RISK FACTORS
The purchase of the Units offered hereby involves a high degree of risk
and should be considered only by investors who can afford to sustain the loss of
their entire investment. In analyzing this Offering, prospective investors
should carefully consider the following factors, among others.
1. Continuing and substantial losses. During the six months ended
June 30, 1996 and the years ended December 31, 1995 and 1994, the Company
sustained losses from continuing operations of $569,000, or $.08 per share, $4.4
million, or $1.39 per share, and $411,000, or $.68 per share, respectively, on
revenue of $28.4 million, 63.2 million and $25.3 million, respectively. The net
loss for 1995, after the loss for the discontinued operations and the loss on
the sale of the discontinued segment, was $4.7 million, or $1.48 per share. The
results of the Company's operations in 1995 reflect the results of operations of
both Holdings and RMI for the entire year. The results of operations for 1994
reflect the operations of Holdings for the entire year and RMI commencing
November 22, 1994. If the acquisition of Job Shop assets were consummated as of
January 1, 1994, the pro forma results of operations of the Company and Job Shop
would reflect revenue of $64.8 million and a loss of $2.3 million.
The Company finances its payroll obligations by borrowing from an
asset-based lender at an interest rate of 2% in excess of prime. The Company
also pays a fee of .3% of the face amount of the invoices financed, regardless
of the amount borrowed against the invoice. The borrows are secured by a
security interest in all of the Company's assets. At June 30, 1996 and September
30, 1996, such borrowings were $2.6 million and $3.5 million, respectively. The
ability of the Company to operate profitably is dependent in part upon its
ability to obtain adequate financing to enable the Company to become current in
its payment of payroll taxes, thus eliminating the penalties, and reduce
financing costs, however no assurance can be given that it can or will be able
to reduce its financing costs. See "Risk Factors 2. -- Substantial capital
requirements; acceleration of obligations to asset-based lender" in connection
with a reduction to $1.0 million in the available credit from the Company's
asset-based lender.
For the six months ended June 30, 1996 and the years ended December 31,
1995 and 1994, the Company's gross margins were approximately 8.1%, 6.3% and
6.2%, respectively. Revenue from contract engineering services is based on the
hourly cost of payroll plus a percentage. Accordingly, no assurance can be given
that the Company will be able to increase its gross margin. The success of the
Company's business is dependent upon its ability to generate sufficient revenues
to enable it to cover its fixed costs and other operating expenses and to reduce
its variable costs, principally its interest. See "Risk Factors 2. --
Substantial capital requirements; acceleration of obligations to asset-based
lender." Under its agreements with its clients, the Company is required to pay
its employees and pay all applicable Federal and state withholding and payroll
taxes prior to receipt of payment from the clients. Furthermore, the Company's
payments from its clients are based upon the hourly rate paid to the employee,
without regard to when payroll taxes are payable with respect to the employee.
Accordingly, the Company's cost of services are greater during the first part of
the year, when Federal Social Security taxes and state unemployment and related
taxes, which are based on a specific level of compensation, are due. Thus, until
the Company satisfies its payroll tax obligations, it will have a lower gross
margin than after such obligations are satisfied. Furthermore, to the extent
that the Company experiences turnover in employees, its gross margin will be
adversely affected.
2. Substantial capital requirements; acceleration of obligations to
asset-based lender. As of June 30, 1996, the Company had a working capital
deficit of $2.2 million. Its working capital deficit reflects (a) $2.6 million
due to the Company's asset-based lender, (b) payroll taxes and related expenses
of $2.9 million, and (c) accounts payable and accrued expenses of $2.0 million,
the most significant component of which was compensation due to the Company's
contract employees, which was paid during the first week of July 1996. In
addition, at such date, the Company owed approximately $300,000 to SISC, which
reflects money advanced by SISC to the Company, which advance has been paid.
At September 30, 1996, the Company owed approximately $3.5 million to
its asset-based lender. The Company has been advised that, as a result of a
change in its general lending policies, the Company's asset-based lender is
reducing the Company's maximum borrowing availability to $1 million, effective
in late October 1996, which date has been orally extended until January 1997.
Although the Company is seeking a deferral of the effectiveness in the reduction
of the available credit and is seeking alternative financing sources, no
assurance can be given that the Company can or will be able to obtain either an
extension or an alternate financing source, the failure of which could have a
material adverse effect upon the Company.
At the time of the acquisition of assets of Job Shop, Job Shop had
significant obligations to the Internal Revenue Service (the "IRS") for unpaid
Federal withholding and FICA taxes, interest and penalties and the IRS held a
tax lien against Job Shop. In connection with the acquisition of Job Shop and in
order to obtain a subordination of the tax lien to the lien of RMI's asset-based
lender, and pursuant to a settlement agreement with the IRS, the IRS agreed to
subordinate its tax lien to the lien of the Company's asset-based lender and to
accept scheduled payments from RMI, the subsidiary which purchased the Job Shop
assets, as follows:
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as initial payment of $500,000, which was paid at or about the time of closing
of the acquisition of such assets, and 15 monthly payments of $100,000
commencing May 1995 and ending July 1996. All required payments have been made.
At June 30, 1996, the Company required additional capital to enable it
to expand its operations and pay certain withholding tax obligations, including
interest and penalties. During 1995 and the first half of 1996, the Company's
principal source of funds, other than from its asset-based lender, was from the
sale of securities. The proceeds from such sales was approximately $2.5 million,
which was used principally to finance the Company's operations subsequent to the
Trans Global Transaction.
At June 30, 1996, the Company's obligations for withholding taxes,
including interest and penalties, was approximately $2.8 million, of which
approximately $1.2 million represented penalties. In July 1996, the Company
received $2 million from the sale of Common Stock. The Company used
approximately $1.3 million of such proceeds to pay such tax obligations. In
connection with such payments, the Company entered into an agreement with the
IRS pursuant to which the Company is to pay the balance of $1.5 million, plus
interest, in eight monthly installments of $150,000, commencing in September
1996 and a final installment of $300,000 in May 1997. One of the conditions to
the IRS' agreement is the timely payment by the Company of its current
withholding tax obligations on an ongoing basis.
The Company is continuing to seek ways to lower its cost of money. In
view of the Company's relatively low gross margin, which was approximately 8.1%
for the six months ended June 30, 1996, 6.3% for 1995 and 6.2% for 1994, and its
interest costs, which were approximately 1.1% of revenue for the six months
ended June 30, 1996 and 1.5% of revenue for 1995, the inability of the Company
to reduce its interest expense would adversely affect its ability to operate
profitably. The Company intends to address its capital requirements by seeking
to increase its capital base through the sale of the Units and negotiate more
favorable borrowing rates. However, no assurance can be given any increase in
its capital base resulting from this Offering will enable the Company to operate
profitably.
Although the Company believes that the proceeds from this Offering will
be sufficient to fund the Company's anticipated cash requirements for one year
following the date of this Prospectus, conditions may arise which as a result of
which the Company may require additional capital prior to one year from the date
of this Prospectus, and no assurance can be given that the Company will be able
to obtain any or adequate funds when required or that any funds available to it
will be on reasonable terms. The failure to obtain necessary funds could result
in the reduction of the Company's operations.
3. Potential claim by Department of Labor, other potential claim. The
United States Department of Labor and the independent court-appointed trustee of
the Job Shop 401(k) Plan (collectively, "DOL") has filed a complaint against Job
Shop and its principal stockholder for civil violations of ERISA resulting from
the failure of Job Shop to deposit employee contributions to Job Shop's 401(k)
retirement plan. A similar complaint was filed by former employees of Job Shop
against Job Shop, its principal stockholder and others. At November 22, 1994,
the amount due to the Job Shop 401(k) plan was approximately $3.0 million, which
amount may have increased since such date as a result of interest and penalties.
Neither the Company nor RMI, the subsidiary that acquired assets and assumed
certain obligations of Job Shop in November 1994, has been named as a defendant
in either of such actions. The DOL has raised with the Company the possibility
that RMI may be liable with respect to Job Shop's ERISA liability as a successor
corporation or purchaser of plan assets, even though RMI did not assume such
obligations and paid value for those assets which it did purchase. Although the
Company believes that RMI is not a successor corporation to Job Shop and is not
responsible for Job Shop's ERISA violations, the DOL may take a contrary
position. If the DOL takes such a position and prevails, it would have a
material adverse effect upon the operations of RMI and possibly the Company as a
whole.
In May 1991, prior to the acquisition of Holdings by the Company, the
Government Printing Office wrote Avionics asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. The
Company believes that these claims are without merit and intends to contest
these claims vigorously if reasserted. The Company believes that the ultimate
disposition of this matter will not have a material adverse affect on the
Company's consolidated financial position.
4. Recent delinquency in payment of payroll tax obligations. The
nature of the technical temporary staffing industry is that the service company,
such as the Company, pays its employees weekly, but does not receive payment
from its clients until the following week. As a result of the size of the tax
deposit and because of the lack of available cash under its financing
arrangement, the Company, as of June 30, 1996, was approximately five weeks late
in payment of Federal withholding tax of approximately $1.6 million. As a result
of such failure, the IRS imposed interest and significant penalties. During the
six months ended June 30, 1996 and the year ended December 31, 1995, the
Company's selling, general and administrative expenses included approximately
$500,000 and $1.0 million, respectively, in penalties for late withholding
payments. During July and August, the Company paid the IRS approximately $1.3
million on account of such withholding tax obligations, including interest and
penalties, and entered into a payment agreement with the IRS pursuant to which
(a) the Company agreed to pay the remaining
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$1.5 million in eight monthly installments of $150,000, commencing in September
1996, and a final installment of $300,000 in May 1997, and (b) the IRS agreed to
subordinate its lien to the lien of the Company's asset-based lender. The IRS'
agreement is contingent upon the Company's making timely payments of its
withholding tax obligations.
5. Concentration of business in aerospace industry. The Company's
principal clients are in the aerospace industry. The Company's largest clients
for the six months ended June 30, 1996 were the Boeing Corporation and Lockheed
Martin, which accounted for revenues of approximately $11 million, or 38.6% of
revenue for the six months ended June 30, 1996. For 1995, the Company's three
largest clients were Northrop Grumman Corporation, the Boeing Corporation and
Lockheed Ft. Worth Company which accounted for revenues of $34 million, or 54%
of revenue for the year. The Company's largest client in 1994 was Northrop
Grumman Corporation which accounted for $14.3 million, or 57% of revenue. The
Company intends to expand its marketing effort to other major companies in
industries which it believes are downsizing their present operations and relying
on outside consultants to perform services which had been performed by their
employees.
6. Competition. The business of providing employees on either a
permanent or temporary basis is highly competitive and is typically local in
nature. The Company competes with numerous technical service organizations, a
number of which are better capitalized, better known, have more extensive
industry contracts and conduct extensive advertising campaigns aimed at both
employers and job applicants. No assurance can be given as to the ability of the
Company to expand its client base into other industries.
7. Dependence upon industry trends. The technical temporary staffing
business is dependent upon the continuation of present trends in industry toward
downsizing and outsourcing. The Company hires its employees to perform specific
services for its clients. The interviewing process may be conducted by the
clients and the clients define the scope of the work. In some instances, the
Company's employees were formerly employed by the clients, and may have
performed the same duties and reported to the same supervisor. Clients engage
technical personnel on a contract basis, rather than hiring such individuals
directly, because of the flexibility in retaining personnel and the ability to
obtain the services of the Company's employees without the need to provide the
compensation and other benefits which would be required to be paid to employees.
To the extent that these factors change, either as a result of government
policies, company policy or other factors, the Company's business would be
adversely affected. Furthermore, to the extent that legislation, government
regulations or court decisions require employees of technical staffing companies
to receive the same benefits as the clients' employees, the Company's business
may be adversely affected.
8. Substantial obligations to and from related parties; potential
conflict of interest. At June 30, 1996, the Company owed approximately $300,000
to SISC, reflecting money advanced by SISC to the Company and its subsidiaries
for working capital and other corporate purposes, including a portion of the
payments made in connection with the acquisition of the assets of Job Shop. Such
obligations have been paid. Effective June 30, 1996, SISC exchanged $750,000 of
its debt for shares of Series F $6 Convertible Preferred Stock ("Series F
Preferred Stock") pursuant to a debt and equity restructure with SISC (the "SISC
Recapitalization"). Pursuant to the SISC Recapitalization, the Company issued to
SISC 9,950 shares of Series F Preferred Stock and warrants to purchase 3,200,000
shares of Common Stock at $.50 per share in exchange for the cancellation of
$750,000 principal amount of the Company's debt to SISC and all of the shares of
Series B, C and D Preferred Stock owned by SISC, including accrued dividends due
on the Series D Preferred Stock. The shares of Series F Preferred Stock are
convertible into 10,000,000 shares of Common Stock, of which 5,000,000 shares
were issued on conversion of 50% of the Series F Preferred Stock in October
1996. As part of the SISC Recapitalization, the Company issued 50 shares of
Series F Preferred Stock to DLB, Inc. ("DLB"), which owned 5% of the Series B
and C Preferred Stock. DLB is owned by Mr. Schiller's wife, but Mr. Schiller
disclaims beneficial interest in DLB or any securities owned by DLB. SISC
transferred 1,000 shares of Series F Preferred Stock to Mr. Lewis S. Schiller,
chairman of the board of the Company and Consolidated, pursuant to Mr.
Schiller's employment agreement with Consolidated. See "Certain Transactions."
In addition, the Company had made advances to three subsidiaries of
SISC ("SISC Subsidiaries") which are not owned or controlled by the Company.
Such advances were approximately $1.3 million at June 30, 1996 and $1.4 million
at September 30, 1996. It is not likely that these advances will be repaid
during 1996.
At June 30, 1996, WWR owed $400,000 to a nonaffiliated lender. The note
matures in June 1997 and is guaranteed by Walnut Capital Corp. ("Walnut"), a
principal stockholder of the Company, and the Kanter Family Foundation (the
"Kanter Foundation"). The Kanter Foundation and Walnut are affiliated with Mr.
Joel S. Kanter, a director of the Company. The Company, SISC and Consolidated
have guaranteed the guarantee obligations of the Kanter Foundation and Walnut.
Trinity, a subsidiary of Consolidated and an affiliate of SISC, has a
management services agreement with the Company pursuant to which the Company is
to pay Trinity $10,000 per month through March 2000. Mr. Lewis S. Schiller, who
is the chairman of the board and chief executive officer of the Company, is the
chief executive officer of SISC, Consolidated and Trinity.
However, Mr. Schiller receives no cash compensation from the Company.
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In addition, at June 30, 1996, Holdings owed former owners of its
business $138,000, which is due in installments through May 1997. This
obligation was incurred by Holdings in 1993 in connection with the purchase of
the business. At the time of the purchase, Holdings was owned by Mr. Joseph G.
Sicinski, president of the Company, and one other individual who is not
affiliated with the Company.
9. Dependence on management. The Company's business is dependent upon
its senior executive officers. Mr. Joseph G. Sicinski, president, is responsible
for the Company's operations, including marketing and business development. Mr.
Sicinski has an employment agreement with the Company pursuant to which he
receives annual compensation at the rate of $180,000, plus a bonus equal to 5%
of the Company's consolidated income before income taxes, but not more than 200%
of his salary. The loss of service of Mr. Sicinski or other key management
employees would have a material adverse effect upon the Company's business and
prospects. Furthermore, the market for qualified personnel is highly
competitive, and the Company competes with other companies in obtaining
contracts with potential clients and in attracting employees.
10. Broad discretion as to use of proceeds; potential unspecified
acquisitions and change in use of proceeds. Approximately $3.5 million,
representing approximately 42.2% of the net proceeds of this Offering, are
allocated to working capital and other corporate purposes. Accordingly,
management will have broad discretion with respect to the expenditure of the net
proceeds of this Offering. Purchasers of the Units offered hereby will be
entrusting their funds to the Company's management, upon whose judgment the
investors must depend, with only limited information concerning management's
specific intentions. The Company may enter into joint ventures, acquisitions or
other arrangements, such as joint marketing arrangements and licensing
agreements, which the Company believes would further the Company's growth and
development. No assurance can be given that any such agreements will result in
additional revenue or net income for the Company. See "Use of Proceeds" and
"Business -- Potential Business Agreements."
Notwithstanding its plan to develop its business as described in this
Prospectus, future events, including the problems, expenses, difficulties,
complications and delays frequently encountered by businesses, as well as
changes in the economic climate or changes in government regulations, may make
the reallocation of funds necessary or desirable. Any such reallocation will be
at the discretion of the Board of Directors. Accordingly, in the event that the
Company determines that it is unable to develop a profitable business as
described in this Prospectus, the Company may engage in other, unrelated
businesses and use a portion of the proceeds of the Offering for such purpose.
However, the Company has no such intention at this time. No assurance can be
given that any such businesses can or will be profitably operated.
11. Continued control by SISC. As of October 11, 1996, SISC and Mr.
Lewis S. Schiller owned 41.1% and 2.2% of the Company's outstanding Common
Stock, respectively. Furthermore, SISC holds presently exercisable warrants to
purchase 3,200,000 shares of Common Stock at $.50 per share and 267,500 shares
of Common Stock at $3.50 per share, and Mr. Schiller holds presently exercisable
warrants to purchase 400,000 shares of Common Stock at $.50 per share and 47,500
shares of Common Stock at $3.50 per share. In addition, SISC and Mr. Schiller
own shares of Series F Preferred Stock which are convertible into 3,950,000 and
1,000,000 shares of Common Stock, respectively. After including in the money
warrants owned by them and the shares of Common Stock issuable upon conversion
of the Series F Preferred Stock, SISC and Mr. Schiller beneficially own in the
aggregate, 61.7% of the Common Stock. As a result, Mr. Schiller, as chief
executive officer of SISC, has the power to elect all of the Company's directors
and approve any matter requiring stockholder approval.
12. Possible delisting from The Nasdaq System and market illiquidity.
The Company's Common Stock and 1994 Warrants are, and the Units, Series G
Preferred Stock and Warrants are expected to be, included in The Nasdaq SmallCap
Market. For continued inclusion on The Nasdaq SmallCap Market, (i) the Company
will have to maintain at least $2,000,000 in total assets and $1,000,000 in
capital and surplus, (ii) the minimum bid price of the Common Stock will have to
be $1.00 per share, (iii) there must be at least 100,000 shares in the public
float valued at $1,000,000 or more, (iv) the Common Stock must have at least two
active market makers, and (v) the Common Stock must be held by at least 300
holders. In addition, the Company may be required to maintain a stock price of
at least $1.00 per share. If the Company is unable to satisfy Nasdaq's
requirements for continued listing, such securities may be delisted from The
Nasdaq SmallCap Market. In such event, trading, if any, in such securities would
thereafter be conducted in the over-the-counter market in the so-called "pink
sheets" or the Nasdaq's "Electronic Bulletin Board." Consequently, the liquidity
of the Company's securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the timing
of transactions, reduction in security analysts' and the news media's coverage
of the Company, and lower prices for the Company's securities than might
otherwise be attained.
A significant number of the Units may be sold to customers of the
Underwriters. Such customers may subsequently engage in the sale or purchase of
the securities through or with the Underwriters. Although they have no
obligation to do so, the Underwriters may become market makers and otherwise
effect transactions in securities of the Company, and, if they participate
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in such market, may be dominating influences in the trading of the securities.
The prices and the liquidity of the securities may be significantly affected by
the degree, if any, of the participation of the Underwriters in such market,
should a market arise.
13. Risks of low-priced stocks; penny stock regulations. If the
Company's securities were delisted from The Nasdaq SmallCap Market (See "Risk
Factors -- 12. Possible delisting of securities from The Nasdaq System and
market illiquidity") they may become subject to Rule 15g-9 under the 1934 Act,
which imposes additional sales practice requirements on broker-dealers which
sell such securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's Common Stock and Warrants and may affect the ability of purchasers
in this Offering to sell any of the Common Stock or Warrants acquired pursuant
to this Prospectus in the secondary market.
The Commission's regulations define a "penny stock" to be any equity
security that has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Company's Common
Stock, Units, Preferred Stock and Warrants if the Common Stock is listed on The
Nasdaq SmallCap Market and has certain price and volume information provided on
a current and continuing basis or meet certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will continue to qualify for exemption from these restrictions. If
the Company's securities were subject to the rules on penny stocks, the market
liquidity for the Common Stock or Warrants could be severely adversely affected.
14. Need to increase authorized Common Stock. The Company has
authorized 20,000,000 shares of Common Stock, of which 17,846,651 shares were
issued and outstanding at October 11, 1996. As a result, the Company does not
have sufficient authorized shares of Common Stock to enable it to issue all
shares issuable upon conversion of the Series G Preferred Stock or the Warrants
or the outstanding warrants or Series F Preferred Stock. As a result, the
Company must increase the number of authorized shares of Common Stock in order
to enable it to issue such shares. The board of directors has approved, subject
to stockholder approval, an amendment to its certificate of incorporation to
increase the authorized capital stock to 10 million shares of Preferred Stock
and 50 million shares of Common Stock. The Company intends to hold a special
meeting of stockholders in prior to the effective date of the registration
statement of which this Prospectus is a part to approve the increase in
authorized capital stock. In the event that the Company failed to obtain
stockholder approval to such increase in authorized capital stock, the Company
would not be able to complete this Offering.
15. Potential adverse effect of redemption of Warrants. Commencing
one year from the date of this Prospectus, or earlier with the consent of the
Representative, the Warrants may be redeemed by the Company at a redemption
price of $.05 per Warrant upon not more than 60 nor less than 30 days' notice if
the average closing price per share of the Common Stock is at least $4.00
subject to adjustment, during 20 trading days ending not earlier than 15 days
prior to the date of the Warrants are called for redemption. Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price therefor at a time when it may be disadvantageous for the holder to do so,
to sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which, at the time
the Warrants are called for redemption, is likely to be substantially less than
the market value of the Warrants. The Company will not call the Warrants for
redemption except pursuant to a currently effective prospectus and registration
statement. See "Description of Securities --Series A Redeemable Common Stock
Purchase Warrants."
16. Current prospectus and state registration required to exercise
Warrants. Holders of the Warrants will only be able to exercise the Warrants if
(a) a current prospectus under the Securities Act relating to the shares of
Common Stock issuable upon exercise of the Warrants is then in effect and (b)
such securities are qualified for sale or exemption from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise of any Warrants
subsequent to nine months from the date of this Prospectus. Prior to the
expiration of nine months from the date of this Prospectus, it may be necessary
to amend or supplement this Prospectus under certain conditions, in which event
the Warrants could not be exercised prior to the date of the amended Prospectus
or supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
returned by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
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from qualification in the states in which the holders of Warrants reside. See
"Description of Securities -- Series A Redeemable Common Stock Purchase
Warrants."
The Company has registered or qualified the Warrants for sale in a
limited number of states. Although the Company is not aware of any states which
prohibit the registration or qualification of securities of the type offered by
the Company and anticipates that it will qualify for available after-market
exemptions in a majority of states within several months after the completion of
the Offering, there can be no assurance that an exception permitting the
exercise of the Warrants will be available in any jurisdiction other than those
in states which the Common Stock and Warrants were initially registered or are
exempt from registration at the time a holder seeks to exercise Warrants.
17. Arbitrary offering price and terms. The price and composition of
the Units, the conversion rate and other terms of the Series G Preferred Stock
and the exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Representative and do not necessarily
bear any relation to the results of the Company's operations or its financial
condition or any other indicia of value.
18. No Common Stock dividends anticipated. The Company presently
intends to retain future earnings, if any, in order to provide funds for use in
the operation and expansion of its business and, accordingly, does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The annual dividends on the Series F Preferred Stock are $60,000, with the first
annual dividend being due on April 1, 1997. The annual dividend requirement of
the Series G Preferred Stock is $120,000, which are payable in cash or in shares
of Common Stock, as the board of directors may determine. If the Over-Allotment
Option and the Representative's Unit Purchase Option are exercised, the annual
dividend on the Series G Preferred Stock will be $150,000.
19. Shares eligible for future sale; shares issuable pursuant to
warrants, options and preferred stock; registration rights. Approximately
9,400,000 of the 17,846,651 shares of Common Stock outstanding at October 11,
1996, may be publicly sold as a result of either the registration of such shares
as part of the Company's initial public offering in February 1994, the
expiration of two-year holding period pursuant to Rule 144 of the Commission or
the expiration of the restricted period pursuant to Regulation S of the
Commission. The remaining shares become eligible for sale pursuant to Rule 144
of the Commission two years after the date of issuance by the Company or the
date of transfer by an affiliate of the Company. Such share will become eligible
for sale pursuant to Rule 144 in May 1997, as to 3,091,782 shares, June 1997 as
to 108,000 shares, September 1997 as to 954,000 shares and April 1998 as to
5,393,000 shares. SISC and the Company's directors and executive officers have
agreed to a 24-month lockup during which they may not sell their shares without
the prior approval of the Representative.
As of September 30, 1996, the Company had (a) outstanding 1994 Warrants
to purchase 567,245 shares of Common Stock at $7.00 per share through November
1996, which warrants are publicly traded, (b) warrants to purchase an aggregate
of 1,302,352 shares of Common Stock at exercise prices ranging from $2.00 to
$7.00 per share with various expiration dates, and (c) warrants to purchase
4,900,000 shares of Common Stock at $.50 per share through April 2001, which are
held by SISC and the Company's directors. In addition, the underwriter of the
Company's initial public offering holds unit purchase options to purchase 55,000
of the units issued in the Company's initial public offering in February 1994,
at $8.45 per unit through February 1999. Each such unit consists of one share of
the Company Common Stock and a warrant to purchase one share of the Company
Common Stock at $7.00 per share through August 1996.
The Company has adopted three stock option plans pursuant to which a
maximum of 2,792,332 shares of the Common Stock may be issued, of which options
to purchase 1,523,950 shares are outstanding.
The Company cannot predict the effect, if any, that the issuance of
shares of Common Stock upon exercise of options or warrants or the registration
of such shares will have on the market for and market price of the Common Stock.
20. Potential adverse impact of Preferred Stock on rights of holders
of Common Stock. The Company's certificate of incorporation authorizes the
issuance of so-called "blank check" preferred stock with the board of directors
having the right to determine the designations, rights, preferences and
privileges of the holders of one or more series of Preferred Stock. Accordingly,
the board of directors is empowered, without stockholder approval, to issue
Preferred Stock with voting, dividend, conversion, liquidation or other rights
which could adversely affect the voting power and equity interest of the holders
of Common Stock. The board of directors has in the past issued shares of
Preferred Stock with the right to vote more than one vote per share. The
Preferred Stock could be utilized as a method of discouraging, delaying or
preventing a change of control of the Company. The possible impact on takeover
attempts could adversely affect the price of the Company Stock. Although the
Company has no present intention to issue any additional shares of Preferred
Stock or to create any additional series of Preferred Stock, the Company may
issue such shares in the future.
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21. No public market. Prior to this Offering, there has been no
public trading market for the Units, Series G Preferred Stock or Warrants.
Although the Common Stock and 1994 Warrants are listed on The Nasdaq SmallCap
Market and the Company has applied to have the Units, Series G Preferred Stock
and Warrants included in The Nasdaq SmallCap Market, there can be no assurance
that an active market in any of such securities will develop or, if such a
market develops, that it will be sustained.
MARKET FOR COMMON STOCK; DIVIDENDS
The Company's securities have been traded on The Nasdaq SmallCap Market
since the Company's initial public offering on February 15, 1994, pursuant to
which the Company sold units (the "1994 Units"), each 1994 Unit consisting of
one share of Common Stock and one 1994 Warrant. The Common Stock and 1994
Warrants have been traded on The Nasdaq SmallCap Market since September 22,
1994. From July 28, 1994, when the Units were split into their individual
components and trading of the Common Stock and 1994 Warrants commenced on The
Nasdaq SmallCap Market, the symbols for the Common Stock and 1994 Warrants were
"CTGI" and "CTGIW," respectively. Effective on September 21, 1995, the trading
symbols were changed to "TGSI" and "TGSIW," respectively.
The high and low closing bid prices for the Company's Common Stock and
1994 Warrants since September 1994, when the trading in 1994 Units terminated
and trading in the Common Stock and 1994 Warrants commenced are as follows:
Common Stock 1994 Warrants
High Low High Low
1994
- ----
Third Quarter
(from September 22) $5-7/8 $4-5/8 $1-1/4 $5/8
Fourth Quarter 5-3/4 3-1/8 1-3/8 1/2
1995
- ----
First Quarter 3-7/8 2 1 3/8
Second Quarter 4-3/4 3-1/2 7/8 5/8
Third Quarter 4-1/4 2-1/8 15/16 5/16
Fourth Quarter 3-1/2 1-3/8 1/2 11/32
1996
- ----
First Quarter 1-11/16 15/16 15/32 3/16
Second Quarter 1-3/4 1-7/32 1/2 5/16
Third Quarter 1-31/32 1-3/8 11/32 7/32
The closing bid prices for the Common Stock and 1994 Warrants on
September 30, 1996 were $1-7/8 and $7/32, respectively. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
As of September 30, 1996, the Company believes that there were
approximately 1,300 beneficial holders of the Common Stock.
The Company has paid no dividends on its Common Stock since inception,
and does not expect to pay any dividends for the foreseeable future. No
assurance can be given that the earnings of the Subsidiaries, if any, will ever
permit the payment of any dividends to the Issuer or that the Issuer will pay
any dividends to its stockholders.
USE OF PROCEEDS
The Company intends to utilize the net proceeds from the sale of the
Units issued pursuant to this Prospectus, estimated at approximately $8.3
million (assuming the Underwriters' over-allotment option is not exercised),
substantially as follows:
(a) Approximately $3.5 million (42.2% of the net proceeds) to
reduce the Company's obligations to its asset-based lender.(1)
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<PAGE>
(b) Approximately $1.3 million (15.6%) to prepay the Company's
obligations to the IRS.2
(c) The balance of approximately $3.5 million (42.2%) for working
capital and other general corporate purposes.
- ---------
(1) At September 30, 1996, the Company owed its asset-based lender
approximately $3.5 million. The Company has been advised that, as a
result of a change in its general lending policies, the Company's
asset-based lender is reducing the Company's maximum borrowing
availability to $1 million, effective in late October 1996, which date
has been orally extended until January 1997. The Company is seeking an
extension of the effectiveness in the reduction of the available credit
and is seeking alternative financing sources. In the event that the
Company obtains such financing on reasonable terms, all or a portion of
the proceeds allocated to pay the asset-based lender may be used for
working capital and other corporate purposes.
(2) Pursuant to the Company's agreement with the IRS, the Company is to pay
the $1.5 million plus interest in eight monthly installments of
$150,000, commencing in September 1996, and a final installment of
$300,000 in May 1997. The Company intends to prepay all or a portion of
its obligations to the IRS from the proceeds of this Offering. However,
the Company reserves the right to pay the IRS in accordance with its
agreement, in which event the proceeds allocated to the prepayment of
the Company's obligations to the IRS, to the extent not so used, will
be used for working capital and other corporate purposes.
The foregoing represents the Company's best estimate of its allocation
of the proceeds of this Offering based upon the present state of its business,
operations and plans, current business conditions and the Company's evaluation
of the market for the Company's services. Management will have broad discretion
to determine the use of a substantial portion of the proceeds of this Offering,
and conditions may develop which could cause management to reallocate proceeds
from the categories listed above, including difficulties encountered in
marketing its services. Furthermore, future events, including the problems,
expenses, difficulties, complications and delays frequently encountered by
businesses and those described under "Risk Factors," as well as changes in the
economic climate and changes or anticipated changes in government regulations,
may make the reallocation of funds necessary or desirable. Any such reallocation
will be at the discretion of the board of directors. Furthermore, in the event
that the Company determines that it is unable to develop a profitable business
as described in this Prospectus, the Company may use the proceeds from this
Offering to engage in other unrelated businesses, although it has no such
intention at this time.
The Company believes that the net proceeds from this Offering will be
sufficient to satisfy the Company's cash requirements for at least twelve months
following the date of this Prospectus. However, it is possible that conditions
may arise as a result of which the Company may require additional capital prior
to one year from the date of this Prospectus, and no assurance can be given that
the Company will be able to obtain any or adequate funds when required or that
any funds available to it will be on reasonable terms. The failure to obtain
necessary funds could result in the reduction or cessation of operations by the
Company.
The Company may use a portion of the proceeds of this Offering in
connection with acquisitions, joint ventures or other arrangements, which
management deems necessary or desirable in connection with the development of
the Company's business and related activities. The Company has not entered into
any letters of intent or agreements with respect to any such arrangements or
transactions. However, to the extent that the Company negotiates such a
transaction which requires payment of cash, the Company will use a portion of
the proceeds allocated to working capital and other corporate purposes to make
such acquisition. In this connection, the Company may reallocate all or a
portion of the proceeds allocated to payment of the Company's asset-based lender
and the prepayment of the Company's obligations to the IRS. "Business --
Potential Business Agreements."
Pending the application of the funds as described above, said funds
will be invested in short-term interest-bearing deposits and securities.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1996 and as adjusted to reflect (a) the sale of the 1,250,000 Units
offered hereby and the application of a portion of the proceeds from this
Offering to pay short-term debt and (b) the sale in July 1996 of 5,000,000
shares of Common Stock.
June 30, 1996
--------------------------------
Actual As Adjusted
------ ------------
(Dollars in thousands)
Short-term debt:
Loan payable - asset-based lender(1) $2,625 $--
Other notes payable(2) 169 169
------ ---
$2,794 $ 169
====== =====
Long-term debt:
10% Note to related party(3) $ 294 $ 294
Stockholders' equity:
Preferred Stock, par value $.01 per share,
3,000,000 shares authorized, of which:
10,000 shares are issued, outstanding and
designated as Series F Preferred Stock(4) -- --
1,562,500 shares are designated as Series
G Convertible Redeemable Preferred Stock,
none issued or outstanding, 1,250,000 shares
outstanding, as adjusted(5) -- --
Common Stock, par value $.01 per share,
20,000,000 shares authorized, 77 127
7,720,091 shares issued and outstanding and
12,720,091 shares outstanding as adjusted(6)
Capital in excess of par(7) 10,914 21,164
Accumulated deficit (5,675) 11,764
Deferred compensation fee (349) (349)
Stockholders' equity 4,967 15,267
----- ------
Total capitalization $5,261 $15,561
====== =======
- ------------
(1) The Company's loan from its asset-based lender bears interest at prime
plus 2%. In addition, the Company pays a fee of .3% of the face amount
of all invoices financed, regardless of the amount borrowed against the
invoice. See Note 2 of Notes to Trans Global Services, Inc.
Consolidated Financial Statements.
(2) See Note 8 of Notes to Trans Global Services, Inc. Consolidated
Financial Statements.
(3) This note is due to SISC, a principal stockholder. See "Certain
Transactions."
(4) The liquidation preference of the Series F Preferred Stock is $1 per
share, or an aggregate of $10,000. After payment of the liquidation
preference, the holders of the Series F Preferred Stock participate
with the holders of the Common Stock on an as-converted basis. See
"Description of Capital Stock -- Series F Preferred Stock" for
information concerning the rights, preferences and privileges of the
holders of the Series F Preferred Stock.
(5) The liquidation preference of the Series G Preferred Stock is $6 per
share. The Series G Preferred Stock is redeemable at $6 per share. See
"Description of Capital Stock -- Series G Preferred Stock" for
information concerning the rights, preferences and privileges of the
holders of the Series G Preferred Stock.
(6) Does not include an aggregate of 15,184,174 shares of Common Stock
reserved as follows: (a) 2,792,332 shares issuable pursuant to the
Company's stock option plans, of which stock options to purchase
1,434,100 shares are outstanding, (b) 5,000,000 shares of Common Stock
issuable upon conversion of the Company's Series F Preferred Stock, (c)
567,245
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<PAGE>
shares of Common Stock issuable pursuant to the 1994 Warrants, (d)
6,257,352 shares of Common Stock issuable upon exercise of the Other
Warrants. The number of reserved shares of Common Stock does not
include any shares of Common Stock issuable upon conversion of the
Series G Preferred Stock, or the exercise of the Warrants, the
Underwriters' over-allotment option or Unit Purchase Options or the
securities underlying the Unit Purchase Options.
See "Certain Transactions," "Description of Securities" and
"Underwriting."
(7) Includes $751 at June 30, 1996 and $9,051, as adjusted, relating to the
Preferred Stock.
See "Business -- Property" and Note 10 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements for information concerning the
Company's long-term lease obligations.
TRANS GLOBAL SERVICES, INC.
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
Set forth below is selected financial data with respect to the Company
for the six months ended June 30, 1996 and 1995 and the years ended December 31,
1995 and 1994. The selected financial data has been derived from the financial
statements which appear elsewhere in this Prospectus. The unaudited financial
data for the interim periods reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the data for such periods. The results of operations for the
interim periods are not necessarily indicative of operating results for the
entire year. This data should be read in conjunction with the financial
statements of the Company and the related notes which are included elsewhere in
this Prospectus.
Statement of Operations Data(1):
- -------------------------------
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1996 1995 1995 1994
---- ---- ---- ----
Revenue $28,468 $33,234 $63,152 $25,287
Net (loss) from
continuing operations (569) (583) (4,413) (411)
Net (loss) (569) (678) (4,696) (411)
Net (loss) per share
of Common Stock (.08) (.36) (1.48) (.68)
Weighted average number
of shares of Common
Stock outstanding 7,017 1,878 3,173 600
Ratio of earnings to
fixed charges 2 2 2 2
Balance Sheet Data:
- ------------------
December 31,
--------------------------
June 30, 1996 1995 1994
------------- ---- ----
Working capital (deficiency) $(2,246) $(2,401) $(1,805)
Total assets 12,782 12,763 10,345
Total liabilities 7,815 8,511 9,033
Accumulated deficit (5,675) (5,106) (411)
Stockholders' equity(3) 4,967 4,252 1,312
- ------------
(1) Statement of operations data includes the operations of RMI commencing
November 22, 1994.
(2) Earnings during this period were insufficient to cover combined fixed
charges and Preferred Stock dividends. The dollar amounts of the
coverage deficiencies were as follows: $719, $733, $4,563 and $561 for
the six months ended June 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994.
(3) Stockholders' equity includes $751 additional paid-in capital relating
to Preferred Stock.
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<PAGE>
TRANS GLOBAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Results of Operations
The following information relates to the business of the Company and
TGS for the periods covered. The only business conducted by the Company is the
technical temporary staffing services business, which was conducted by TGS and
its affiliated companies prior to the completion of the Trans Global
Transaction. The business conducted by the Company prior to the Trans Global
Transaction is no longer conducted by the Company and is treated as discontinued
operations. References to the Company operations prior to January 1995, when the
Company was organized, relate to the operations of Avionics and RMI as
subsidiaries of SISC.
Six Months Ended June 30, 1996 and 1995
Revenue from technical temporary staffing services is based on the
hourly cost of payroll plus a percentage. The success of the Company's business
will be dependent upon its ability to generate sufficient revenues to enable it
to cover its fixed costs and other operating expenses, and to reduce its
variable costs, principally its interest. Under its agreements with its clients,
the Company is required to pay its employees and pay all applicable Federal and
state withholding and payroll taxes prior to receipt of payment from the
clients. Furthermore, the Company's payments from its clients are based upon the
hourly rate paid to the employee, without regard to when payroll taxes are
payable with respect to the employee. Accordingly, the Company's cost of
services are greater during the first part of the year, when Federal Social
Security taxes and state unemployment and related taxes, which are based on a
specific level of compensation, are due. Thus, until the Company satisfies its
payroll tax obligations, it will have a lower gross margin than after such
obligations are satisfied. Furthermore, to the extent that the Company
experiences turnover in employees, its gross margin will be adversely affected.
For example, in 1996, Social Security taxes are payable on the first $62,700 of
compensation. Once that level of compensation is paid with respect to any
employee, there is no further requirement for the Company to pay Social Security
tax for such employee. Since most of the Company's employees receive
compensation in excess of that amount, the Company's costs with respect to any
employee are significantly higher during the period when it is required to pay
Social Security taxes than it is after such taxes have been paid.
For the six months ended June 30, 1996 (the "June 1996 period"), the
Company had revenues of $28.5 million reflecting a 14.3% decrease from the
revenue of $33.2 million during the six months ended June 30, 1995 (the "June
1995 period"). This decrease is attributed to the loss of a contract on January
1, 1996, from one of the Company's larger customers in the aerospace industry.
By June 30, 1996, the Company had increased its revenue base so that at such
date, the annual rate of revenue was substantially the same as it was prior to
the loss of the customer. During the June 1996 period, 57.3% of the Company's
revenue was derived from three clients. See "Business -- Markets and Marketing."
The Company's gross margin for the June 1996 period was 8.1%, as compared to
5.7% for the June 1995 period. The increase is a result of the higher gross
margins on the new sales by the Company as compared with the lower gross margin
on the contract that was lost.
Selling, general and administrative expenses were approximately $2.3
million, or 8.2% of revenue, for the June 1996 period and $1.6 million, or 4.7%
of revenue, for the June 1995 period. This percentage increase is primarily
attributed to the lower revenue in 1996 compared to 1995, penalties of $475,000
for late withholding tax payments and amortization expenses of $160,000 related
to the issuance of securities for consulting services. In addition, the increase
in selling, general and administrative expenses, as a percent of revenue,
reflects the 14% decline in revenue.
The Company finances its payroll obligations by borrowing from an
asset-based lender at an interest rate of 2% in excess of prime. The Company
also pays a fee of .30% of the face amount of the invoices financed, regardless
of the amount borrowed against the invoice. This reflects a reduction in the
financing charges resulting from a June 1995 amendment to its borrowing
agreement. Prior to the amendment, the Company paid interest at a rate of 4% in
excess of prime and a fee of 1% of its borrowings relating to RMI's operations.
The borrows are secured by a security interest in all of the Company's assets.
At June 30, 1996, such borrowings were $2.7 million. The ability of the Company
to operate profitably is dependent in part upon its ability to reduce its
financing costs. The interest rates (exclusive of the fee) payable by the
Company at June 30, 1996 and 1995 were 10.25% and 12.25%. During the June 1996
period and the June 1995 period, the average outstanding borrows decreased 21%
from $3.3 million to $2.6 million. As a result, the Company was able to reduce
both its finance rates and outstanding borrows from the June 1995 period to the
June 1996 period. The Company's interest expense for the June 1996 period was
approximately $326,000, as compared to $582,000 for the June 1995 period,
reflecting a decrease of 44%.
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<PAGE>
The Company has not provided for income taxes for the June 1996 period
due to a current period loss. Federal and state tax benefits have not been
recognized for the June 1996 period since, under SFAS No. 109, "Accounting for
Income Taxes," the Company has determined that more likely than not the deferred
tax asset will not be realized.
Years Ended December 31, 1995 and 1994
For the year ended December 31, 1995, the Company had revenues of $63.2
million, reflecting a 150% increase in revenue from the revenue of $25.3 million
during 1994. During 1994, the Company's operations consisted of Avionics for the
entire year and RMI from November 22, 1994, the date of the acquisition of Job
Shop assets. The increase in revenue in 1995 reflected the inclusion of the
operations of RMI for the entire year, as well as an increase in revenue from
Avionics' clients resulting from its increased marketing effort. The increase in
costs of sales from $23.7 million for 1994 to $59.2 million for 1995 also
reflects the inclusion of the operations of RMI. The gross margin was 6.3% for
1995 and 6.2% for 1994.
Selling, general and administrative expenses increased by 540% from
$1.0 million for 1994 to $6.4 million for 1995. This increase reflects a number
of factors, including (i) $2.3 million from the issuance of securities for
consulting services, (ii) $2.0 million managing expenses relating to the
operations of RMI; and (iii) $1.0 million of penalties resulting from late
withholding tax payments. Although the Company has been taking steps to reduce
overhead, it is possible that selling, general and administrative expenses may
continue at modestly reduced levels for the short-term future. In 1994, selling,
general and administrative expenses reflected a $159,000 credit resulting from
the refund of a withholding tax penalty previously paid by the Company.
During 1995, the Company also incurred approximately $528,000 of
acquisition expenses reflecting the value of securities issued in connection
with the Trans Global Transaction. The acquisition expenses reflect the value of
Common Stock issued to a finder in connection with the Trans Global Transaction
and in consideration of agreements by certain of the Company's stockholders to
enter into lock-up agreements. The delivery of such shares of Common Stock was
deferred until after the Company's certificate of incorporation was amended to
increase its authorized Common Stock. See Note 14 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements.
Amortization of customer lists and other intangible assets increased by
47% during 1995 from $309,000 to $455,000, reflecting the increased amortization
resulting from the November 1994 acquisition of Job Shop assets. During 1994,
the amortization related primarily to the December 1993 acquisition of Avionics.
The Company incurred an operating loss for 1995 of $3.4 million,
compared an with operating income of $411,000 for 1994. The increase in the loss
reflects (i) the substantial increase in selling, general and administrative
expenses, (ii) the acquisition expenses relating to the Trans Global Transaction
and (iii) the increased amortization of intangibles.
The Company's interest expense reflects principally its obligations due
to its asset-based lender. In June 1995, the Company effected a reduction in the
financing costs under its agreement with its asset-based lender for borrows by
RMI. The interest rate (exclusive of the fee) payable by the Company at December
31, 1995 was 10.25%. In 1995, the average outstanding borrows increased 147%
from $1.5 million to $3.7 million. The increase in outstanding borrows reflected
the inclusion of the operations of RMI for the entire year in 1995. As a result,
although the Company was able to reduce its finance rates from 1994 to 1995,
finance costs increased 38.4% from $696,000 for 1994 to $963,000 for 1995.
As a result of the foregoing, the Company sustained a loss from
continuing operations of $4.38 million, or $1.44 per share, for 1995 as compared
with a loss of $411,000, or $.68 per share, for 1994.
At September 30, 1995, the Company disposed of WWR, which operated its
loudspeaker business. Such business is reflected as a discontinued operation.
This operation generated a loss of approximately $25,000 for 1995. After giving
effect to the loss from discontinued operations, the Company's net loss for 1995
was $4.7 million, or $1.44 per share.
Years Ended December 31, 1994 and 1993
The results of operations for the Company for 1994 reflect the
operations of Avionics for the entire year and the operations of RMI from
November 22, 1994, when RMI acquired assets of Job Shop. Avionics was acquired
in December 1993. RMI acquired assets of Job Shop, including its customer list,
in exchange for 750,000 shares of common stock of Consolidated, the sole
stockholder of SISC, and the payment of certain of Job Shop's obligations to the
IRS pursuant to a settlement agreement with the IRS.
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<PAGE>
The Company has sustained losses since its organization. Although the
Company had an operating profit of $277,000 on revenue of $25.3 million for the
year ended December 31, 1994, it shows a loss of $411,000 for the year
principally as a result of interest expense of $696,000. Selling, general and
administrative expenses in 1994 were affected by a credit of $159,000
representing a refund of a tax penalty previously paid. Net income was also
affected by the amortization of intangibles of $309,000, a significant portion
resulted from the November 1994 acquisition of Job Shop assets.
The operations of Job Shop from January 1, 1994 to November 22, 1994
showed an operating profit of $206,000 and a net loss of $1.9 million on revenue
of $39.5 million. Job Shop's interest expense for the period was $871,000.
During 1994, the Company financed its payroll obligations by borrowing
from an asset-based lender at interest rates of 2% and 4% in excess of prime.
The Company also paid a fee of .33% and 1.0% of the face amount of the invoices
financed, regardless of the amount borrowed against the invoice. At December 31,
1994, such borrows were $4.0 million, which was the maximum available under its
borrowing formula. The interest rates payable by the Company at December 31,
1994 were 9.65% as to $1.5 million and 11.65% as to $2.5 million. The combined
interest expense for the Company and Job Shop during 1994 was approximately $1.6
million.
Liquidity and Capital Resources
As of June 30, 1996, the Company had a working capital deficit of $2.2
million. Its working capital deficit reflects (a) $2.6 million due to the
Company's asset-based lender, (b) payroll taxes and related expenses of $2.9
million, (c) accrued payroll tax penalties of $1.2 million and (d) accounts
payable and accrued expenses of $620,000. In addition, at such date, the Company
owed approximately $300,000 to SISC, the Company's principal stockholder, which
was paid subsequent to June 30, 1996.
At June 30, 1996, the Company required additional capital to enable it
to expand its operations. The principal source of funds, other than its
asset-based lender, is from the sale of securities. In July 1996, the Company
raised $2 million from the sale of Common Stock and used such funds principally
to pay tax obligations.
At September 30, 1996, the Company owed approximately $3.5 million to
its asset-based lender. The Company has been advised that, as a result of a
change in its general lending policies, the asset-based lender is reducing the
Company's maximum borrowing availability to $1 million, effective in late
October 1996, which date has been orally extended until January 1997. Although
the Company is seeking an extension of the effectiveness in the reduction of the
available credit and is seeking alternative financing sources, no assurance can
be given that the Company can or will be able to obtain either an extension or
an alternate financing source, the failure of which could have a material
adverse effect upon the Company.
The Company and its subsidiaries have certain outstanding notes. One of
these notes, issued by WWR in the amount of $400,000, is guaranteed by SISC and
certain entities which are affiliated with a director of the Company. The
Company has guaranteed the guarantee obligations of such entities. The Company's
obligation on its guarantee continues notwithstanding the sale of WWR to an
affiliate of SISC in September 1995.
In November 1994, RMI purchased assets of Job Shop. The DOL has raised
with the Company the possibility that RMI may be liable with respect to Job
Shop's ERISA liability as a successor corporation or purchaser of plan assets,
even though RMI did not assume such obligations and paid value of those assets
which it did purchase. At November 22, 1994, the date of the purchase of the Job
Shop assets, the amount due to the Job Shop 401(k) plan was approximately $3.0
million, which amount may have increases since such date as a result of interest
and penalties. Although the Company believes that RMI is not a successor
corporation to Job Shop and is not responsible for Job Shop's ERISA violations,
the DOL may take a contrary position. The Company and the DOL are currently
engaged in discussions. If an agreement cannot be reached by the parties
involved and the DOL prevails in court, it could have a material adverse effect
upon the operations of RMI and possibly the Company as a whole.
In May 1991, prior to the acquisition of Avionics by the Company, the
Government Printing Office wrote Avionics asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. Although
the Company believes that these claims are without merit and intends to contest
these claims vigorously if reasserted, it believes that the ultimate disposition
of this matter will not have a material adverse affect on the Company's
consolidated financial position.
In August 1996, the Company entered into an agreement with the IRS to
pay its delinquent payroll taxes, interest and penalties. The Company paid $1.3
million and has agreed to pay the balance in eight equal monthly installments of
$150,000, commencing in September 1996, with the remaining balance of $300,000
to be paid in May 1997. The IRS has agreed to subordinate its lien to the lien
of the Company's asset-based lender provided that the Company is in compliance
with current IRS regulations concerning the timely deposit of Federal employment
and withholding taxes.
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<PAGE>
BUSINESS
Since May 1995, the Company's principal business has been technical
temporary staffing service. In performing such services, the Company, through
its two wholly-owned subsidiaries, Holdings and RMI, addresses the current trend
of major corporations in "downsizing" and "outsourcing" by providing engineers,
designers and technical personnel on a temporary contract assignment basis
pursuant to contracts with major corporations. The engagement may relate to a
specific project or may cover an extended period based on the client's
requirements. The Company believes that the market for outsourcing services such
as those offered by the Company results from the trend in employment practices
by major corporations in the aerospace, electronics, energy, engineering and
telecommunications industries to reduce their permanent employee staff and to
supplement their staff with temporary personnel on an as-needed basis. The
Company seeks to offer its clients a cost-effective means of work force
flexibility and the elimination of the inconvenience associated with the
employment of temporary personnel, such as advertising, initial interviewing,
fringe benefits and record keeping. Although the employees provided by the
Company are on temporary contract assignment, they work with the client's
permanent employees; however, they receive different compensation and benefits
than permanent employees.
In providing its services, the Company engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Company charges
its clients for services based upon the hourly payroll cost of the personnel.
Each temporary employee submits to the Company a weekly time sheet with work
hours approved by the client. The employee is paid on the basis of such hours,
and the client is billed for those hours at agreed upon billing rates.
The Company also offers its clients a range of integrated logistical
support services which are performed at the Company's facilities. These
services, which are ancillary to a project, include the management of technical
documents involving technical writing, preparation of engineering reports, parts
provisioning documents and test equipment support documents, establishing
maintenance concepts and procedures, and providing manpower and personnel
support. In performing these services, the Company hires the necessary employees
for its own account and may work with the client in developing and preparing
the documentation. Payments would be made pursuant to a purchase order from
the client on a project basis and not as a percentage of the cost of the
employees. To date, the integrated logistics support business has not generated
more than nominal revenue, and no assurance can be given that the Company will
generate any significant revenue or profit from such services.
The Company's strategy has been directed at increasing its customer
base and providing additional services, such as integrated logistics support, to
its existing customer base. The Company believes that the key to profitability
is to provide a range of services to an increased customer base. In this
connection, the Company is increasing its marketing effort both through its own
personnel and in marketing efforts with other companies that offer complementary
services.
Markets and Marketing
The market for the Company's services is comprised of major
corporations in such industries as aerospace, electronics, energy, engineering,
computer services and telecommunications, where "downsizing" and "outsourcing"
have become an increasingly important method of cost reduction. Typically, a
client enters into an agreement with one or a small number of companies to serve
as employer of record for its temporary staff, and its agreements are terminable
by the client without significant notice.
The Company maintains a computerized data base of technical personnel
based upon their qualifications and experience. The data base, which contains
more than 100,000 names, is generated through employees previously employed by
the Company, referrals and responses to advertisements placed by the Company in
a variety of local media, including newspapers, yellow pages, magazines and
trade publications. Part of its responsibilities for any engagement is the
recruitment and initial interviewing of potential employees, with the client
conducting any final interviews it deems necessary. The majority of work
performed by the Company' employees is performed at the client's premises and
under the client's direction, although the Company is the employer of record.
The Company markets its services to potential clients through its
officers, management and recruitment personnel who seek to provide potential
clients with a program designed to meet the client's specific requirements. The
marketing effort utilizes referrals from other clients, sales calls, mailings
and telemarketing. The Company also conducts an ongoing program to survey and
evaluate the clients' needs and satisfaction with the Company's services, which
it uses as part of its marketing effort.
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<PAGE>
Although the Company has eight offices, including its main office in
Long Island, New York, throughout the United States, there is no limited
geographic markets for the Company's services. The Company has in the past
established offices in new locations when it receives a contract in the area and
it cannot effectively service such contract from its existing offices. The
Company intends to continue to establish new offices as necessary to meet the
needs of its customers.
A client will utilize contract engineering services such as those
provided by the Company when it requires a person with specific technical
knowledge or capabilities which are not available from the client's permanent
staff or to supplement its permanent staff for specific project or to meet peek
load requirements. When the client requires personnel, it provides the Company
with a detailed job description. The Company then conducts an electronic search
in its computerized resume data base for candidates matching the job
description. In addition, each branch office maintains a file of active local
resumes for candidates available for assignment in the vicinity of the branch
office. The candidates are then contacted by telephone by the Company's
recruiters, who interview interested candidates. If a candidate is acceptable to
the Company and interested in the position, the Company refers the candidate to
the client. An employment agreement is executed with the Company prior to the
commencement of employment.
The Company serves primarily the aerospace and electronics industries
as well as the telecommunications, banking and computer science industries and
public utilities along with numerous manufacturing companies. The Company is
expanding its effort to address the general trend of "downsizing" and
"outsourcing" by major corporations on a national basis. To meet this goal, the
Company has commenced a national sales campaign addressing a broad spectrum of
Fortune 500 companies, offering a managed staffing service to those companies in
the process of downsizing and outsourcing specific functions. Since a company
engaged in downsizing seeks to focus on its core business needs with its
in-house staff, the Company seeks to identify and address the needs of a
specific task or department not part of the core business for which outsourcing
would be an appropriate method of addressing those needs. In addressing these
needs, the Company has conducted marketing efforts with Manpower International,
Inc., TAD Resources International Inc. and Olsten Corporation.
The Company's contracts are generally terminable by the client on short
notice.
The Company's largest customers for the six months ended June 30, 1996
were The Boeing Company ("Boeing"), Lockheed-Martin Corporation ("Lockheed") and
Northrup Grumman Corporation ("Northrup Grumman"), which accounted for
approximately $6.6 million, $6.6 million and $3.1 million, or 23.2%, 23.0% and
11.1% of revenue, respectively. For the year ended December 31, 1995, Northrup
Grumman, Lockheed and Boeing accounted for $19.4 million, $10.2 million and $9.6
million, or 30.7%, 16.1% and 15.2% of revenue, respectively.
Avionics' largest clients for both 1994 and 1993 were Northrop Grumman
and Martin Marietta Corp., which accounted for approximately $14.5 million and
$2.0 million, respectively, which represented approximately 57% and 8% of the
Company's revenue for the year ended December 31, 1994, and approximately $9
million and $3 million, respectively, which represented approximately 65% and
22% of Avionics' revenue for the year ended December 31, 1993.
RMI was formed in 1994 to acquire assets of Job Shop in November 1994.
RMI conducts business under the name The RMI Group. During 1994, six clients of
RMI and Job Shop accounted for aggregate revenues of $32 million, or
approximately 90% of their combined revenue for the year. Boeing and Lockheed
Ft. Worth Company, which accounted for revenues of $10 million and $7.5 million,
or 22% and 17% of such combined revenue for 1994, were the only clients which
accounted for more than 10% of the combined revenue of RMI and Job Shop. Four
other clients, three of which are in the aerospace industry, accounted for
aggregate revenue of $14.7 million, or 51% of the combined revenue of RMI and
Job Shop for 1994.
Competition
The business of providing employees on either a permanent or temporary
basis is highly competitive and is typically local in nature. The Company
competes with numerous technical service organizations, a number of which are
better capitalized, better known, have more extensive industry contracts and
conduct extensive advertising campaigns aimed at both employers and job
applicants. The Company believes that the ability to demonstrate a pattern of
providing reliable qualified employees is an important aspect of developing new
business and retaining existing business.
- 21 -
<PAGE>
Government Regulations
The technical temporary staffing industry, in which the Company is
engaged, does not require licensing as a personnel or similar agency. However,
as a provider of personnel for other corporations, it is subject to Federal and
state regulations concerning the employment relationship, including those
relating to wages and hours and unemployment compensation. It also maintains
401(k) plans for its employees and is subject to regulations concerning such
plans.
The Company does not have contracts with the government agencies.
However, the Company does have contracts with clients, including major defense
contractors, that have contracts with government agencies. The Company's
contracts with its clients are based on hourly billing rates for each technical
discipline. Many of the clients' contracts with government agencies are subject
to renegotiation or cancellation for the convenience of the government. Since
the manpower needs of each of the Company's clients are based on the client's
own requirements and the client's needs are affected by any modification in
requirements, any reduction in staffing by a client resulting from cancellation
or modification of government contracts could adversely impact the business of
the Company.
Potential Business Agreements
Following completion of this Offering, the Company may enter into joint
ventures, acquisitions or other arrangements, such as joint marketing
arrangements and licensing agreements, which the Company believes would further
the Company's growth and development. In negotiating such agreements or
arrangements, the Company anticipates that such agreements would be based upon
the manner in which the Company's business can be expanded, the extent to which
the Company's services can be enhanced or the market for such services expanded
into fields not then being addressed by the Company. In this connection, the
Company may acquire businesses that are related directly or indirectly to its
technical temporary staffing services business. No assurance can be given that
any agreement which the Company enters into will generate any net income to the
Company. To the extent that the Company enters into an agreement with an
affiliated party, the terms and conditions of such agreement will be on terms at
least as favorable to the Company as those the Company believes it could achieve
in negotiations at arm's length with an independent third party.
Employees
At September 30, 1996, the Company had 881 employees, of which 841 were
contract service employees who performed services on the clients' premises and
40 were executive and administrative employees. Each of the Company's offices is
staffed by recruiters and sales managers. Each contract service employee enters
into a contract with the Company which sets forth the client for whom and the
facility at which the employee's services are to be performed and the rate of
pay. If an employee ceases to be required by the Company's clients for any
reason, the Company has no further obligation to the employee. Although
assignments can be for as short as 90 days, in some cases, it has been for
several years. The average assignment is in the range of six to nine months. The
Company's employees are not represented by a labor union, and the Company
considers its employee relationship to be good.
Litigation and Claims
There is no material litigation pending or threatened against the
Company.
The DOL has filed a complaint against Job Shop and its principal
stockholder for civil violations of ERISA resulting from the failure of Job Shop
to deposit employee contributions to Job Shop's 401(k) retirement plan. A
similar complaint was filed by former employees of Job Shop against Job Shop,
its principal stockholder and others. At November 22, 1994, the amount due to
the Job Shop 401(k) plan was approximately $3.0 million, which amount may have
increased since such date as a result of interest and penalties. Neither the
Company nor RMI, the subsidiary which acquired assets and assumed certain
obligations of Job Shop in November 1994, has been named as a defendant in
either of such actions. The DOL has raised with the Company the possibility that
RMI may by liable with respect to Job Shop's ERISA liability as a successor
corporation or purchaser of plan assets, even though RMI did not assume such
obligations and paid value for the Job Shop assets which it did purchase.
Although the Company believes that RMI is not a successor corporation to Job
Shop and is not responsible for Job Shop's ERISA violations, the DOL may take a
contrary position. If the DOL takes such a position and prevails, it would have
a material adverse effect upon the operations of RMI and possibly the Company as
a whole. Although the Company is engaged in discussions with the DOL, no
assurance can be given that such discussions will result in any settlement
acceptable to the Company. However, in connection with the negotiations and with
the consent of the IRS, the Company paid into escrow $400,000 of the money due
the IRS in connection with the agreement with the IRS relating to the
acquisition of Job Shop assets. See Note 11 of Notes to Trans Global Services,
Inc. Consolidated Financial Statements.
- 22 -
<PAGE>
In May 1991, prior to the acquisition of Avionics by the Company, the
Government Printing Office wrote the Company asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. The
Company believes that these claims are without merit and intends to contest
these claims vigorously if reasserted. The Company believes that the ultimate
disposition of this matter will not have a material adverse affect on the
Company's consolidated financial position. See Note 9 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements.
Properties
The Company leases an aggregate of approximately 12,800 square of
office facilities at two locations in Long Island, New York, where it maintains
its executive offices. It also rents modest office space in Houston, Texas,
Phoenix, Arizona, Arlington, Texas, Los Angeles, California, Seattle,
Washington, Orlando, Florida and Wichita, Kansas. The aggregate annual rent
payable by the Company is approximately $160,000, which is subject to annual
increases. The Company believes that its present office space is adequate for
its present needs and that additional office space is readily available on
commercially reasonable terms.
Former Business of the Company
Prior to May 1995, Concept's principal business was the operation,
through WWR, of the Klipsch(R) professional loudspeaker business. It also is the
developer and owner of several proprietary technologies with applications in
environmental noise cancellation, medical monitoring, defense and
communications. No significant revenue was generated from these
activities, which have been discontinued by the Company. For the years ended
December 31, 1994 and 1993, Concept had losses of $1.6 million, or $1.30 per
share, and $1.4 million, or $1.95 per share, respectively, on revenue of $2.4
million and $3.0 million, respectively.
WWR was incorporated in 1992 to acquire the professional products
business segment of the Klipsch loudspeaker line from Klipsch. Klipsch's primary
market has traditionally been the home high fidelity loudspeaker business. It
had also developed a reputation as a manufacturer of rugged, well-designed
loudspeakers for the professional, commercial and theater sound markets. The
Company believed that the acquisition of the assets of the Klipsch professional
speaker line would give WWR a major name in the industry.
Concept's business focus from the time of the acquisition of the
Klipsch professional speaker business until its disposition of WWR was to become
a significant factor in the professional loudspeaker market, which is defined as
any application for loudspeakers other than those used for home and automotive
entertainment purposes. Although the Company sought to market the Klipsch
speaker line and develop its other businesses, it was not able to operate
profitably and, as a result, sought a business opportunity which it felt could
develop into a profitable business. Following this strategy, Concept entered
into the Trans Global Transaction. See "Certain Transactions -- The Trans Global
Transaction."
- 23 -
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the
directors, a nominee for director and the executive officers of the Company:
Name Age Position with the Company
- ------------------- --- ----------------------------------------------
Lewis S. Schiller 66 Chairman of the board, chief executive officer
and director
Joseph G. Sicinski 65 President and director
Glen R. Charles 42 Chief financial officer and treasurer
Grazyna B. Wnuk 32 Secretary
E. Gerald Kay(1) 57 Director
Joel S. Kanter 39 Director
Norman J. Hoskin(1) 61 Director
- ---------
(1) Member of the stock option committee.
Mr. Lewis S. Schiller has been chairman of the board, chief executive
officer and a director of the Company since the consummation of the Trans Global
Transaction in May 1995. He served in the same capacities for TGS since its
organization in January 1995 until the completion of the Trans Global
Transaction in May 1995. Mr. Schiller is chairman of the board and chief
executive officer of Consolidated, a corporation which, through subsidiaries, is
engaged in various businesses. Mr. Schiller is also chairman of the board, chief
executive officer and a director of Netsmart, a majority owned subsidiary of
Consolidated that markets health information systems and other network based
software systems. Consolidated's businesses include, in addition to the Company,
the management and operation of magnetic resonance imaging centers, the
manufacture and sale of electro-mechanical and electro-optical products, a range
of telecommunications services, computerized health information systems and
related services which are offered to health care providers, and the marketing
and selling of three dimensional imaging products. Mr. Schiller has held his
positions with Consolidated for more than the past five years. Mr. Schiller is
also a director of Fingermatrix, Inc. a public company which develops and
markets fingerprint identification systems. Mr. Schiller devotes a significant
portion of his time to the business of Consolidated and its other subsidiaries,
and he devotes only a portion of his time to the business of the Company.
Mr. Joseph G. Sicinski has been president and a director of the Company
since the consummation of the Trans Global Transaction in May 1995. He served in
the same capacities for TGS since its organization in January 1995, and served
as president of a predecessor of TGS since September 1992. For more than eight
years prior thereto, he was executive vice president of corporate marketing for
Interglobal Technical Services, Inc., which was engaged in providing technical
temporary staffing services.
Mr. Glen R. Charles has been chief financial officer and treasurer of
the Company since May 1995 and of TGS since its organization in January 1995. He
served as chief financial officer of RMI since its acquisition in November 1994.
From 1992 to November 1994, he was engaged in the private practice of
accounting. For more than five years prior thereto, he was chief financial
officer of Telephone Support Systems, Inc., a manufacturer of telecommunications
peripheral equipment.
Ms. Grazyna B. Wnuk has been the secretary of the Company since May
1995. She is also secretary of Consolidated, a position she has held since 1991.
She is also a director of Consolidated.
Mr. E. Gerald Kay has been a director of the Company since the
consummation of the Trans Global Transaction in May 1995. He has been chairman
of the board and chief executive officer of Chem International, Inc., a
pharmaceutical manufacturer, Manhattan Drug Co., Inc., a wholesaler of
pharmaceutical products, The Vitamin Factory, Inc., a chain of retail vitamin
stores, and Connaught Press, Inc., a publisher for more than the past five
years. From 1988 to 1990 he was also president and a director of The Rexall
Group, Inc., a distributor of Rexall brand products. Mr. Kay is also a director
of Netsmart.
- 24 -
<PAGE>
Mr. Joel S. Kanter has been a director of the Company since its
organization in September 1993. He is president and a director of Walnut
Financial Services, Inc., a financial consulting firm, since March 1995 and of
Windy City, Inc., a private investor which provides investment related services,
since 1986. Mr. Kanter is also a director of GranCare, Inc., an operator of
nursing homes and institutional pharmacies, I-Flow Corporation, a home infusion
corporation, Healthcare Acquisition Corp., a special purpose acquisition
corporation designed to acquire and grow businesses in the healthcare field, and
Osteoimplant Technology, Inc., a manufacturer of hip and shoulder implant
devices. Mr. Kanter is also a director of several private companies.
Mr. Norman J. Hoskin has been a director of the Company since 1995. He
is chairman of Atlantic Capital Group, a financial advisory services company, a
position he has held for more than the past five years. He is also chairman of
the board and a director of Tapistron International, Inc., a high tech
manufacturer of carpeting, and is a director of Consolidated, of Aqua Care
Systems, Inc., a water media filtration and remediation company, and Spintek
Gaming, Inc., a manufacturer of gaming equipment.
The Board of Directors presently has one committee, the stock option
committee, which was formed in 1995 and which administers the Company's 1993
Stock Option Plan, the 1995 Stock Incentive Plan and the 1995 Long Term
Incentive Plan.
The Company's Certificate of Incorporation provides that to the fullest
extent provided by Delaware law, a director shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. The Certificate of Incorporation also contains broad indemnification
provisions. These provisions do not affect the liability of any director under
Federal or applicable state securities laws.
Remuneration
Set forth below is information with respect to compensation paid or
accrued by the Company and TGS to their respective chief executive officers and
to each other officer whose compensation exceeded $100,000 for 1995, 1994 or
1993. Information for the Company reflects compensation paid during such years
by its subsidiaries, Avionics, which was acquired in December 1993, and RMI,
which was acquired in November 1994.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (Awards)
Restricted Stock Options, SARs
Name and Principal Position Year Salary Bonus Awards (Dollars) (Number)
- --------------------------- ---- ---------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Milton E. McNally, CEO of the 1995 $ 45,000 -- -- --(2),(3)
Company prior to May 1995 1994 123,647 -- -- 30,000(3)
1993 95,000 $18,9031 $176,250(2) 62,500(2)
Lewis S. Schiller, CEO of the 1995 -- -- -- --
Company since May 1995(4) 1994 -- -- -- --
1993 -- -- -- --
Joseph G. Sicinski, President of 1995 178,000 -- -- 250,000(5)
TGS and President of the Company 1994 110,000 15,000 -- --
since May 1995 1993 96,612 -- -- --
</TABLE>
- ------------
(1) Represents compensation paid to Mr. McNally prior to the Company's
initial public offering in February 1994 equal to 1% of the sales of
one of the Company's subsidiaries.
(2) Represents the amount by which the initial public offering price of the
Common Stock ($6.50 per unit) exceeds the exercise price of options
granted to Mr. McNally in November 1993 ($3.00 per share as to 50,000
shares and $6.40 per share as to 12,500 shares). In February 1995, the
exercise price of the options was reduced to $2.25 per share. Set forth
below is information as to the vesting and exercise price of such
options:
- 25 -
<PAGE>
Shares Subject Date of Initial Exercise Amended Exercise
to Option Vesting Price Price
- -------------- ------- ---------------- ----------------
25,000 11/1/93 $3.00 $2.25
8,334 11/1/94 3.00 2.25
8,333 11/1/95 3.00 2.25
8,333 11/1/96 3.00 2.25
2,500 11/1/94 6.40 2.25
2,500 11/1/95 6.40 2.25
2,500 11/1/96 6.40 2.25
2,500 11/1/97 6.40 2.25
2,500 11/1/98 6.40 2.25
(3) In May 1994, Mr. McNally was granted fully vested options to purchase
30,000 shares of Common Stock at $5.00 per share, being equal to the
fair market value on the date of grant. In February 1995, the exercise
price of the options was reduced to $2.25 per share.
(4) Mr. Schiller received no compensation from the Company. Effective
December 31, 1994, Consolidated changed its fiscal year to a calendar
year from the twelve months ended July 31. During the year ended
December 31, 1995, the period from August 1, 1994 to December 31, 1994
and the fiscal year ended July 31, 1994, the total compensation paid or
accrued by Consolidated to Mr. Schiller was $250,000, $94,000 and
$181,451, respectively.
(5) On August 7, 1995, the Company granted to Mr. Joseph G. Sicinski,
president of the Company, a six-year incentive stock option to purchase
an aggregate of 250,000 shares of Common Stock pursuant to the 1995
Plan at an exercise price of $2.125 per share, being the fair market
value on the date of grant. The option is immediately exercisable as to
47,000 shares of Common Stock and becomes exercisable as to an
additional 47,000 shares of Common Stock on each of January 1, 1996,
1997, 1998 and 1999 and becomes exercisable as to the remaining 15,000
shares of Common Stock on January 1, 2000. In March 1996, the Company,
replaced such option with an incentive stock option to purchase an
aggregate of 800,000 shares of Common Stock at $1.125, being the fair
market value on the date of grant, which is immediately exercisable as
to 80,000 shares and becomes exercisable as to an additional 80,000
shares on January 1 of each year from 1997 to 2005.
Pursuant to his employment agreement with Consolidated, Mr. Schiller
received, prior to September 1, 1996, an annual salary of $250,000, subject to
a cost of living increase, a bonus equal to 10% of Consolidated's net income
before income taxes or cash flow, whichever is greater, in excess of $350,000.
Effective September 1, 1996, Mr. Schiller's base salary was increased to
$500,000. Pursuant to his employment agreement, Mr. Schiller has the right to
acquire 10% of SISC's interest in its subsidiaries and investments, including
its investment in the Company, at 110% of SISC's cost. See "Certain
Transactions."
In January 1995 Mr. Joseph G. Sicinski entered into a five-year
employment agreement with the company prusuant to which he received annual
compensation of $180,000, subject to an annual cost of living increase.
Effective September 1, 1996, Mr. Sicinski entered into a new employment
agreement for a 5-year term prusuant to which he received annual compensation of
$234,000 subject to an annual cost of living increase. In addition Mr. Sicinski
is entitled to a bonus equal to 5% of the Company's income before income taxes,
but not more than 200% of his salary. The Company also provides Mr. Sicinski
with an automobile which he may use for personal use.
In August 1995, SISC granted Mr. Sicinski a five-year option to
purchase 200,000 shares of Common Stock owned by SISC at $1.625 per share. In
April 1996, SISC granted Mr. Sicinski a five-year option to purchase 800,000
shares of Common Stock owned by SISC at $.25 per share, and the prior option was
canceled.
Mr. Milton E. McNally had an employment agreement pursuant to which he
received compensation of $125,000 per annum through September 30, 1995. At the
closing of the Trans Global Transaction, Mr. McNally entered into a consulting
agreement for a one year term. Pursuant to the consulting agreement, the Company
is to pay Mr. McNally $5,000 per month for the first six months and $3,000 per
month for the second six months.
The Company pays its non-management directors a fee of $500 per month.
- 26 -
<PAGE>
The following table sets forth information concerning the exercise of
options during the year ended December 31, 1995 and the year-end value of
options held by the Company's chief executive officer. No other executive
officers held options during the year. No SARs have been granted.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Fiscal Options at Fiscal
Shares Year End Year End
Acquired
Upon Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
---- -------- -------- ------------- -------------
Milton E. McNally -- -- 76,667/ --/
15,833 --
Lewis S. Schiller -- -- -- --
Joseph G. Sicinski -- -- 47,000/ --/
203,000 --
Stock Option Plans
The Company has three stock option plans. In 1993, the Company adopted
the 1993 Stock Incentive Plan (the "1993 Plan"), covering an aggregate of
150,000 shares of Common Stock. Options to purchase 124,100 shares of Common
Stock were granted at exercise prices of $3.00 as to 54,500 shares, $5.00 as to
14,600 and $5.00 as to 55,000 shares. The exercise price of all of such options
was reduced to $2.25 per share in February 1995. As of August 31, 1996, options
to purchase 10,150 ahares had expired unexercised. No options under the 1993
Plan had been exercised. In January 1995, the board of directors adopted the
1995 Stock Incentive Plan (the "1995 Plan"), pursuant to which stock options and
stock appreciation rights can be granted with respect to 305,000 shares of
Common Stock. At August 31, 1996, options to purchase 290,000 shares of Common
Stock were granted pursuant to the 1995 Plan, of which options to purchase
155,000 shares were exercised and options to purchase 85,000 at an exercise
price of $1.00 per share were outstanding. In May 1995, the board of directors
adopted, and, in March 1996, the stockholders approved the 1995 Long Term
Incentive Plan (the "1995 Incentive Plan"), initially covering 500,000 shares of
Common Stock. In April 1996, the board of directors approved, subject to
stockholder approval, an amendment to the 1995 Plan, which increased the number
of shares of Common Stock currently subject to the 1995 Plan to 2,492,332
shares. The number of shares of common stock subject to the 1995 Plan
automatically increases by 5% of any shares of common stock issued by the
Company other than shares issued pursuant to the 1995 Plan. The information
contained in this Prospectus relating to the 1993 Plan, the 1995 Plan and the
1995 Incentive Plan (collectively, the "Plans") is qualified in its entirety by
the text of such plans, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Awards under the Plans may be made to key employees, including
officers, and directors of the Company and its subsidiaries. Members and
alternate members of the stock option committee are not eligible for options
under the 1995 Incentive Plan, except that the 1995 Incentive Plan provides for
the automatic grant to outside directors of non-qualified options to purchase
5,000 shares on February 1st of each year, commencing February 1, 1996. Messrs.
Lewis S. Schiller. E. Gerald Kay, Joel S. Kanter and Norman J. Hoskin are the
directors who qualify as non-management directors under the 1995 Plan. Pursuant
to the 1995 Incentive Plan, Messrs. Schiller, Kay and Kanter, who were
non-management directors on February 1, 1996, each received an option to
purchase 5,000 shares of Common Stock at $1 1/32 per share. The Plans impose no
limit on the number of officers and other key employees to whom awards may be
made.
The Plans are administered by a committee of at least two disinterested
directors appointed by the board (the "Committee"). Any member or alternate
member of the Committee shall not be eligible to receive options or stock under
the 1995 Incentive Plan (except as to the automatic grant of options to
directors) or under any plan of the Company or any of its affiliates. The
Committee has broad discretion in determining the persons to whom stock options
or other awards are to be granted and the terms and conditions of the award,
including the type of award, the exercise price and term and restrictions and
forfeiture conditions. If no committee is appointed, the functions of the
committee shall be performed by the board of directors. The Committee is
presently comprised of Messrs. Norman J. Hoskin and E. Gerald Kay.
The Committee has the authority to grant the following types of awards
under the 1995 Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards.
- 27 -
<PAGE>
The 1995 Incentive Plan is designed to provide the Committee with broad
discretion to grant incentive stock-based rights. All officers, including
Messrs. Lewis S. Schiller and Joseph G. Sicinski, who are also directors, are
eligible for awards under the 1995 Incentive Plan.
Tax consequences of awards provided under the 1995 Plan are dependent
upon the type of award granted. The grant of incentive or nonqualified stock
options does not result in any taxable income to the recipient or deduction to
the Company. Upon exercise of a nonqualified stock option, the recipient
recognizes income in the amount by which the fair market value on the date of
exercise exceeds the exercise price of the option, and the Company receives a
corresponding tax deduction. In the case of incentive stock options, no income
is recognized to the employee, and no deduction is available to the Company, if
the stock issued upon exercise of the option is not transferred within two years
from the date of grant or one year from the date of exercise, whichever occurs
later. However, the exercise of an incentive stock option may result in
additional taxes through the application of the alternative minimum tax. In the
event of a sale or other disqualifying transfer of stock issued upon exercise of
an incentive stock option, the employee realizes income, and the Company
receives a tax deduction, equal to the amount by which the lesser of the fair
market value at the date of exercise or the proceeds from the sale exceeds the
exercise price. The issuance of stock pursuant to a stock grant results in
taxable income to the recipient at the date the rights to the stock become
nonforfeitable, and the Company receives a deduction in such amount. However, if
the recipient of the award makes an election in accordance with the Internal
Revenue Code of 1986, as amended, the amount of his or her income is based on
the fair market value on the date of grant rather than the fair market value on
the date the rights become nonforfeitable. When compensation is to be recognized
by the employee, appropriate arrangements are to be made with respect to the
payment of withholding tax.
In August 1995, the Company granted to Mr. Joseph G. Sicinski,
president of the Company, a six-year incentive stock option to purchase an
aggregate of 250,000 shares of Common Stock pursuant to the 1995 Plan at an
exercise price of $2.125 per share, being the fair market value on the date of
grant. The option is immediately exercisable as to 47,000 shares of Common Stock
and becomes exercisable as to an additional 47,000 shares of Common Stock on
each of January 1, 1996, 1997, 1998 and 1999 and becomes exercisable as to the
remaining 15,000 shares of Common Stock on January 1, 2000.
In March 1996, the committee granted incentive stock options to
purchase an aggregate of 1,310,000 shares of Common Stock at $1.125 per share,
being the fair market value on the date of grant. Such options were granted to
Mr. Joseph G. Sicinski, president of the Company, who received an option to
purchase 800,000 shares of Common Stock, Mr. Lewis S. Schiller, chairman of the
board of the Company, who received an option to purchase 150,000 shares of
Common Stock, one other officer, who received an option to purchase 100,000
shares of Common Stock, and eleven other employees who received options to
purchase an aggregate of 260,000 shares of Common Stock. In connection with the
grant to Mr. Sicinski, he agreed to the cancellation of the previously granted
incentive stock options. The option granted to Messrs. Schiller and Sicinski
have a ten-year term, and the other options have five year terms.
The following table sets forth information concerning options granted
during the year ended December 31, 1995 to the Company's president. Such options
were granted pursuant to the Company's 1995 Incentive Plan. No other executive
officers were granted options during the year. No SARs were granted.
Option Grants in Last Fiscal Year
Number of Percent of
Shares Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date
---- --------- ------------- --------- ----------
Joseph G. Sicinski1 250,000 100% $2.125 8/6/01
All current executive officers -- -- -- --
All non-officer directors -- -- -- --
All other employees -- -- -- --
- ------------
(1) In April 1996, the Company canceled this option and granted Mr.
Sicinski a ten-year incentive stock option to purchase 800,000 shares
of Common Stock at $1.25 per share. In addition, in August 1995, SISC
granted Mr. Sicinski an option to purchase 200,000 shares of Common
Stock owned by SISC at $1.625 per share. In April 1996, this option was
canceled, and SISC granted Mr. Sicinski an option to purchase 800,000
shares of Common Stock at $.25 per share.
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<PAGE>
CERTAIN TRANSACTIONS
The Trans Global Transaction
On May 8, 1995, the Company acquired all of the issued and outstanding
capital stock of TGS and issued (a) 1,000,000 shares of Common Stock, (b) 25,000
shares of Series A Convertible Participating Preferred Stock ("Series A
Preferred Stock"), (c) 25,000 shares of Series B Preferred Stock which are
convertible into an aggregate of 1,000,000 shares of Common Stock if net income
before income taxes, as defined, is either $500,000 for 1995 or $1.5 million for
either 1996 or 1997, (d) 25,000 shares of Series C Preferred Stock which are
convertible into an aggregate of 1,500,000 shares of Common Stock if net income
before income taxes, as defined, is $1.5 million for either 1996 or 1997, and
(e) 20,000 shares of Series D 6.25% Redeemable Cumulative Preferred Stock
("Series D Preferred Stock"), which are not convertible, but which have an
aggregate redemption price of approximately $1.7 million. In addition, in
connection with the Trans Global Transaction, the Company issued two-year
warrants to purchase an aggregate of 500,000 shares of Common Stock at $3.50 per
share. As a result of the March 1996 filing of a certificate of amendment to the
Company's certificate of incorporation increasing the authorized Common Stock to
20,000,000 shares, the 25,000 shares of Series A Convertible Preferred Stock
automatically, without any action on the part of the holder, became converted
into 2,000,000 shares of Common Stock.
As a result of, and at the time of, the Trans Global Transaction, SISC
owned approximately 32.2% of the outstanding Common Stock, and 59.3% of the
voting rights on all matters, including the election of directors, except where
the holders of Common Stock are required by law to vote as a single class. As a
result, SISC had the power to elect all of the directors of the Company. Mr.
Lewis S. Schiller, chairman of the board, chief executive officer and a director
of the Company, is the chairman of the board, chief executive officer and a
director of Consolidated and SISC. Accordingly, both Consolidated and Mr.
Schiller may be deemed control persons with respect to the Company.
Sale of WWR
At June 30, 1995, the Company owed SISC approximately $1.1 million.
Subsequent to June 30, 1995, the Company repaid $225,000 to SISC, and SISC
advanced $275,000 to the Company and WWR to enable the Company to pay a $275,000
debenture due to Klipsch, Inc. ("Klipsch"), the company from which WWR purchased
its loudspeaker business. The debenture became due on June 30, 1995. The advance
was required because the Company and WWR did not have the cash to make the
payment. As of September 30, 1995, the Company transferred the stock of WWR to
an affiliate of SISC in consideration for which SISC released the Company from
its obligations with respect to the $275,000 advance. In connection with the
transaction, the Company issued 1,060,000 shares of Common Stock to SISC;
however, the actual issuance of the shares has been deferred until the number of
authorized shares of the Company's Common Stock was increased. WWR had, at the
time of the transaction, a deficiency in stockholders' equity of approximately
$1.4 million. Among WWR's liabilities was approximately $2.1 million payable to
the Company, which, based upon WWR's historical and current cash flow, was not
likely to be paid in the near future. This payable was satisfied through the
issuance by Consolidated of shares of a newly created series of preferred stock
which converts on September 30, 2000 into such number of shares of
Consolidated's common stock, not to exceed 2.8 million shares, as has a value
equal to $2.1 million. The directors believed that the transaction was in the
best interest of the Company because it removed a $1.4 million net deficit from
the Company's balance sheet, the business of WWR was not related to the business
of the Company, and the Company has no experience in manufacturing operations.
During the period from the completion of the Trans Global Transaction until the
sale of WWR, the operations of WWR had been supervised by personnel of SISC and
its affiliates and not by the Company. Furthermore, WWR was a defendant in
litigation commenced by Klipsch, Inc. claiming that the license agreement
pursuant to which WWR has the right to use the Klipsch name and certain patents
has terminated. The Company is the guarantor of a $530,000 note issued by WWR to
a nonaffiliated lender, which note, as a result of a $130,000 payment in June
1996, was reduced to $400,000.
Loan and Equity Transactions With SISC
TGS was organized by SISC in January 1995 to hold all of the stock of
Holdings, which was acquired by SISC in December 1993, and RMI, which was
acquired by SISC in November 1994. At the time of the organization of TGS, TGS
issued to SISC, in consideration for the shares of Consolidated common stock
issued in connection with the acquisitions of Holdings and RMI assets, 500
shares of Series A 5% Redeemable Cumulative Preferred Stock. The Company also
issued to SISC warrants to purchase shares of its common stock. The TGS stock
and warrants were issued to SISC in consideration for the transfer of the stock
of Holdings and RMI and the advances made by SISC. In connection with the
organization of TGS, TGS also issued a 3.4%
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<PAGE>
interest to Mr. Joseph G. Sicinski, president of TGS, in exchange for certain
rights Mr. Sicinski has with respect to the stock of Holdings.
In connection with the organization of TGS in January 1995, SISC
transferred a 5% interest in its common stock and warrants in TGS to DLB, in
exchange for DLB's 10% interest in Avionics. DLB is owned by the wife of Mr.
Lewis S. Schiller, chairman of the board and chief executive officer of the
Company; however, Mr. Schiller disclaims beneficial ownership in DLB or any
securities owned by DLB.
The Trans Global Agreement provides SISC and DLB with certain
registration rights with respect to their warrants and the underlying Common
Stock and provides Mr. Sicinski with certain registration rights with respect to
the 100,000 shares of Common Stock issued to him pursuant to the Trans Global
Agreement.
Trinity, a wholly-owned subsidiary of Consolidated, is a party to a
management services agreement dated as of January 1, 1995, pursuant to which
Trinity will receive a monthly fee of $10,000 through March 2000. The fees
through October 1996 have been paid. Neither SISC, Consolidated nor any of their
employees, including Mr. Lewis S. Schiller, chairman of the board and chief
executive officer of the Company, have received any compensation from the
Company or TGS. None of such persons provided significant services to Holdings
or RMI prior to 1995.
At June 30, 1996, prior to the SISC Recapitalization, the Company owed
SISC approximately $1.1 million. At June 30, 1996, pursuant to the SISC
Recapitalization, the Company issued to SISC 9,950 shares of Series F Preferred
Stock and warrants to purchase 3,200,000 shares of Common Stock at $.50 per
share in exchange for the cancellation of $750,000 principal amount of the
Company's debt to SISC and all of the shares of Series B, C and D Preferred
Stock owned by SISC, including accrued dividends due on the Series D Preferred
Stock. The 9,950 shares of Series F Preferred Stock are convertible into
9,950,000 shares of Common Stock. As a result of the SISC Recapitalization, the
Company's obligations to SISC was reduced to $300,000, which was paid subsequent
to June 30, 1996. In October 1996, SISC converted 5,000 shares of Series F
Preferred Stock into 5,000,000 shares of Common Stock.
Pursuant to Mr. Schiller's employment agreement with Consolidated, Mr.
Schiller has the right to acquire 10% of SISC's interest in its subsidiaries and
investments, including the Company's Common Stock, Preferred Stock and warrants
held by SISC, at 110% of SISC's cost. At the closing of the Trans Global
Transaction, Mr. Schiller exchanged such option for a five-year option to
purchase 10% of SISC's common stock, convertible preferred stock and warrants in
the Company. In April 1996, Mr. Schiller exercised his option to purchase
393,000 shares of Common Stock, warrants to purchase 47,500 shares of Common
Stock and 2,500 shares of Series B and C Preferred Stock. In connection with the
SISC Recapitalization, SISC sold to Mr. Schiller 1,000 shares of Series F
Preferred Stock, in connection with which Mr. Schiller's shares of Series B and
C Preferred Stock were canceled. The 1,000 shares of Series F Preferred Stock
held by Mr. Schiller are convertible into 1,000,000 shares of Common Stock.
Also in connection with the SISC Recapitalization, DLB exchanged its
shares of Series B and C Preferred Stock for 50 shares of Series F Preferred
Stock which are convertible into 50,000 shares of Common Stock.
During the six months ended June 30, 1996 and the years ended December
30, 1995 and 1994, the largest amount due to SISC was $1.0 million, $1.1 million
and $885,000, respectively. These advances were incurred for working capital and
in connection with the acquisition of Job Shop assets. At August 31, 1996, the
Company debt to SISC had been paid. The Company's advances from SISC bear
interest at 10% per annum
The Company had made advances to three SISC Subsidiaries which are not
owned or controlled by the Company. Such advances were approximately $1.4
million, $1.2 million and $274,000 at June 30, 1996, December 31, 1995 and
December 31, 1994, respectively. The amounts outstanding on such dates represent
the largest amounts outstanding during the respective periods ending on such
dates. At September 30, 1996, the SISC Subsidiaries owed the Company $1.4
million. The Company does not anticipate that the SISC Subsidiaries will pay the
amounts due the Company during 1996 because of their lack of available working
capital. Advances to the SISC Subsidiaries may continue. In addition, the
Company pays the compensation and benefits of certain non-executive employees
who perform services for both the Company and one of the SISC Subsidiaries and
share common space and other office expenses. The amount allocated to such SISC
Subsidiary, which is approximately $150,000 per annum, is added to the
obligations of the SISC Subsidiary to the Company.
As of June 30, 1995, SISC converted $200,000 of the Company's
obligations to SISC into 5,000 shares of Series E Preferred Stock. In March
1996, as a result of the filing of the certificate of amendment to the Company's
certificate of incorporation increasing its authorized common stock, the 5,000
shares of Series E Preferred Stock automatically, without any action on the part
of the holder, became converted into 120,000 shares of Common Stock.
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<PAGE>
At June 30, 1996, WWR owed $400,000 to a nonaffiliated lender, after
giving effect to a $130,000 payment in June 1996. The note matures in June 1997
and is guaranteed by Walnut, a principal stockholder of the Company, and the
Kanter Foundation. The Kanter Foundation and Walnut are affiliated with Mr. Joel
S. Kanter, a director of the Company. The Company, SISC and Consolidated have
guaranteed the guarantee obligations of the Kanter Foundation and Walnut.
Other Related Party Transactions
The Company was organized in September 1993 as Concept Technologies
Group, Inc. to acquire the stock of three companies, each of which was
controlled by Walnut. Walnut may be deemed a promoter of the Company. Following
the acquisition of such subsidiaries and until the Trans Global Transaction,
Walnut may be deemed a controlling stockholder of the Company. As a result of
family relationships, the Kanter Foundation, The Holding Company and Windy City,
as well as certain members of the Kanter family may be deemed affiliates of the
Company. Mr. Joel Kanter, a director of the Company, is president and a director
of Windy City and Kanter Foundation. Since February 1995, he has been president
of Walnut, to which he was a consultant prior to that date. Mr. Joshua Kanter,
who was secretary of the Company prior to May 1995, is vice president of Windy
City and the Kanter Foundation. Mr. Burton Kanter, the father of Joel and Joshua
Kanter, is chief executive officer of Walnut and president and a director of The
Holding Company. While there is little or no common beneficial ownership of
Walnut, Windy City, the Kanter Foundation and The Holding Company, members of
the Kanter family have varying degrees of control over these entities.
In connection with the Trans Global Transaction, the Company requested
certain holders of restricted securities to agree to a one year lockup from the
effective date of the first registration statement filed by the Company
following the closing of the Trans Global Transaction. Walnut, Windy City, the
Kanter Foundation and The Holding Company received an aggregate of 181,080
shares of Common Stock and warrants to purchase 90,540 shares of Common Stock at
$3.50 per share in consideration for agreeing to such lockups, which related to
an aggregate of 362,160 shares of Common Stock.
In October 1995, the Company authorized the issuance to each of Messrs.
E. Gerald Kay and Joel S. Kanter a warrant to purchase 75,000 shares of Common
Stock at $3.50 per share. In April 1996, the Company issued to each of Messrs.
Lewis S. Schiller and Joseph G. Sicinski a warrant to purchase 400,000 shares of
Common Stock at $.50 per share and to each of Messrs. E. Gerald Kay, Joel S.
Kanter and Norman J. Hoskin, a warrant to purchase 300,000 shares of Common
Stock at $.50 per share. In connection with such grants, Messrs. Kay and Kanter
agreed to the waive the right to receive the previously authorized warrants,
which had not been issued.
During 1994 and 1995 the Company engaged Plaza Street Holdings, Inc.
("Plaza Street") to perform consulting services in connection with possible
acquisition or merger candidates for the Company. Plaza Street is wholly-owned
by Mr. Michael Alan Faber, who is a vice president of Walnut. Plaza Street
received $50,000 for services rendered during 1994 (of which $15,000 was paid in
1995) and 1995.
Prior to completion of the Company's initial offering in February 1994,
the Company borrowed funds on an unsecured, short term basis from Walnut for
working capital. The borrowing did not exceed $90,000, bore interest at 10% per
annum and was repaid from the proceeds of the Issuer's initial public offering.
Legal fees of $317,000 for the year ended December 31, 1994 were
incurred by the Company with a law firm in which Mr. Joshua S. Kanter, who was
secretary of the Company, is of counsel.
The Company incurred $31,000 in stockholder/director expenses for the
years ended December 31, 1994. Such expenses consist primarily of travel and
related costs.
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<PAGE>
PRINCIPAL STOCKHOLDERS
Set forth below is information as of October 11, 1996 as to each person
owning of record or known by the Company, based on information provided to the
Company by the persons named below, to own beneficially at least 5% of the
Company's Common Stock, of each nominee for director and for all officers and
directors as a group.
Percent of
Outstanding
Name and Address(1) Shares Common Stock
- ------------------- ------ ------------
Lewis S. Schiller(2) 16,680,000(3) 62.2%
160 Broadway
New York, NY 10038
SIS Capital Corp. 14,754,500(4) 58.4%
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038
Joseph G. Sicinski 1,380,000(5) 6.0%
1770 Motor Parkway
Hauppauge, NY 11788
Joel S. Kanter 1,109,547(6) 6.0%
8000 Towers Crescent Drive
Vienna, VA 22182
E. Gerald Kay 305,000(7) 1.7%
225 Long Avenue
Hillside, NJ 07205
Norman J. Hoskin 300,000(8) 1.7%
2200 Corporate Blvd.
Boca Raton, FL 33431
All directors and officers as
a group (six individuals owning
stock or warrants) 19,084,574(3),(5),(7),(8),(9) 67.0%
- -----------
(1) Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares.
(2) Mr. Schiller is the chairman of the board and chief executive officer
of Consolidated and chief executive officer of SISC. Accordingly, he
has the right to vote the shares owned by SISC.
(3) Includes (a) 1,000,000 shares of Common Stock issuable upon conversion
of shares of Series F Preferred Stock owned by Mr. Schiller, (b)
447,500 shares of Common Stock issuable upon the exercise of warrants
held by Mr. Schiller, (c) 5,000 shares issuable upon exercise of an
option held by Mr. Schiller, (e) 80,000 shares pursuant to an incentive
stock option, which represents the number of shares as to which such
option is presently exercisable; (e) 7,337,000 shares of Common Stock
owned by SISC, (f) 3,950,000 shares of Common Stock issuable upon
conversion of Series F Preferred Stock owned by SISC and (g) 3,467,500
shares of Common Stock issuable upon exercise of warrants held by SISC.
(4) Includes (a) 3,950,000 shares of Common Stock issuable upon conversion
of Series F Preferred Stock owned by SISC and (b) 3,467,500 shares of
Common Stock issuable upon exercise of warrants held by SISC. SISC has
granted Mr. Joseph G. Sicinski an option to purchase 800,000 of its
shares of common stock.
(5) Includes (a) 80,000 shares of Common Stock issuable pursuant to an
incentive stock option, which represents the number of shares as to
which such option is presently exercisable, (b) 100,000 shares issuable
upon exercise of a warrant held by Mr. Sicinski and (c) 800,000 shares
of Common Stock issuable pursuant to an option granted by SISC to Mr.
Sicinski.
(6) Includes (a) 300,000 shares of Common Stock issuable upon exercise of a
warrant held by Mr. Kanter, (b) 5,000 shares issuable upon exercise of
an option held by Mr. Kanter, (c) shares of Common Stock held by Walnut
(503,036 shares), Windy City, Inc. ("Windy City") (2,567 shares), and
the Kanter Foundation (97,699 shares), of each of which Mr. Kanter is a
senior executive officer and/or director, and (d) shares of Common
Stock issuable upon warrants held by Walnut
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<PAGE>
(179,224 shares), Windy City (25,321 shares) and the Kanter Foundation
(26,700) shares. Mr. Kanter disclaims beneficial interest in the shares
owned by Walnut, Windy City and the Kanter Foundation.
(7) Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant and 5,000 shares issuable upon exercise of an option held by
Mr. Kay.
(8) Represent 300,000 shares of Common Stock issuable upon exercise of a
warrant held by Mr. Hoskin.
(9) Includes 80,000 shares of Common Stock issuable upon exercise of an
incentive stock option held by one other officer.
DESCRIPTION OF SECURITIES
Capital Stock
The Company is authorized to issue 3,000,000 shares of Preferred Stock,
par value $.01 per share, and 20,000,000 shares of Common Stock, par value $.01
per share. Holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. The board of
directors has approved, subject to stockholders' approval, an amendment to the
Company's certificate of incorporation increasing the authorized capital stock
to 20,000,000 shares of Preferred Stock and 50,000,000 shares of Common Stock.
Holders of Common Stock are entitled to share in such dividends as the Board of
Directors, in its discretion, may declare from funds legally available. In the
event of liquidation, each outstanding share entitles its holder to participate
ratably in the assets remaining after payment of liabilities. At October 11,
1996, there were 17,846,651 shares of Common Stock outstanding.
Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
the Company, and there are no redemption or sinking fund provisions with regard
to the Common Stock. All outstanding shares of Common Stock are, and those
issuable pursuant to this Prospectus or upon exercise of the Warrants will be
when issued as provided in this Prospectus, validly issued, fully paid, and
nonassessable. Stockholders do not have cumulative voting rights.
The Company's Board of Directors is authorized to issue, from time to
time and without further stockholder action, up to 3,000,000 shares of preferred
stock in one or more distinct series. The Board of Directors is authorized to
fix the following rights and preferences, among others, for each series: (i) the
rate of dividends and whether such dividends shall be cumulative; (ii) the price
at and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of voluntary or involuntary liquidation;
(iv) whether or not a sinking fund shall be provided for the redemption or
purchase of shares; (v) the terms and conditions on which shares may be
converted; and (vi) whether, and in what proportion to any other series or
class, a series shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per share. Except as set
forth in this Prospectus, the Company has no plans, agreements or understandings
with respect to the designation of any series or the issuance of any shares of
preferred stock.
There is presently two series of Preferred Stock which are authorized
- -- the Series F and G Preferred Stock. Set forth below is information concerning
each such series of Preferred Stock. The Series F and G Preferred Stock are on a
parity with each other with respect to dividends and on liquidation and
dissolution. The Board of Directors may create other series of Preferred Stocks
which are either junior or senior to or on a parity with the Series F and G
Preferred Stock as to dividends and/or on any voluntary or mandatory liquidation
without the approval of the holders of such series of Preferred Stock. The
Company has previously authorized five other series of Preferred Stock, all of
which have been converted into shares of Common Stock or shares of Series F
Preferred Stock, and such other series of Preferred Stock have been terminated.
Series F Preferred Stock
The Series F Preferred Stock initially consisted of 10,000 shares, of
which 5,000 are outstanding and 5,000 shares have been converted into Common
Stock. Holders of shares of Series F Preferred Stock are entitled to receive,
when and as declared by the Board of Directors of the Company, out of funds of
the Company legally available for payment, dividends at an annual rate of $6 per
share. Dividends on the Series F Preferred Stock are payable annually on April 1
in each year to holders of record at the close of business on the immediately
preceding March 15. The first dividend payment date is March 1, 1997. Dividends
accrue from the date of issuance of the shares.
Except as otherwise required by law, the holders of the Series F
Preferred Stock have no voting rights.
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<PAGE>
Each share of Series F Preferred Stock is convertible into 1,000 shares
of Common Stock. The conversion rate is subject to adjustment upon the
occurrence of certain events. The Series F Preferred Stock is not redeemable by
the Company.
The Series F Preferred Stock will have a liquidation preference of
$1.00 per share. After payment of the liquidation preference, the Series F
Preferred Stock will participate with the Common Stock on an as-converted basis
if the Series F Preferred Stock and the Common Stock were a single class,
regardless of whether the Series F Preferred Stock may then be converted.
Series G Preferred Stock
The Company has authorized the issuance of 1,562,500 shares of Series G
Preferred Stock, none of which are issued or outstanding. Holders of shares of
Series G Preferred Stock are entitled to receive, when and as declared by the
Board of Directors of the Company, out of funds of the Company legally available
for payment, dividends at an annual rate of $.12 per share. Dividends are
payable semi-annually on the first of January and July of each year, commencing
July 1, 1997, to holders of record on the preceding December 15 and June 15,
respectively. Dividends shall accrue from the closing date of this Offering, and
are payable in cash or in shares of Common Stock, valued at fair market value,
as the Company's board of directors shall determine.
Except as required by law, the holders of the Series G Preferred Stock
have no voting rights.
The holders of the Series G Preferred Stock will be entitled at any
time, commencing one year from the date of this Prospectus, subject to prior
redemption, to convert each share of Series G Preferred Stock into four shares
of Common Stock of the Company. If the Series G Preferred Stock is called for
redemption, conversion rights will expire at the close of business on the
business date prior to the redemption date. The conversion rate is subject to
adjustment upon the occurrence of certain events.
The Company shall have the right to redeem the shares of Series G
Preferred Stock at a redemption price of $8.00 per share, plus accumulated and
unpaid dividends, at any time commencing one year from the date of this
Prospectus. The Series G Preferred Stock may be redeemed in whole only, and not
in part. Once the Series G Preferred Stock becomes redeemable, the Company may
redeem the Series G Preferred Stock upon at least 30, but not more than 60,
days' prior written notice to the registered holders. If the Series G Preferred
Stock is called for redemption, conversion rights will expire at the close of
business on the business day prior to the redemption date.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any securities of
the Company which rank senior to the Series G Preferred Stock, holders of shares
of Series G Preferred Stock will be entitled to receive from the assets of the
Company $8.00 per share plus accrued and unpaid dividends to the payment date,
before any payment or distribution is made to holders of shares of Common Stock
or any other series or class of stock hereafter issued which ranks junior as to
liquidation rights to the Series G Preferred Stock. Thereafter, the holders of
the Series G Preferred Stock will not be entitled to any additional payment on
liquidation.
Series E Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled, upon payment of the exercise
price of $3.00 per share, to purchase one share of Common Stock. Unless
previously redeemed, the Warrants are exercisable during the three-year period
commencing on the date of this Prospectus. A holder of the Warrants (an
"Exercising Holder") will only be able to exercise the Warrants if (a) a current
prospectus under the Securities Act relating to the shares of Common Stock
issuable upon exercise of the Warrants is then in effect, and (b) such
securities are qualified for sale or exemption from qualification under the
applicable securities laws of the state in which the Exercising Holder resides.
The Warrants are subject to redemption by the Company, on not more than
60 nor less than 30 days' written notice, at a price of $.05 per Warrant,
commencing one year from the date of this Prospectus, or earlier with the
consent of the Representative, if the average closing price per share of the
Common Stock is at least $4.00, subject to adjustment, for at least 20 trading
days ending not earlier than 15 days prior to the date on which the Warrants are
called for redemption. Holders of Warrants will automatically forfeit their
rights to purchase the shares of Common Stock issuable upon exercise of such
Warrants unless the Warrants are exercised before the close of business on the
business day immediately prior to the date set for redemption. All of the
outstanding Warrants must be redeemed if any are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants by
first class mail, postage prepaid, within ten business days (or such longer
period to which the Representative may consent) after the Warrants are called
for redemption, but no earlier than the sixtieth nor later than the thirtieth
day before the date fixed for redemption. The notice of redemption shall specify
the redemption price, the date fixed for redemption, the place where the Warrant
certificates shall be delivered and the redemption price to be paid, and that
the right to
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<PAGE>
exercise the Warrants shall terminate at 5:00 p.m. (New York City time) on the
business day immediately preceding the date fixed for redemption. The Warrants
can only be redeemed if, on the date the Warrants are called for redemption,
there is an effective registration statement covering the issuance of the shares
of Common Stock issuable upon exercise of the Warrants.
The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised.
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain specified
events, such as stock dividends, stock splits, mergers, sale of substantially
all of the Company's assets, and for other similar events.
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until the holder exercises the
Warrants.
Although the Warrants have a fixed exercise price and a formula for
adjustments in certain events and have a fixed expiration date, it is possible
that in the future the Company may wish to reduce the exercise price or extend
the exercise period of the Warrants. The Company has no plans to reduce such
price or extend the exercise period of the Warrants. Any such change would be
effected pursuant to a post-effective amendment to the registration statement of
which this Prospectus is a part or a new registration statement, and no Warrants
with amended terms may be exercised unless and until such post-effective
amendment or new registration statement has been declared effective by the
Commission.
The Warrants are issued pursuant to a warrant agreement among the
Company, the Representative and American Stock Transfer & Trust Company, as
warrant agent.
1994 Warrants
In February 1994, the Company, in its initial public offering, sold an
aggregate of 567,245 units, each unit consisting of one share of Common Stock
and one 1994 Warrant. Each 1994 Warrant entitles the holders to purchase one
share of Common Stock at $7.00 per share. The 1994 Warrant were exercisable
until August 14, 1996, and the exercise period was extended to November 14,
1996. The 1994 Warrants may be redeemed by the Company for $.10 per 1994 Warrant
if the price of the Common Stock is at least $8.00 per share for 30 consecutive
trading days.
The 1994 Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the 1994 Warrants or, if the 1994 Warrants are called for redemption, the day
prior to the redemption date at the offices of the warrant agent for the 1994
Warrants, accompanied by payment of the full exercise price for the number of
Warrants being exercised.
The 1994 Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such as
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events.
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until the holder exercises the
Warrants.
The 1994 Warrants may not be exercised unless there is a current and
effective registration statement covering the issuance of the shares of Common
Stock on exercise of the 1994 Warrants. As of the date of this Prospectus, the
Company has not filed such a registration statement and, accordingly, the 1994
Warrants may not be exercised.
- 35 -
<PAGE>
Other Warrants
There are also outstanding other warrants to purchase an aggregate of
1,242,890 shares of Common Stock at exercise prices ranging from $2.00 to $6.50
per share with varying exercise periods. The Other Warrants contain provisions
that protect the holders thereof against dilution by adjustment of the exercise
price in certain events, such as stock dividends, stock splits, mergers, sale of
substantially all of the Company's assets, and for other extraordinary events.
The holders of certain of these warrants have registration rights with respect
to the warrants or the underlying shares of Common Stock.
Dividend Policy
Except for the obligation of the Company to pay dividends with respect
to the Series F and G Preferred Stock, the Company presently intends to retain
future earnings, if any, in order to provide funds for use in the operation and
expansion of its business and accordingly does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. See "Description of
Securities" for information concerning dividends payable with respect to the
Series F and G Preferred Stock.
Shares Eligible for Future Sale
Approximately 9,400,000 of the 17,846,651 shares of Common Stock
outstanding at August 31, 1996, may be publicly sold as a result of either the
registration of such shares as part of the Company's initial public offering in
February 1994, the expiration of two-year holding period pursuant to Rule 144 of
the Commission or the expiration of the restricted period pursuant to Regulation
S of the Commission. The remaining shares become eligible for sale pursuant to
Rule 144 of the Commission two years after the date of issuance by the Company
or the date of transfer by an affiliate of the Company. Such share will become
eligible for sale pursuant to Rule 144 in May 1997, as to 3,091,782 shares, June
1997 as to 108,000 shares, September 1997 as to 954,000 shares and April 1998 as
to 5,393,000 shares. SISC and the Company's directors and executive officers
have agreed to a 24 -month lockup during which they may not sell their shares
without the prior approval of the Representative.
As of September 30, 1996, the Company had (a) outstanding 1994 Warrants
to purchase 567,245 shares of Common Stock at $7.00 per share through November
1996, which warrants are publicly traded, (b) warrants to purchase an aggregate
of 1,302,352 shares of Common Stock at exercise prices ranging from $2.00 to
$7.00 per share with various expiration dates, and (c) warrants to purchase
4,900,000 shares of Common Stock at $.50 per share through April 2001, which are
held by SISC and the Company's directors. In addition, the underwriter of the
Company's initial public offering holds unit purchase options to purchase 55,000
of the units issued in the Company's initial public offering in February 1994,
at $8.45 per unit through February 1999. Each such unit consists of one share of
the Company Common Stock and a warrant to purchase one share of the Company
Common Stock at $7.00 per share through August 1996.
The Company has adopted three stock option plans pursuant to which a
maximum of 2,792,332 shares of the Common Stock may be issued, of which options
to purchase 1,523,950 shares are outstanding.
The Company cannot predict the effect, if any, that the issuance of
shares of Common Stock upon exercise of options or warrants or the registration
of such shares will have on the market for and market price of the Common Stock.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding certain employee stock ownership
plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. An "interested stockholder" is defined as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
- 36 -
<PAGE>
These provisions could have the effect of delaying, deferring or
preventing a change of control of the Company. The Company's stockholders, by
adopting an amendment to the certificate of incorporation or by-laws of the
Company, may elect not to be governed by Section 203, effective twelve months
after adoption. Neither the certificate of incorporation nor the by-laws of the
Company currently excludes the Company from the restrictions imposed by Section
203.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and the Series G Preferred
Stock and the Warrant Agent for the Warrants is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005.
UNDERWRITING
The several underwriters, of which Patterson Travis, Inc. (the
"Representative") is the representative, have severally agreed, on the terms and
subject to the conditions of the Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the following
Units:
Number of Units
Patterson Travis, Inc. ---------------
-----------
Total 1,250,000
=========
The Underwriters are committed to purchase and pay for all of the Units
offered hereby on a "firm commitment" basis if any are purchased.
The Representative has advised the Company that the Underwriters
propose to offer the Units to the public at the respective public offering
prices set forth on the cover page of this Prospectus. The Underwriters may
allow to certain dealers, who are members of the National Association of
Securities Dealers, Inc. ("NASD"), concessions not exceeding $. per Unit, of
which not more than $. per Unit may be reallowed to other dealers who are
members of the NASD. After the initial public offering, the offering price, the
concession and the reallowance may be changed.
The Company has granted an option to the Underwriters, which may be
exercised by the Representative for its own account or for the account of the
several Underwriters, exercisable during the 45 day period from the date of this
Prospectus, to purchase up to a maximum of 187,500 additional Units at the
offering price, less the underwriting discounts, for the sole purpose of
covering over-allotments of the Units. The Underwriting Agreement also provides
that the Company will pay the Representative a fee in the event the Company
enters into an acquisition, merger or similar transaction with a party
introduced to it by the Representative. As of the date of this Prospectus, the
Representative has not introduced the Company to any such party.
The Company has agreed to pay to the Representative a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units sold
(including any Units sold pursuant to the Underwriters' over-allotment option).
The Company has agreed to enter into a one-year consulting agreement
with the Representative pursuant to which the Company will pay the
Representative, on its own behalf and not as representative of the Underwriters,
a fee of $100,000, which is to be paid in full at the closing of this Offering.
During the period of the consulting agreement, the Representative will be
reimbursed for its Company-authorized out-of-pocket expenses.
The Company's officers, directors, 5% stockholders and their affiliates
have agreed not to sell publicly any of their securities without the written
consent of the Representative for a period of 24 months from the date of this
Prospectus.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.
- 37 -
<PAGE>
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a purchase price of $100.00, Unit Purchase Options to purchase
from the Company up to 125,000 Units at an exercise price equal to 120% of the
initial public offering price per Unit. The Units issuable upon exercise of the
Unit Purchase Options are substantially identical to the Units offered hereby,
except that, in the event that the Unit Purchase Options are exercised after the
redemption (but before the expiration) of the Warrants, the Warrants underlying
the Unit Purchase Options are immediately redeemable by the Company. The Unit
Purchase Options are exercisable for a four-year period commencing one year from
the date of this Prospectus, except that, if the Warrants expire prior to the
exercise of the Unit Purchase Options, upon such exercise the Company will issue
one share of Series G Preferred Stock and no Warrants. During the one-year
period commencing on the date of this Prospectus, the Unit Purchase Options may
not be sold, transferred, assigned or hypothecated, except to the officers of
the Underwriters or to selling group members or officers or partners or members
thereof, all of which shall be bound by such restrictions. The Unit Purchase
Options will contain anti-dilution provisions providing for adjustment under
certain circumstances similar to those applicable to the Warrants included in
the Units. The holders of the Unit Purchase Options have no voting, dividend or
other rights as stockholders of the Company with respect to securities
underlying the Unit Purchase Options. The holders of the Unit Purchase Options
have been given the opportunity to profit from a rise in the market for the
Company's securities at a nominal cost, with a resulting dilution in the
interests of stockholders. The holders of the Unit Purchase Options can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain equity capital, if then needed, by a new equity offering on
terms more favorable than those provided by the Unit Purchase Options. Such
facts may adversely affect the terms on which the Company could obtain
additional financing. Any profit received by the Underwriters on the sale of the
Unit Purchase Options or the securities issuable upon exercise of the Unit
Purchase Options may be deemed additional underwriting compensation.
The Company has agreed during the term of the Unit Purchase Options and
for two years thereafter to give advance notice to the holders of the Unit
Purchase Options or underlying securities of its intention to file a
registration statement, and, in such case, the holders of the Unit Purchase
Options and underlying securities shall have the right to require the Company to
include the underlying securities in such registration statement at the
Company's expense. At the demand of the holders of a majority of holders of the
Unit Purchase Options and underlying Common Stock, including Common Stock issued
or issuable upon exercise of the Warrants issuable upon exercise of the Unit
Purchase Options, during the term of the Unit Purchase Options, the Company will
also be required to file one such registration statement at the Company's
expense. In addition, the Company has agreed to cooperate with the holders of
the Unit Purchase Options in filing a registration at the expense of the holders
of the Unit Purchase Options or underlying securities.
The Company has also agreed to pay the Representative, in its
individual capacity and not as representative of the Underwriters, a Warrant
solicitation fee equal to 5% of the exercise price of the Warrants, a portion of
which may be reallowed to a member of the NASD who solicited or assisted in the
solicitation of the exercise of the Warrants. The Warrant exercise fee shall not
be payable with respect to any Warrant exercises prior to the first anniversary
of the date of this Prospectus and may be paid only if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (ii) the exercise of the Warrant was solicited by
a member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise, (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangements are made, in addition to the
disclosure provided in this Prospectus, in documents provided to holders of
warrants at the time of exercise, and (v) the solicitation of the Warrant was
not made in violation of Rule 10b-6 of the Commission under the Securities
Exchange Act of 1934.
Rule 10b-6 of the Commission pursuant to the Exchange Act may prohibit
the Representative from engaging in any market making activities with regard to
the Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representative may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable.
Prior to this Offering there has been no public market for the Units,
Series G Preferred Stock or Warrants. The public offering price and composition
of the Units, the conversion rate and other terms of the Series G Preferred
Stock and the exercise price and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the
Representative.
The Representative has informed the Company that sales to any account
over which the Underwriters exercise discretionary authority will not exceed 1%
of this Offering.
- 38 -
<PAGE>
LEGAL MATTERS
Esanu Katsky Korins & Siger, 605 Third Avenue, New York, New York
10158, counsel for the Company, have given their opinion as to the authorization
and valid issuance of the shares of Common Stock and Warrants comprising the
Units offered by this Prospectus. Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, New York 10022, is acting as counsel for the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of the Company and the statements of
operations and retained earnings (deficit) and cash flows of Avionics included
in this Prospectus have been audited by Moore Stephens, P.C., independent
certified public accountants, as stated in their reports appearing herein and
are included in reliance on their reports given on the authority of that firm as
experts in accounting and auditing.
The statements of operation, changes in divisional equity and cash
flows of the International Technical Division of Job Shop Technical Services,
Inc. (the "Job Shop Division") for the period January 1 to November 21, 1994
included in this Prospectus have been audited by Moore Stephens, P.C.,
independent certified public accountants, as stated in their report appearing
herein, which report includes explanatory paragraphs as to the ability of the
Job Shop Division to continue as a going concern and as to the outcome of
certain litigation and an investigation, and are included in reliance on their
report given on the authority of that firm as experts in accounting and
auditing.
The statements of operation, accumulated deficit and cash flows of Job
Shop for the year ended December 31, 1993 included in this Prospectus have been
audited by Edward Isaacs & Company LLP, independent certified public
accountants, as stated in their report appearing herein, which report includes
an explanatory paragraph as to the ability of Job Shop to continue as a going
concern, and are included in reliance on their report given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 relating to the securities offered
hereby has been filed by the Company with the Securities and Exchange
Commission. This Prospectus does not contain all of the information set forth in
such Registration Statement. For further information with respect to the Company
and to the securities offered hereby, reference is made to such Registration
Statement, including the exhibits thereto. Statements contained in this
Prospectus as to the content of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
- 39 -
<PAGE>
[This page intentionally left blank]
- 40 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Trans Global Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants................... F-3
Balance Sheets as of June 30, 1996 [ Unaudited] and December 31,
1995 and 1994....................................................... F-4
Statements of Operations for the six months ended June 30, 1996
and 1995 [Unaudited] and for the years ended December 31, 1995
and 1994............................................................ F-6
Statements of Changes in Stockholders' Equity for the six months
ended June 30, 1996 [Unaudited] and for the years ended December
31, 1995 and 1994................................................... F-7
Statements of Cash Flows for the six months ended June 30, 1996
and 1995 [Unaudited] and for the years ended December 31, 1995
and 1994............................................................ F-9
Notes to Financial Statements........................................ F-12
Avionics Research Corporation
Report of Independent Certified Public Accountants................... F-23
Combined Statement of Operations and Retained Earnings [Deficit]
for the year ended December 31, 1993................................ F-24
Combined Statement of Cash Flows for the year ended December 31,
1993................................................................ F-25
Notes to Combined Financial Statements............................... F-26
International Technical Services Division of Job Shop Technical
Services, Inc.
Report of Independent Certified Public Accountants................... F-28
Statement of Operations for the period January 1 to November
21, 1994............................................................ F-29
Statement of Changes in Divisional Equity for the period January 1
to November 21, 1994................................................ F-30
Statement of Cash Flows for the period ended January 1 to November
21, 1994............................................................ F-31
Notes to Financial Statements........................................ F-32
Job Shop Technical Services, Inc.
Independent Auditors' Report......................................... F-35
Statement of Operations for the year ended December 31, 1993......... F-36
Statement of Accumulated Deficit for the year ended December 31,
1993................................................................ F-37
Statement of Cash Flows for the year ended December 31, 1993......... F-38
Notes to Financial Statements........................................ F-39
. . . . . . . . . . .
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Trans Global Services, Inc.
Hauppauge, New York
We have audited the accompanying balance sheets of Trans
Global Services, Inc. and its subsidiaries as of December 31, 1995 and 1994, and
the related statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Trans Global
Services, Inc. and its subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 27, 1996
F-3
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, December 31,
-------- ------------
1996 1995 1994
---- ---- ----
[Consolidated] [Consolidated] [Combined]
[Unaudited]
Assets:
Current Assets:
Cash and Cash Equivalents $ 174,312 $ 210,597 $ --
Accounts Receivable - Net 4,939,915 4,869,116 5,427,078
Loans Receivable - Officer 22,500 22,500 --
Prepaid Expenses and Other
Current Assets 138,195 80,966 90,483
------------ ----------- -------------
Total Current Assets 5,274,922 5,183,179 5,517,561
------------ ----------- -------------
Property and Equipment - Net 69,016 41,205 11,428
------------ ----------- -------------
Other Assets:
Due from Affiliates 1,363,696 1,234,428 --
Customer Lists 2,951,019 3,063,503 3,453,468
Goodwill - Net 848,415 872,705 921,285
Covenant Not-to-Compete 151,107 241,833 423,285
Other Assets 23,265 25,074 17,546
Investment in Preferred Stock
of Affiliate 2,100,730 2,100,730 --
------------ ----------- -------------
Total Other Assets 7,438,232 7,538,273 4,815,584
------------ ----------- -------------
Total Assets $ 12,782,170 $12,762,657 $ 10,344,573
============ =========== =============
See Notes to Financial Statements.
F-4
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, December 31,
-------- ------------
1996 1995 1994
---- ---- ----
[Consolidated] [Consolidated] [Combined]
[Unaudited]
Liabilities and Stockholders'
Equity:
Current Liabilities:
Cash Overdraft $ -- $ -- $ 360,306
Accounts Payable and Accrued
Expenses 621,641 551,094 1,281,159
Accrued Payroll and Related
Taxes and Expenses 2,930,855 1,755,685 707,161
Accrued Payroll Tax Penalties 1,175,000 700,000 --
Loans Payable - Asset-Based
Lender 2,624,650 3,678,702 4,019,161
Notes Payable - Bank 30,513 60,513 --
Note Payable - Other 138,230 138,230 155,308
Subordinated Debt Current
Portion - IRS Debt -- 700,000 800,000
------------ ----------- -------------
Total Current Liabilities 7,520,889 7,584,224 7,323,095
------------ ----------- -------------
Other Liabilities:
Due to Affiliates 293,835 926,832 --
Notes Payable - Long-Term -- -- 124,870
Subordinated Debt Long-Term
Portion - IRS Debt -- -- 700,000
Notes Payable - Related Party -- -- 884,980
------------ ----------- -------------
Total Other Liabilities 293,835 926,832 1,709,850
------------ ----------- -------------
Commitments and Contingencies -- -- --
------------ ----------- -------------
Stockholders' Equity:
Preferred Stock, $.01 Par Value,
100,000 Shares Authorized [25,000
Shares each of Series A, B and C,
20,000 Shares of Series D
[Liquidation Preference of
$1,700,000] December 31, 1994
and 1995 and 5,000 Shares of
Series E, December 31, 1995,
9,950 Shares of Series F
- June 30, 1996] 100 1,000 950
Common Stock, $.01 Par Value,
4,000,000 Shares Authorized,
Shares Issued and Outstanding
[7,720,091 - June 30, 1996,
3,424,609 - December 31, 1995,
600,000 - December 31, 1994] 77,201 34,246 6,000
Capital in Excess of Par Value 10,914,179 9,831,234 1,715,300
Deferred Consulting Fees (348,840) (508,512) --
Accumulated Deficit (5,675,194) (5,106,367) (410,622)
------------ ----------- -------------
Total Stockholders' Equity 4,967,446 4,251,601 1,311,628
------------ ----------- -------------
Total Liabilities and
Stockholders' Equity $ 12,782,170 $12,762,657 $ 10,344,573
============ =========== =============
See Notes to Financial Statements.
F-5
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Consolidated] [Consolidated] [Consolidated] [Combined]
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Revenues $ 28,468,322 $ 33,233,759 $ 63,151,995 $ 25,287,089
Cost of Services Provided 26,174,852 31,356,001 59,157,016 23,704,230
---------------- --------------- ---------------- ---------------
Gross Profit 2,293,470 1,877,758 3,994,979 1,582,859
---------------- --------------- ---------------- ---------------
Operating Expenses:
Selling, General and Administrative
Expenses 2,342,904 1,571,759 6,448,030 997,122
Amortization - Intangibles 230,777 315,121 455,197 308,974
Acquisition Expenses -- -- 528,578 --
---------------- --------------- ---------------- ---------------
Total Operating Expenses 2,573,681 1,886,880 7,431,805 1,306,096
---------------- --------------- ---------------- ---------------
Operating [Loss] Profit (280,211) (9,122) (3,436,826) 276,763
---------------- --------------- ---------------- ---------------
Other Income [Expenses]:
Interest Expense (325,537) (581,990) (963,211) (696,129)
Other Income [Expense] 36,921 8,041 (12,890) 8,744
---------------- --------------- ---------------- ---------------
Total Other [Expenses] - Net (288,616) (573,949) (976,101) (687,385)
---------------- --------------- ---------------- ---------------
Net Loss From Continuing Operations (568,827) (583,071) (4,412,927) (410,622)
---------------- --------------- ---------------- ---------------
Discontinued Operations:
Loss from Discontinued Operations -- (94,533) (247,076) --
Loss on Sale of Discontinued Segment -- -- (35,742) --
---------------- --------------- ---------------- ---------------
Total Discontinued Operations -- (94,533) (282,818) --
---------------- --------------- ---------------- ---------------
Net Loss $ (568,827) $ (677,604) $ (4,695,745) $ (410,622)
================ =============== ================ ===============
Net Loss Per Share of Common Stock:
Continuing Operations $ (.08) $ (.36) $ (1.39) $ (.68)
Discontinued Operations -- -- (.09) --
---------------- --------------- ---------------- ---------------
Totals $ (.08) $ (.36) $ (1.48) $ (.68)
================ =============== ================ ===============
Weighted Average Number of Shares of
Common Stock 7,016,914 1,878,280 3,172,696 600,000
================ =============== ================ ===============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Preferred Stock
Preferred Stock Preferred Stock $.01 Stock $0.01 Par$0.01 Par Value
$0.01 Par Value Preferred Par Value Series "D" Value Series "E" Convertible
"A" Convertible Stock $.01 Par Convertible 6.25% Convertible Participating
Participating Value Series "B" & "C" Redeemable Participating Series "F"
------------- ---------------------- ---------- ------------- ----------
Authorized Convertible Authorized Authorized Authorized Authorized
25,000 Shares 25,000 Shares Each 20,000 Shares 5,000 Shares 9,950 Shares
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Stock at
Inception 25,000 $ 250 50,000 $ 500 20,000 $ 200 -- $ -- -- $ --
Net [Loss] for the Period
Ended December 31, 1994 -- -- -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- ------- ------ ------ ------- -----
Balance - December 31,
1994 25,000 250 50,000 500 20,000 200 -- -- -- --
Acquisition of Concept -- -- -- -- -- -- -- -- -- --
Exercise of Stock Options -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Private Placement -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Legend Stock -- -- -- -- -- -- -- -- -- --
Issuance of Preferred
Stock to Repay Debt -- -- -- -- -- -- 5,000 50 -- --
Issuance of Common Stock
- Regulation S -- -- -- -- -- -- -- -- -- --
Issuance of Below Market
Options -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Sale of WWR -- -- -- -- -- -- -- -- -- --
Amortization of Deferred
Consulting Costs -- -- -- -- -- -- -- -- -- --
Acquisition Expenses -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Sirrom Capital -- -- -- -- -- -- -- -- -- --
Exercise of Stock Options -- -- -- -- -- -- -- -- -- --
Reverse Merger Costs -- -- -- -- -- -- -- -- -- --
Forgiveness of Accrued
Interest Prior Years -- -- -- -- -- -- -- -- -- --
Net Loss -- -- -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- ------- ------ ------ ------- -----
Balance - December 31,
1995 - Forward 25,000 $ 250 50,000 $ 500 20,000 $ 200 5,000 $ 50 -- $ --
(continued)
</TABLE>
See Notes to Financial Statements.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock $.01
-----------------
Par Value Authorized Capital in Total
4,000,000 Shares Excess of Accumulated Deferred Stockholders'
Shares Amount Par Value Deficit Charges Equity
------ ------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Stock at
Inception 600,000 $ 6,000 $ 1,715,300 $ -- $ -- $1,722,250
Net [Loss] for the Period
Ended December 31, 1994 -- -- -- (410,622) -- (410,622)
------- ------- ---------- ----------- ---------- ----------
Balance - December 31,
1994 600,000 6,000 1,715,300 (410,622) -- 1,311,628
Acquisition of Concept 1,485,589 14,856 967,966 -- -- 982,822
Exercise of Stock Options 767,000 7,670 3,226,366 -- (2,543,536) 690,500
Issuance of Common Stock
- Private Placement 151,300 1,513 452,387 -- -- 453,900
Issuance of Common Stock
- Legend Stock 2,600 26 (26) -- -- --
Issuance of Preferred
Stock to Repay Debt -- -- 199,950 -- -- 200,000
Issuance of Common Stock
- Regulation S 390,000 3,900 996,100 -- -- 1,000,000
Issuance of Below Market
Options -- -- 178,750 -- (178,750) --
Issuance of Common Stock
- Sale of WWR -- -- 1,537,000 -- -- 1,537,000
Amortization of Deferred
Consulting Costs -- -- -- -- 2,213,774 2,213,774
Acquisition Expenses -- -- 528,578 -- -- 528,578
Issuance of Common Stock
- Sirrom Capital 3,120 31 10,499 -- -- 10,530
Exercise of Stock Options 25,000 250 24,750 -- -- 25,000
Reverse Merger Costs -- -- (117,854) -- -- (117,854)
Forgiveness of Accrued
Interest Prior Years -- -- 111,468 -- -- 111,468
Net Loss -- -- -- (4,695,745) -- (4,695,745)
-------- ------- ----------- ----------- ---------- ----------
Balance - December 31,
1995 - Forward 3,424,609 $34,246 $ 9,831,234 $(5,106,367) $ (508,512) $4,251,601
(concluded)
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Preferred Stock
Preferred Stock Preferred Stock $.01 Stock $0.01 Par$0.01 Par Value
$0.01 Par Value Preferred Par Value Series "D" Value Series "E" Convertible
"A" Convertible Stock $.01 Par Convertible 6.25% Convertible Participating
Participating Value Series "B" & "C" Redeemable Participating Series "F"
------------- ---------------------- ---------- ------------- ----------
Authorized Convertible Authorized Authorized Authorized Authorized
25,000 Shares 25,000 Shares Each 20,000 Shares 5,000 Shares 9,950 Shares
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31,
1995 - Forwarded 25,000 $ 250 50,000 $ 500 20,000 $ 200 5,000 $ 50 -- $ --
Conversion of Series
"A" and "E" Preferred
Stock to Common (25,000) (250) -- -- -- -- (5,000) (50) -- --
Issuance of Common Stock
- Regulation S -- -- -- -- -- -- -- -- -- --
Deferred Issuance of
Common Stock Related
to Acquisition Stock
of Concept -- -- -- -- -- -- -- -- -- --
Deferred Issuance of
Common Stock Related
to Sale of WWR -- -- -- -- -- -- -- -- -- --
SISC Recapitalization -- -- (50,000) (500) (20,000) (200) -- -- 9,950 100
Amortization of Deferred
Consulting Costs -- -- -- -- -- -- -- -- -- --
Net Loss -- -- -- -- -- -- -- -- -- --
------- ------- ------- -------- -------- ------- ------ ------ ------- -----
Balance - June 30, 1996
[Unaudited] -- $ -- -- $ -- -- $ -- -- $ -- 9,950 $ 100
======= ======= ======= ======== ======== ======= ====== ====== ======= =====
(continued)
</TABLE>
See Notes to Financial Statements.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock $.01
-----------------
Par Value Authorized Capital in Total
4,000,000 Shares Excess of Accumulated Deferred Stockholders'
Shares Amount Par Value Deficit Charges Equity
------ ------ --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31,
1995 - Forwarded 3,424,609 $34,246 $ 9,831,234 $(5,106,367) $ (508,512) $4,251,601
Conversion of Series
"A" and "E" Preferred
Stock to Common 2,120,000 21,200 (20,900) -- -- --
Issuance of Common Stock
- Regulation S 500,000 5,000 370,000 -- -- 375,000
Deferred Issuance of
Common Stock Related
to Acquisition Stock
of Concept 615,482 6,155 (6,155) -- -- --
Deferred Issuance of
Common Stock Related
to Sale of WWR 1,060,000 10,600 (10,600) -- -- --
SISC Recapitalization -- -- 750,600 -- -- 750,000
Amortization of Deferred
Consulting Costs -- -- -- -- 159,672 159,672
Net Loss -- -- -- (568,827) -- (568,827)
-------- ------- ----------- ----------- ---------- ----------
Balance - June 30, 1996
[Unaudited] 7,720,091 $77,201 $10,914,179 $(5,675,194) $ (348,840) $4,967,446
========= ======= =========== =========== ========== ==========
(concluded)
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Consolidated] [Consolidated] [Consolidated] [Combined]
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Loss from Continuing Operations $ (568,827) $ (583,071) $ (4,412,927) $ (410,622)
---------------- --------------- ---------------- ---------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 240,479 256,089 466,817 316,253
Provision for Doubtful Accounts -- -- 67,363 --
Loss on Disposal of Property and Equipment -- -- -- 2,542
Charges from Option Exercise 159,672 6,341 2,213,774 --
Non-Cash Expenses Related to Trans Global
Transaction -- -- 528,578 --
Common Stock Issued for Services Rendered -- -- 10,530 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Receivables (70,799) (186,535) 473,305 (271,498)
Work in Process -- -- -- 22,600
Inventories -- -- 55,226 --
Loan Receivable - Officer -- -- (22,500) --
Prepaid Expenses and Other Current Assets (57,229) (15,605) (84,852) 25,897
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 70,547 234,180 (544,981) (535,841)
Accrued Payroll Taxes and Related
Expenses 1,175,170 1,050,033 1,076,504 (242,033)
Accrued Payroll Tax Penalties 475,000 -- 700,000 --
---------------- --------------- ---------------- ---------------
Total Adjustments 1,992,840 1,344,503 4,939,764 (683,080)
---------------- --------------- ---------------- ---------------
Net Cash - Continuing Operations 1,424,013 761,432 526,837 (1,093,702)
---------------- --------------- ---------------- ---------------
Net Loss from Discontinued Operations -- -- (282,818) --
Adjustments to Reconcile Net Loss to
Net Cash Used for Discontinued Operations:
Depreciation and Amortization -- 75,061 149,906 --
Loss on Sale of Discontinued Segments -- -- 35,742 --
---------------- --------------- ---------------- ---------------
Net Cash - Continuing Operations -- (19,472) (97,170) --
---------------- --------------- ---------------- ---------------
Net Cash - Operating Activities -
Forward $ 1,424,013 $ 741,960 $ 429,667 $ (1,093,702)
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended Years ended
June 30, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Consolidated] [Consolidated] [Consolidated] [Combined]
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Net Cash - Operating Activities -
Forwarded $ 1,424,013 $ 741,960 $ 429,667 $ (1,093,702)
---------------- --------------- ---------------- ---------------
Investing Activities:
Decrease in Deferred Offering Costs and
Other Assets -- 24,783 -- --
Capital Expenditures (40,790) (75,923) (110,384) (2,095)
Cash of Merged Company -- 504,210 504,210 --
Net [Advances to] and Repayments to
Affiliates (129,268) (422,986) (791,105) 459,241
Net Cash of Subsidiary Sold -- -- (46,600) --
Proceeds on Sale of Property and Equipment -- -- -- 1,300
Other 1,809 -- -- --
---------------- --------------- ---------------- ---------------
Net Cash - Investing Activities (168,249) 30,084 (443,879) 458,446
---------------- --------------- ---------------- ---------------
Financing Activities:
Net Advances from and [Payments] to
Asset-Based Lender (1,054,052) (707,451) (340,459) 550,443
Repayment of Long-Term Debt -- (78,786) (125,201) (144,837)
Repayment of Subordinated Debt (700,000) (200,000) (800,000) --
Net Advances from Affiliates 117,003 42,941 -- --
Net [Payments] to Affiliates -- -- (201,471) --
Issuance of Common Stock 375,000 453,900 1,453,900 --
Expenses Related to Merged Company -- -- (117,154) --
Exercise of Stock Options -- 690,500 715,500 --
Cash Overdraft -- -- (360,306) 229,650
Repayment of Note Payable (30,000) -- -- --
Loan Repayment -- (26,908) -- --
---------------- --------------- ---------------- ---------------
Net Cash - Financing Activities (1,292,049) 174,196 224,809 635,256
---------------- --------------- ---------------- ---------------
Net [Decrease] Increase in Cash and
Cash Equivalents (36,285) 946,240 210,597 --
Cash and Cash Equivalents - Beginning
of Periods 210,597 (360,306) -- --
---------------- --------------- ---------------- ---------------
Cash and Cash Equivalents - End of
Periods $ 174,312 $ 585,934 $ 210,597 $ --
================ =============== ================ ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 325,537 $ 553,212 $ 909,200 $ 696,129
Income Taxes $ -- $ -- $ -- $ --
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the six months ended June 30, 1996, the Company had the following:
* Issued preferred stock with a value of $750,000 to an affiliate and
reduced amounts owed to such affiliate by $750,000 plus accrued interest.
During the year ended December 31, 1995, the Company had the following:
* Acquired the net assets of Concept Technologies Group, Inc. through a
reverse merger. Total net assets of such entities acquired was $982,822
including cash of $504,210 at the date of acquisition.
* Issued preferred stock with a value of $200,000 to an affiliate and
reduced amounts owed to such affiliate by $200,000 plus accrued interest.
* Issued stock options and received exercise proceeds of $715,500 and
incurred non-cash deferred changes of $2,213,774.
* An affiliate forgave $111,468 of accrued interest payable which has been
recorded as a contribution to capital.
See Notes to Financial Statements.
F-11
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[1] Basis of Presentation
On May 8, 1995, the Company acquired all of the issued and outstanding capital
stock of Trans Global Services, Inc. ["Trans Global"] and issued [a] 1,000,000
shares of Common Stock, [b] shares of a series of preferred stock that, upon the
filing of a certificate of amendment to the Company's certificate of
incorporation increasing the authorized Common Stock, are convertible into
2,000,000 shares of Common Stock and vote with the Common Stock [based on the
number of shares of Common Stock issuable upon conversion], [c] shares of two
series of preferred stock which are convertible into an aggregate of 2,500,000
shares of Common Stock if certain levels of net income before income taxes for
1995 and 1996 are attained, and [d] shares of a series of preferred stock which
are not convertible, but which have an aggregate redemption price of
approximately $1.7 million, and is payable from 50% of the net proceeds received
by the Company from the sale of equity securities.
As a result of the acquisition of Trans Global [the "Trans Global Transaction"],
[i] the principal business of the Company became the business of providing
engineers, designers and other technical personnel to its clients, which include
major companies in the aerospace, electronics, computer and other industries,
which is Trans Global's business, and [ii] the principal stockholder of the
Company became SIS Capital Corp. ["SISC"], a wholly-owned subsidiary of
Consolidated Technology Group Ltd., ["Consolidated"],a publicly held company.
Trans Global operates through two subsidiaries, Avionics Research Holdings, Inc.
["Holdings"], formerly ARC Acquisition Group ["ARC"] and Resource Management
International, Inc. ["RMI"].
The Trans Global Transaction was accounted for as a reverse merger, with Trans
Global being the surviving company. Trans Global was formed by SISC in January
1995, to hold the stock of two predecessor corporations, ARC, which was acquired
by SISC in December 1993, and RMI, which was acquired by SISC in November 1994.
In accounting for the reverse merger, the equity of Trans Global, as the
surviving corporation, and Concept Technologies Group, Ltd., which, when
referred to as the acquired corporation is referred to as "Concept", as the
acquired corporation, was recapitalized as of March 31,1995. The
recapitalization included the reclassification of Concept's accumulated deficit
of $11,060,479 as a reduction of capital in excess of par value-common stock and
the reclassification of Trans Global's March 31,1995 preferred stock and common
stock to capital in excess of par value-common stock.
The Company's principal business [the "Concept business"] prior to the Trans
Global Transaction was the ownership and operation of WWR Technology, Inc,
["WWR"] the Klipsch Professional Loudspeaker business, which has been
discontinued. It also is the developer and owner of several proprietary
technologies with applications in environmental noise cancellation, medical
monitoring, defense and communications, however, such technologies have not
generated any significant revenues for the Company, and those operations have
also been discontinued.
As of September 30, 1995 the Company sold all of the issued and outstanding
shares of capital stock of a subsidiary, WWR to SES Holdings, in consideration
for which SISC released the Company from its obligations with respect to a
$275,000 advance made to the Company and WWR in order to enable WWR to pay an
outstanding debenture. As part of the transaction, the Company issued to SISC
1,060,000 shares of Common Stock, the delivery of which was deferred until the
approval of an amendment of the Company's Certificate of Incorporation
increasing its authorized common stock. WWR had, at the time of the transaction,
a deficiency in stockholders' equity of approximately $1.5 million. Among WWR's
liabilities was approximately $2.1 million, payable to the Company, which, based
upon WWR's historical and current cash flow, would not likely be paid in the
near future. This payable was satisfied through the issuance by Consolidated,
the parent of SISC, of shares of a newly-created series of Consolidated
preferred stock which converts on December 31, 2000 into such number of shares
of Consolidated's common stock, not to exceed 2.8 million shares, as have a
value equal to $2.1 million. This is on the balance sheet as investment in
Preferred Stock of Affiliate.
F-12
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[1] Basis of Presentation [Continued]
The balance sheet information at December 31, 1995 reflects the consolidated
financial position of the Company with Trans Global as the surviving entity and
the sale of WWR stock. The results of operations for the twelve months ended
December 31, 1995 and the cash flows for the twelve months ended December 31,
1995 reflect the operations of Trans Global from the beginning of the period.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of Concept Technologies Group, Inc. and Trans Global and its
affiliates, ARC and RMI. All intercompany transactions have been eliminated in
consolidation.
Principles of Combination - The 1994 combined financial statements include the
accounts of Trans Global and its affiliates [the "Company"], ARC and RMI. All
intercompany transactions have been eliminated in combination.
The combined financial statements reflect the combined financial position of
Trans Global, ARC and RMI as of December 31, 1994 and the results of operations
of ARC from January 1, 1994 to December 31, 1994 and of RMI from November 22,
1994 [period of acquisition] to December 31, 1994.
Receivables - The Company finances a majority of its receivables from an
asset-based lender under agreements entered into in August 1994. The agreements
have a maximum availability of funds of $5,500,000. Funds can be advanced in an
amount equal to 85% of the total face amount of outstanding and unpaid
receivables, with the asset-based lender having the right to reserve 15% of the
outstanding and unpaid receivables financed. The interest rate is equal to the
base lending rate of an agreed upon bank, which was 8.25% at December 31, 1995
plus 2% and a commission of .3% of the receivables financed. The asset-based
lender has a security interest in all accounts receivables, contract rights,
personal property, fixtures and inventory of the Company. At December 31,1995
and 1994, the total amount advanced by the asset-based lender was $3,678,702 and
$4,019,161, respectively. The weighted average interest rate on this short-term
borrowing outstanding as of December 31, 1995 is approximately 11%.
Prepaid Expenses and Other Current Assets - Prepaid expenses consist of
approximately $78,000 of prepaid insurance.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives range from 3 to 10 years
as follows:
Furniture and Fixtures 5 - 7 years
Leasehold Improvements 5 - 10 years
Transportation Equipment 3 - 4 years
Equipment 5 - 10 years
Expenditures for maintenance and repairs, which do not improve or extend the
life of the respective assets are expensed currently while major repairs are
capitalized.
Revenue Recognition - The Company records revenue as services are provided by
engineering personnel.
F-13
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
Loss Per Share - reflects the weighted average number of shares issued during
the period [ including shares for which the issuance has been deferred but with
respect to which the consideration has been received by the Company]. With
respect to the year ended December 31, 1995, additional shares were to be issued
by the Company, but the persons to whom such shares were to be issued agreed to
defer receipt of the shares until the Company increases its authorized common
stock. Such shares were issued upon the filing of an amendment to the Company's
certificate of incorporation increasing the authorized capital stock. Such an
amendment was approved by the Company's board of directors, in May 1995 and by
stockholders in March 1996. The consideration for such shares is included in
additional paid in capital. Upon the issuance of the shares, the par value of
the shares will be transferred from additional paid in capital to common stock.
At December 31, 1995, the total number of shares to be so issued was 1,800,482
of which 1,460,000 were issuable to SISC. Common Stock equivalents are not
included in the computation since their effect would be anti-dilutive.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities and
does not require its customers to collateralize their payables to the Company.
It routinely assesses the financial strength of its customers and believes that
its accounts receivable credit risk exposure is limited. Such estimate of the
financial strength of such customers may be subject to change in the near term.
[3] Going Concern Considerations
The accompanying consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. As shown in the
consolidated financial statements, the Company incurred a net loss of $4,695,745
for the year ended December 31, 1995, and has accumulated a deficit to that date
of $5,106,367. The continuation of the Company as a going concern is dependent
upon its ability to obtain additional and more favorable financing and proceeds
from a proposed public offering. All of these factors had raised substantial
doubt about the ability of the Company to continue as a going concern.
Such substantial doubt has been alleviated due to the Company's availability of
substantial additional funding under its existing financing arrangements and the
approximately $2 million in financing to be made available in connection with a
proposed public offering. Additionally, the $4.7 million loss for 1995 was due
primarily to non-cash expenses as evidenced by the Company's ability to generate
positive cash flow of $210,597 for the year. Another factor is the Company's
ability to replace certain former contracts with contracts that will generate
higher gross profit margins.
F-14
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[4] Property and Equipment
Property and equipment at December 31, 1995 and 1994 is as follows:
1 9 9 5 1 9 9 4
------- -------
Equipment $ 253,279 $ 223,109
Furniture and Fixtures 180,452 169,027
Leasehold Improvements 1,039 1,039
------------------ --------------
Total - At Cost 434,770 393,175
Less: Accumulated Depreciation 393,565 381,747
------------------ --------------
Total $ 41,205 $ 11,428
----- ================== ==============
Depreciation expense charged to operations was $11,820 in 1995 and $5,973 in
1994.
[5] Intangibles
The Company acquired its subsidiaries [See Note 1] during 1994. As part of the
purchase agreement, the Company acquired customer lists, a restrictive covenant
and goodwill. The intangible assets acquired and the related amortization on the
straight-line method are summarized as follows:
<TABLE>
<CAPTION>
Accumulated Net of
Amortization Amortization
Life December 31, December 31,
Years Cost 1 9 9 5 1995
<S> <C> <C> <C> <C>
Customer Lists 15 $ 3,374,477 $ 310,974 $ 3,063,503
Goodwill 20 $ 971,623 $ 98,918 $ 872,705
Covenants Not-to-Compete 5 $ 907,257 $ 665,424 $ 241,833
</TABLE>
Management has determined that expected future cash flows exceed the carrying
value of the intangibles at December 31, 1995. It is at least reasonably
possible that management's estimate of expected future cash flows will change,
in the near term.
[6] Subordinated Debt
The Company, as part of its acquisition of RMI, agreed to assume a certain debt
for delinquent taxes owed to the Internal Revenue Service. The total outstanding
amount of the debt was $2,000,000, of which $500,000 was paid at the closing of
the acquisition of RMI. The remaining $1,500,000 is payable in 15 monthly
installments of $100,000 commencing May 31, 1995. The remaining balance as of
December 31, 1995 is $700,000. No interest is being charged on this obligation.
Such agreement requires the Company to be in compliance with current IRS
Regulations concerning the timely deposit of Federal employment and withholding
taxes [See Note 11].
[7] Related Party Transactions
During the period ended December 31, 1995, the Company borrowed from SISC
$48,529 . Interest is accumulated at 10% per annum. The Company also advanced
$1,041,105 to companies affiliated to SISC. The Company exchanged $200,000 of
debt to SISC for 5,000 shares of Series E Convertible Participating Preferred
Stock [See Note 15].
F-15
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[7] Related Party Transactions [Continued]
During the period ended December 31, 1994, the Company received $1,276,577 in
loans from parties which are related by common control. Interest is accumulated
at 10% per annum. The Company also advanced $391,597 to companies affiliated to
such related party. The net balance, exclusive of interest, as of December 31,
1994 is $884,980
Also see Notes 14 and 15.
[8] Notes Payable
Bank - Note payable to bank in the amount of $60,513 is payable on demand. The
note bears interest at 9.45%. The Company is not current remitting monthly
payments of principal and interest and is therefore in default.
Other - Note payable to former stockholders of an acquired subsidiary due
September 1996 with interest at 7%.
[9] Income Taxes
For financial reporting purposes at December 31, 1995, the Company has net
operating loss carryforwards of approximately $4,800,000 expiring by 2010. The
Tax Reform Act of 1986 includes provisions which may limit the net operating
loss carryforwards available for use in any given year if certain events occur
including significant changes in stock ownership.
The expiration dates of net operating loss carryforwards are as follows:
December 31, Amount
2007 $ --
2008 --
2009 400,000
2010 4,400,000
--------------
Total $ 4,800,000
----- ==============
A deferred tax asset arising primarily from the benefits of net operating loss
carryforwards of approximately $1,900,000 is offset by an allowance of
$1,900,000.
[10] Commitments
The Company leases office space and several office machines under operating
leases which expire in 1998. The following is an analysis of commitments as of
December 31, 1995:
1996 $ 142,959
1997 96,894
1998 56,142
Thereafter --
--------------
Total $ 295,995
----- ==============
Rent expense amounted to $141,684 and $67,776 for the years ended December 31,
1995 and 1994.
F-16
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #6
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[11] Contingencies
On May 14, 1991, the Government Printing Office wrote the Company asking to be
reimbursed a total of $296,292 for "unauthorized timework" on two programs. The
Company has been in contact with the Department of Justice which has stated that
they were declining prosecution of the Company regarding this matter. Management
believes these claims are without merit and intends to contest these claims
vigorously if reasserted by the Government Printing Office and believes that the
ultimate disposition of this matter will not have a material adverse effect on
the financial position of the Company.
Although all payroll taxes due as of December 31, 1995 have been paid, the
Company was delinquent in payment of certain payroll tax obligations at such
date. Although, the Company has paid approximately $314,000 in penalties to the
Internal Revenue Service, which is reflected in the Statements of Operations, as
selling, general and administrative expenses, it continues to contest these
penalties. The estimated range of potential expense would be from $0-$700,000.
The Company has accrued $700,000 in penalties which is also reflected in
selling, general and administrative expense [See Note 21].
The United States Department of Labor ["DOL"] has filed a complaint against Job
Shop Technical Services, Inc. ["Job Shop"] and its principal stockholder for
civil violations of ERISA resulting from the failure of Job Shop to deposit
employee contributions to Job Shop's 401[k] retirement plan. A similar complaint
was filed by former employees of Job Shop against Job Shop, its principal
stockholder and others. At November 22, 1994, the amount due to the Job Shop
401[k] plan was approximately $3.0 million, which amount may have increased
since such date as a result of interest and penalties. Neither the Company nor
RMI, which is the subsidiary which acquired assets and assumed certain
obligations of Job Shop in November 1994, has been named as a defendant in
either of such actions. The DOL has raised with the Company the possibility that
RMI may be liable with respect to Job Shop's ERISA liability as a successor
corporation or purchaser of plan assets, even though RMI did not assume such
obligations and paid value for those assets which it did purchase. Although the
Company believes that RMI is not a successor corporation to Job Shop and is not
responsible for Job Shop's ERISA violations, the DOL may take a contrary
position. If the DOL takes such a position and prevails, it would have a
material adverse effect upon the operations of RMI and possibly the Company as a
whole. Although the Company is engaged in discussions with the DOL, no assurance
can be given that such discussions will result in any settlement acceptable to
the Company. However, in connection with the negotiations and with the consent
of the IRS, the Company paid into escrow $400,000 of the money due the IRS in
connection with the agreement with the IRS relating to the acquisition of Job
Shop assets.
WWR is a defendant in litigation commenced by Klipsch, Inc. claiming that the
license agreement pursuant to which WWR has the right to use the Klipsch name
and certain patents has terminated. The Company is the guarantor of a $530,000
note issued by WWR to a non-affiliated lender. As of December 31, 1995, the
Company owed SISC approximately $925,000, which reflects the repayment by the
Company of $225,000 and additional borrowings from SISC of approximately
$500,000. The Company was released from its obligations for a $275,000 loan in
connection with the sale of WWR.
Due to the uncertainties in the legal process it is reasonably possible that
management's view of the outcomes of the above matters will change in the near
term.
F-17
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #7
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[12] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted SFAS No. 107, which requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed therein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences or realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
December 31, 1995:
Carrying Amount Fair Value
Debt Maturing Within One Year 4,577,445 4,577,445
Long-Term Debt 926,832 926,832
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, and short-term debt, it was assumed that the carrying
amount approximated fair value because of the near term maturities of such
obligations. The fair value of long-term debt is based on current rates at which
the Company could borrow funds with similar remaining maturities. The carrying
amount of long-term debt approximates fair value. The Company is contingently
liable for a debt arrangement totaling $530,000 at December 31, 1995. The
Company knows of no event of default which would require it to satisfy this
guarantee and, therefore, the fair value of this contingent liability is
considered immaterial.
[13] Economic Dependency
Three customers of the Company, accounted for 31%, 14% and 10% respectively, of
the sales for 1995. Accounts receivable of approximately $1,350,000 were due
from these customers collectively.
[14] Employment and Management Contracts
In January 1995, the President of Trans Global, entered into a five-year
employment agreement pursuant to which he receives annual compensation of
$180,000, subject to an annual cost of living increase. In addition, he is
entitled to a bonus equal to 5% of Trans Global's income before income taxes,
but not more than 200% of his salary.
In January 1995, the Company entered into a consulting agreement with the
Trinity Group, Inc. [Trinity], a wholly owned subsidiary of Consolidated,
through March 31, 2000. Trinity is engaged in the business of providing
management services to businesses and has been providing such services to the
Company on an ongoing basis. Trinity is receiving monthly compensation at the
rate of $10,000 per month.
[15] Stockholders Equity
At December 31, 1995 the authorized capital stock of the Company consisted of
100,000 shares of preferred stock, and 4,000,000 shares of common stock, par
value $.01 per share. The Board of Directors has the right to create and to
define the rights, preferences and privileges of the holders of one or more
series of preferred stock. The Company authorized five series of preferred stock
which are described below.
Preferred Stock:
Series A Convertible Participating Preferred Stock - 25,000 shares were issued
and outstanding. The Series A Preferred Stock was automatically converted into
an aggregate of 2,000,000 shares of common stock, on March 11, 1996, upon the
filing of a Certificate of Amendment to the Certificate of Incorporation of the
Corporation increasing the authorized shares of common stock.
F-18
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[15] Stockholders Equity [Continued]
Series B Convertible Preferred Stock - 25,000 shares were issued. Each share of
Series B Preferred Stock will be automatically converted into 40 shares of
common stock if either [A] the Company has income before income taxes equal by
at least $500,000 for the year ended December 31, 1995; or [B] the Company has
income before income taxes of at least $1,500,000 for the year ended December
31, 1996 or 1997.
Series C Convertible Preferred Stock - 25,000 shares were issued. Each share of
Series C Preferred stock will be automatically converted into 60 shares of
common stock if the Company has income before income taxes of at least
$1,500,000 for the year ended December 31, 1996 or 1997.
Series D 6.25% Redeemable Cumulative Preferred Stock - 20,000 shares were
issued. The series D preferred stock is not convertible and has an aggregate
redemption value of approximately $1,700,000.
Series E Convertible Participating Preferred Stock - 5,000 shares were issued.
Each share of the series E preferred stock was converted into 24 shares of
common stock and was automatically converted upon the filing of a Certificate of
Amendment to the Certificate of Incorporation of the Corporation increasing the
authorized shares of common stock.
Common Stock - On July 12, 1995 the Company sold 390,000 shares of common stock
pursuant to Regulation S of the Securities Act of 1933 and received net proceeds
of $1,000,000.
Pursuant to the Trans Global Transaction, the Company was required to issue to
the former owners of TGS an aggregate amount of 1,000,000 shares of common
stock. At the closing, the Company issued 600,000 of those shares. The issuance
of the remaining shares was deferred until March 1996, when an amendment was
approved to the Company's Certificate of Incorporation increasing its authorized
common stock. In a separate transaction which was contemporaneous with the Trans
Global Transaction, the Company issued to certain accredited investors 151,300
shares of common stock and series A warrants to purchase 453,900 shares of
common stock. The net proceeds from such sale was $453,900.
Stock Options and Warrants - Pursuant to the reverse merger, the Company issued
the following common stock purchase warrants:
Series A Common Stock Purchase Warrants - Issued to certain accredited investors
series A warrants to purchase an aggregate of 453,900 shares of common stock.
The exercise price of the Series A warrants is $3.50 per share of common stock
and are exercisable upon the effectiveness of a registration statement which
includes the series A warrants and expire 45 days after the effective date of
such registration statement.
Series B Common Stock Purchase Warrants - Issued to SISC and DLB, Inc. series B
common stock purchase warrants to purchase an aggregate of 500,000 shares of
common stock. The exercise price of the series B warrants is $3.50 per share of
common stock and are exercisable upon the exercise or expiration of the series A
warrants. The series B warrants expire on May 5, 1997.
Series C Redeemable Common Stock Purchase Warrants - Issued to holders of
restricted shares of the Company's common stock, in consideration for the
agreement of such holders to a one-year lock-up of the restricted common stock,
series C redeemable common stock purchase warrants to purchase 107,740 shares of
common stock. The exercise price of the warrants is $3.50 per share and are
exercisable until May 5, 1997.
F-19
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #9
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[15] Stockholders Equity [Continued]
Non-Employee Directors, Consultants and Advisors Stock Plan - During the year
ended December 31,1995, the Company authorized a stock option plan for
Non-Employee Directors, Consultants and Advisors to provide compensation for
services rendered to the Company in lieu of cash payments. At various times, the
Company has registered and granted shares pursuant to the plan. During the year
ended December 31, 1995, 767,000 shares were granted and exercised , at an
average price of $.90 per share, resulting in $2,543,536 of deferred charge
costs computed as follows:
Shares 767,000
Value of Stock at Date of Grant [Weighted Average] $ 4.216475
---------------
3,234,036
Exercise Price (690,500)
Total Charges Deferred at the Time of Exercise $ 2,543,536
---------------------------------------------- ===============
In accordance with the agreements relating to the various parties involved,
amortization of the deferred portion in the amount of $2,213,774 was charged to
income from operations for the year ended December 31, 1995. The unamortized
deferred consulting expense is recorded in the equity section of the balance
sheet. Such deferred charges are being amortized over four years, the term of
the related contracts.
On August 14, 1995 an option was granted to a consultant to purchase 110,000
shares of common stock, at a price of $1.00 per share. The value of the stock at
the date of grant was $2.625 per share. The deferred charges amount to:
Shares 110,000
Value of Stock at Date of Grant [Weighted Average] $ 2,625
---------------
288,750
Exercise Price 110,000
Total Charges Deferred at the Time of Exercise $ 178,750
---------------------------------------------- ===============
The option was exercised as to 25,000 shares on October 9, 1995. Such exercise
was made by a reduction in the Company's indebtedness to SISC.
1995 Long-Term Incentive Plan - In May 1995 the Board of Directors adopted,
subject to stockholder approval, the 1995 Long-Term Incentive Plan [the "1995
Plan"], initially covering 500,000 shares of Common Stock. The Plan was approved
in March 1996. In August 1995, the Company granted to an officer six-year
incentive stock options to purchase an aggregate of 250,000 shares of Common
Stock pursuant to the 1995 Plan at an exercise price of $2.125 per share, being
the fair market value on the date of grant. The option is immediately
exercisable as to 47,000 shares of Common Stock and becomes exercisable as to an
additional 47,000 shares of Common Stock on each of January 1, 1996, 1997, 1998
and 1999 and becomes exercisable as to the remaining 15, 000 share of Common
Stock on January 1, 2000 [See Note 21].
[16] Discontinued Segment
During the year ended December 31, 1995, the Company disposed of a segment of
the business that was unrelated to its present line. The revenues generated by
that segment amounted to $1.5 million. The loss relating to the discontinued
operations was $247,000.
F-20
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #10
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[17] Fourth Quarter Data
The Company incurred a loss in the fourth quarter of $2.8 million. This loss was
primarily due to the expensing of the deferred consulting costs of $2 million
and accrued payroll tax penalties of $700,000.
[18] Subsequent Events
On January 6, 1996 the Company sold 500,000 shares of common stock pursuant to
Regulation S of the Securities Act of 1933 and received net proceeds of
$375,000.
On March 11, 1996, the Company held its annual meeting of stockholders, at which
the stockholders approved an amendment to the Company's certificate of
incorporation to a] change the name of the Company to Trans Global Services,
Inc., and to b] change the authorized capital stock of the Company by increasing
the number of authorized shares of preferred stock, par value $.01 per share,
from 100,000 shares to 2,000,000 shares and increasing the number of authorized
shares of common stock, par value $.01 per share, from 4,000,000 shares to
20,000,000 shares was approved.
[19] New Authoritative Accounting Pronouncements
The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", in March of
1995. SFAS No. 121 established accounting standards for the impairment of
long-lived assets and certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 may have a material impact on the Company's financial
statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation", in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to the
intrinsic valued based method of accounting prescribed by Accounting Principles
Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees". The
Company has not decided if it will adopt SFAS No. 123 or continue to apply APB
Opinion No. 25 for financial reporting purposes. SFAS No. 123 will have to be
adopted for financial note disclosure purposes in any event. The accounting
requirements of SFAS No. 123 are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.
[20] Unaudited Interim Statements
The financial statements for the six months ended June 30, 1996 and 1995 are
unaudited; however, in the opinion of management all adjustments [consisting
solely of normal recurring adjustments] necessary to a fair presentation of the
financial statements for these interim periods have been made. The results for
interim periods are not necessarily indicative of the results to be obtained for
a full fiscal year.
F-21
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #11
[Information as of and for the Six months
ended June 30, 1996 and 1995 are Unaudited]
- --------------------------------------------------------------------------------
[21] Subsequent Events [Unaudited]
In March 1996, the Company amended its certificate of incorporation increasing
the authorized Preferred Stock to 3,000,000 shares and the authorized Common
Stock to 20,000,000 shares. At the time of the amendment, the 25,000 shares of
Series A Convertible Preferred Stock and the 5,000 shares of Series E Preferred
Stock automatically, without any action on the part of the holder, became
converted into 2,000,000 and 120,000 shares of Common Stock, respectively.
In April 1996, the committee granted incentive stock options to purchase an
aggregate of 1,310,000 shares of common stock at $1.125 per share, being the
fair market value on the date of grant. Such options were granted to Mr. Joseph
G. Sicinski, president of the company, who received an option to purchase
800,000 shares of common stock, Mr. Lewis S. Schiller, chairman of the board of
the Company, who received an option to purchase 150,000 shares of common stock,
one other officer, who received an option to purchase 100,000 shares of common
stock, and eleven other employees who received options to purchase an aggregate
of 260,000 shares of common stock. In connection with the grant to Mr. Sicinski,
he agreed to the cancellation of the previously granted incentive stock options.
The option granted to Messrs. Schiller and Sicinski have a ten year term, and
the other options have five year terms [See Note 15].
At June 30, 1996, the May 8, 1995 merger [See Note 1] was recapitalized pursuant
to which the Company issued to SISC 9,950 shares of Series F Preferred Stock and
warrants to purchase 3,200,000 shares of Common Stock at $.50 per share in
exchange for the cancellation of $750,000 principal amount of the Company's debt
to SISC and all of the shares of Series B, C and D Preferred Stock owned by
SISC, including accrued dividends due on the Series D Preferred Stock. The 9,950
shares of Series F Preferred Stock are convertible into 9,950,000 shares of
common stock. As a result of the SISC Recapitalization, the Company's
obligations to SISC was reduced to $300,000, which was paid subsequent to June
30, 1996. In October 1996, SISC converted 5,000 shares of Series F Preferred
Stock into 5,000,000 shares of common stock.
In July 1996, the Company raised $2 million from the sale of common stock
through a regulation S offering.
In August 1996, the Company entered into an agreement with the IRS to pay its
delinquent payroll taxes, interest and penalties. The Company paid $1.3 million
and has agreed to pay the balance in eight equal monthly installments of
$150,000, commencing in September 1996, with the remaining balance of $300,000
to be paid in May 1997. The IRS has agreed to subordinate its lien to the lien
of the Company's asset-based lender provided that the Company is in compliance
with current IRS regulations concerning the timely deposit of Federal employment
and withholding taxes [See Note 11].
. . . . . . . . . . . . . .
F-22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Avionics Research Corporation
Hauppauge, New York
We have audited the accompanying combined statements of
operations and retained earnings [deficit], and cash flows of Avionics Research
Corporation of New York and Avionics Research Corporation of Florida, divisions
of ARC Acquisition Group, Inc. for the year ended December 31, 1993. These
combined statements of operations and retained earnings [deficit], and cash
flows are the responsibility of the Company's management. Our responsibility is
to express an opinion on these combined statements of operations and retained
earnings [deficit], and cash flows based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined statements of
operations and retained earnings [deficit], and cash flows are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined statements of operations and
retained earnings [deficit], and cash flows. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the combined statements of
operations and retained earnings [deficit], and cash flows. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the combined statements of operations and
retained earnings [deficit], and cash flows referred to above present fairly, in
all material respects, the combined results of operations and cash flows of
Avionics Research Corporation of New York and Avionics Research Corporation of
Florida, divisions of ARC Acquisition Group, Inc. for the year ended December
31, 1993.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
May 5, 1994
F-23
<PAGE>
AVIONICS RESEARCH CORPORATION
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS [DEFICIT]
FOR THE YEAR ENDED DECEMBER 31, 1993.
- --------------------------------------------------------------------------------
Sales $ 14,032,787
Cost of Sales,
As shown on Schedule #1 13,142,021
---------------
Gross Profit 890,766
---------------
Operating Expenses:
Selling Expenses 112,832
General and Administrative 646,058
---------------
Total Operating Expenses 758,890
---------------
Operating Profit 131,876
Other [Expenses],
As shown on Schedule #4 (660,103)
---------------
[Loss] Before Taxes (528,227)
Provision for Income Taxes --
---------------
Net [Loss] (528,227)
Retained Earnings - Beginning of Year 203,715
---------------
Retained Earnings [Deficit] - End of Year $ (324,512)
===============
See Notes to Combined Financial Statements.
F-24
<PAGE>
AVIONICS RESEARCH CORPORATION
- --------------------------------------------------------------------------------
COMBINED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993.
- --------------------------------------------------------------------------------
Operating Activities:
Net [Loss] $ (528,227)
---------------
Adjustments to Reconcile Net [Loss] to
Net Cash Provided by Operating Activities:
Depreciation 6,806
Change in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (392,343)
Work in Process (7,400)
Prepaid Expenses and Other Receivables 4,506
Net Proceeds from [Payments to] Affiliates 245,763
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 923,584
Taxes Payable 304,894
---------------
Total Adjustments 1,085,810
---------------
Net Cash - Operating Activities 557,583
---------------
Investing Activities:
Acquisition of Property and Equipment (2,456)
Security Deposit (4,125)
---------------
Net Cash - Investing Activities (6,581)
---------------
Financing Activities:
Loan Payable - Factor (473,590)
---------------
Net Increase in Cash 77,412
Cash - Beginning of Year 27,644
---------------
Cash - End of Year $ 105,056
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 169,511
Income Taxes $ --
See Notes to Combined Financial Statements.
F-25
<PAGE>
AVIONICS RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Principals of Combination
The combined financial statements as of December 31, 1993 include the accounts
of Avionics Research Corporation of New York and Avionics Research Corporation
of Florida [collectively, the "Company"].
All intercompany balances have been eliminated.
The Company provides engineering personnel primarily in the aerospace, marine,
electronics and energy industries on a temporary basis to its customers located
throughout the United States.
[2] Summary of Significant Accounting Policies
Receivables - The Company finances a majority of its receivables with a factor
under an agreement entered into in August 1993. The agreement expires in one
year and has a maximum availability of funds of $1,500,000. Funds can be
advanced in an amount equal to 85% of the total face amount of outstanding and
unpaid receivables, with the factor having the right to reserve 15% of the
outstanding and unpaid receivables financed. The discount rate charged is based
upon the gross amount of the receivables financed. These rates range from 2.65%
to 7.95% based upon aging categories. At December 31, 1993, the total amount
advanced by the factor was $871,900.
Work in Process - Work in Process is generally stated using the percentage of
completion method for work in process.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using straight-line and accelerated methods over the estimated useful
lives of the respective assets. Estimated useful lives range from 5 to 10 years
as follows:
Furniture and Fixtures 5 - 7 years
Leasehold Improvements 5 - 10 years
Transportation Equipment 3 - 4 years
Equipment 5 - 10 years
Expenditures for maintenance and repairs, which do not improve or extend the
life of the respective assets, are expensed currently while major renewals are
capitalized.
Revenue Recognition - The Company records revenue as services are provided by
engineering personnel.
Income Taxes - Federal income tax returns are filed on a consolidated basis with
those of the parent company. On a consolidated basis, there is no tax expense.
For state income tax purposes, the parent company has a net operating loss
carryforward at December 31, 1993. The effect of state income taxes refundable
due to carryback of net operating loss is not material.
On a separate return basis, no provision for income taxes is necessary due to
available net operating loss carryforwards of the parent company at December 31,
1993, which are in excess of net taxable income of these entities.
Concentration of Credit Risk - The Company extends credit to customers, which
results in accounts receivable arising from its normal business activities. The
Company routinely assesses the financial strength of its customers and, based
upon factors surrounding the credit risk of its customers, believes that its
accounts receivable credit risk exposure is limited.
F-26
<PAGE>
AVIONICS RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[3] Due to Affiliates
This balance represents the net difference between funds collected and disbursed
by the Company on behalf of its parent company, ARC Acquisition Group, Inc. and
ARC Networks, Inc. ["Networks"] and the effect of allocation of expenses to
Networks.
[4] Commitments
On October 15, 1993, the Company has entered into an employment contract with
its President. The contract is for a five-year term. The aggregate base salary,
to be adjusted for annual cost of living increases, is $120,000. In addition,
the President shall be entitled to an annual bonus ranging from 3% to 5% of net
income before taxes along with various other benefits.
The Company leases office space and several office machines under operating
leases that expire in 1998. The following is an analysis of commitments as of
December 31, 1993:
Operating Leases Employment Contracts
1994 $ 67,965 $ 240,000
1995 73,081 240,000
1996 38,868 240,000
1997 28,121 240,000
1998 31,553 200,000
---------------- --------------
Total $ 239,588 $ 1,160,000
----- ================ ==============
[5] Contingencies
On May 14, 1991, the Government Printing Office wrote the Company asking that
they be reimbursed a total of $296,292 for "unauthorized timework" on two
programs. The Company has been in contact with the Department of Justice which
has stated that they were declining prosecution of the Company regarding this
matter. Management believes these claims are without merit and intends to
contest these claims vigorously if reasserted by the Government Printing Office.
[6] Major Customer
Revenues from one customer amounted to$11,038,495 and comprised approximately
79% of the total revenues for the year ended December 31, 1993.
[7] Subsequent Events
On January 3, 1994, the Company entered into an employment contract with one of
ITS senior vice presidents. The contract is for a five year term. The aggregate
base salary, to be adjusted for annual cost of living increases, is $75,000. In
addition, the senior vice president shall be entitled to an annual bonus ranging
up to 3% of net income be for taxes along with various other benefits.
. . . . . . . . . . . . . .
F-27
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Trans Global Services, Inc.
New York, New York
We have audited the accompanying statements of operations,
changes in divisional equity, and cash flows of the International Technical
Services Division of Job Shop Technical Services, Inc. for the period January 1
to November 21, 1994. These financial statements are the responsibility of the
management of Job Shop Technical Services, Inc. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of operations, changes in
divisional equity and cash flows of the International Technical Services
Division of Job Shop Technical Services, Inc. for the period January 1 to
November 21, 1994, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared using
generally accepted accounting principles which has as one of its basic
assumptions the recoverability of recorded asset amounts in the ordinary course
of business. As more fully described in Note 7 to the financial statements,
recorded asset amounts have been realized with the sale of substantially all of
the Division's assets.
Also, as more fully described in Notes 5 and 7 to the
financial statements, as part of the sale of the Division, the acquiror has
assumed the payment of all of the Division's liabilities with the exception of
amounts related to the 401[k] profit-sharing plan, which amount is reflected at
$3,360,938, and includes an estimate for excise taxes of $361,393. There is
ongoing litigation, and an investigation by a Federal governmental agency,
regarding the alleged mismanagement of the 401[k] profit-sharing plan by the
management of Job Shop Technical Services, Inc. The ultimate liability resulting
from those matters cannot presently be determined. Accordingly, no provision for
any liability that may result on adjudication has been made in the accompanying
financial statements.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
July 7, 1995
F-28
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE PERIOD JANUARY 1 TO NOVEMBER 21, 1994.
- --------------------------------------------------------------------------------
Revenues $ 39,519,655
Cost of Services Provided 37,009,818
Gross Margin 2,509,837
Operating Expenses:
Selling Expenses 949,863
General and Administrative Expenses 1,353,764
Total Operating Expenses 2,303,627
Operating Profit 206,210
Other Expenses:
Provision for Doubtful Accounts - Due from Affiliate 1,070,955
Excise Taxes 176,393
Interest Expense 871,114
---------------
Total Other Expenses 2,118,462
Net [Loss] $ (1,912,252)
===============
See Notes to Financial Statements.
F-29
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN DIVISIONAL EQUITY FOR THE PERIOD
JANUARY 1 TO NOVEMBER 21, 1994.
- --------------------------------------------------------------------------------
Accumulated
[Deficit]
Balance - January 1, 1994 $ (3,731,796)
Net [Loss] (1,912,252)
Totals $ (5,644,048)
==============
See Notes to Financial Statements.
F-30
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE PERIOD JANUARY 1 TO NOVEMBER 21, 1994.
- --------------------------------------------------------------------------------
Operating Activities:
Net [Loss] $ (1,912,252)
---------------
Adjustments to Reconcile Net [Loss] to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 9,647
Provision for Doubtful Accounts - Accounts Receivable 198,317
Provision for Doubtful Accounts - Due from Affiliate 1,070,955
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,070,282)
Deposits (828)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (322,002)
Payroll Taxes Payable (185,366)
Due to 401[k] Profit-Sharing Plan 2,121,493
---------------
Total Adjustments 1,821,934
Net Cash - Operating Activities (90,318)
---------------
Investing Activities:
Net Advances to Affiliates (709,426)
Repayment - Due from Officer 49,477
Net Cash - Investing Activities (659,949)
---------------
Financing Activities:
Loans Payable - Factor 2,096,820
Payments of Loans Payable - Bank (1,347,820)
---------------
Net Cash - Financing Activities 749,000
---------------
Net [Decrease] in Cash (1,267)
Cash - Beginning of Period 33,934
---------------
Cash - End of Period $ 32,667
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 571,114
See Notes to Financial Statements.
F-31
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Organization, Line of Business and Significant Accounting Policies
[A] Organization - International Technical Services ["ITS"] is one of the
divisions of Job Shop Technical Services, Inc. ["Job Shop"] and has no separate
legal status or existence. The income and expenses in the divisional statement
of operations relate to the operations of ITS.
The other division of Job Shop is the Computer Design Services Division ["CDS"].
The CDS division sells computer aided design systems.
[B] Line of Business - The ITS division provides engineering personnel primarily
in the aerospace, marine, electronics and energy industries on a temporary basis
to its customers located throughout the United States.
[C] Significant Accounting Policies
Receivables - Job Shop finances a majority of the receivables of the ITS
division under an agreement entered into in August 1994. The agreement expires
in August of 1995 and has maximum availability of funds of $2,500,000. Funds can
be advanced in an amount equal to 85% of the total face amount of outstanding
and unpaid receivables, with the factor having the right to reserve 15% of the
outstanding and unpaid receivables financed. The interest rate is equal to the
base lending rate of an agreed upon bank, which was 7.25% at November 21, 1994,
plus 4.0% and a commission of 1.0% of the receivables financed. The factor has a
security interest in all accounts receivables, contracts, personal property and
fixtures of the Company.
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. It
routinely assesses the financial strength of its customers and based upon
factors surrounding the credit risk of the customers believes that its accounts
receivable credit risk exposure is limited.
Property and Equipment and Depreciation - Property and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition - The ITS division records revenue as services are provided
by engineering personnel.
Income Taxes - Job Shop is an S corporation under the provisions of the Internal
Revenue Code and applicable state statutes and, accordingly, is not subject to
federal and income based on income.
[2] Relationship with Corporate Entity and Affiliated Divisions
As indicated in Note 1, each of the two divisions of Job Shop operate in
separate lines of business. The management of Job Shop believes that expenses
recorded by each division are indicative of what such expenses would have been
if each of the divisions operated as a stand-alone entity, and that no expense
allocations, to either division, is required.
The charges by ITS to the CDS division arise primarily from payroll, payroll tax
and employee benefit charges paid by the ITS division for employees of the CDS
division. The ITS division acts as a common paymaster for both divisions. The
accompanying statement of operations and [deficit] does not include any interest
income charged by the ITS division to the CDS division on any balances due by
the CDS division.
F-32
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[3] Provision for Doubtful Accounts - Due from Affiliate
As of July 7, 1995, the balance due to the ITS division from the CDS division
has not been repaid. The management of the ITS division believes that such
balance will not be repaid. Therefore, a provision for doubtful accounts of the
total amount due of $1,070,955 has been provided in the statement of operations.
[4] Due to 401[k] Profit-Sharing Plan
The liability to the 401[k] profit-sharing plan consists of employees'
compensation deferrals from June 1993 to November 21, 1994 which have not been
remitted by Job Shop to the plan's trustee. The liability of $2,999,545 includes
accrued interest of $350,877 on the employees' balances.
The above represents violations of the Employee Retirement Income Security Act
of 1974, the Internal Revenue Code and other statutes, and could jeopardize the
plan's qualified and tax exempt status.
A provision $176,393 for excise taxes relating to the above prohibited
transactions is included in statement of operations. The total amount provided
through November 21, 1994 for excise taxes is $361,393. See Note 5 for an action
commenced by the employees of the division related to unremitted employees'
compensation deferrals.
[5] Commitments and Contingencies
[A] Unremitted Federal Withholding and FICA Tax Liabilities - As of November 21,
1994, the Company had not remitted $2,000,000 of 1992 employees' federal and
FICA withholding taxes, FICA taxes, interest and penalties, to the Internal
Revenue Service. Pursuant to an agreement of sale of the assets of the business
[See Note 7], this liability was assumed by the buyer and a repayment plan has
been worked out between such buyer and the Internal Revenue Service. However,
the Job Shop is liable for any payments not made by the buyer to the Internal
Revenue Service.
[B] Leases - The division occupies space in various locations leased by Job Shop
There is no formal lease agreement between Job Shop and the ITS division.
However, the ITS division does pay rent due under such leases directly to
various landlords under an informal agreement with Job Shop. Minimum lease
payments required on leases with an initial or remaining term in excess of one
year are as follows:
For the years ended
December 31,
1994 $ 2,368
1995 8,016
1996 8,353
1997 2,109
-----------------
Total $ 20,846
----- =================
Rent expense for the period January 1, 1994 to November 21, 1994 totaled
$67,586. The lease for the New York office of Job Shop expired in December 1994
and was not renewed by the buyer of the assets of the business [See Note 7].
Subsequently, such buyer relocated its New York office to new premises.
F-33
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[5] Commitments and Contingencies [Continued]
[C] Litigation - During January 1995 and as amended in March 1995, the employees
of ITS filed a complaint against ITS and Job Shop, its president and others
seeking $3,000,000 or more, plus interest, punitive damages and other equitable
or remedial relief, removal of the plan administrator and trustee and the
appointing of an independent administrator and a court-designated trustee. ITS,
Job Shop and its president have denied any wrongdoing or liability, asserted
cross-claims against codefendants for indemnity and other relief and are
vigorously defending the action. The codefendants have denied any liability in
regard to this. At this time, no determination of the likelihood of a favorable
or unfavorable outcome can be made nor can any estimate of the amount or range
of potential loss.
The Company is also a defendant in a action which alleges breach of contract,
breach of fiduciary duty and fraud. ITS, Job Shop and its president are
vigorously contesting this matter. At this time, no determination of the
likelihood of a favorable or unfavorable outcome can be made.
[6] Economic Dependency
Revenues from three customers amounted to $20,780,918 and comprised
approximately 52.6% of total revenues for the period January 1, 1994 to November
21, 1994.
[7] Subsequent Event
On November 21, 1994, pursuant to an asset purchase agreement dated as of August
19, 1994, among Job Shop, its sole stockholder and ITS Management Corp. [ITS
Man. Corp.] a Delaware Corporation and wholly-owned subsidiary of the
Consolidated Technology Group, Ltd. [Consolidated], ITS Man. Corp. acquired
substantially all of the assets of Job Shop in exchange for 750,000 shares of
Consolidated common stock valued at $281,250, and the assumption of certain
scheduled liabilities. The principal liability assumed was a $2,000,000
obligation due to the Internal Revenue Service pursuant to a settlement
arrangement which Job Shop had negotiated [See Note 5A]. The initial $500,000
payment was made in November 1994, the balance is due in 15 monthly installments
of $100,000, commencing May 1995. The liability not assumed by the buyer is the
amount due to the 401[k] profit-sharing plan [See Note 4]. This liability is
subject to litigation as more fully described in Note 5C.
. . . . . . . . .
F-34
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder of
Job Shop Technical Services, Inc.
Farmingdale, New York
We have audited the accompanying statements of operations,
accumulated deficit, and cash flows of Job Shop Technical Services, Inc. for the
year ended December 31, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Job Shop
Technical Services, Inc. as of December 31, 1993, and the results of operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in the
financial statements, the Company has incurred a net loss of $2,272,614 for 1993
and has incurred substantial net losses for each of the past three years.
Additionally, at December 31, 1993, the Company has a significant deficiency in
shareholder's equity and negative working capital, these factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company is liable for unremitted payments to its 401(k)
profit-sharing plan, as discussed in Note 5, and unremitted payroll taxes, as
discussed in Note 6.
EDWARD ISAACS &
COMPANY
LLP
Certified
Public
Accountants.
New York, New York
May 16, 1994
F-35
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993.
- --------------------------------------------------------------------------------
Net Sales $ 44,154,009
---------------
Cost and Expenses:
Cost of Sales 40,342,491
Selling Expenses 2,328,071
General and Administrative 1,653,901
Interest - [Net of Interest Income of $17,663] 260,590
---------------
Total Cost and Expenses 44,585,053
Loss From Operations (431,044)
Other Expenses 1,841,570
Net Loss $ (2,272,614)
===============
See Independent Auditor's Report and Notes to Financial Statements.
F-36
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF ACCUMULATED DEFICIT FOR THE YEAR ENDED DECEMBER 31, 1993.
- --------------------------------------------------------------------------------
Balance - January 1, 1993, As Previously Reported $ (2,015,847)
Retained Earnings of Acquired Company* 556,665
Balance - January 1, 1993, As Restated (1,459,182)
Net Loss (2,272,614)
Balance - December 31, 1993 $ (3,731,796)
==============
*Reflects elimination of the intercompany payable to the Company of $1,954,779;
the Company had provided an allowance for the full amount of the receivable.
See Independent Auditor's Report and Notes to Financial Statements.
F-37
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993.
- --------------------------------------------------------------------------------
Operating Activities:
Net Loss $ (2,272,614)
Adjustments to Reconcile Net Loss to Net Cash Used for
Operating Activities:
Depreciation and Amortization 128,165
Loss on Settlement of Note Receivable 83,432
Reversal of Allowance for Doubtful Accounts (20,000)
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (403,436)
Inventory - Work-in-Progress (115,334)
Other Current Assets 1,103
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 1,756,957
Taxes Other Than on Income 57,460
Duet to 401(k) Profit-Sharing Plan 727,327
---------------
Net Cash Used in Operating Activities (56,940)
---------------
Investing Activities:
Capital Expenditures (130,038)
Payments Received on Note Receivable 117,334
Due from Shareholder (49,477)
Deposits (5,621)
---------------
Net Cash Used in Investing Activities (67,802)
---------------
Financing Activities:
Increase in Bank Debt 106,204
Payments of Long-Term Debt (123,056)
Net Cash Used in Financing Activities (16,852)
---------------
Net Decrease in Cash (141,594)
Cash - Beginning of Year 180,352
---------------
Cash - End of Year $ 38,758
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 278,253
Income Taxes $ 2,787
See Independent Auditor's Report and Notes to Financial Statements.
F-38
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Going Concern Status
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates the Company
continuing as a going concern. However, the Company has sustained substantial
net losses in recent years and at December 31, 1993 has a significant deficiency
in shareholder's equity and negative working capital.
Management believes that action presently being taken to bring about the
Company's profitability and/or an infusion of new capital will enable the
Company to continue as a going concern.
[2] Merger
On August 16, 1993, the Company acquired Computer Design Services, Inc. (CDS), a
company owned by the shareholder of the Company, in a business transaction
accounted for as though it were a pooling of interests. On the date of
acquisition CDS was merged into the Company through the exchange of one share of
the Company's common stock for all of the outstanding stock of CDS, which was
immediately canceled. The accompanying financial statements for 1993 are based
on the assumption that the companies were combined for the full year.
Summarized unaudited results of operations of the separate companies for the
period from January 1, 1993 through August 16, 1993, the date of acquisition,
were as follows:
Job Shop Technical Computer Design
Services, Inc. Services, Inc.
Sales $ 28,062,000 $ 1,696,000
Income (Loss) from Operations 293,000 (437,000)
Net Loss (382,000) (437,000)
The summarized unaudited assets and liabilities of the separate companies on
August 16, 1993, the date of acquisition, (excluding a payable to the Company of
$1,954,779; the Company had provided an allowance for the full amount of the
receivable) were as follows:
Job Shop Technical Computer Design
Services, Inc. Services, Inc.
Cash $ 21,000 $ 67,000
Other Current Assets 3,336,000 234,000
Property, Plant and Equipment, Net 13,000 304,000
Other Noncurrent Assets 378,000 39,000
----------------- ---------------
Subtotals 3,748,000 644,000
Liabilities (6,145,000) (524,000)
----------------- ---------------
Shareholder's (Deficiency) Equity $ (2,397,000) $ 120,000
- --------------------------------- ================= ===============
F-39
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[3] Summary of Significant Accounting Policies
Company's Business - The Company has two divisions, International Technical
Services and Computer Design Services.
International Technical Services provides engineering personnel primarily in the
aerospace, marine, electronics and energy industries on a temporary basis to its
customers located throughout the United States.
Computer Design Services principally sells computer aided design systems and
provides necessary support and training to its customers who are located
primarily on the east coast of the United States. The division recognizes income
on contracts, which are all short-term, when the programs are completed. Costs
to the point of completion are deferred and are included in work-in-progress
inventory in the accompany balance sheet.
Depreciation - Depreciation is computed by the straight-line method over the
estimated useful lives of the assets ranging from five to ten years.
Income Taxes - The Company is an S corporation under the provisions of the
Internal Revenue Code and applicable state statutes and, accordingly, is not
subject to federal and state income taxes.
[4] Note Receivable
In 1988, the Company received a promissory note relating to the sale of its
Computer Systems Division. In 1990, the Company modified the terms of the note
(including unpaid interest) from 60 payments of $4,249 to 120 payments of
$3,180, commencing June 1, 1990, including interest at 10%. The balance of the
note as of December 31, 1993 was $183,432. In December 1993, the Company
accepted $100,000 in full settlement of the note and recorded a loss of $83,432
which is included in other deductions in the accompany statement of operations.
[5] Due to 401(k) Profit-Sharing Plan
The liability to the 401(k) profit-sharing plan consists of employees'
compensation deferrals from June 1993 to December 1993 which have not been
remitted by the Company to the plan's trustee. The liability of $878,052
includes interest accrued on the employees' balances.
During 1994, the Company has not made any payments to the Plan for the above
liability and, in addition, approximately $1,400,000 of 1994 compensation
deferrals have not been remitted. As of September 30, 1994, the liability to the
401(k) profit-sharing plan aggregated approximately $2,300,000.
The above represent violations of the Employee Retirement Income Security Act of
1974, the Internal Revenue Code and other statutes, and could jeopardize the
Plan's qualified and tax exempt status.
A provision of $185,000 for excise taxes relating to the above prohibited
transactions is included in other expenses in the accompanying 1993 statement of
operations.
[6] Taxes Other than on Income
The liability for taxes other than on income includes approximately $2,587,000
of 1992 employees' federal withholding taxes and FICA tax liabilities, which
have not been remitted to the Internal Revenue Service. A $1,008,000 provision
for penalties and interest relating to this liability is included in other
expenses in the accompanying 1993 statement of operations. The Company has paid
$700,000 towards this liability, which has been applied to penalties and
interest by the Internal Revenue Service, the remaining $308,000 of unpaid
penalties and interest are included in accrued expenses.
F-40
<PAGE>
JOB SHOP TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[7] Other Expenses
Other expenses consists of the following:
Penalties and Interest on Payroll Taxes $ 1,398,368
Excise Taxes (Note 5) 185,000
Loss on Settlement of Note Receivable 83,452
Department of Labor Settlement* 174,750
-----------------
Total $ 1,841,570
----- =================
* In 1993, the Company settled a dispute with the Department of Labor for
$174,750 relating to an error in computing employees' overtime compensation.
[8] Commitments and Contingencies
[A] Leases - The Company leases its offices and certain equipment under leases
expiring through July 1997. Total rent expense under operating leases was
$247,688.
Future minimum annual rentals under operating leases with initial or remaining
noncancellable lease terms in excess of one month in effect at December 31,
1993, are as follows:
1994 $ 188,320
1995 112,315
1996 76,315
1997 44,520
-----------------
Total $ 421,470
----- =================
[B] 401(k) Profit-Sharing Plan - The Company maintains a noncontributory
profit-sharing plan covering all employees who meet eligibility requirements.
Annual contributions are at the discretion of the Board of Directors. No
provision was made in 1993 (see Note 5).
[C] Major Customers - Three customers accounted for 52% of sales of the year
ended December 31, 1993.
[9] Subsequent Events
Factoring Agreement - In April 1994, the Company entered into an agreement with
a factor. The agreement provides for advances of up to 85% of eligible accounts
receivable. A portion of the proceeds from these advances were used to liquidate
the Company's loan payable to bank.
Sale of Assets - The Company is currently negotiating terms for the sale of its
assets.
. . . . . . . . . .
F-41
<PAGE>
[This page intentionally left blank]
F-2
<PAGE>
No dealer, salesperson or any other person
has been authorized to give any information
or to make any representations other than 1,250,000 Units
those contained in this Prospectus in
connection with the offer made by this
Prospectus, and, if given or made, such Trans Global Services, Inc.
information or representations must not be
relied on as having1,250,000 Units been Each Unit Consists of one
authorized by the Company or by the share of Series G Convertible
Underwriters. This Prospectus does not Preferred Stock and two
constitute an offer to sell or a solicitation Series E Reedeemable
of an offer to buy any securities offered Common Stock
hereby to any person in any jurisdiction in Purchase Warrants)
which such offer or solicitation was not
authorized or in which the person making such
offer or solicitation is not qualified to do
so or to anyone 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 circumstances of the Company of
the facts herein set forth since the date of
this Prospectus.
TABLE OF CONTENTS
Page
----
Prospectus Summary..................................3
Risk Factors........................................7
Market for Common Stock; Dividends.................13
Use of Proceeds....................................13
Capitalization.....................................15
Selected Financial Data ...........................16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................17
Business...........................................20
Management.........................................24
Certain Transactions...............................29
Principal Stockholders.............................32
Description of Securities..........................33
Underwriting.......................................37
Legal Matters......................................39
Experts............................................39
Additional Information ............................39
Index to Financial Statements.....................F-1
Until ,1996 (25 days after the date of this
Prospectus) all dealers effecting
transactions in the registered securities, Patterson Travis, Inc.
whether or not participating in the
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 allotments or subscriptions.
,1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee $7,612.11
NASD registration fee 2,707.51
Nasdaq listing fee 10,000.00
Printing and engraving *
Accountants' fees and expenses *
Legal fees *
Transfer agent's and warrant agent's fees and expenses *
Blue Sky fees and expenses *
Representative's non-accountable expense allowance 300,000.00
Representative's consulting fee 100,000.00
Miscellaneous . *
----------
Total $700,000.00**
=============
- ----------
* To be supplied by amendment.
** Estimated
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law and Article EIGHTH
of the Registrant's Restated Certificate of Incorporation (Exhibit 3.1) provide
for indemnification of directors and officers of the Registrant under certain
circumstances.
Reference is made to Paragraphs 6 and 7 of the Underwriting Agreement
(Exhibit 1.1) with respect to indemnification of the Registrant and the
Underwriters.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, offices or controlling persons of the
registrant, pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
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 hereunder, 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.
Item 15. Recent Sales of Unregistered Securities
Set forth below is information with respect to all sales of
unregistered securities subsequent to September 30, 1993 relating to the
Registrant. All information set forth in response to this Item 15 with respect
to transactions prior to January 1, 1994 give retroactive effect to a
one-for-two reverse split of the Registrant's Common Stock on December 31, 1993.
(a) In October 1993, the Registrant raised $400,000 through the
placement to eleven accredited investors of an aggregate of 16 units at a
purchase price of $25,000 per unit. Each unit consisted of 7,925 shares of
Common Stock and an 10% unsecured convertible promissory note in the principal
amount of $24,841.50. Set forth below is information as to the purchasers of the
units.
Name Units Purchase Price
---- ----- --------------
The Holding Company 3.0 $ 75,000
Venture First II L.P. 3.0 75,000
Harvey Glicker 3.0 75,000
Debra Gallaro 1.4 35,000
II-1
<PAGE>
Herman Blank 1.0 25,000
Martin Merkur 1.0 25,000
Richard Pizitz 1.0 25,000
Phyllis Sax 1.0 25,000
Maria Venditto 0.6 15,000
DL Chtr, Trustee/Rosshanna 0.5 12,500
Burt Faure 0.5 12,500
--------
$400,000
========
in connection with the issuance of the units to the foregoing
purchasers (other than The Holding Company and Venture First II L.P., with
respect to which no commission was paid) the Registrant issued to Redstone
Securities, Inc. ("Redstone"), which introduced the purchasers to the
Registrant, five year warrants to purchase 83,334 shares of Common Stock at
$6.50 per share. Redstone was the underwriter of the Registrant's initial public
offering in February 1994.
(b) Pursuant to consulting agreements with Venture First II L.P. and
Windy City, Inc., in November 1993, the Registrant issued to each of such firms
a warrant to purchase 25,000 shares of Common Stock at $6.50 per share.
(c) In October 1993, the Registrant issued to the law firm of Womble,
Carlyle, Sandridge & Rice 2,125 shares of Common Stock for legal services
rendered.
(d) In February 1994, contemporaneously with the completion of the
Registrant's initial public offering, the Registrant issued to Walnut Capital,
Inc. ("Walnut") 114,462 units in exchange for the cancellation of indebtedness
in the amount of $744,000. Each unit consisted of one share of Common Stock and
one Callable Common Stock Purchase Warrant with an exercise price of $7.00 per
share. The units issued to Walnut are identical with the units sold in the
Registrant's initial public offering.
(e) In May 1995, the Company issued the following securities in
exchange for all of the securities, including common stock, preferred stock and
warrants, of Trans Global Services, Inc.:
(i) 1,000,000 shares of Common Stock, of which 850,000 shares
were issued to SISC Capital Corp. ("SISC"), 100,000 shares were issued to Mr.
Joseph G. Sicinski and 50,000 shares were issued to DLB, Inc. ("DLB"). The
formal issuance of 400,000 of such shares to SISC was deferred until the filing
of the certificate of amendment to the Registrant's certificate of incorporation
which increased the authorized capital stock to 2,000,000 shares of Preferred
Stock and 20,000,000 shares of Common Stock (the "Certificate of Amendment") in
March 1996 .
(ii) 25,000 shares of Series A Convertible Participating
Preferred Stock ("Series A Preferred Stock"), of which 23,750 shares were issued
to SISC and 1,250 shares were issued to DLB. Upon the filing of the Certificate
of Amendment in March 1996, the 25,000 shares of Series A Preferred Stock was
automatically converted into 2,000,000 shares of Common Stock.
(iii) 25,000 shares of Series B Preferred Stock and 25,000
shares of Series C Preferred Stock, all of which were issued to SISC.
(iv) 20,000 shares of Series D 6.25% Redeemable Cumulative
Preferred Stock ("Series D Preferred Stock"), all of which was issued to SISC.
(v) Series B Common Stock Purchase Warrants to purchase
500,000 shares of Common Stock at $3.50 per share, of which warrants to purchase
475,000 shares were issued to SISC and warrants to purchase 25,000 shares were
issued to DLB.
(f) In May 1995, substantially contemporaneously with the acquisition
of stock of Trans Global Services, Inc. described in Paragraph (e) of this Item
15, the Registrant issued 151,300 units for $3.00 per unit or an aggregate of
$453,900. Each such unit consisted of one share of Common Stock and a Series A
Common Stock Purchase Warrant to purchase three shares of Common Stock at $3.50
per share. The units were issued to the following eleven accredited investors:
II-2
<PAGE>
Name No. of Units Purchase Price
---- ------------ --------------
UK Food Products and Investments Ltd 66,000 $198,000
Abraham Fishman 50,000 150,000
Harvey Weinberg 4,200 12,600
Walter & Arlene Epstein JTROS 2,000 6,000
William & Lois Muller JTROS 5,300 15,900
Paul Nuzzolese 2,800 8,400
Leo Meindl 6,000 18,000
Arnold A. Sabino 5,000 15,000
Milton Haber 3,500 10,500
William Gatta 3,500 10,500
Charles Famoso 3,000 9,000
------- --------
Total 151,300 $453,900
In connection with this placement, the Registrant paid to Redstone, who
was a placement agent for the private placement, a fee of $25,590, representing
10% of the gross proceeds from all of the purchasers other than UK Food Products
and Investments Ltd., with respect to which no commission was paid.
(g) At or about the time of the acquisition of the stock of Trans
Global Services, Inc., the Registrant issued an aggregate of 215,482 shares of
Common Stock and Series C Common Stock Purchase Warrants to purchase 107,740
shares of Common Stock at $3.50 per share in exchange for the agreement of
certain holders of restricted stock to agree to a lockup with respect to such
shares. The shares of Common Stock (the formal issuance of which was deferred
until filing of the Certificate of Amendment in March 1996) and warrants were
issued to the following persons:
Name Number of Shares Number of Warrants
---- ---------------- ------------------
Kanter Family Foundation 28,400 14,200
Walnut Capital Corp. 129,525 64,762
Windy City, Inc. 642 321
Wayne J. Isaksen 10,625 5,313
The Holding Company 10,625 5,313
Venture First II L.P. 11,888 5,944
Martin Merkur 3,963 1,981
Phyllis Sax 3,963 1,981
The Holding Company 11,888 5,944
Herman Blank 3,963 1,981
-------- --------
Total 215,482 107,740
(h) In connection with the acquisition by the Registrant of the stock
of Trans Global Services, Inc., the Registrant agreed to issue 125,000 to
Redstone Securities, Inc. as a finder. The issuance of such shares was deferred
until September 1996.
(i) As of June 30, 1995, the Registrant issued to SISC 5,000 shares of
Series E Convertible Participating Preferred Stock ("Series E Preferred Stock")
in consideration of the cancellation of indebtedness due to SISC in the amount
of $200,000. Upon the filing of the Certificate of Amendment in March 1996, the
shares of Series E Preferred Stock automatically became converted into 120,000
shares of Common Stock.
(j) In July 1995, the Registrant issued 390,000 shares of Common Stock
for an aggregate of $1.0 million. Such shares were issued to Jurby Egret Ltd.
and Excalibur Ltd., each of which purchased 195,000 shares for $500,000. None of
such purchasers was a U.S.
Person.
(k) At September 30, 1995, the Registrant issued to SISC an aggregate
of 1,060,000 shares of Common Stock to SISC in connection with the sale by the
Registrant of the stock of a subsidiary, WWR Technologies, Inc. ("WWR").
Pursuant to the transaction, the stock of WWR, which had a deficiency in
stockholder's equity of approximately $1.4 million, was transferred to an
affiliate of SISC, SISC released the Registrant from $275,000 of its obligations
to SISC, and Consolidated Technology Group Ltd., the parent company of SISC,
issued to the Registrant a newly created series of preferred stock which
converts on September 30, 2000 into such number of shares of Common Stock, not
to exceed 2.8 million shares, as has a value equal to $2.1 million in
satisfaction of WWR's obligations to the Registrant, which were in the amount of
approximately $2.1 million.
II-3
<PAGE>
(l) In January 1996, the Registrant issued 500,000 shares of Common
Stock for an aggregate of $375,000. Such shares were issued to Consolidated
Trading Ltd. (which has no affiliation with Consolidated Technology Group Ltd.)
and City Trade Ltd., each of which purchased 150,000 shares for $112,500, and
Winforton Ltd., which purchased 200,000 shares for $150,000. None of such
purchasers was a U.S. Person.
(m) In April 1996, the Company issued an Series D Common Stock Purchase
Warrants to purchase an aggregate of 1,700,000 shares of Common Stock at an
exercise price of $.50 per share, to the following directors:
Name No. of Warrants
---- ---------------
Lewis S. Schiller 400,000
Joseph G. Sicinski 400,000
Norman J. Hoskin 300,000
Joel S. Kanter* 300,000
E. Gerald Kay* 300,000
---------
1,700,000
* The warrants issued to Messrs. Kanter and Kay replaced warrants to
purchase 75,000 shares of Common Stock at $3.50 which were authorized
in October 1995 but were never issued.
(n) As of June 30, 1996, the Registrant issued to SISC 10,000 shares of
Series F Preferred Stock and warrant to purchase 3,200,000 shares of Common
Stock at $.50 per share in exchange for (a) cancellation of $750,000 of
indebtedness due to SISC, and (b) 23,750 shares of Series B Preferred Stock,
23,750 shares of Series C Preferred Stock and 20,000 shares of Series D
Preferred Stock.
(o) In July 1996, the Registrant sold 5,000,000 shares of Common Stock
to the following eight investors for $.40 per share, or an aggregate of $2.0
million, to the following investors, none of which was a U.S. Person. Each of
the following purchasers purchased 625,000 shares for $250,000: Minerco Holdings
Inc., Jemson Ltd., Ambleigh Holdings Ltd., Ascolto Ltd., Dester Ltd., Aberdale
Int'l Ltd., Holberrow Ltd. and City Trade Ltd.
(p) Pursuant to an agreement with Sirrom Capital, Inc. ("Sirrom"), the
Registrant is to issue to Sirrom 520 shares of Common Stock each month as long
as a note issued by WWR Technologies, Inc., a former subsidiary of the
Registrant, is outstanding. As of September 30, 1996, the Registrant has issued
an aggregate of 6,240 shares of Common Stock pursuant to this Agreement.
The issuances of the securities described in this Item 15 (other than
those described in Paragraphs (j), (l) and (o)) were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") pursuant to Regulation D and/or Sections 4(2) and/or 4(6) of
the Securities Act. No commission was paid with respect to the issuance of such
securities, except as set forth in Paragraphs (a) and (f) of this Item 15. The
issuances of the securities described in Paragraphs (j), (l) and (o) were exempt
from the registration requirements of the Securities Act pursuant to Regulation
S of the Commission.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Form of Underwriting Agreement.
1.2 Form of Unit Purchase Option.
1.3 Form of Selected Dealers Agreement.
1.4 Form of Financial Consulting Agreement.
2.1(1) Agreement (the "Agreement") dated as of March 31, 1995, by and
among SIS Capital Corp., DLB, Inc., Joseph G. Sicinski and
Concept Technologies Group, Inc., including exhibits thereto.
2.2(1) The Concept Disclosure Letter delivered pursuant to the
Agreement.
2.3(1) The Trans Global Disclosure Letter delivered pursuant to the
Agreement.
2.4(2) Asset purchase agreement dated August 19, 1994, among ITS
Management Corp., Job Shop Technical Services, Inc. ("Job Shop")
and Ralph Corace.
2.5(2) Disclosure letter of Job Shop dated August 19, 1994, as
supplemented on September 10, 1994.
3.1(2) Certificate of Incorporation, as amended.
3.2(3) Certificate of Designation for the Series F Preferred Stock.
3.3 Form of Certificate of Designation for the Series G Convertible
Preferred Stock.
3.4(2) By-Laws
II-4
<PAGE>
4.1 Form of Warrant Agreement among the Registrant, American Stock
Transfer & Trust Company, as Warrant Agent, and Patterson
Travis, Inc., to which the form of Series E Redeemable Common
Stock Purchase Warrant is included as an exhibit.
5.1(3) Opinion of Esanu Katsky Korins & Siger.
10.1(3) Employment agreement dated September 1, 1996, between the
Registrant and Joseph G. Sicinski.
10.2(2) Management services agreement dated January 1, 1995 between Trans
Global Services, Inc. and The Trinity Group, Inc.
10.3(4) 1995 Long-Term Incentive Plan.
10.4(5) 1993 Stock Option Plan.
10.5(5) 1995 Incentive Stock Plan.
10.6(2) Agreement dated as of September 30, 1995 between SIS Capital
Corp. and the Registrant.
10.7(2) Agreement dated as of September 30, 1995 between Consolidated
Technology Group Ltd., WWR Technology, Inc. and the Registrant.
10.8(2) Form of Series A Common Stock Purchase Warrants.
10.9(2) Form of Series B Common Stock Purchase Warrants.
10.10(2) Form of Series C Common Stock Purchase Warrants.
10.11(5) Form of Callable Common Stock Purchase Warrants issued in the
Registrant's initial public offering.
10.12(5) Form of Registrant's Warrant.
10.13(5) Form of August Financing Warrants.
10.14(5) Form of October Bridge Financing Warrants.
10.15(5) Form of Consulting Warrant.
10.16 Form of Subscription Agreement.
10.17 Form of Offshore Securities Subscription Agreement.
11.1(3) Computation of loss per share.
24.1 Consent of Moore Stephens, P.C. (See Page II-8).
24.2 Consent of Edward Isaacs & Company LLP(See Page II-9).
24.3(3) Consent of Esanu Katsky Korins & Siger (included in Exhibit 5.1).
25.1 Powers of attorney (included on Signature Page).
27.1 Financial data schedule.
- --------------
(1) Filed as an exhibit to the Current Report on Form 8-K of Consolidated
Technology Group Ltd., Commission File No. 0-4186, for the report date of
April 19, 1995 and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1995 and incorporated herein by reference.
(3) To be filed by amendment.
(4) Filed as a exhibit to the Registrant's definitive proxy material for its
1996 annual meeting of stockholders and incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's Registration Statement on Form
SB-1, File No. 33-73178 and incorporated herein by reference.
(b) Financial Statement Schedules
None
Item 17. Undertakings
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;
(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;
(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.
II-5
<PAGE>
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriters to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officer or controlling persons of
the registrant, pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities 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 hereunder, 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.
(6) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant 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 the 16th day of October, 1996.
TRANS GLOBAL SERVICES, INC.
By:Lewis S. Schiller
-----------------
Lewis S. Schiller
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated. Each person
whose signature appears below hereby authorizes Lewis S. Schiller and Joseph G.
Sicinski or either of them acting in the absence of the others, as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission.
Signature Title Date
--------- ----- ----
Lewis S. Schiller Chairman of the Board, Chief October 16, 1996
- ----------------- Executive Officer and Director
Lewis S. Schiller (Principal Executive Officer)
Glen R. Charles Treasurer and Chief Financial October 16, 1996
- --------------- Officer (Principal Executive,
Glen R. Charles Officer)
Joseph G. Sicinski Director October 16, 1996
- ------------------
Joseph G. Sicinski
Norman J. Hoskin Director October 16, 1996
Norman J. Hoskin
Joel S. Kanter Director October 16, 1996
- --------------
Joel S. Kanter
E. Gerald Kay Director October 16, 1996
- -------------
E. Gerald Kay
II-7
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-1 of (i)
our report dated March 27, 1996, accompanying the financial statements of Trans
Global Services, Inc. (ii) our report dated May 5, 1994, accompanying the
combined statements of operations and retained earnings and cash flow of
Avionics Research Corporation of Florida and Avionics Research Corporation of
New York, (iii) our report dated July 7, 1995 accompanying the statements of
operation, changes in divisional equity and cash flows of the International
Technical Division of Job Shop Technical Services, Inc. (the "Job Shop
Division") for the period January 1 to November 21, 1994, which report includes
explanatory paragraphs as to the ability of the Job Shop Division to continue as
a going concern and as to the outcome of certain litigation and an
investigation, and (iv) to the use of our name and the statements with respect
to us as appearing under the heading "Experts" in the Prospectus. Effective July
1, 1996 Mortenson and Associates, P.C. changed its name to Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Cranford, New Jersey
October 16, 1996
II-8
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-1 of our
report dated May 16, 1994, accompanying the statements of operations,
accumulated deficit and cash flows of Job Shop Technical Services, Inc., which
report includes an explanatory paragraph relating to the ability of Job Shop
Technical Services, Inc. to continue as a going concern, and to the use of our
name, and the statements with respect to us as appearing under the heading
"Experts" in the Prospectus.
EDWARD ISAACS & COMPANY LLP
New York, New York
October 16, 1996
II-9
<PAGE>
Exhibit 1.1
1,250,000 Units
Each unit consisting of one (1) Share of Preferred Stock,
par value $.01 per share
and
Two (2) Series E Redeemable Common Stock Purchase Warrant
TRANS GLOBAL SERVICES, INC.
UNDERWRITING AGREEMENT
New York, New York
________ __, 1996
Patterson Travis, Inc.
One Battery Park Plaza
New York, New York 10004
Trans Global Services, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you, as representative of the several underwriters
referred to in the Prospectus (as defined below) (the "Representative"), an
aggregate of 1,250,000 Units, each Unit consisting of one (1) share of Series G
Preferred Stock, par value $.01 per share ("Preferred Stock") and two (2) Series
E Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles
the registered holder thereof to purchase one (1) share of Common Stock at an
exercise price of $3.00 per share for a period of three (3) years, commencing on
the Effective Date through ________ __, 2000. The Warrants are subject to
redemption by the Company at any time after ________ __, 1997 (twelve (12)
months from the Effective Date) or earlier with the consent of the
Representative, at $.05 per warrant, if the closing bid price per share of
Common Stock has equaled or exceeded $4.00 per share for any 20 consecutive
business days ending within 15 days of the written notice of redemption. In
addition, the Company proposes to grant to the Underwriter the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 187,500 Units.
Unless the context otherwise requires, the aggregate of 1,250,000 Units
to be sold by the Company, together with all or any part of the 187,500 Units
which the Representative has the option to purchase, and the shares of Preferred
Stock and the Warrants comprising such Units, are herein called the "Units". The
Preferred Stock to be outstanding after giving effect to the sale of the Units
are herein call the "Shares. The Shares and Warrants included in the Units
(including the Units which the Representative has the option to purchase
pursuant to paragraph 2(b)), are herein collectively called the "Securities."
1
<PAGE>
You have advised the Company that you desire to purchase the Units.
The Company confirms the agreements made by it with respect to the purchase of
the Units by the Representative as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Company" means Trans Global Services, Inc. and/or each of
its subsidiaries ("Subsidiaries"); the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
2
<PAGE>
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Representative specifically for
use in the preparation thereof. It is understood that the statements set forth
in the Prospectus with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Representative under the
heading "Legal Matters" constitute for purposes of this Section and Section 6(b)
the only information furnished in writing by or on behalf of the Representative
for inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company and its subsidiaries ("Subsidiaries") have
been duly incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation with full
corporate power and authority to own their properties and conduct their business
as described in the Prospectus and are duly qualified or licensed to do business
as foreign corporations and are in good standing in each other jurisdiction in
which the nature of their business or the character or location of their
properties require such qualification, except where the failure to so qualify
will not materially adversely affect the Company's or Subsidiaries' business,
properties or financial condition. The Company owns all of the issued and
outstanding capital stock of the Subsidiaries.
(d) The authorized, issued and outstanding capital stock of
the Company and its Subsidiaries, including the predecessors of the Company, is
as set forth in the Company's financial statements contained in the Registration
Statement; the shares of issued and outstanding capital stock of the Company and
its Subsidiaries set forth therein have been duly authorized, validly issued and
are fully paid and nonassessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company or its Subsidiaries have been granted or
entered into by the Company or its Subsidiaries; and the capital stock conforms
to all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Units, shares of Preferred Stock, and all shares of
Common Stock issuable upon the conversion of the Preferred Stock or the exercise
of the Warrants when paid for,
3
<PAGE>
issued and delivered pursuant to this Agreement, will have been duly authorized,
issued and delivered and will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or other laws affecting
the right of creditors generally or by general equitable principles, and
entitled to the rights and preferences provided by the Certificate of
Incorporation, which will be in the form filed as an exhibit to the Registration
Statement. The terms of the Preferred Stock and the Common Stock issuable upon
the conversion of the Preferred Stock or the exercise of the Warrants conform to
the description thereof in the Registration Statement and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to
this Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance upon the exercise of the Warrants and
when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized validly issued, fully paid and
non-assessable and free of preemptive rights. The Warrant Agreement has been
duly authorized and, when executed and delivered pursuant to this Agreement,
assuming due authorization, execution and delivery by the transfer agent, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Warrants and Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Preferred Stock, Warrants and Common Stock underlying the
Purchase Option (as defined in the Registration Statement), have been duly
authorized and, when paid for, issued and delivered pursuant to this Agreement
will constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms and entitled to the benefits provided by the
Purchase Option, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Units, shares of Preferred Stock and Warrants
issuable upon exercise of the Purchase Option (and the shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants)
when issued and paid for in accordance with this Agreement, the Purchase Option
and the Warrant Agreement, will be duly authorized, validly issued, fully paid
and non-assessable and free of preemptive rights.
4
<PAGE>
(f) This Agreement and the Purchase Option have been duly and
validly authorized, executed and delivered by the Company. The Company has full
power and authority to authorize, issue and sell the Units to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance and sale of the Units or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), neither the Company nor its
Subsidiaries are in violation, breach or default of or under, and consummation
of the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company or its Subsidiaries pursuant to the terms of
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its Subsidiaries is a party or
by which the Company or its Subsidiaries may be bound or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company or its Subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or its
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus,
the Company and its Subsidiaries have good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to their business; all of
the material leases and subleases under which the Company or its Subsidiaries is
the lessor or sublessor of properties or assets or under which the Company or
its Subsidiaries hold properties or assets as lessee or sublessee as described
in the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company or its Subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or its Subsidiaries
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company and its Subsidiaries own or lease all such properties described in
the Prospectus as are necessary to their
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operations as now conducted and, except as otherwise stated in the Prospectus,
as proposed to be conducted as set forth in the Prospectus.
(i) Moore Stephens, P.C. which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with
related notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or its Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or its
Subsidiaries or any material adverse change or any development involving, so far
as the Company or its Subsidiaries can now reasonably foresee a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties of it which would have a
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the financial condition, business prospects, net worth, or properties
of the Company or its Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
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(m) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the party, may be asserted against the Company or its
Subsidiaries.
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of such
businesses and have not received any notice of conflict with the asserted rights
of others in respect thereof. To the best knowledge of the Company, none of the
activities or business of the Company or its Subsidiaries are in violation of,
or cause the Company or its Subsidiaries to violate, any law, rule, regulation
or order of the United States, any state, county or locality, or of any agency
or body of the United States or of any state, county or locality, the violation
of which would have a Material Adverse Effect.
(o) Neither the Company nor its Subsidiaries have, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and Subsidiaries' internal accounting controls and procedures
are sufficient to cause the Company and its Subsidiaries to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Representative
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company and its
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no subsidiaries.
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(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the Company to
the Underwriter or as disclosed in the Registration Statement, no officer,
director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
(v) The Company is a reporting company under Section 12(g) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and as such,
since becoming a reporting company thereunder, the Company and all directors,
officers and principal securityholders made all required filings, and done so on
a timely basis, and all of such filings conform to the requirements of the
Exchange Act and the rules and regulations thereunder and none of such filings
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make statements therein not
misleading.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Representative and the
Representative agrees to buy from the Company at $7.20 per Unit, at the place
and time hereinafter specified, 1,250,000 Units (the "First Units").
Delivery of the First Units against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York (or at such other place as may be designated by agreement between
the Representative and the Company) at 10:00 a.m., New York time, on _____ __,
1996, or at such later time and date as the Representative may designate in
writing to the Company at least two business days prior to such purchase, but
not later than _____ __, 1996 such time and date of payment and delivery for the
First Units being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Representative (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 187,500 Units to cover over allotments at the same price per Unit as
the Representative shall pay for the First Units being sold pursuant to the
provisions of
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subsection (a) of this Section 2 (such additional Units being referred to herein
as the "Option Units"). This option may be exercised within 30 days after the
effective date of the Registration Statement upon written notice by the
Representative to the Company advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option (but in no event
more than 40 days after the First Closing Date), nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
NY 10022 (or at such other place as may be designated by agreement between the
Representative and the Company). The option granted hereunder may be exercised
only to cover over-allotments in the sale by the Representative of First Units
referred to in subsection (a) above. No Option Units shall be delivered unless
all First Units shall have been delivered to the Representative as provided
herein.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Representative hereunder available
to you for checking at least two full business days prior to the First Closing
Date or the Option Closing Date (which are collectively referred to herein as
the "Closing Dates"). The certificates shall be in such names and denominations
as you may request, at least three full business days prior to each Closing
Date. Delivery of the certificates at the time and place specified in this
Agreement is a further condition to the obligations of the Representative.
Definitive certificates in negotiable form for the securities
comprising the Units to be purchased by the Representative hereunder will be
delivered by the Company to you for the account of the Representative against
payment of the respective purchase prices by the Representative, by wire
transfer or certified or bank cashier's checks in New York Clearing House funds,
payable to the order of the Company.
In addition, in the event the Representative exercises the
option to purchase from the Company all or any portion of the Option Units
pursuant to the provisions of subsection (b) above, payment for such Units shall
be made to or upon the order of the Company by wire transfer or certified or
bank cashier's checks payable in New York Clearing House funds at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, N.Y., at the time and
date of delivery of such Units as required by the provisions of subsection (b)
above, against receipt of the certificates for such Units by you for your
account registered in such names and in such denominations as you may reasonably
request.
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It is understood that the Representative proposes to offer the
Units to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and agrees with
the Representative that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have reasonably objected in writing or which is not in compliance with the Act
and the Rules and Regulations. At any time prior to the later of (A) the
completion by the Representative of the distribution of the Units contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been declared effective) and (B) 25
days after the date on which the Registration Statement shall have become or
been declared effective, the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the Company and the
Representative, may be reasonably necessary or advisable in connection with the
distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Representative and dealers to use
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the Prospectus in connection with the sale of the Units for such period as in
the opinion of counsel to the Representative and the Company the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales by
the Representative or dealer of any event of which the Company has knowledge and
which materially affects the Company or the Units of the Company, or which in
the opinion of counsel for the Company and counsel for the Representative should
be set forth in an amendment of the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to amend
or supplement the Prospectus to comply with law or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Representative, except that in case the Representative is
required, in connection with the sale of the Units to deliver a Prospectus nine
months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Representative, amend or
supplement the Registration Statement and Prospectus and furnish the
Representative with reasonable quantities of prospectuses complying with Section
10(a)(3) of the Act.
The Company will comply with the Act, the Rules and
Regulations and the Units Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder in connection with the offering and issuance of
the Units.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify or
register the Units for sale under the Units or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in Units or to execute a general consent of service of
process in any jurisdiction in any action other than one arising out of the
offering or sale of the Units. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Representative deem reasonably necessary.
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(c) If the sale of the Units provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Representative, up to $100,000
(including the reasonable fees and expenses of counsel to the Representative).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii) to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year,
but no earlier than the filing of such information with the Commission a balance
sheet of the Company and any of its Subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any Subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing of
such information with the Commission, consolidated summary financial information
of the Company for such quarter in reasonable detail; (iii) as soon as they are
publicly available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active Subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
Subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Representative such number of conformed copies
of the Registration Statement, including such financial statements but without
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<PAGE>
exhibits, and of all amendments thereto, as the Representative may reasonably
request. The Company will deliver to or upon your order, from time to time until
the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Representative on the effective date of the Registration
Statement and thereafter for so long as a Prospectus is required to be delivered
under the Act, from time to time, as many copies of the Prospectus, in final
form, or as thereafter amended or supplemented, as the Representative may from
time to time reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Securities substantially for the purposes set forth under "Use of Proceeds"
in the Prospectus.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Representative and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) For a period of twenty four (24) months from the First
Closing Date, no officer, director or 5% or greater shareholder of any
securities prior to the offering will, directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any shares of capital stock or securities
convertible into capital stock without the prior written consent of the
Representative, other than as set forth in the Registration Statement. In order
to enforce this covenant, the Company shall impose stop-transfer instructions
with respect to the securities owned by such individuals prior to the offering
until the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to comply
with any applicable Blue-sky Law,
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the shares held by such individuals will be escrowed with counsel for the
Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty four (24)
months following the First Closing Date, directly or indirectly, offer, sell,
issue or transfer any shares of its capital stock, or any security exchangeable
or exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement including
Form S-8), without the prior written consent of the Representative. Options
granted pursuant to plans must be exercisable at the fair market value on the
date of grant.
(m) Upon completion of this offering, the Company will make
all filings required, including registration under the Exchange Act, to obtain
the listing of the Units, Preferred Stock and the Warrants in the NASDAQ
SmallCap Market system, and will use its best efforts to effect and maintain
such listing for at least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any of the Units,
Preferred Stock, Warrants or Common Stock issuable upon conversion of the
Preferred Stock or exercise of the Warrants.
(o) On the First Closing Date and simultaneously with the
delivery of the Units, the Company shall execute and deliver to you the Purchase
Option. The Purchase Option will be substantially in the form filed as an
Exhibit to the Registration Statement.
(p) On the First Closing Date, the Company will have in force
key person life insurance on the lives of _______ and _______ in an amount of
not less than $_______, payable to the Company, and will use its best efforts to
maintain such insurance during the three year period commencing with the First
Closing Date.
(q) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Representative as
many copies of each
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such Prospectus as such Representative or dealer may reasonably request. The
Company shall not call for redemption of any of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption.
(r) For a period of five (5) years following the Effective
Date, the Company will maintain registration with the Commission pursuant to
Section 12(g) of the Exchange Act and will provide to the Representative copies
of all filings made with the Commission pursuant to the Exchange Act. In the
event that the Company fails to maintain registration with the Commission
pursuant to Section 12(g) during such five year period, the Company will provide
reasonable access to an independent accountant designated by the Representative,
to all books, records and other documents or statements that reflect the
Company's financial status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Representative a warrant
solicitation fee of 5.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Representative) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Representative
and the holder of the warrant designates the Representative in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f) solicitation of
the exercise is in compliance with the NASD Notice to Members 81-38 (September
22, 1981).
(t) For a period of three years from the Effective Date, at
the request of the Representative, the Company shall provide promptly, at the
expense of the Company, copies of the Company's daily transfer sheets furnished
to it by its transfer agent and copies of the securities position listings
provided to it by the Depository Trust Company.
(u) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the
Representative, equal to five percent (5%) of the first $3,000,000 of the
consideration involved in any transaction, 4% of the next $3,000,000 of
consideration involved in the transaction, 3% of the next $2,000,000, 2% of the
next $2,000,000 and 1% of the excess, if any, for future consummated
transactions, if any, introduced by the Representative (including mergers,
acquisitions, joint ventures, and any other business for the Company introduced
by the Representative) consummated by the Company
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(an "Introduced Consummated Transaction"), in which the Representative
introduced the other party to the Company during a period ending five years
following the First Closing Date; and
(ii) That any such finder's fee due hereunder will be paid
in cash or other consideration that is acceptable to the Representative, at the
closing of the particular Introduced Consummated Transaction for which the
finder's fee is due.
(v) Upon the first Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to the
Representative, a two year financial consulting agreement in the form attached
as an Exhibit to the Registration Statement which shall require the Company to
pay the Representative $100,000.00 on the First Closing Date (the "Financial
Consulting Agreement").
(w) For a period of five (5) years following the Effective
Date the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For the three (3) year period commencing on the First
Closing Date, the Company shall have at least two (2) independent directors
acceptable to the Representative as members of the Company's Board of Directors,
one (1) of which may be designated by the Representative. In addition, the
Representative may appoint an advisor who will be able to attend all meetings of
the Board of Directors. However, if the Board of Directors determines that
confidential information is to be discussed during any part of any meeting
attended by such advisor, it shall have the right to exclude the advisor from
the meeting during such discussion. The Representative shall also have the right
to obtain copies of the minutes, if requested, from all Board of Directors
meetings for three (3) years following the Effective Date of the Registration
Statement, whether or not a nominee of the Representative attends or
participates in any such Board meeting. The Company agrees to reimburse the
Representative immediately upon the Representative's request therefor of any
reasonable travel and lodging expenses directly incurred by the Representative
in connection with its representative attending Company Board meetings on the
same basis for other Board members.
4. Conditions of Representative's Obligation. The obligations of
the Representative to purchase and pay for the Units which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of each Closing Date) of and compliance with the
16
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representations and warranties of the Company herein, to the performance by the
Company of its obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which you may agree in writing; on or prior to each
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your knowledge or
to the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Esanu Katsky Korins & Siger,
counsel for the Company, in form and substance satisfactory to counsel for the
Representative, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their business
as described in the Registration Statement and Prospectus and are duly qualified
or licensed to do business as foreign corporations and are in good standing in
each other jurisdiction in which the ownership or leasing of their properties or
conduct of their business requires such qualification except where the failure
to qualify or be licensed will not have a Material Adverse Effect. The Company
owns all of the issued and outstanding capital stock of the Subsidiaries.;
(ii) the authorized capitalization of the Company as of
________ __, 1996 is as set forth in the Registration Statement; the Units,
Preferred Stock, Warrants and Common Stock, issuable upon conversion of the
Preferred Stock and exercise of the Warrants, as set forth in the Registration
Statement have been duly authorized and upon payment of consideration therefor,
will be validly issued, fully paid and non-assessable and conform in all
material respects to the description thereof contained in the Prospectus; to
such counsel's knowledge the outstanding shares of capital stock of the Company
and its Subsidiaries have not been issued in violation of the preemptive rights
of any shareholder and to such counsel's knowledge the shareholders of the
Company do not have any preemptive rights or other rights to subscribe for or to
purchase, nor are there any restrictions upon the voting or transfer of any of
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the capital stock except as provided in the Prospectus or as required by law.
The Units, the Purchase Option and the Warrant Agreement conform in all material
respects to the respective descriptions thereof contained in the Prospectus; the
shares of Preferred Stock, and the shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of Warrants, the Purchase Option,
and the Warrant Agreement will have been duly authorized and, when issued and
delivered in accordance with their respective terms, will be duly and validly
issued, fully paid, non-assessable, free of preemptive rights to the best of
their knowledge; to the best of their knowledge, all prior sales by the Company
of the Company's securities, have been made in compliance with or under an
exemption from registration under the Act and applicable state securities laws;
a sufficient number of shares of Common Stock has been reserved for issuance
upon conversion of the Preferred Stock and exercise of the Warrants and Common
Stock has been reserved for issuance upon exercise of the Warrants contained in
the Purchase Option and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights other than
those which have been waived or satisfied;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the securities comprising
the Units as described in the Registration Statement comply in all material
respects with the descriptions set forth therein, and comply with the Delaware
General Corporation Law, as in effect on the date hereof; each share of
Preferred Stock will be convertible into one share of Common Stock of the
Company; each Warrant will be exercisable for one share of the Common Stock of
the Company, respectively, and at the prices provided for in the Warrant
Agreement;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company or its Subsidiaries is a party which would
materially adversely affect the business, property, financial condition or
operations of the Company or its Subsidiaries; or which question the validity of
the Units, this Agreement, the Warrant Agreement or the Purchase Option, or of
any action taken or to be taken by the Company pursuant to this Agreement, the
Warrant Agreement or the Purchase Option; to such counsel's knowledge there are
no governmental proceedings or regulations required to be described or referred
to in the Registration Statement which are not so described or referred to;
(vi) the execution and delivery of this Agreement, the
Purchase Option or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or constitute
a default under the certificate of incorporation or by-laws of the
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Company or its Subsidiaries, or to the best knowledge of counsel after due
inquiry, in the performance or observance of any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which the
Company or its Subsidiaries is a party or by which they or any of their
properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality or court,
domestic or foreign the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for that purpose have been instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information (including without limitation, the pro forma financial
information) and schedules contained therein, as to which such counsel need
express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or its Subsidiaries is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred to
in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company or its
Subsidiaries is a party of a character required to be
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summarized or described therein or to be filed as exhibits thereto which are not
so summarized, described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Units by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Units
underlying the Purchase Option, other than registrations or qualifications of
the Units under applicable state or foreign Units or Blue Sky laws and
registration under the Act;
(xi) the Units, shares of Preferred Stock and the Warrants
have been duly authorized for quotation on the Nasdaq National SmallCap System
("NASDAQ"); and
(xii) the Company is a reporting Company under Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act") and as
such, since becoming a reporting company thereunder the Company and all
directors, officers and principal stockholders have made all required filings,
and to the best knowledge of counsel, all of such filings conform to the
requirements of the Exchange Act and the rules and regulations thereunder and
none of such filings contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
statement therein not misleading.
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Representative or counsel for the
Representative shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Representative.
(e) You shall have received a letter prior to the Effective
Date and again on and as of the First Closing Date from Moore Stephens, P.C.,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
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(f) At each Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of each
Closing Date taking into account for the Option Closing Dates the effect of the
transactions contemplated hereby and the Company or its Subsidiaries shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change, or to the Company or its Subsidiaries's
knowledge, any development involving a prospective material adverse change, in
the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company or its Subsidiaries from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company or its Subsidiaries shall not have incurred any
material liabilities or entered into any material agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
Prospectus; (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against the
Company or its Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company or its Subsidiaries before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company or its Subsidiaries, and (v) you shall have received, at
the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company or its Subsidiaries, dated as of the
First Closing Date, evidencing compliance with the provisions of this subsection
(f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Representative to purchase and pay
for the Option Units referred to therein will be subject (as of the date hereof
and as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at
the Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your
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knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission for
additional information shall have been complied with to the satisfaction of the
Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Esanu Katsy Korins & Siger, counsel to
the Company, dated as of the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Representative, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Units.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Representative, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Moore
Stephens, P.C., dated the Option Closing Date and addressed to the
Representative confirming the information in their letter referred to in Section
4(e) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Bernstein &
Wasserman, LLP, counsel to the Representative, shall have been furnished with
all such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Preferred Stock or Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Company, shall be contemplated by the Commission or the NASD.
The Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated against it by the Commission or the NASD.
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(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Representative under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Representative notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation shall
be without liability of the Representative to the Company.
5. Conditions of the Obligations of the Company, The obligation of
the Company to sell and deliver the Units is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Representative may agree
in writing.
(b) At the Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Securities on
exercise of the Over-Allotment Option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Representative and each person, if any, who controls the Representative within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees), to which such Representative or such controlling person may become
subject, under the Act or otherwise, and (ii) to reimburse, as incurred, the
Representative and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities; insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) relating to (i) and (ii) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, (B) any blue sky application
or other document executed by the Company specifically for that purpose
containing written information
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<PAGE>
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
will not be required to indemnify the Representative and any controlling person
or be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Representative specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities or litigation
arising from the sale of Securities to any person if a copy of the Prospectus
was not delivered to such person at or prior to the written confirmation of the
sale to such person. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Representative will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the
Representative specifically for use in the preparation thereof and for any
violation by the Representative in the sale of such Units of any applicable
state or federal law or any rule, regulation or instruction thereunder relating
to violations based on unauthorized statements by Representative or its
representative; provided that such violation is not based upon any violation
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of such law, rule or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Representative as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Representative may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party. If it
is ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
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7. Contribution.
In order to provide for just and equitable contribution under
the Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Representative shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Representative is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon and the
Company shall be responsible for the remaining portion; provided, however, that
if such allocation is not permitted by applicable law then allocated in such
proportion as is appropriate to reflect relative benefits but also the relative
fault of the Company and the Representative and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company or the Representative and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Representative agree that it
would not be just and equitable if the respective obligations of the Company and
the Representative to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages or by
any other method of allocation that does not take account of the equitable
considerations referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Representative and each person who
controls the Representative shall be entitled to contribution from the Company,
its officers, directors and controlling persons, and the Company, its officers,
directors and controlling persons shall be entitled to contribution from the
Representative to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Representative. No contribution shall be requested with regard to the settlement
of any matter from any party who did
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not consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Units to the Representative is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Representative, in connection with the qualification of the Units under the
state securities or blue sky laws which the Representative shall designate; the
cost of printing and furnishing to the Representative copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Units, Preferred
Stock and Warrants on Nasdaq or any other securities exchange, the cost of
printing the certificates representing the Securities; fees for bound volumes
and prospectus memorabilia and the fees of the transfer agent and warrant agent.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Representative hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to the Representative a non-accountable expense
allowance of $300,000. In the event the overallotment option is exercised, the
Company shall pay to the Representative at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon exercise
of the overallotment option. In the event the transactions contemplated hereby
are not consummated by reason of any action by the Representative (except if
such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Representative's obligations hereunder required to be fulfilled by the
Company is not fulfilled) the Company shall not be liable for any expenses of
the Representative, including the Representative's legal fees. In the event the
transactions contemplated hereby are not consummated by reason of the Company
being unable to perform its obligations hereunder in all material respects, the
Company shall be liable for the actual accountable out-of-pocket expenses of the
Representative, including reasonable legal fees, not to exceed in the aggregate
$100,000.
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(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Representative or from any other person for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Representative, against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees), to which the Representative
or person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Units. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Units, or the time when the Units are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment it is
impracticable to offer the sale or to enforce contracts made by the
Representative for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company or its Subsidiaries having sustained a material loss,
whether or not insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action, order or
decree, (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof), (iv) a banking moratorium having
been declared by federal or New York state authorities, (v) an outbreak of major
international hostilities involving the United States or other substantial
national or international calamity has occurred, (vi) a pending or threatened
legal or governmental proceeding or action relating generally to the Company's
or its Subsidiaries
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business, or a notification having been received by the Company or its
Subsidiaries of the threat of any such proceeding or action, which would
materially adversely affect the Company or its Subsidiaries; (vii) except as
contemplated by the Prospectus, the Company or its Subsidiaries is merged or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Representative to have a
material adverse impact on the business, financial condition or financial
statements of the Company or its Subsidiaries; (ix) any material adverse change
in the financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement, or (x) any material adverse change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the earnings, business prospects or
general condition of the Company or its Subsidiaries, financial or otherwise,
whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Representative or its designees for a consideration of $125, and upon the terms
and conditions set forth in the form of Purchase Option annexed as an exhibit to
the Registration Statement, a Purchase Option to purchase an aggregate of
125,000 Units. In the event of conflict in the terms of this Agreement and the
Purchase Option with respect to language relating to the Purchase Option, the
language of the Purchase Option shall control.
12. Representations and Warranties of the Representative.
The Representative represents and warrants to the Company that
it is registered as a broker-dealer in all jurisdictions in which it is offering
the Units and that it will comply with all applicable state or federal laws
relating to the sale of the Units, including but not limited to, violations
based on unauthorized statements by the Representative or its representatives.
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13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Representative and the
undertakings set forth in or made pursuant to this Agreement will remain in full
force and effect until three years from the date of this Agreement, regardless
of any investigation made by or on behalf of the Representative, the Company or
any of its officers or directors or any controlling person and will survive
delivery of and payment of the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Patterson Travis, Inc., One Battery Park Plaza, New
York, New York 10004, with a copy sent to Bernstein & Wasserman, LLP, 950 Third
Avenue, New York, New York 10022, Attention: Stuart Neuhauser, or if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at 1770
Motor Parkway, Hauppauge, New York 11788, with a copy sent to Esanu Katsky
Korins & Siger, 605 Third Avenue, New York, New York 10158, Attention: Asher S.
Levitsky, Esq. Notice shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit
of the Representative, the Company, any person controlling the Company or the
Representative, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Representative of the Units.
16. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts
each of which shall be deemed to constitute an original and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
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18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Representative and the Company.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Representative in accordance with
its terms.
Very truly yours,
TRANS GLOBAL SERVICES, INC.
By:
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
PATTERSON TRAVIS, INC.
By:
Name:
Title:
<PAGE>
Exhibit 1.2
Option to Purchase
125,000 Units
TRANS GLOBAL SERVICES, INC.
PURCHASE OPTION
Dated: ________ __, 1996
THIS CERTIFIES that Patterson Travis, Inc., One Battery Park Plaza, New
York, NY 10004 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from TRANS GLOBAL SERVICES, INC. (hereinafter referred to as the
"Company"), at the prices and during the periods as hereinafter specified, up to
125,000 Units, each consisting of one (1) share of Series G Preferred Stock, par
value $.01 per share ("Preferred Stock"), and two (2) Series E Redeemable Common
Stock Purchase Warrants ("Warrants"). Each Warrant entitles the registered
holder thereof to purchase one (1) share of Common Stock at an exercise price of
$3.00 per share. The Warrants (hereinafter, the "Warrants") are exercisable for
a three year period, commencing on the Effective Date.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on ________ __, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 125,000 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company and Patterson Travis,
Inc. as representative of the several underwriters (the "Representative"), in
connection with a public offering of 1,250,000 Units (the "Public Units")
through the Representative, in consideration of $125.00 received for the Option.
Except as specifically otherwise provided herein, the Preferred Stock
and the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of ________ __, 1996, executed in connection
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with such public offering (the "Warrant Agreement"), except that the holder
shall have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Preferred Stock and the Warrants included in the
Option, and the shares of Common Stock underlying the Preferred Stock and the
Warrants, as more fully described in paragraph 6 of this Option. In the event of
any reduction of the exercise price of the Warrants included in the Public
Units, the same changes to the Warrants included in the Option Units and the
components thereof shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between ________ __, 1997 (one (1) year from the
Effective Date) and ________ __, 2001, inclusive, the Holder shall have the
option to purchase Units hereunder at a price of $9.60 per Unit (subject to
adjustment pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After ________ __, 2001, the Holder shall have no
right to purchase any Option Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Units specified in
the above-mentioned purchase form together with applicable stock transfer taxes,
if any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of
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Preferred Stock and Warrants shall be issuable upon such exercise shall become
the holder or holders of record of such Preferred Stock and Warrants at that
time and date. The Preferred Stock and Warrants and the certificates for the
Preferred Stock and Warrants so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) days, after the rights
represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated for a period of one (1) year from the Effective Date, except that
it may be transferred to successors of the Holder, and may be assigned in whole
or in part to any person who is an officer of the Holder or selling group member
of the offering during such period. Any transfer after one (1) year must be
accompanied with an immediate exercise of the Option. Any such assignment shall
be effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Option Units as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Preferred
Stock which may be issued as part of the Option Units purchased hereunder, and
the Common Stock which may be issued upon conversion of the Preferred Stock or
exercise of the Warrants will, upon issuance, be duly and validly issued, fully
paid and nonassessable. The Company further covenants and agrees that during the
periods within which this Option may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of its Preferred
Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon the conversion of the Preferred Stock or exercise of the Warrants
included in the Option Units.
5. This Option shall not entitle the Holder to any voting, dividend,
or other rights as a stockholder of the Company.
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<PAGE>
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, whether the Holder holds the
Option or has exercised the Option and holds Option Units or any of the
securities underlying the Option Units, by written notice at least 30 days prior
to the filing of any post-effective amendment to the Registration Statement or
of any new registration statement or post-effective amendment thereto under the
Act covering any securities of the Company, for its own account or for the
account of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of five years from the effective
date of the Registration Statement, upon the request of the Holder, include in
any such post-effective amendment or registration statement, such information as
may be required to permit a public offering of the Option, all or any of the
Units underlying the Option, the Preferred Stock, or Warrants included in the
Units or the Common Stock issuable upon the conversion of the Preferred Stock or
exercise of the Warrants (the "Registrable Securities"). The Company shall
supply prospectuses and such other documents as the Holder may request in order
to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder designates provided that the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and do any and all other acts and things which may be
reasonably necessary or desirable to enable such Holders to consummate the
public sale or other disposition of the Registrable Securities, and furnish
indemnification in the manner provided in paragraph 7 hereof. The Holder shall
furnish information and indemnification as set forth in paragraph 7 except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities. The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
holders of Registrable Securities requested to be included in the registration
to include such securities in such underwritten offering on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering advises the holders of Registrable Securities that the total
amount of securities which they intend to
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<PAGE>
include in such offering is such as to materially and adversely affect the
success of such offering, then the amount of securities to be offered for the
accounts of holders of Registrable Securities shall be eliminated, reduced, or
limited to the extent necessary to reduce the total amount of securities to be
included in such offering to the amount, if any, recommended by such managing
underwriter or underwriters (any such reduction or limitation in the total
amount of Registrable Securities to be included in such offering to be borne by
the holders of Registrable Securities proposed to be included therein pro rata).
The Holder will pay its own legal fees and expenses and any underwriting
discounts and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option or any of
the underlying securities contained in the Option Units underlying the Option
under such circumstances that a public distribution (within the meaning of the
Act) of any such securities will be involved then the Company will promptly, but
no later than 60 days after receipt of such notice, file a post-effective
amendment to the current Registration Statement or a new registration statement
pursuant to the Act, to the end that the Option, the Units and/or any of the
securities underlying the Option Units may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective for a period of 120 days
(including the taking of such steps as are reasonably necessary to obtain the
removal of any stop order); provided that such holder shall furnish the Company
with appropriate information in connection therewith as the Company may
reasonably request in writing. The 50% holder (which for purposes hereof shall
mean any direct or indirect transferee of such holder) may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act with respect to the
Registrable Securities on only two occasions during the term of this Option. The
Holder may at its option request the registration of the Option, the Units
and/or any of the securities underlying the Option Units in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Units
5
<PAGE>
issuable upon exercise of the Option and even though the Holder has not given
notice of exercise of the Option. The 50% holder may, at its option, request
such post-effective amendment or new registration statement during the described
period with respect to the Option, the Units or separately as to the Preferred
Stock and/or Warrants included in the Option Units and/or the Common Stock
issuable upon the conversion of the Preferred Stock or the exercise of the
Warrants, and such registration rights may be exercised by the 50% holder prior
to or subsequent to the exercise of the Option. Within ten business days after
receiving any such notice pursuant to this subsection (b) of paragraph 6, the
Company shall give notice to the other holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders. Each holder electing to include its Registrable Securities
in any such offering shall provide written notice to the Company within twenty
(20) days after receipt of notice from the Company. The failure to provide such
notice to the Company shall be deemed conclusive evidence of such holder's
election not to include its Registrable Securities in such offering. Each holder
electing to include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of only one such post-effective amendment or new registration
statement shall be borne by the Company, except that the holders shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the
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<PAGE>
Company's request to waive such lock-up. In the event of such postponement, the
Company shall be required to file the registration statement pursuant to this
Section 6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean
the holder of at least 50% of the Preferred Stock and the Warrants underlying
the Option Units (or the Common Stock issuable upon conversion of the Preferred
Stock or the Common Stock issuable upon exercise of the Warrants)(considered in
the aggregate) and shall include any owner or combination of owners of such
securities, which ownership shall be calculated by determining the number of
shares of Preferred Stock held by such owner or owners as well as the number of
shares of Common Stock then issuable upon conversion of the Preferred Stock or
exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses,
7
<PAGE>
claims, damages, or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder or any other Distributing Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said
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<PAGE>
final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Preferred Stock in shares of Preferred
Stock, (ii) subdivide or reclassify its outstanding shares of Preferred Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Preferred Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision,
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combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Preferred Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Preferred Stock outstanding immediately prior to such
action. Notwithstanding anything to the contrary contained in the Warrant
Agreement, in the event an adjustment to the Exercise Price is effected pursuant
to this Subsection (a) (and a corresponding adjustment to the number of Option
Units is made pursuant to Subsection (d) below), the exercise price of the
Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Preferred Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Preferred Stock outstanding immediately prior to such
action. In such event, there shall be no adjustment to the number of shares of
Preferred Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Preferred Stock entitling
them to subscribe for or purchase shares of Preferred Stock (or securities
convertible into Preferred Stock) at a price (the "Subscription Price") (or
having a conversion price per share) less than the current market price of the
Preferred Stock (as defined in Subsection (e) below) on the record date
mentioned below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the number of shares then comprising
Option Units by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Preferred Stock outstanding on the record
date mentioned below and the number of additional shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Preferred Stock, and the denominator of which shall be the sum of the number
of shares of Preferred Stock outstanding on such record date and the number of
additional shares of Preferred Stock offered for
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subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Preferred Stock are not
delivered (or securities convertible into Preferred Stock are not delivered)
after the expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Preferred Stock (or securities
convertible into Preferred Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Preferred Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and-dividends or distributions
referred to in Subsection (a) above) or subscription rights or warrants
(excluding those referred to in Subsection (b) above), then in each such case
the Exercise Price in effect thereafter shall be determined by multiplying the
number of shares then comprising Option Units by the product of the Exercise
Price in effect immediately prior thereto multiplied by a fraction, the
numerator of which shall be the total number of shares of Preferred Stock
outstanding multiplied by the current market price per share of Preferred Stock
(as defined in Subsection (e) below), less the fair market value (as determined
by the Company's Board of Directors) of said assets or evidences of indebtedness
so distributed or of such rights or warrants, and the denominator of which shall
be the total number of shares of Preferred Stock outstanding multiplied by such
current market price per share of Preferred Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such distribution.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Option Units purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Units initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the
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product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b)
or (c) above, the current market price per share of Preferred Stock at any date
shall be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Preferred
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least fifteen
cents ($0.15) in such price; provided, however, that any adjustments which by
reason of this Subsection (i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything in
this Section 8 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Preferred Stock, or any subdivision, reclassification or combination of
Preferred Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of Preferred Stock or securities convertible
into Preferred Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Units issuable upon exercise of this Option
and, if requested, information describing the transactions giving rise
12
<PAGE>
to such adjustments, to be mailed to the Holder, at the address set forth
herein, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder thereafter shall become
entitled to receive any shares of the Company, other than Preferred Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Stock contained in Subsections (a) to (g), inclusive above.
(i) No adjustments shall be made in connection with future public
offerings.
(j) In the event of the occurrence of any of the events set forth
in Section 8(a) through (c) above with respect to the Common Stock of the
Company, the provisions of Section 8(a) through (i) above shall apply and all
references to "Preferred Stock" therein shall be deemed substituted by
references to "Common Stock".
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, Trans Global Services, Inc., has caused this Option
to be signed by its duly authorized officers under its corporate seal, and this
Option to be dated ________ __, 1996.
TRANS GLOBAL SERVICES, INC.
By:__________________________ __
Lewis S. Schiller
Chairman and Chief Executive
Officer
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
____ Units of Trans Global Services, Inc., consisting of one (1) share of Series
G Convertible Preferred Stock, $.01 par value per share and two (2) Series E
Redeemable Common Stock Purchase Warrants and herewith makes payment of
$______________ therefor, and requests that the Warrants and certificates for
shares of Preferred Stock be issued in the name(s) of, and delivered to
_________________________ whose address(es) is (are)
___________________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units of
Trans Global Services, Inc., in the numbers set forth below represented by the
foregoing Option to the extent of _____ Units and appoints
_________________________________ attorney to transfer such rights on the books
of Trans Global Services, Inc., with full power of substitution in the premises.
Dated:
By: ______________________________
Address:
_________________________________
_________________________________
_________________________________
In the presence of:
<PAGE>
Exhibit 1.3
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
TRANS GLOBAL SERVICES, INC.
1,250,000 UNITS
CONSISTING OF
1,250,000 SHARES OF SERIES G PREFERRED STOCK, $.01 PAR VALUE
AND
2,500,000 SERIES E REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1996
Dear Sirs:
1. Patterson Travis, Inc., as representative of the several
underwriters (the "Representative"), has agreed to offer on a firm commitment
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 1,250,000 units of Trans Global Services, Inc. (the "Company"), each
consisting of one (1) share of Series G Convertible Redeemable Preferred Stock,
$.01 par value per share ("Preferred Stock") and two (2) Series E Redeemable
Common Stock Purchase Warrants ("Warrants") (hereinafter, collectively referred
to as the "Units"; including any additional Units offered pursuant to an
over-allotment option, the "Firm Units"). Each Warrant is exercisable to
purchase one (1) share of Common Stock, $.01 par value per share. The Firm Units
are more particularly described in the enclosed Preliminary Prospectus,
additional copies of which, as well as the Prospectus (after effective date),
will be supplied in reasonable quantities upon request.
2. The Representative is soliciting offers to buy Units, upon the
terms and conditions hereof, from Selected Dealers, who are to act as
principals, including you, who are (i) registered with the Securities and
Exchange Commission ("the Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("the 1934 Act"), and members in good standing
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<PAGE>
with the National Association of Securities Dealers, Inc. ("the NASD"), or (ii)
dealers of institutions with their principal place of business located outside
the United States, its territories and possessions and not registered under the
1934 Act who agree to make no sales within the United States, its territories
and possessions or to persons who are nationals thereof or residents therein
and, in making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. The Units are to be offered to the public at a
price of $8.00 per Unit. Selected Dealers will be allowed a concession of not
less than __% of the aggregate offering price. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. The offer is solicited subject to the issuance and
delivery of the Units and their acceptance by the Representative, to the
approval of legal matters by counsel and to the terms and conditions as herein
set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Units has become effective with the Commission. Subject
to the foregoing, upon execution by you of the Offer to Purchase below and the
return of same to us, you shall be deemed to have offered to purchase the number
of Units set forth in your offer on the basis set forth in paragraph 2 above.
Any oral notice by us of acceptance of your offer shall be immediately followed
by written or telegraphic confirmation preceded or accompanied by a copy of the
Prospectus. If a contractual commitment arises hereunder, all the terms of this
Selected Dealers Agreement shall be applicable. We may also make available to
you an allotment to purchase Units, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange of
confirmations reflecting completed transactions. All references hereafter in
this Agreement to the purchase and sale of the Units assume and are applicable
only if contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Units, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Units purchased by you remaining unsold,
and we shall have the right to repurchase such Units upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of the
Units purchased by you pursuant to this Agreement are to be re-offered by you to
the public at the public offering price, subject to the terms hereof and shall
not be offered or sold by you below the public offering price before the
termination of this Agreement.
5. Payment for Units which you purchase hereunder shall be made by
you on such date as we may determine by certified or bank cashier's check
payable in New York Clearinghouse funds to Patterson Travis, Inc. Certificates
for the Preferred Stock and Warrants comprising the Units shall be delivered as
soon as practicable at the offices of Patterson Travis, Inc., One Battery Park
Plaza, New York, NY 10004. Unless specifically authorized by us, payment by you
may not be deferred until delivery of certificates to you.
6. A registration statement covering the offering has been filed with
the Commission
2
<PAGE>
in respect to the Units. You will be promptly advised when the registration
statement becomes effective. Each Selected Dealer in selling the Units pursuant
hereto agrees (which agreement shall also be for the benefit of the Company)
that it will comply with the applicable requirements of the Securities Act of
1933 and of the 1934 Act and any applicable rules and regulations issued under
said Acts. No person is authorized by the Company or by the Representative to
give any information or to make any representations other than those contained
in the Prospectus in connection with the sale of the Units. Nothing contained
herein shall render the Selected Dealers a member of the underwriting group or
partners with the Representative or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units have been qualified for sale or are exempt under
the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Units in any state.
8. The Representative shall have full authority to take such action
as we may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Representative shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set
forth until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Units; such contractual commitment can only be made in
accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("Association") and registered
as a broker-dealer or are not eligible for membership under Section I of the
By-Laws of the Association who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's interpretation
with respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of Units from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules and releases, and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Units.
3
<PAGE>
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Units or its
component securities in the open market or otherwise make a market in such
securities or otherwise attempt to induce others to purchase such securities in
the open market. Nothing contained in this paragraph 11 shall, however, preclude
you from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Representative may in connection with the
offering engage in stabilizing transactions. If the Representative contracts for
or purchases in the open market in connection with such stabilization any Units
sold to you hereunder and not effectively placed by you, the Representative may
charge you the Selected Dealer's concession originally allowed you on the Units
so purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your net
capital is such that you may, in accordance with Rule 15c3-1 adopted under the
1934 Act, agree to purchase the number of Units you may become obligated to
purchase under the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the
purchase of Firm Units unless you shall have reasonable grounds to believe that
the recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Units in a discretionary account without the prior specific written
approval of the customer.
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<PAGE>
15. You represent that neither you nor any of your affiliates or
associates owns any capital stock of the Company.
16. All communications from you should be directed to us at the office
of Patterson Travis, Inc., One Battery Park Plaza, New York, New York 10004. All
communications from us to you shall be directed to the address to which this
letter is mailed.
Very truly yours,
PATTERSON TRAVIS, INC.
By:
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1996
[Name of Dealer]
By: ____________________________
Its
5
<PAGE>
TO: Patterson Travis, Inc.
One Battery Park Plaza
New York, New York 10004
We hereby subscribe for Units, of Trans Global Services, Inc., each
Unit consisting of one (1) share of Series G Convertible Redeemable Preferred
Stock, $.01 par value per share and two (2) Series E Redeemable Common Stock
Purchase Warrants in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Prospectus referred to in
the first paragraph thereof relating to said Units. We further state that in
purchasing said Units we have relied upon said Prospectus and upon no other
statement whatsoever, whether written or oral. We confirm that we are a dealer
actually engaged in the investment banking or securities business and that we
are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. We hereby agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, and if we are a foreign dealer and not a member of the NASD, we also agree
to comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III thereof as that Section applies
to non-member foreign dealers.
Name of
Dealer:_____________________________
By:
Address:__________________________
__________________________
Dated: , 1996
6
<PAGE>
Exhibit 1.4
FINANCIAL CONSULTING AGREEMENT
Agreement made this ___ day of _____, 1996 by and between
Patterson Travis, Inc. ("Consultant") and Trans Global Services, Inc. (the
"Company").
WHEREAS, the Company desires to obtain Consultant's consulting
services in connection with the Company's business and financial affairs, and
Consultant is willing to render such services as hereinafter more fully set
forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Company hereby engages and retains Consultant and
Consultant hereby agrees to use its best efforts, to render to the Company the
consulting services hereinafter described for a period of two years commencing
as of, and conditioned upon, the closing of the underwriting contemplated in the
Registration Statement on Form SB-2, No. 333-_____, declared effective by the
Securities and Exchange Commission on ________ __, 1996.
2. Consultant's services hereunder shall consist of
consultations with the Company concerning investment banking and other financial
matters to be determined by the Company.
3. The Company agrees that Consultant shall not be precluded
during the term of this Agreement from providing other consulting services or
engaging in any other business activities whether or not such consulting
services or business activities are pursued for gain, profit or other pecuniary
advantage and whether or not such consulting activities are in direct or
indirect competition with the business activities of the Company.
4. The Company agrees to pay to Consultant for its services
hereunder the sum of Fifty Thousand Dollars($50,000) per year for each of the
two years of the term of this Agreement. The Company agrees that the entire sum
due to Consultant hereunder, One Hundred Thousand Dollars($100,000), shall be
paid in full on the date hereof.
5. Consultant shall be entitled to reimbursement by the
Company of such reasonable out-of-pocket expenses as Consultant may
incur in performing services under this Agreement.
1
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6. All final decisions with respect to consultations or
services rendered by Consultant pursuant to this Agreement shall be those of the
Company, and there shall be no liability on the part of the Consultant in
respect thereof. This Agreement and the Underwriting Agreement dated ________
__, 1996 contain the entire agreement of the parties hereto with respect to the
subject matter hereof, and there are no representations or warranties other than
as shall be herein or therein set forth. No waiver or modification hereof shall
be valid unless in writing. No waiver of any term, provision or condition of
this Agreement, in any one or more instance, shall constitute a waiver of any
other provision thereof, whether or not similar, nor shall such waiver
constitute a continuing waiver.
7. This Agreement shall be governed, construed and
enforced in accordance with the laws of the State of New York, without regard to
the principals of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused the
agreement to be signed as of the day and year first above written.
TRANS GLOBAL SERVICES, INC.
By:____________________________
Name:
Title:
PATTERSON TRAVIS, INC.
By:___________________________
Name:
Title:
2
<PAGE>
Exhibit 4.1
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1996, by and among Trans
Global Services, Inc., a Delaware corporation (the "Company"), American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"), and Patterson
Travis, Inc., a [ ] corporation (the "Representative" or "Patterson Travis").
WITNESSETH:
WHEREAS, in connection with a public offering of one million two
hundred fifty thousand (1,250,000) Units (the "Units"), each Unit consisting of
one share of Series G Convertible Redeemable Preferred Stock, par value $.01 per
share, and two Series E Redeemable Common Stock Purchase Warrants (the
"Warrants") pursuant to an underwriting agreement (the "Underwriting Agreement")
dated as of [ ] 1996, between the Company and the several underwriters of which
Patterson Travis is the representative (Patterson Travis and the several
underwriters referred to collectively as the "Underwriters"), the Company may
issue up to two million eight hundred seventy five thousand (2,875,000)
Warrants; and
WHEREAS, in connection with the issuance, pursuant to the Underwriting
Agreement, to Patterson Travis or its designees of a unit purchase option (the
"Unit Purchase Option"), the Company may issue up to two hundred fifty thousand
(250,000) Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, as
hereinafter defined, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
<PAGE>
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date of this Agreement at
40 Wall Street, 46th floor, New York, New York 10005.
(b) "Effective Date" shall mean the date that the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the Purchase Price; provided, however, that, subject to Paragraph 4(a) of this
Agreement, if payment shall be made by personal or corporate check, the exercise
of the Warrant shall not be effective until the Warrant Agent shall be satisfied
that the check shall have cleared; provided, further, that if such payment is
made prior to the Warrant Expiration Date or the expiration of a period during
which a reduced Purchase Price is in effect pursuant to Paragraph 9(f) of this
Agreement and the check shall not have cleared until after the Warrant
Expiration Date or such other date, then the Warrant shall be deemed to have
been exercised immediately prior to 5:00 P.M. New York City time on the Warrant
Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be three dollars ($3.00) per share with respect to the
Warrants, subject to adjustment from time to time pursuant to the provisions of
Paragraph 9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms of
this Agreement, which price shall be five cents ($.05) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form S-1, File No. [333- ], which was declared
effective by the Commission on [ ], 1996.
(g) "Registered Holder" shall mean, as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Paragraph 6 of this Agreement.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
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<PAGE>
(i) "Warrant Certificate" shall mean the certificates (attached
hereto as Exhibit A) representing the Warrants.
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York
City time on the first to occur of (i) [ ], 1999, or (ii) the business day
immediately preceding the Redemption Date, as defined in Paragraph 8(c) of this
Agreement; provided, that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, the Warrant
Expiration Date shall be the next day which is not such a date. Upon notice to
all warrant holders the Company shall have the right to extend the Warrant
Expiration Date.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
(l) "Warrants" shall mean the Warrants.
2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms of this
Agreement, subject to modification and adjustment as provided in Paragraph 9 of
this Agreement.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the shares of Common Stock issuable upon
the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued hereunder
or otherwise issuable pursuant to the Underwriting Agreement, including those
issuable in exchange for certain outstanding warrants, (ii) those issued on or
after the date of this Agreement, upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised Warrants
held by the exercising Registered Holder, (iii) those issued upon any transfer
or exchange pursuant to Paragraph 6 of this Agreement; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Paragraph 7 of this Agreement; (v) those issued pursuant to the
Underwriter's
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<PAGE>
Option, and (vi) at the option of the Company, in such form as may be approved
by the Board of Directors, to reflect any adjustment or change in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants made pursuant to Paragraph 9 of this Agreement. In addition, at the
discretion of the Company, the Company may authorize the issuance of additional
Warrants, which shall be subject to the provisions of this Agreement.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Warrants shall be
substantially in the form annexed as Exhibit A to this Agreement, (the
provisions of which are hereby incorporated herein) and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage or to the
requirements of Paragraph 2(b) of this Agreement. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
or exchange in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrant Certificates shall be
numbered serially with the letter WA or other letters acceptable to the Company
and the Warrant Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed the Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Paragraph 4 of this Agreement.
4. Exercise.
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<PAGE>
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time during the two year period commencing one year from the
Effective Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein and in the Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
and shall notify the Company in writing of the exercise of the Warrant. Promptly
following, and in any event within five (5) days after the date of such notice
from the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause
to be issued and delivered by the Transfer Agent, to the person or persons
entitled to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Representative or such other investment banks
and brokerage houses as the Company shall approve in writing to the Warrant
Agent, by the Representative or such other investment bank or brokerage house,
certificates shall immediately be issued without prior notice to the Company or
any delay. Upon the exercise of any Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit the payment received for the Warrant (the
"Warrant Proceeds") to the Company or as the Company may direct in writing,
subject to the provisions of Paragraphs 4(b) and 4(c) of this Agreement.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after one year from the Effective Date, (i) the market price of the
Company's Common Stock is greater than the Purchase Price then in effect, (ii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant was not held
in a discretionary account, (iv) disclosure of compensation arrangements was
made both at the time of the original offering and at the time of exercise of
the Warrant was not in violation of Rule 10b-6 (as such rule or any successor
rule may be in effect as of such time of exercise) promulgated under the
Securities Exchange Act of 1934, then the Warrant Agent, simultaneously with the
distribution of the Warrant Proceeds to the Company shall, on behalf of the
Company, pay from the Warrant Proceeds, a fee of five percent (5%) (the "Monroe
Parker's Fee") of the Purchase Price to Monroe Parker (a portion of which may be
reallowed by Monroe Parker to the dealer who solicited the exercise, which may
also be Monroe Parker).
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In the event Monroe Parker's Fee is not paid within ten (10) days of the date on
which the Company receives Warrant Proceeds, then Monroe Parker's Fee shall
begin accruing interest at an annual rate of prime plus four (4)%, payable by
the Company to Monroe Parker at the time the Company pays Monroe Parker's Fee.
Within five (5) business days after exercise, the Warrant Agent shall send to
Monroe Parker a copy of the reverse side of each Warrant exercised. Monroe
Parker shall reimburse the Warrant Agent, upon request, for its reasonable
expenses relating to compliance with this Paragraph 4(b). In addition, Monroe
Parker and the Company may, at any time during business hours, examine the
records of the Warrant Agent, including its ledger of original Warrant
Certificates returned to the Warrant Agent upon exercise of Warrants. The
provisions of this Paragraph 4(b) may not be modified, amended or deleted
without the prior written consent of the Representative.
(c) In order to enforce the provisions of Paragraph 4(b) of this
Agreement, the Warrant Agent is hereby expressly authorized to withhold payment
to the Company of the Warrant Proceeds unless and until the Company establishes
an escrow account for the purpose of depositing the entire amount of Monroe
Parker's Fee, which amount will be deducted from the net Warrant Proceeds to be
paid to the Company. The funds placed in the escrow account may not be released
to the Company without a written agreement from Monroe Parker that the required
Monroe Parker's Fee has been received by Monroe Parker.
5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all Warrant Shares shall, at the time of delivery in accordance
with this Agreement, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue thereof (other
than those which the Company shall promptly pay or discharge), and that upon
issuance such shares shall be listed on each national securities exchange or
eligible for inclusion in each automated quotation system, if any, on which the
other shares of outstanding Common Stock of the Company are then listed or
eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any Federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities,
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however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions of this Agreement, the Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
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(d) A reasonable service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchanges, registration or transfer of Warrant Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Representative, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly being offered in
Units with shares of Common Stock pursuant to the Underwriting Agreement, will
be immediately detachable from the Common Stock and transferable separately
therefrom.
(g) Notwithstanding any other provisions of this Agreement,
the Unit Purchase Options may not be sold, transferred, assigned or hypothecated
for a period of one year from the Effective Date except to the officers of the
Underwriters or to selling group members or officers or partners or members
thereof, all of whom shall be bound by such restrictions. Until the expiration
of such one-year period, Warrant certificates and stock certificates shall be
marked with a legend referring to such restriction.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
(a) Commencing one year from the Effective Date or earlier
with the consent of the Representative, the Company shall have the right, on not
less than thirty (30) nor more than sixty (60)
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days notice given prior to the Redemption Date, as hereinafter defined, at any
time to redeem the then outstanding Warrants at the Redemption Price of five
cents ($.05) per Warrant, provided the Market Price of the Common Stock shall
equal or exceed the "Target Price." The "Target Price" shall mean one hundred
thirty three and one-third hundred percent (133-1/3%) of the Purchase Price.
Market Price for the purpose of this Paragraph 8 shall mean, if the Common Stock
is listed on the NASDAQ System or the New York or American Stock Exchange, the
average last reported sales price (or, if no sale is reported on any such
trading day, the closing bid price) on the principal market for the Common Stock
or, if the Common Stock is not so listed or traded, the average of the last
reported high bid and low asked prices of the Common Stock, during the twenty
(20) days ending within fifteen (15) days of the date the Warrants are called
for redemption. Notice of redemption shall be mailed by first class mail,
postage prepaid, not later than five (5) business days (or such longer period to
which the Representative may consent) after the date the Warrants are called for
redemption. All Warrants must be redeemed if any Warrants are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request Patterson Travis or the Warrant Agent to mail the
notice of redemption referred to in said Paragraph 8(a) to each of the
Registered Holders of the Warrants to be redeemed, first class, postage prepaid,
not earlier than the sixtieth (60th) day nor later than the thirtieth (30th) day
before the date fixed for redemption, at their last addresses as shall appear on
the records maintained pursuant to Paragraph 6(b) of this Agreement. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice. The
Warrant Agent agrees to mail such notice if requested by the Company or the
Representative.
(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the Redemption Price shall be paid, and (iv)
that the right to exercise the Warrants shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (A) to whom notice was not mailed or (B) whose
notice was defective. An affidavit of the Warrant Agent or of the Secretary or
an Assistant Secretary of the Representative or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
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(d) Any right to exercise a Warrant, and any right of the
holders of the Unit Purchase Option to receive Warrants upon exercise of the
Unit Purchase Option, shall terminate at 5:00 p.m. (New York City time) on the
business day immediately preceding the Redemption Date. After such time, Holders
of the Warrants shall have no further rights except to receive, upon surrender
of the Warrant, the Redemption Price without interest, subject to the provisions
of applicable laws relating to the treatment of abandoned property. In the event
that the Warrants or the Warrant Shares shall not be subject to a current and
effective registration statement under the Securities Act of 1933, as amended,
at any time subsequent to the date the Warrants are called for redemption, the
notice of redemption shall not be effective and shall be deemed for all purposes
not to have been given. Nothing in the preceding sentence shall be construed to
prohibit or restrict the Company from thereafter calling the Warrants for
redemption in the manner provided for, and subject to the provisions of, this
Paragraph 8.
(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of redemption,
upon presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the Redemption Price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) Notwithstanding any other provision of this Agreement, the
Company shall not call the Warrants for redemption unless there is, at the time
the Warrants are called for redemption, a current and effective registration
statement or a post-effective amendment to the Registration Statement covering
the issuance of the shares of Common Stock issuable upon exercise of the
Warrants.
(g) In the event that the Unit Purchase Option is exercised at
a time subsequent to the redemption of the Warrants but prior to the Warrant
Expiration Date, as defined in Paragraph 1(i)(i) of this Agreement, then,
notwithstanding any other provisions of this Agreement, the Warrants issued upon
such exercise may be redeemed by the Company at any time after issuance.
9. Adjustment of Exercise Price and Number of Securities Issuable
upon Exercise of Warrants.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution on
its shares of Common Stock in shares of Common Stock, subdivide or reclassify
its outstanding Common Stock into a greater number of shares, or combine or
reclassify its outstanding Common Stock into a smaller number of shares or
otherwise effect a reverse
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split, the Purchase Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Warrant exercised after such date shall be entitled to receive the
aggregate number and kind of shares which, if such Warrant had been exercised
immediately prior to such time, he would have owned upon such exercise and been
entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed in this Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of Common
Stock (or securities convertible into Common Stock) at a price (or having a
conversion price per share) less than the current market price of the Common
Stock (as defined in Paragraph 9(e) of this Agreement) on the record date
mentioned below, the Purchase Price shall be adjusted so that the same shall
equal the price determined by multiplying the Purchase Price in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and of which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants, the
Purchase Price shall be readjusted to the Purchase Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock evidences
of its indebtedness or assets (excluding cash dividends or distributions paid
out of current earnings and dividends or distributions referred to in Paragraph
9(a) of this Agreement) or subscription rights or warrants (excluding those
referred to in Paragraph 9(b) of this Agreement), then in each such case the
Purchase Price in effect thereafter shall be
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determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the total number of shares of
Common Stock outstanding multiplied by the current market price per share of
Common Stock (as defined in Paragraph 9(e) of this Agreement), less the fair
market value (as determined by the Company's Board of Directors) of said assets
or evidences of indebtedness so distributed or of such rights or warrants, and
of which the denominator shall be the total number of shares or Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(d) Whenever the Purchase Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this Agreement,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares issuable
upon exercise of each Warrant in effect on the date thereof by the Purchase
Price in effect on the date thereof and dividing the product so obtained by the
Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to Paragraphs
9(b) and (c) of this Agreement, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for thirty (30) consecutive business days commencing forty-five (45) business
days before such date. The closing price for each day shall be the reported last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported high bid and low asked prices regular way,
in either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, if the Common Stock is admitted to
trading or listing on the New York or American Stock Exchange or on The Nasdaq
Stock Market if included in such system or if not listed or admitted to trading
on such exchange or system, the average of the highest bid and lowest asked
prices as reported by Nasdaq, or the National Quotation Bureau, Inc. or another
similar organization if Nasdaq is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of Directors
of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which by
reason of this Paragraph 9(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Anything in this Paragraph 9 to the
contrary notwithstanding, the Company may, upon notice to the record holders of
the Warrants, in its sole discretion, reduce the Purchase Price of the Warrants,
and, if such reduction is not
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otherwise required by this Paragraph 9, such reduction (i) will not, unless the
Board of Directors otherwise determines, result in any change in the number or
class of shares of Common Stock issuable upon exercise of such Warrants, and
(ii) may be of limited duration, in which event the reduction in Purchase Price
shall not apply to any Warrants exercised after the expiration of the time
during which the reduced Purchase Price is in effect.
(g) The Company may retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Paragraph 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Agreement, the holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs 9(a) to (f),
inclusive, of this Agreement.
(i) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record and each Warrant issuable upon exercise of the Unit
Purchase Option prior to such adjustment of the number of Warrants shall become
that number of Warrants or an Unit Purchase Option to purchase that number of
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Warrants pursuant to this Paragraph 9, the Company shall, as
promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Paragraph 10 of this Agreement, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment. With respect to the Representative's
Option, the Company shall give the registered holders of the Representative's
Option
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notice as to the number of Warrants issuable in respect of such Representative's
Option reflecting such adjustment. Any Warrants or notice to registered holders
of Representative's Option may be mailed by the Warrant Agent or by first class
mail, postage prepaid.
(j) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provisions shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 9. The Company
shall not effect any such consolidation, merger or sale unless, prior to or
simultaneously with the consummation thereof, the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that, as a result of any merger, consolidation or similar transaction, all of
the holders of Common Stock receive and are entitled to receive no consideration
other than cash in respect of their shares of Common Stock, then, at the
effective time of the transaction, the rights to purchase Common Stock pursuant
to the Warrants shall terminate, and the holders of the Warrants shall,
notwithstanding any other provisions of this Agreement or the Warrants, receive
in respect of each Warrant to purchase one (1) share of Common Stock, upon
presentation of the Warrant Certificate, the amount by which the consideration
per share of Common Stock payable to the holders of Common Stock at such
effective time exceeds the Purchase Price in effect on such effective date,
without giving effect to the transaction. In
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the event that, subsequent to the effective time, additional cash or other
consideration is payable to the holders of Common Stock of record as of the
effective time, the same consideration shall be payable to the holders of the
Warrants to the extent that the total cash then received by the holders of
Common Stock exceeds the Purchase Price in effect at such effective date,
without giving effect to the transaction, with the same effect as if the
Warrants had been exercised on and as of such effective time. In the event of
any merger, consolidation, sale or lease of substantially all of the Company's
assets or reorganization whereby the Company is not the surviving corporation,
in lieu of the foregoing provisions of this Paragraph 9(j), the Company may
provide in the agreement relating to the transaction that each Warrant shall
become, be converted into or be exchanged for, such securities of the surviving
or acquiring corporation or other entity as has a value equal to the value of
the Warrants, the value of the Warrants and securities being issued in exchange
therefor to be determined by the Company's Board of Directors, such
determination to be final, binding and conclusive on the Company and the holders
of the Warrants.
(k) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Paragraphs 2(e) and 9(i) of this Agreement, continue to express the
Purchase Price per share, the number of shares purchasable thereunder and the
Redemption Price therefor as if the Purchase Price per share, and the number of
shares purchasable and the Redemption Price therefore were expressed in the
Warrant Certificates when the same were originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice President or Treasurer, of the Company setting forth:
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by first class mail to the Representative and
to each registered holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, constitute prima facie evidence of the facts stated therein.
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(m) As used in this Paragraph 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or, in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Paragraph 9(j) of this Agreement, the stock, securities or property provided
for in such section or, in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9, or
as to the amount of any such adjustment, if required, shall be binding upon the
holders of the warrants and the Company if made in good faith by the Board of
Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. If the Company exercises such right
no adjustment which otherwise might be called for pursuant to said Paragraph
9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Paragraph 9 of this Agreement, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
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<PAGE>
(a) If the Common Stock is listed on the New York or American
Stock Exchange or admitted to unlisted trading privileges on such exchange or
listed for trading on the Nasdaq Stock Market, the current value shall be the
reported last sale price of the Common Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant, or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange or system; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the last reported bid price
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained in this
Agreement be construed to confer upon the holder of Warrants, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action (whether upon
any recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provide in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance of the Warrants, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly
- 17 -
<PAGE>
endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Paragraph 6 of this Agreement.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and cancelled by it and retired.
15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined solely
by the provisions of this Agreement. The Warrant Agent shall not, by issuing and
delivering Warrant certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or wilful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board,
- 18 -
<PAGE>
President, any Vice President, its Secretary, or Assistant Secretary, unless
other evidence in respect thereof is specifically prescribed in this Agreement.
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand believed by it to be genuine.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or wilful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own negligence or wilful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense. Upon
such resignation, or any inability of the Warrant Agent to act as such under
this Agreement, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason, it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant
- 19 -
<PAGE>
Agent shall be a successor warrant agent under this Agreement without any
further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the preceding paragraph.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the Registered Holder of
each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company
may, by supplemental agreement, make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing not less than fifty
percent (50%) of the Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or the Purchase Price therefor, or the acceleration of the
Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as originally
executed or are made in compliance with applicable law; and provided, further,
that Paragraphs 4(b) and 4(c) may not be modified or amended without the consent
of Patterson Travis.
17. Notices. All notices provided for in this Agreement
shall be in writing signed by the party giving such notice, and, unless
otherwise expressly provided in this Agreement, delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered or
certified mail (air mail if overseas), return receipt requested, or by facsimile
transmission or similar means of communication. Notices sent by facsimile
transmission or similar means of communication shall be confirmed by
acknowledged receipt or by registered or certified mail, return receipt
requested. Notices shall be deemed to have been received on the date of personal
delivery or telecopy or, if sent by certified or registered mail, return receipt
requested, shall be deemed to be delivered on the third business day after the
date of mailing. Notices shall be sent to the Registered Holders at their
respective addresses on the Warrant Agent's warrant register, to the Company at
1770 Motor Parkway, Hauppage, New York
- 20 -
<PAGE>
11788 telecopier (516) 582-9052, Attention: Mr. Lewis S. Schiller, Chairman
of the Board, to the Warrant Agent at its Corporate Office, telecopier (718)
236-2641, and to the Representative at One Battery Park Plaza, New York, New
York 10004, telecopier (212) 747-0504, Attention: Judah Wernick. Any party may,
by like notice, change the address, person or telecopier number to which notice
should be given.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements entered and to be performed wholly within such State.
19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
- 21 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
TRANS GLOBAL SERVICES, INC
By:
Lewis S. Schiller, CEO
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:
, Authorized Officer
PATTERSON TRAVIS, INC.
By:
, Authorized Officer
- 22 -
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. WA ______ Warrants
Void after , 1999 or earlier upon redemption.
TRANS GLOBAL SERVICES, INC
SERIES E REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED ______________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Series E Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one (1) fully paid and nonassessable share of Common
Stock, par value $.01 per share ("Common Stock"), of Trans Global Services,
Inc., a Delaware corporation (the "Company"), at any time prior to the
Expiration Date (as hereinafter defined), upon the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock Transfer
& Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $3.00, subject to adjustment as provided in the
Warrant Agreement (as hereinafter defined) (the "Purchase Price") in lawful
money of the United States of America in cash or by official bank or certified
check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of ,
1996, by and among the Company, the Warrant Agent and Monroe Parker Securities,
Inc.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time) on
, 1999 or earlier upon redemption as hereinafter provided. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized or required to close, then the Expiration Date shall mean 5:00 P.M.
(New York City time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized or required to close. Under
certain circumstances as provided in the Warrant Agreement, the period during
which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon payment by the Registered Holder of any tax or
other governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificate representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing, , 1997 or earlier as provided in the Warrant
Agreement, this Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time, provided the Market Price (as
defined in the Warrant Agreement) for the Common Stock issuable upon exercise of
such Warrant shall equal or exceed 133-1/3% of the Purchase Price. Notice of
redemption shall be given not later than the thirtieth (30th) day nor earlier
than the sixtieth (60th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.05 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant, is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
TRANS GLOBAL SERVICES, INC
Dated:____________ By:_____________________________
Lewis S. Schiller, Chairman
By:_____________________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Warrant Agent
By:______________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $4.00 PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Monroe Parker Securities,
Inc.
__________________________________________
(Name of NASD Member if other than
Monroe Parker Securities, Inc.)
Dated:____________ x__________________________
_______________________________
_______________________________
_______________________________
_______________________________
Address
_______________________________
Taxpayer Identification Number
_______________________________
Signature Medallion Guaranteed:
_______________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,____________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
______ of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _________________________ Attorney to
transfer this Warrant Certificate on the books of the Company, with full power
of substitution in the premises.
Dated:____________ x_________________________
Signature Medallion Guaranteed
_________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
Exhibit 10.16
Date: , 1995
Concept Technologies Group, Inc.
6632 Central Avenue Pike
Knoxville, Tennessee 37912
Attention of Mr. Milton E. McNally, President
Subscription Agreement
Dear Sirs:
Pursuant to a private offering by Concept Technologies Group, Inc., a Delaware
corporation (the "Company"), the undersigned (the "Subscriber") hereby tenders
his subscription for the Company's units (the "Units"), each Unit consisting of
one (1) share of Common Stock, par value $.01 per share ("Common Stock"), and
three (3) Series A Common Stock Purchase Warrants (the "Warrants") at a purchase
price of three dollars ($3.00) per Unit. The Company is issuing the Units to a
limited number of accredited investors, as defined in Rule 501 of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a private offering.
In consideration of the mutual covenants and agreements set forth herein, the
Company and the Subscriber hereby agree as follows:
1. (a) The Subscriber hereby agrees to purchase from the
Company, and the Company agrees to sell to the Subscriber, the number of Units
set forth on the signature page of this Agreement, at a purchase price of three
dollars ($3.00) per Unit. The aggregate purchase price of the Units subscribed
for by the Subscriber is set forth on the signature page of this Agreement.
Payment of the purchase price shall be made by certified or bank check payable
to "Concept Technologies Group, Inc. Escrow Account."
(b) The proceeds from the subscription will be held placed
in a special escrow account, and will not be released from escrow until the
conditions set forth in Paragraph 6 of this Agreement shall have been met, and
the Company shall have received a certificate from its chief executive officer
to such effect. If such conditions shall not have been met by May 31, 1995,
which date may be extended by the Company for an aggregate of not more than
sixty (60) days, the funds will be returned to the Subscriber without interest
or deduction.
2. The Company represents and warrants to the Subscriber as
follows:
(a) The Company is a corporation duly and validly organized
and existing under the laws of the State of Delaware, and has the full corporate
power and authority to conduct its business as presently conducted.
(b) All necessary corporate approval to the transactions
contemplated by this Agreement have been taken, and this Agreement constitutes,
and the Warrants, when issued upon receipt of the purchase price for the Units,
will constitute, the valid and binding obligations of the Company, enforceable
in accordance with their respective terms.
(c) The shares of Common Stock included as part of the Units
(the "Shares") and the shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") have been authorized for issuance and, when
issued upon payment of the purchase price of the Units or the exercise price of
the Warrants, as the case may be, will be duly and validly issued, fully paid
and non-assessable, and not issued in violation of the preemptive rights or
rights of first refusal or other similar rights of any person.
- 1 -
<PAGE>
(d) Neither the execution or delivery of this Agreement nor
the issuance or delivery of the Units by the Company nor the performance by the
Company of the terms of this Agreement requires the consent, waiver, approval,
license or authorization of or filing with any person or public authority
(except any filings required by Federal or state securities laws, which filings
have been or will be made by the Company), or violate any provision of law
applicable to the Company or conflict with or result in a breach or termination
of any provision of, or constitute a default under, or will result in the
creation of any lien, charge or encumbrance upon any of the property or assets
of the Company pursuant to, any corporate charter, by-laws, mortgage, deed of
trust, indenture or other agreement or instrument, or any order, judgment,
decree, statute, regulation or any other restriction of any kind or character to
which the Company is a party or by which any of the assets of the Company may be
bound, with or without the giving of notice, the passage of time of both.
(e) The Company has executed a certain agreement (the "Trans
Global Agreement") dated as of March 31, 1995, among SIS Capital Corp., DLB,
Inc., Joseph G. Sicinski and the Company, pursuant to which the Company will
acquire all of the issued and outstanding capital stock of Trans Global
Services, Inc., a Delaware corporation ("Trans Global").
(f) The Warrants will be in substantially the form included
in the Disclosure Documents, as hereinafter defined.
3. The Subscriber understands and agrees that, after the
Company's receipt of this Agreement, the Company will review the Subscriber's
eligibility and will determine whether to accept or reject this subscription in
whole or in part. The Company may determine to reject this subscription in whole
or in part in its sole and absolute discretion. In making such determination,
the Company may request, and the Subscriber agrees to provide, additional
financial and other information about the Subscriber. If this subscription is
accepted in whole, then the Company will issue the Units subscribed for to the
Subscriber. If this subscription is rejected in whole, this Agreement and any
other subscription materials will be promptly returned to the Subscriber and the
Subscriber's subscription payment will be refunded to the Subscriber without
interest. In that event, the Subscriber and the Company will have no further
rights or claims against each other by virtue of this Agreement. If this
subscription is accepted in part and rejected in part, the Company is authorized
to amend this Agreement to reflect the number of Units for which this
subscription is accepted, and the Company will issue the Shares and Warrants
comprising the Units as to which this subscription is accepted at the same time
as if this subscription had been accepted in whole.
4. The Subscriber hereby represents and warrants to, and
covenants and agrees with, the Company as follows:
(a) The Subscriber understands that the offer and sale of
the Units is being made only by means of this Agreement. In deciding to
subscribe for Units, the Subscriber has not considered any information other
than that contained in this Agreement and in the documents lists in Exhibit A to
this Agreement (the "Disclosure Documents"), a copy of each of which has been
reviewed by the Subscriber. In particular, the Subscriber understands that the
Company has not authorized the use of, and the Subscriber confirms that he or
she is not relying upon, any other information, written or oral, other than
material contained in this Agreement and the Disclosure Documents. The
Subscriber is aware that the purchase of the Units involves a high degree of
risk and that the Subscriber may sustain, and has the financial ability to
sustain, the loss of his or her entire investment. The Subscriber understands
that the Company's and Trans Global's combined cash requirements are
significantly in excess of the net proceeds to be received from the sale of the
Units, and the failure of the Company to raise additional funds may have a
material adverse effect upon its business. The Subscriber further understands
that the closing conditions in the Trans Global Agreement contemplate a
specified minimum amount of cash, and that the Company and Trans Global have the
right to, and they may, waive such condition and close the transaction with a
lesser amount of cash. The Subscriber is further aware that neither the Company
nor Trans Global has made, and the Subscriber is not relying upon, any
projections or forecasts or future operations. The Subscriber has had the
opportunity to ask questions of, and receive answers from, the Company's
management regarding the Company and Trans Global.
- 2 -
<PAGE>
(b) The Subscriber represents to the Company that he or she
is an accredited investor within the meaning of Rule 501 under the Securities
Act, that he or she has such knowledge and experience in financial and business
matters as to enable him or her to understand the nature and extent of the risks
involved in purchasing the Units. The Subscriber is fully aware that such
investments can and sometimes do result in the loss of the entire investment.
The Subscriber can afford to sustain the loss of his or her entire investment,
and the Subscriber's purchase of the Units is being made from funds which the
Subscriber has allocated to high risk, illiquid investments and such funds are
not required by the Subscriber to meet his or her normal expenses. The
Subscriber has engaged his or her own counsel and accountants to the extent that
he deems it necessary.
(c) The Subscriber understands that in order to be treated
as an accredited investor, the Subscriber must meet one of the tests for an
accredited investor set forth on Exhibit B to this Agreement. The Subscriber
represents and warrants that he or she has read Exhibit B and that he or she is
an accredited investor as set forth on the signature page of this Agreement.
(d) All of the information provided by the Subscriber in his
Confidential Investor Questionnaire (the "Questionnaire"), is true and correct
in all material respects. The Subscriber acknowledges that the Company is
relying on such statements, and the Subscriber agrees to indemnify and hold
harmless the Company, Trans Global and their respective officers, directors,
controlling persons and counsel from and against all manner of loss, liability,
damage or expense which they or any of them may incur as a result of any
material misstatement of fact or omission of a material fact set forth in the
Subscriber's Questionnaire. The Subscriber further agrees to notify the Company
immediately upon the occurrence of any event which makes the information
contained in the Subscriber's Questionnaire inaccurate or misleading in any
material respect.
(e) The Subscriber is acquiring the Units pursuant to this
Agreement for investment and not with a view to the sale or distribution
thereof, for his or her own account and not on behalf of others; has not granted
any other person any interest or participation in or right or option to purchase
all or any portion of the Units; is aware that the Units are restricted
securities within the meaning of Rule 144 of the Commission under the Securities
Act, and may not be sold or otherwise transferred other than pursuant to an
effective registration statement or an exemption from registration; and
understands and agrees that the Units may bear the Company's standard investment
legend. The Subscriber has been advised by counsel as to the meaning of these
restrictions.
(f) The Subscriber will not transfer the Units except in
compliance with all applicable Federal and state securities laws and
regulations. The Subscriber understands and agrees that the Company is not
obligated to recognize any transfer of the Shares unless it is satisfied in its
sole discretion that there has been compliance with such securities laws and
regulations, and, in such connection, the Company may request an opinion of
counsel acceptable to the Company as to the availability of any exemption.
(g) The Subscriber has been informed by the Company that the
issuance of the Units pursuant to this Agreement will be exempt under Section
4(2) or 4(6) of the Securities Act and/or Regulation D of the Commission under
the Securities Act and applicable exemption under state securities laws, and the
Subscriber understands that such exemption is dependent upon the accuracy of the
information contained in the Subscriber's Questionnaire and the Subscriber's
representations set forth in this Agreement.
(h) The Subscriber represents and warrants that, except as
set forth in such Subscriber's Questionnaire, no broker or finder was involved
directly or indirectly in connection with the Subscriber's purchase of the Units
pursuant to this Agreement. The Subscriber shall indemnify and hold harmless the
Company from and against any manner of loss, liability, damage or expense,
including fees and expenses of counsel, resulting from a breach of the
Subscriber's warranty contained in this Paragraph 4(h).
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<PAGE>
5. The Company hereby covenants and agrees with the Subscriber
that the net proceeds from the sale of the Units pursuant to this Agreement and
the other Subscription Agreements will be used for working capital and other
corporate purposes.
6. (a) The proceeds from Units purchased by the Subscriber's
shall be held in escrow until the following conditions (the "Closing
Conditions") shall have occurred. If the Closing Conditions shall not have
occurred by May 31, 1995, or which date may be extended by the Company on one or
more occasions, for not more than sixty (60) days, the proceeds from the
Subscriber's purchase shall be refunded to the Subscriber without deduction and
without interest.
(b) The Closing Conditions are:
(i) The Company shall have received cleared funds for
the gross proceeds from the sale of not less than one hundred fifty thousand
(150,000) Units.
(ii) The Company shall, contemporaneously with the
completion of the sale of the Units, have completed the closing of the
acquisition of Trans Global pursuant to the Trans Global Agreement in
substantially the form included in the Disclosure Documents.
(c) The date on which the proceeds from the sale of the
Units is released to the Company is referred to in this Agreement as the
"Closing Date."
7. (a) The Company agrees that, as soon as possible after the
Closing Date, it will file a registration statement (the "Registration
Statement") with the Commission covering the Warrant Shares and the Shares.
Pursuant to the Registration Statement the Subscriber may sell (i) the Warrants
and the Warrant Shares during the Initial Period, as hereinafter defined, upon
the expiration of which the Warrants may no longer be exercised, and (ii) the
Shares during the six (6) month period following the expiration of the Initial
Period. The Warrants, Warrant Shares and Shares included in the Registration
Statement are referred to collectively as the "Registered Securities." The term
"Initial Period" shall mean the forty five (45) day period commencing on the
effective date of the Registration Statement. It shall be a condition to the
obligations of the Company to include the Warrant Shares and Shares of
Subscriber in the Registration Statement that Subscriber shall provide the
Company in a timely manner with such information as the Company may request in
connection with the Registration Statement, including, but not limited to,
information concerning the Subscriber, any underwriter engaged by the Subscriber
and the proposed manner of distribution of the registered securities and any
specific information requested by the Commission.
(b) The following provision shall also be applicable:
(i) Following the effective date of the Registration
Statement, the Company shall, upon the request of the Subscriber, forthwith
supply the Subscriber with such number of prospectuses meeting the requirements
of the Securities Act as shall be reasonably requested by the Company to permit
the Subscriber to make a public distribution of the Registered Securities from
time to time offered or sold by the Subscriber, provided that the Subscriber
shall from time to time furnish the Company with such appropriate information
(relating to the intentions of the Subscriber) in connection therewith as the
Company shall request in writing. The Company shall also use its best efforts to
qualify the Registered Securities for sale in such states (other than so-called
"merit review" states) as the Subscriber may reasonably request; provided,
however, that the Company shall not be required to qualify to do business as a
foreign corporation in such state in order for the holders of to make such
sales.
(ii) The Company shall bear the entire cost and
expense of the preparation and filing of the Registration Statement pursuant to
this Paragraph 7(a). The Subscriber shall, however, bear the fees of his or her
own counsel and accountants and any transfer taxes or underwriting discounts or
commissions applicable to the shares sold by it pursuant thereto.
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<PAGE>
(iii) The Company shall indemnify and hold harmless the
Subscriber and each underwriter, within the meaning of the Securities Act, who
may purchase from or sell any Registered Securities for the Subscriber from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of this Paragraph 7 or any
application or other filing under any state securities law caused by any
omission or alleged omissions to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading to
which the Subscriber or any such underwriter may become subject under the
Securities Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or alleged untrue
statement or omission or alleged omission based upon information furnished or
required to be furnished to the Company by any such holder or underwriter
expressly for use therein, which indemnification shall include each person, if
any, who controls any such underwriter within the meaning of the Securities Act;
provided, however, that the Subscriber or underwriter shall at the same time
indemnify the Company, its directors, each officer signing the registration
statement, each person, if any, who controls the Company within the meaning of
the Securities Act and each other person (the "other holders"), whose securities
are being offered or sold pursuant to such registration statement, from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Paragraph 7 or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, insofar as such losses, claims, damages
or liabilities are caused by any untrue statement or alleged untrue statement or
omission based upon information furnished to the Company by the Subscriber or
underwriter expressly for use therein.
(iv) If any action or claim shall be brought or
asserted by a person entitled to indemnification pursuant to Paragraph 7(b)(iii)
this Agreement (an "indemnified party") against the Company or any underwriter
engaged by the Company or any person controlling the Company or such underwriter
or against the Subscriber or any underwriter engaged by the Subscriber or any
person controlling the Subscriber or such underwriter, in respect of which
indemnity may be sought pursuant to said Paragraph 7(b)(iii) (an "indemnifying
party"), the indemnified party shall promptly notify the indemnifying party in
writing, and the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all legal and other expenses. The failure of the indemnified
party to notify the indemnifying party will not relieve the indemnifying party
of any liability for indemnification which it may have to the indemnified party
other than pursuant to Paragraph 7(b)(iii) of this Agreement. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (A) the employment
thereof has been specifically authorized by the indemnifying party in writing,
or (B) the indemnifying party has failed to assume the defense and employ
counsel as provided in this Paragraph 7(b)(iv), or (C) the named parties to any
such action (including any impleaded parties) include both an indemnified party
and an indemnifying party, and in the judgment of the counsel for the
indemnifying party, it is advisable for the indemnified party or controlling
person to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party or such controlling person, it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys at any time in each jurisdiction
for all indemnified parties (whether pursuant to this Agreement or any other
agreements granting registration rights), which firm shall be designated in
writing by all the indemnified parties). The indemnifying party shall not be
liable for any settlement of any such action effected by an indemnified party
without the written consent of the indemnifying party (which shall not be
withheld unreasonably in light of all factors of importance to such indemnified
party), but if settled with such written consent, or if there be a final
judgment or decree for the plaintiff in any such action by a court of competent
jurisdiction and the time to appeal shall have expired or the last appeal shall
have been denied, the indemnifying party agrees to indemnify and hold harmless
the indemnified party from and against any loss or liability by reason of such
settlement or judgment.
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<PAGE>
(v) The making of any request for prospectuses shall
not impose any the Subscriber any obligation to sell any Registered Securities.
(vi) The Company's obligations pursuant to this
Paragraph 7 shall be applicable to the Subscriber and not to any transferees of
the Units, the Warrants or the Shares.
8. (a) The Subscriber hereby agrees to vote the Shares included
in the Warrants and any Warrant Shares which may them be owned by him or her in
favor of an amendment to the Company's certificate of incorporation which (a)
increases the authorized capital stock of the Company to 2,000,000 shares of
Preferred Stock, par value $.01 per share, and 20,000,000 shares of Common
Stock, par value $.01 per share, and (b) changes the Company's corporate name to
Trans Global Services, Inc.
(b) In connection with the Subscriber's agreement set forth
in Paragraph 8(a) of this Agreement, the Subscriber hereby appoints Lewis S.
Schiller and Joseph G. Sicinski, or either of them acting in the absence of the
other, with full power of substitution, proxies for the Subscriber, to vote such
Shares and Warrant Shares in favor of an amendment to the Company's certificate
of incorporation which (a) increases the authorized capital stock of the Company
to 2,000,000 shares of Preferred Stock, par value $.01 per share, and 20,000,000
shares of Common Stock, par value $.01 per share, and (b) changes the Company's
corporate name to Trans Global Services, Inc., according to the number of votes
the Subscriber may cast and with all powers which the Subscriber would possess
if personally present. The proxy granted by this Paragraph 8(b) is coupled with
an interest and may not be revoked prior to one year from the date the Units are
issued to the Subscriber.
9. All notices provided for in this Agreement shall be in writing
signed by the party giving such notice, and delivered personally or sent by
overnight courier or messenger against receipt thereof or sent by registered or
certified mail (air mail if overseas), return receipt requested. Notices shall
be deemed to have been received on the date of personal delivery or telecopy or,
if sent by certified or registered mail, return receipt requested, shall be
deemed to be delivered on the third (3rd) business day after the date of
mailing. Notices shall be sent to the Company at 6632 Central Avenue Pike,
Knoxville, Tennessee 37912, telecopier (615) 689-7815 or (615) 689-4815,
Attention of Mr. Milton E. McNally, President, with a copy as aforesaid to Trans
Global Services, Inc., 160 Broadway, Suite 901, New York, New York 10038,
telecopier (212) 233-5023, Attention of Mr. Lewis S. Schiller, Chief Executive
Officer, and to the Subscriber at his or her address set forth on the signature
page or to such other address as any party shall designate in the manner
provided in this Paragraph 8.
10. (a) This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof, superseding any and all prior
or contemporaneous oral and prior written agreements, understandings and letters
of intent. This Agreement may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this Agreement, states that
it is a modification, amendment or waiver and is signed by all parties with
respect to a modification or amendment or the party granting the waiver with
respect to a waiver. No course of conduct or dealing and no trade custom or
usage shall modify any provisions of this Agreement.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each party hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement or any document or instrument
delivered with respect to this Agreement and/or the Units shall be brought
exclusively in any Federal or state court in the County of New York, State of
New York, and (ii) irrevocably submits to and accepts, with respect to its
properties and assets, generally and unconditionally, the jurisdiction of the
aforesaid courts. In any such litigation, each party waives personal service of
any summons, complaint or other process, and agrees that the service thereof may
be made by in the manner for giving of notices provided for in Paragraph 8 of
this Agreement.
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<PAGE>
(c) This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and permitted
assigns.
(d) In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
(e) Each party shall, without payment of any additional
consideration by any other party, at any time on or after the sale of the Units
take such further action and execute such other and further documents and
instruments as the other party may request in order to provide the other party
with the benefits of this Agreement.
(f) If the Subscriber is a resident of a state set forth in
Exhibit C to this Agreement, the provisions of such Exhibit relating to the
Subscriber's purchase of the Units are incorporated as if set forth in full in
this Agreement.
(g) All references to any gender shall be deemed to include
the masculine, feminine or neuter gender, the singular shall include the plural,
and the plural shall include the singular.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
(i) The various representations, warranties, and covenants
set forth in this Agreement or in any other writing delivered in connection
therewith shall survive the issuance of the Units.
[Balance of page intentionally left blank]
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<PAGE>
Please confirm your agreement with the foregoing by signing this
Agreement where indicated.
Very truly yours,
Number of Units
Subscribed for:
_______________ Name of Subscriber
__________________
Total
Purchase Price: By:_______________
(Signature)
Title, if applicable
Address:_________________________
_________________________________
FAX Number:______________________
Social Security No. or Tax I.D. No.:____________
The Subscriber is an accredited investor based on the following paragraphs of
Exhibit B to this Agreement:_______________________________________
Accepted this day of
, 1995
CONCEPT TECHNOLOGIES GROUP, INC.
By:_____________________________
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<PAGE>
Exhibit A
Disclosure Documents
--------------------
1. Term sheet.
2. Risk factors concerning the Company and Trans Global.
Additional risk factors concerning the Company are included in
the Company's Prospectus dated February 14, 1995 (see Item
12).
3. Form 10-K for the Company for the year ended December 31,
1994.
4. Description of business and management of Trans Global,
including the proposed management of the Company subsequent to
closing.
5. Combined financial statements for Trans Global.
6. Pro forma financial statements for the Company and Trans
Global.
7. Form of Warrant to be issued as part of the Units.
8. Trans Global Agreement. (Copies of the Disclosure Letters
described in the Trans Global Agreement are available for
inspection upon request.)
9. Certificate of Designation setting forth the terms of the
Series A, B, C and D Preferred Stock to be issued pursuant to
the Trans Global Agreement.
10. Form of warrant to be issued to SISC and DLB pursuant to the
Trans Global Agreement.
11. Summary of terms of series of warrants proposed to be issued
by the Company.
12. The Company's Prospectus dated February 14, 1994.
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<PAGE>
Exhibit B
A Subscriber who meets any one of the following tests is an accredited
investor:
(a) The Subscriber is an individual who has a net worth, or joint net
worth with the Subscriber's spouse, of at least $1,000,000.
(b) The Subscriber is an individual who had individual income of more
than $200,000 (or $300,000 jointly with the Subscriber's spouse) for the past
two years, and the Subscriber has a reasonable expectation of having income of
at least $200,000 (or $300,000 jointly with the Subscriber's spouse) for the
current year.
(c) The Subscriber is an officer or director of the Company.
(d) The Subscriber is a bank as defined in section 3(a)(2) of the
Securities Act or any savings and loan association or other institution as
defined in section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity.
(e) The Subscriber is a broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934.
(f) The Subscriber is an insurance company as defined in section
2(13) of the Securities Act.
(g) The Subscriber is an investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that Act.
(h) The Subscriber is a small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958.
(i) The Subscriber is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(j) The Subscriber is a private business development company as
defined in section 202(a)(22) of the Investment Advisers Act of 1940.
(k) The Subscriber is an organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
securities offered, with total assets in excess of $5,000,000.
(l) The Subscriber is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of the Commission under the Securities Act.
(m) The Subscriber is an entity in which all of the equity owners are
accredited investors (i.e., all of the equity owners meet one of the tests for
an accredited investor).
If an individual investor qualifies as an accredited investor, such
individual may purchase the Notes in the name of his individual retirement
account ("IRA").
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<PAGE>
Exhibit C
State Representations
---------------------
The following provisions are an integral part of this Agreement if the
Subscriber is a resident of the following state(s).
1. Connecticut
If the Subscriber is a Connecticut resident the following provisions
shall apply:
The Subscriber acknowledges that the Notes have not been registered
under the Connecticut Uniform Securities Act, as amended (the "Connecticut Act")
and are subject to restrictions on transferability and sale of securities as set
forth therein. The undersigned hereby agrees that such securities will not be
transferred or sold without registration under the Connecticut Act or exemption
therefrom.
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<PAGE>
Exhibit 10.17
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
This Offshore Securities Subscription Agreement is executed in reliance
upon the transaction exemption afforded by Regulation S ("Regulation S") as
promulgated by the Securities and Exchange Commission ("SEC"), under the
Securities Act of 1933, as amended ("1933 Act").
This Agreement has been executed by (The
"Seller") in connection with the placement of of shares of Common Stock
($.01 par) (hereinafter referred to as the "Shares") of
, NASDAQ symbol (" ") a corporation organized under the laws of the State of
, United States of America (hereinafter referred to as the "ISSUER").
The undersigned:
a Corporation organized under the laws of Mauritius, a non-USA Jurisdiction,
(hereinafter referred to as the "PURCHASER"), hereby represents and warrants to,
and agrees with ISSUER as follows:
1. Agreement to Subscribe; Purchase Price
a. The undersigned hereby subscribes for Shares at $.
per share for a aggregate purchase price of $ .
b. Form of Payment. PURCHASER shall pay the purchase price by
delivering, by wire transfer, good funds in United States
Dollars to the account of:
<PAGE>
2. Subscriber Representations: Access to Information; Independent
Investigation
a. Offshore Transaction. PURCHASER represents and warrants to
ISSUER as follows:
I. PURCHASER is not a U.S. person (whenever such term is
used herein, it shall have the meaning given in Rule
902(o) of Regulation S);
II. At the time the buy order was originated, PURCHASER was
outside the United States and is outside of the United
States as of the date of the execution and delivery of
this Agreement;
III. PURCHASER is not purchasing the Shares on behalf of any
U.S. person, and the sale has not been prearranged with a
purchaser in the United States;
IV. PURCHASER is not aware of any "directed selling efforts"
(as defined in Rule 902(b) of Regulation S) in connection
with the offer and sale of the Shares pursuant to this
Agreement;
V. PURCHASER represents and warrants and hereby agrees that
all offers and sales of the Shares prior to the
expiration of the Restricted Period shall only be made in
compliance with the safe harbor contained in Regulation
S, pursuant to registration of securities under the 1933
Act and applicable State securities laws or pursuant to
an exemption from registration, and all offers and sales
after the Restricted Period shall be made only pursuant
to such a registration or to such exemption from
registration and applicable State securities laws;
VI. All offering documents received by PURCHASER include
statements to the effect that the Shares have not between
registered under the Securities Act of 1933 and may not
be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person
(other than distributors as defined in Rule 902(c) of
Regulation S) during the Restricted Period unless the
Shares are registered under the 1933 Act or an exemption
from the registration requirements is available;
VII. PURCHASER acknowledges that the purchase of the Shares
involves a high degree of risk and further acknowledges
that it can bear the economic risk of the purchase of the
Shares, including the total loss of its investment;
2
<PAGE>
VIII. PURCHASER understands that the Shares are being offered
and sold to it in reliance on specific exemptions from
the registration requirements of Federal and State
securities laws and that the ISSUER is relying upon the
truth and accuracy of the representations, warranties,
agreement, acknowledgments and understandings of
PURCHASER set forth herein in order to determine the
applicability of such exemptions and the suitability of
PURCHASER to acquire the Shares;
IX. PURCHASER is sufficiently experienced in financial and
business matters to be capable of evaluating the merits
and risks of its investment, and to make an informed
decision relating thereto;
X. In evaluating its investment, PURCHASER has consulted
its own investment and/or legal and/or tax advisors;
XI. PURCHASER understands that in the view of the SEC the
statutory basis for the exemption claimed for the
transaction would not be present if the offering of
Shares, although in technical compliance with Regulation
S, is part of a plan or scheme to evade the registration
provisions of the 1933 Act and PURCHASER confirms that
its purchase is not a part of any suit plan or scheme.
PURCHASER is acquiring the Shares of investment purposes
and has no present intention to sell the Shares in the
United States or to a U.S. Person or for the account or
benefit of a U.S. Person either now or promptly after the
expiration of the Restricted Period. PURCHASER hereby
confirms that he purpose of including the PURCHASER
Representation Letter (Schedule A) as provided in
paragraph 6, in order to facilitate the transfer of the
certificates representing the Shares into street name, is
to enable PURCHASER to comply with the requirements of
certain offshore portfolio management regulations and the
security requirements of offshore lenders for margin
loans; and
XII. If PURCHASER is purchasing the Shares subscribed for
hereby in representative or fiduciary capacity, the
representations and warranties in this Offshore
Securities Subscription Agreement shall be deemed to have
been made on behalf of the person or persons for whom
PURCHASER is so purchasing.
The forgoing representations and warranties are true and
accurate as of the date hereof, shall be true and accurate as of the date of the
acceptance by the ISSUER of PURCHASER's subscription, and shall survive
thereafter. If PURCHASER has knowledge, prior to the acceptance of its Offshore
Securities Subscription Agreement by the ISSUER, that any such representations
and warranties shall survive thereafter. If PURCHASER has knowledge, prior to
the acceptance of its Offshore Securities
3
<PAGE>
Subscription Agreement by the ISSUER, that any such representations and
warranties shall not be true and accurate in any respect, the PURCHASER, prior
to such acceptance, will give written notice of such fact to the ISSUER
specifying which representations and warranties are not true and accurate and
the reasons therefor.
PURCHASER agrees to fully indemnify, defend and hold harmless ISSUER,
its officers, directors, employees, agents and attorneys from and against any
and all losses, claims, damages, liabilities and expenses, including reasonable
attorneys' fees and expenses, which may result form a breach of PURCHASER's
representations, warranties and agreements contained herein.
b. Current Public Information. PURCHASER acknowledges that
PURCHASER has been furnished with or has acquire copies of the
Company's most recent Form 10-K and Form 10-Q filed with the
SEC, and all Current Reports on Form 8-K filed thereafter
(collectively, the "SEC Filings").
c. Independent Investigation; Access. PURCHASER acknowledges that
PURCHASER, in making the decision to purchase the Shares
subscribed for, has relied upon independent investigations
made by it and it's purchaser representatives, if any, and
PURCHASER and such representatives, if any, have prior to any
sale to it, been given access and the opportunity to examine
all material books and records of the Corporation, all
material contracts and documents relating to the Company and
this offering and an opportunity to ask questions of, and to
receive answers form, ISSUER or any officer of ISSUER acting
on its behalf concerning the Company and the terms and
condition of this offering. PURCHASER and its advisors, if
any, have been furnished with access to all publicly available
materials relating to the business, finances and operations of
the ISSUER and materials relating to the offer and sale of the
Shares which have been requested. PURCHASER and it's advisors,
if any, have received complete and satisfactory answers to any
such inquiries.
d. No Government Recommendation or Approval. PURCHASER
understands that no federal or state agency has passed on or
made any finding or determination relating to the fairness for
public investment in the Shares, or has passed or made, or
will pass on or make, any recommendation or endorsement of the
Shares.
e. Entity Purchases. If PURCHASER is a partnership, corporation
or trust, then person executing this Offshore Securities
Subscription Agreement on its behalf represents and warrants
that:
4
<PAGE>
I. He or she has made due inquiry to determine the
truthfulness of the representations of and warranties made
pursuant to this Offshore Securities Subscription
Agreement.
II. He or she is duly authorized (if the undersigned is a
trust, by the trust agreement) to make this investment and
to enter into and execute this Offshore Securities
Subscription Agreement on behalf of such entity and will
provide to ISSUER, upon request, copies of documents
evidencing such authority and the authority of the entity
to make this investment.
3. Issuer Representations.
a. Reporting Company Status. ISSUER, is a "reporting issuer" as
that term is defined in Rule 902(1) of Regulation S.
b. Offshore Transaction. ISSUER has not offered these securities
to any person in the United States or to any U.S. person or for the
account or benefit of any U.S. person.
c. No Directed Selling Efforts. In regard to this transaction,
ISSUER, has not conducted any "directed selling efforts: as that term
is defined in Rule 902(b) of Regulation S nor has ISSUER conducted any
general solicitation relating to the offer and sale of the Shares
to persons resident within the United States or elsewhere.
4. Restricted Period; Legend. The transaction restriction in connection
with this offshore offer and sale restrict PURCHASER from offering and selling
to U.S. persons or for the account or benefit of a U.S. person for a period of
forty one (41) days commencing upon completion of this offering. Rule 903(c)(2)
governs the forty one (41) day transaction restriction. In the event that
multiple subscriptions are accepted by the ISSUER, the forty one (41) day
restriction period shall begin only after the closing with respect to the final
subscription accepted by ISSUER. PURCHASER understands that the Company will
instruct its transfer agent to place a stop transfer order with respect to the
certificates representing the Shares and that such certificates shall bear the
following legend:
"These shares have been issued pursuant to Regulation S as an
exemption to the registration provisions under the Securities
Act of 1933, as amended and these shares can not be
transferred or sold in the United States or to U.S. persons
(as defined in Regulation S) except upon registration of the
shares under said Act or the availability of an exception from
such registration."
5
<PAGE>
5. Exemption; Reliance on Representations. PURCHASER understand that the
offer and sale of the Shares is not being registered under the 1933 Act and that
ISSUER is relying on the rules governing offers and sales made outside the
United States pursuant to Regulations S and the representations, warranties and
agreements of PURCHASER made herein.
6. Transfer Agent Instructions. ISSUER's Transfer Agent will be instructed
to issue one or more shares certificates representing Shares with the
restrictive legend set forth in Section 4 in the name of the purchaser and will
be advised that the Shares have been issued pursuant to Regulation S. ISSUER
further warrants that no stop transfer instructions other than a stop transfer
for forty one (41) days referred to in Section 4 or instructions other than
instructions to issue the Shares have been given to the Transfer Agent and that
these Shares shall be freely transferable on the book and records of the Company
subject to compliance with applicable securities laws. Upon the expiration of
the Restricted Period, the ISSUER agrees to accept a PURCHASER Representation
Letter from the PURCHASER in the form of Appendix "A" attached as sole and
sufficient evidence that the PURCHASER has complied with applicable securities
laws and upon receipt of such a letter shall promptly instruct the Transfer
Agent to transfer the Shares into "Street Name" without legend as expeditiously
as practical after receipt of the certificates and the PURCHASER Representation
Letter provided, ISSUER shall not be required to deliver such instructions if
its knows, or reasonably believes, any of the representations made in the
PURCHASER Representation Letter as false.
7. Stock Delivery Instructions. The share certificates shall be delivered
to the PURCHASER on a delivery versus payment basis at such times and places to
be mutually agreed.
8. Closing Date. The date of the issuance of the sale of the shares
(the "Closing Date") shall be on or before .
9. Conditions to the Company's Obligation to Sell. PURCHASER understands
that ISSUER's obligation to sell the Shares subscribed for hereby is conditioned
upon:
a. The receipt and acceptance by ISSUER of this Offshore
Securities Subscription Agreement, as evidenced by execution
of this Subscription Agreement by the Chairman or President of
ISSUER.
b. Delivery by PURCHASER (though the designated depository)
ISSUER by wire transfer of good funds as payment in full for
the purchase of the Shares.
10. Conditions to PURCHASER's Obligation to Purchase. ISSUER understands
that PURCHASER's obligation to purchase the Stock is conditioned upon delivery
of shares of common stock with the restrictive legend referred to in Section 4.
6
<PAGE>
11. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the rulings of the laws of the State of and any enforcement of
this Agreement shall be brought exclusively in a Federal or State court in the
County of . PURCHASER irrevocably submits to and accepts unconditionally, the
jurisdiction of the aforesaid courts.
12. Entire Agreement. This Offshore Securities Subscription Agreement
constitutes the entire agreement among the parties hereof with respect to the
subject matter hereof and supersedes any and all prior or contemporaneous
representations, warrants, agreements and understanding s in connection
therewith. This Offshore Securities Subscription Agreement may be amended only
by a writing executed by all parties hereto.
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was
duly executed on the date first written below.
Dated this day of the month of , .
By: _______________________________
Official Signatory of Purchaser
Accepted this day of the month of , .
By:_________________________________
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED
AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 174,312
<SECURITIES> 0
<RECEIVABLES> 4,939,915
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,274,922
<PP&E> 81,995
<DEPRECIATION> 12,979
<TOTAL-ASSETS> 12,782,170
<CURRENT-LIABILITIES> 7,520,889
<BONDS> 0
<COMMON> 77,201
0
100
<OTHER-SE> 4,890,145
<TOTAL-LIABILITY-AND-EQUITY> 12,782,170
<SALES> 28,468,322
<TOTAL-REVENUES> 28,468,322
<CGS> 26,174,852
<TOTAL-COSTS> 26,174,852
<OTHER-EXPENSES> 2,536,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,537
<INCOME-PRETAX> (568,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,827)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.04)
</TABLE>
