As filed with the Securities and Exchange Commission on September 25, 1997
Registration No. 333-14289
Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 6
Form S-1
Registration Statement under the Securities Act of 1933
Trans Global Services, Inc.
Asher S. Levitsky P.C.
Esanu Katsky Korins & Siger, LLP
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
1393 Veterans Memorial Highway 950 Third Avenue
Hauppauge, NY 11788 New York, NY 10022
(516) 724-0006 (212) 826-0730
Fax: (516) 724-0039 Fax: (212) 371-4730
--------------------------------------------------------
<PAGE>
Calculation of Registration Fee
<TABLE>
<S> <C> <C> <C> <C>
Proposed Proposed Maximum Amount of
Amount to be Maximum Offering Aggregate Registration
Title of each class of securities to be registered Registered Price Per Unit1 Offering Price Fee
Units, each Unit consisting of one share of Common
Stock, par value $.01 per share, and one Series E
Redeemable Common Stock Purchase
Warrants2 1,150,000 Units $4.00 $4,600,000.00 $1,393.94
Common Stock, par value $.01 per share-3 1,150,000 Shs. .00 .00 .00
Series E Redeemable Common Stock Purchase Warrants-3 1,150,000 Wts. .00 .00 .00
Common Stock par value $.01 per share -4,5 1,150,000 Shs. 6.00 6,900,000.00 2,090.91
Underwriter's Options-6 100,000 Optns. .001 100.00 .04
Units, each Unit consisting of one share of Common
Stock, par value $.01 per share, and one Series E
Redeemable Common Stock Purchase
Warrants -5,7 100,000 Units 4.80 480,000.00 145.46
Common Stock, par value $.01 per share -8 100,000 Shs. .00 .00 .00
Series E Redeemable Common Stock Purchase Warrants -8 100,000 Wts. .00 .00 .00
Common Stock, par value $.01 per share -5,9 100,000 Shs. 6.00 600,000.00 181.82
$3,812.13
=========
</TABLE>
1 Estimated solely for purposes of computation of the registration fee pursuant
to Rule 457. The closing price of the Common Stock on The Nasdaq SmallCap
Market on August 21, 1997 was $3.625.
2 Includes 150,000 Units issuable upon exercise of the Underwriter's over-
allotment option.
3 Represents shares of Common Stock and Series E Common Stock Purchase
Warrants (the "Warrants") comprising the Units.
4. Represents shares of Common Stock issuable upon exercise of the Series E
Redeemable Common Stock Purchase Warrants.
5. Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Underwriter's Options.
6. Represents options (the "Underwriter's Options") to purchase 100,000 Units to
be issued to the Underwriter.
7. Represents Units issuable upon exercise of the Underwriter's Options.
8. Represents shares of Common Stock and Warrants comprising the Units issuable
upon exercise of the Underwriter's Options.
9. Represents shares of Common Stock issuable upon exercise of the Warrants
included in the Units issuable upon exercise of the Underwriter's Options.
- 2 -
<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 Back 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 N.A.
8. Plan of Distribution Cover Page, Inside Cover Page,
Underwriting
9. Description of Securities to be Registered Description of Securities
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
(f) Prospectus Summary,
Selected Financial Data
(g) N.A.
(h) 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
- 3 -
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED September 25, 1997
1,000,000 Units
Trans Global Services, Inc.
Each Unit consisting of one share of Common Stock, par value $.01 per share and
one Series E Redeemable Common Stock Purchase Warrant
Trans Global Services, Inc. (the "Company") is offering 1,000,000 Units, each
Unit consisting of one share of Common Stock, par value $.01 per share
("Common Stock"), and one Series E Redeemable Common Stock Purchase Warrant (the
"Warrants"). The shares of Common Stock and Warrants comprising the Units are
separately transferrable commencing three months from the date of this
Prospectus or earlier with the consent of the Company and Patterson Travis,
Inc., (the "Underwriter"). Each Warrant entitles the holder to purchase one
share of Common Stock at $6.00 per share, subject to adjustment, during the two
- -year period commencing one year from the date of this Prospectus, or earlier
with the consent of the Underwriter. The Warrants are redeemable by the Company,
commencing one year from the date of this Prospectus or earlier with the consent
of the Underwriter, for $.01 per Warrant, on not more than 60 nor less than
30 days' written notice if the average closing bid price per share of Common
Stock is at least $10.00 (subject to adjustment) for at least ten consecutive
trading days ending not earlier than five trading 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 or
the Warrants. The initial public offering price and composition of the Units and
the exercise price and other terms of the Warrants have been determined through
negotiations between the Company and the Underwriter, and are not related to
the Company's assets, book value, financial condition or other recognized
criteria of value. The Company's Common Stock is traded on The Nasdaq SmallCap
Market under the symbol TGSI. Although the Company has applied for the inclusion
of the Units and the Warrants on The Nasdaq SmallCap Market under the symbols
TGSIU and TGSIW, there can be no assurance that an active trading market in the
Units or the Warrants will develop or be sustained. On September , 1997,
the closing price of the Common Stock on The Nasdaq SmallCap Market was $ .
It is anticipated that the offering price of the Units will be approximately
$4.00 per Unit.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN
AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS," WHICH
BEGINS ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Unit. . . . . $ $ . $
Total (3) $ $ $
The Units are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Common Stock and Warrants comprising the Units will be made
against payment therefor at the offices of the Underwriter at One Battery
Park Plaza, New York, New York 10004 on , 1997.
<PAGE>
Patterson Travis, Inc.
The date of this Prospectus is , 1997
1 Excludes additional compensation to be received by the Underwriter in the
form of (a) a non-accountable expense allowance equal to 3% of the gross
proceeds of this Offering ($.12 per Unit) for a total of $120,000 ($138,000) if
the Underwriter's over-allotment option is exercised in full), (b) a two-year
consulting agreement pursuant to which the Company will pay the Underwriter a
fee of $100,000, and (c) options (the "Underwriter's Options") to purchase
100,000 Units at 120% of the initial public offering price of the Units
exercisable during the four-year period commencing one year from the date of
this Prospectus. In addition, the Company has agreed to indemnify the
Underwriter 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
$640,000 ($.64 per Unit), which are payable by the Company and which include the
Underwriter's non-accountable expense allowance and consulting fee.
3 The Company has granted to the Underwriter an option exercisable within
45 days after the date of this Prospectus, to purchase up to an additional
150,000 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 $ , $ and
$ , 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 Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http//www.sec.gov.
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 UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE UNDERWRITER.
SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF THE SECURITIES
THROUGH OR WITH THE UNDERWRITER. ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE
UNDERWRITER MAY BECOME A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
SECURITIES, AND, IF THE UNDERWRITER PARTICIPATES IN SUCH MARKET, IT MAY BE A
DOMINATING INFLUENCE 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 UNDERWRITER IN SUCH MARKET, SHOULD A MARKET
DEVELOP. - 5 -
<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. All share and per
share information contained in this Prospectus has been restated to reflect a
one-for-six reverse split in the Common Stock, effective June 20, 1997.
Prospective investors are cautioned that the statements in this Prospectus
that are not descriptions of historical facts may be forward looking statements
that are subject to risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors,
including those identified under "Risk Factors" and elsewhere in this Prospectus
or in documents incorporated by reference 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 1393 Veterans Memorial Highway, Hauppauge, New
York 11788, telephone (516) 724-0006.
-6-
<PAGE>
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 its wholly-owned
subsidiary, WWR Technology, Inc. ("WWR"), of the Klipsch 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 and
computerized health information systems and related services which are offered
to health care providers. 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 August 31, 1997, SISC was the owner of approximately 40.1% of the
Company's outstanding 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"), which is a public corporation controlled by SISC. He is also
chairman or the board of other subsidiaries of Consolidated. Mr. Schiller and
SISC together owned approximately 44.2% of the Company's outstanding Common
Stock, and Mr. Schiller held warrants and options which, if exercised, would
result in the ownership by SISC and Mr. Schiller of an aggregate of
approximately 46.8% of the Company's Common Stock. The Trinity Group, Inc.
("Trinity"), a wholly-owned subsidiary of Consolidated, has an agreement with
the Company pursuant to which the Company pays Trinity fees of $10,000 per month
through March 2000. Such fee will increase to $15,000 per month upon completion
of this Offering. Mr. Norman J. Hoskin, a director of the Company, is a director
of Consolidated, Netsmart and certain subsidiaries of Consolidated. Mr. E.
Gerald Kay, a director of the Company, is a director of certain subsidiaries of
Consolidated. See "Management -- Directors and Executive Officers."
-7-
<PAGE>
The Offering
Securities Offered: 1,000,000 Units at $ per Unit. Each Unit
consists of one share of Common Stock and one Series
E Redeemable Common Stock Purchase Warrant (the
"Warrants"). The shares of Common Stock and Warrants
comprising the Units are separately transferrable
commencing three months from the date of this
Prospectus or earlier with the consent of
the Company and the Underwriter.
Description of Warrants:
Exercise of Warrants The Warrants are exercisable commencing one year
from the date of this Prospectus or earlier with the
consent of the Underwriter. Subject to redemption
by the Company, the Warrants may be exercised at any
time during the two-year period commencing one year
from the date of this Prospectus at an exercise
price of $6.00 per share, subject to adjustment.
Redemption of Warrants The Warrants are redeemable by the Company
commencing one year from the date of this
Prospectus, or earlier with the consent of the
Underwriter, at $.01 per Warrant, on not more
than 60 nor less than 30 days written notice,
provided that the average closing bid price of the
Common Stock is at least $10.00 per share, subject
to adjustment, for a period of ten consecutive
trading days ending not earlier than five trading
days prior to the date the Warrants are called for
redemption. The consent of the Underwriter cannot
be granted with respect to a redemption prior to the
date the Warrants may be exercised.
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."
Nasdaq Symbols:
Common Stock TGSI
Units TGSIU(Proposed)
Warrants TGSIW(Proposed)
Securities1 Outstanding: At the date of this Prospectus:
3,819,721 shares of Common Stock2
As Adjusted4:
4,819,721 shares of Common Stock2
1,000,000 Warrants3
-8-
<PAGE>
1 Does not include privately held warrants to purchase an aggregate of
913,354 shares of Common Stock at exercise prices ranging from $7.50 per share
to $50.70 per share (collectively, the "Other Warrants").
2 Does not include a maximum of 465,388 shares of Common Stock which may be
issued pursuant to the Company's stock option plans, of which stock options to
purchase 245,316 shares are outstanding, and 913,354 shares of Common Stock
issuable upon exercise of the Other Warrants, or any shares of Common Stock
issuable upon exercise of the Warrants or Underwriter's over-allotment option.
-9-
<PAGE>
Summary Financial Information
(In thousands, except per share amounts)
Statement of Operations Data1:
<TABLE>
<S> <C> <C> <C> <C> <C>
Six Months Ended June 30, Year Ended December 31,
1997 1996 1996 1995 1994
Revenue $38,890 $28,468 $62,594 $63,152 $25,287
Gross profit 3,021 2,293 5,158 3,995 1,583
Net income (loss) from continuing operations 158 (569) (681) (4,413) (411)
Net income (loss) 158 (569) (681) (4,696) (411)
Net income (loss) per share of Common Stock .04 (.49) (.27) (8.88) (4.11)
Weighted average number of shares of Common
Stock outstanding 3,819 1,169 2,530 528 100
</TABLE>
Balance Sheet Data:
<TABLE>
<S> <C> <C> <C> <C>
June 30, 1997 December 31,
As Adjusted2 Actual 1996 1995
Working capital (deficiency) $ 2,294 $ (599) $ (755) $ (2,401)
Total assets 15,666 14,202 13,100 12,763
Total liabilities 5,656 7,139 6,274 8,511
Accumulated deficit (5,639) (5,629) (5,788) (5,106)
Stockholders' equity 10,024 7,064 6,826 4,252
Net tangible book value per share of Common Stock3 1.35 .85 .77 (3.07)
</TABLE>
1 Statement of operations data includes the operations of RMI commencing
November 22, 1994.
2 As adjusted to reflect the receipt by the Company of the net proceeds
from the sale of the 1,000,000 Units offered hereby, at an assumed
offering price of $4.00 per unit, and the use of a portion of the
proceeds of this Offering to pay certain debt. See "Use of Proceeds"
and "Capitalization."
3 The net tangible book value per share of Common Stock at December 31,
1995 reflects a liquidation preference of $1,700 relating to one
series of Preferred Stock. No Preferred Stock was outstanding on June 30,
1997 or December 31, 1996.
-10-
<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. Recent substantial losses from operations.
(a) Losses from continuing operations. Although the Company generated net
income of $158,000, or $.04 per share, on revenue of $38.9 million for the six
months ended June 30, 1997, prior to 1997 the Company incurred significant
losses from its operations. During the years ended December 31, 1996, 1995 and
1994, the Company sustained losses from continuing operations of $681,000, or
$.27 per share, $4.4 million, or $8.35 per share, and $411,000, or $4.11 per
share, respectively, on revenue of $62.6 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 $8.88 per share. At June 30, 1997, the Company had an
accumulated deficit of approximately $5.6 million. The results of operations for
1994 reflect the operations of Holdings for the entire year and RMI commencing
November 22, 1994. No assurance can be given that the factors which affected the
Company's operations prior to 1997 will not affect its operations in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(b) Significant interest expenses. The Company finances its payroll
obligations by borrowing from a non- affiliated 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. At June 30, 1997 and August 31, 1997, the Company's
borrowings from the asset-based lender were $3.8 million and $4.0 million,
respectively. The asset-based lender agreed to an amendment to its agreement
with the Company, effective November 1, 1997, which reduced the maximum
borrowings to $3.0 million and the monthly fee to $10,500, subject to adjustment
under certain conditions. The borrowings are secured by a security interest in
all of the Company's assets. The ability of the Company to operate profitably is
dependent in part upon its ability to obtain adequate financing 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."
(c) Low gross margins. For the six months ended June 30, 1997 and the years
ended December 31, 1996, 1995 and 1994, the Company's gross margins were
approximately 7.8%, 8.2%, 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. 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.
-11-
<PAGE>
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 such 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(d) Penalties for late payment of withholding tax. During the six months
ended June 30, 1997 and the years ended December 31, 1996 and 1995, the Company
incurred penalties of $165,000, $635,000 and $1.0 million, respectively, for
penalties resulting from the late payment of withholding taxes. See "Risk
Factors 10. -- Recent delinquency in payment of payroll tax obligations."
2. Substantial capital requirements; acceleration of obligations to
asset-based lender.
(a) Working capital deficiency. As of June 30, 1997, the Company had a
working capital deficiency of $599,000. Its working capital deficiency reflects
(i) $3.8 million due to the Company's asset-based lender, (ii) payroll and
related taxes and expenses of $2.4 million, (iii) accounts payable and accrued
expenses of $500,000 and (iv) other current liabilities of $300,000. The payroll
and related taxes and expenses relates primarily to compensation to the
Company's contract employees and related taxes, which were paid during the first
week of July 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(b) Substantial obligations to asset-based lender; acceleration of
obligations. At June 30, 1997 and August 31, 1997, the Company owed
approximately $3.8 million and $4.0 million, respectively, to its asset-based
lender. The Company had been advised that, as a result of a change in its
general lending policies, the Company's asset-based lender will reduce the
Company's maximum borrowing availability. The agreement with the asset-based
lender has been amended to provide that, at November 1, 1997, the borrowing
availability will be reduced to $3.0 million. Such reduction in borrowing
availability, if implemented prior to the receipt by the Company of the proceeds
of this Offering, would have a material adverse effect upon the Company's
business. Although the Company is seeking alternative financing sources, no
assurance can be given that the Company can or will be able to obtain an
alternate financing source, the failure of which could have a material adverse
effect upon the Company. See "Management Discussion and Analysis of Financial
Conditions and Results of Operations."
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 7.8% for
the six months ended June 30, 1997, 8.2% for 1996, 6.3% for 1995 and 6.2% for
1994, and its interest costs, which were approximately 1.0%, 1.1% and 1.5% of
revenue for the six months ended June 30, 1997 and the years ended December 31,
1996 and 1995, respectively, 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 by seeking to 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 continue to operate
profitably.
-12-
<PAGE>
(c) Possible need for additional financing. 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 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. See "Use of Proceeds."
(d) Receivable from, and preferred stock of, related parties. At June 30,
1997, the Company had a receivable of $1.6 million from related parties,
principally SISC ($280,000) and Arc Networks, Inc. ("Arc"), a majority-owned
privately-held subsidiary of SISC ($1.1 million). At June 30, 1997, Arc has a
significant working capital deficiency and was operating at a loss. The
receivables from SISC and Arc were generated from advances by the Company and,
in the case of Arc, services rendered to Arc by the Company and rent for office
space provided by the Company. No assurance can be given that such payments will
be made.
At June 30, 1997, the Company held preferred stock of Consolidated which
was issued in payment of obligations of WWR to the Company in the amount of $2.1
million. Such obligations were incurred by WWR prior to the Trans Global
Transaction. The preferred stock is automatically converted into such number of
shares of Consolidated's common stock as has a value at September 30, 2000 of
$2.1 million. As of August 31, 1997, Consolidated did not have sufficient shares
of its authorized common stock available to enable it to issue the necessary
number of shares of common stock to the Company, although its board of directors
had approved, subject to stockholder approval, a reverse split and an increase
in the number of shares of its authorized common stock, either of which would,
at such date, provide Consolidated with sufficient shares of common stock to
enable Consolidated to satisfy its obligations to the Company under the terms of
the preferred stock. The failure of Consolidated to have sufficient authorized
shares or the inability of the Company to realize the $2.1 million from such
preferred stock or the shares of Consolidated common stock issuable upon
conversion of the preferred stock could have a material adverse effect upon the
Company's financial condition.
3. Concentration of business in aerospace industry; dependence on major
customers. The Company's principal clients are in the aerospace industry. The
Company's three largest clients for the six months ended June 30, 1997 were The
Boeing Company ("Boeing"), Northrop Grumman Corporation ("Northrop Grumman") and
Lockheed-Martin Corporation ("Lockheed"), which accounted for revenues of
approximately $24 million, or 62.7% of revenue for the period. The Company's
three largest clients for the 1996 were Boeing, Lockheed and Northrop Grumman,
which accounted for revenues of approximately $38 million, or 60.7% of revenue
for the year. For 1995, the Company's three largest clients were Northrop
Grumman, Boeing and Lockheed Ft. Worth Company which accounted for revenues of
$34 million, or 54% of revenue. The Company's largest client in 1994 was
Northrop Grumman, which accounted for $14.3 million, or 57% of revenue. The
Company's contracts with its clients may generally be terminated without
significant notice and any loss of a major client may have a material adverse
effect upon the Company.
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Although the Company's agreements with its clients in the aerospace
industry are with the clients and not government departments or agencies, the
Company's business in the aerospace industry may be affected by government
policies relating to defense spending. At January 1996, the Company lost a major
customer in the aerospace industry. The Company's business may also be
affected by the consolidation of companies in the aerospace industry. 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Markets and Marketing."
4. 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. See "Business -- Market and Marketing."
5. Substantial obligations to and from related parties; related party
transactions. During 1996, SISC exchanged $750,000 of its debt for shares of
Series F Preferred Stock pursuant to a debt and equity restructure (the "SISC
Recapitalization"). Pursuant to the SISC Recapitalization, the Company issued to
SISC 9,900 shares of Series F Preferred Stock and warrants to purchase 533,333
shares of Common Stock at $7.50 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. As part of the SISC Recapitalization, the
Company issued 100 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.
The 10,000 shares of Series F Preferred Stock held by SISC, Mr. Schiller and DLB
were converted into 1,666,666 shares of Common Stock in October and December
1996. See "Certain Transactions." No shares of Series F Preferred Stock are
presently outstanding.
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<PAGE>
The Company has made advances to Arc, SISC and one other corporation which
is affiliated with SISC (collectively, the "SISC Affiliates"), which are not
owned or controlled by the Company. The total due from the SISC Affiliates was
$1.6 million at June 30, 1997 [Unaudited], of which $1.1 million was due from
Arc. Mr. Lewis S. Schiller, chairman of the board, chief executive officer and a
director of the Company, is chairman of the board, chief executive officer and a
director of Arc; Mr. Joseph Sicinski, president and a director of the Company is
a director of Arc, and Messrs. Norman J. Hoskin and E. Gerald Kay, directors of
the Company, are directors of Arc. The Company cannot predict whether or when
these advances will be repaid because of the SISC Affiliates' lack of working
capital and, with respect to Arc, because its operations incur losses. In view
of the foregoing, the receivables from the SISC Affiliates are included as
long-term receivables on the Company's balance sheet.
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. Such fee will increase to
$15,000 per month upon completion of this Offering. 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.
At September 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. See "Certain Transactions."
6. Potential conflict of interest. Mr. Lewis S. Schiller, chairman of the
board and chief executive officer of the Company is chairman of the board and
chief executive officer of Consolidated. As a result of holding such positions,
Mr. Schiller may be in a position to determine the terms and conditions of
transactions between the Company and Consolidated, SISC and the SISC Affiliates.
In addition, Mr. Norman J. Hoskin, a director of the Company, is also a director
of Consolidated and certain subsidiaries of Consolidated, and Mr. E. Gerald Kay,
a director of the Company, is also a director of certain subsidiaries of
Consolidated. See "Risk Factors -- 5. Substantial obligations to and from
related parties; related party transactions," "Risk Factors -- 14. Continued
Control by SISC" and "Management -- Directors and Executive Officers."
Mr. Schiller's employment agreement with Consolidated also provides that,
in the event of a merger or other sale by the Company of its business, he is
entitled to receive 20% of the gross profit, as defined, from any sale. Ms.
Grazyna B. Wnuk, secretary of the Company and secretary and a director of
Consolidated, has an employment agreement with Consolidated which provided that,
in the event of such a transaction, she is entitled to 1% of such gross profit.
To the extent that any such payments are made by the Company, the amount payable
to the stockholders will be reduced. As of the date of this Prospectus, the
Company has not conducted any formal or informal negotiations or discussions
with respect to any such transaction. See "Certain Transactions."
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<PAGE>
7. Broad discretion as to use of proceeds; potential unspecified
acquisitions. Approximately $1.5 million, representing approximately 50.7% of
the net proceeds of this Offering, are allocated to working capital and other
corporate purposes. In addition, to the extent that any proceeds from this
Offering are not used to pay the Company's asset-based lender, such proceeds
will be used for working capital and other corporate purposes. Accordingly,
management will have broad discretion with respect to the expenditure of a
significant portion 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.
Furthermore, investors may not have the opportunity to review the business or
financial statements of potential acquisition candidates or vote on any
acquisition. See "Use of Proceeds" and "Business -- Potential Business
Agreements."
8. Potential change in use of proceeds. Notwithstanding the Company's 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.
9. Dependence on management. The Company's business is dependent upon its
senior executive officers, principally Mr. Joseph G. Sicinski, president, who 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 $234,000, 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. The Company has $500,000 of key man life insurance on
Mr. Sicinski's life.
10. 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 month. 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.
-16-
<PAGE>
During July and August 1996, 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
the Company agreed to pay the remaining $1.5 million, plus interest, in
installments, commencing in September 1996. The Company's obligations to the IRS
under the agreement have been paid in full. During the six months ended June 30,
1997 and the years ended December 31, 1996 and 1995, the Company's selling,
general and administrative expenses included approximately $165,000, $635,000
and $1.0 million, respectively, in penalties for late withholding payments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
11. Settlement agreement with Department of Labor, other potential claim.
The Company and the United States Department of Labor and the independent
court-appointed trustee of the Job Shop 401(k) Plan (collectively, "DOL") have
entered into a settlement agreement pursuant to which the Company is to pay the
DOL an aggregate of $300,000, in 18 installments of $16,667 commencing May 1997.
The agreement represented the settlement of certain claims by the DOL resulting
from the failure of Job Shop to deposit employee contributions to Job Shop's
401(k) retirement plan prior to the purchase by the Company of assets of
Job Shop in November 1994. The remaining balance due to the DOL, which was
$233,333 at August 31, 1997, will be paid from the proceeds of this Offering.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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.
12. 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. See "Business -- Competition."
13. Need to attract qualified personnel. The ability of the Company to
generate revenues is dependent upon both its ability to obtain contracts with
clients and to provide its clients with qualified employees. 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. See "Business -- Competition."
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<PAGE>
14. Continued control by SISC. As of August 31, 1997, SISC and Mr. Lewis S.
Schiller beneficially owned 40.1% and 4.1% of the Company's outstanding Common
Stock, respectively. SISC is a wholly-owned subsidiary of Consolidated, and Mr.
Schiller is chief executive officer of the Company, SISC and Consolidated.
Furthermore, Mr. Schiller holds presently exercisable warrants to purchase
158,333 shares of Common Stock at $7.50 per share and options to purchase 833
shares of Common Stock at $6.186 per share and 25,000 shares of Common Stock at
$6.75 per share. After including the shares of Common Stock issuable upon
exercise of such warrants and options, SISC and Mr. Schiller beneficially own in
the aggregate, 46.8% of the Common Stock. As a result, Mr. Schiller, as chief
executive officer of SISC and the Company, has the power to elect all of the
Company's directors and approve any matter requiring stockholder approval as
well as to determine the terms of any agreements between the Company, on the one
hand, and SISC, Consolidated and their subsidiaries and affiliates, on the other
hand. See "Principal Stockholders."
15. Possible delisting from The Nasdaq System and market illiquidity. The
Company's Common Stock is, and the Units and Warrants are expected to be, listed
on The Nasdaq SmallCap Market. The continued listing of the Common Stock and
Warrants on The Nasdaq SmallCap Market is subject to the Company meeting the
Nasdaq maintenance requirements, pursuant to which the Company must, among other
conditions, either maintain net tangible assets (i.e., total assets less
liabilities and goodwill) of $2 million, or a market capitalization of $35
million or net income of $500,000 for two of the last three years. The Company
will also be required to meet certain corporate governance requirements. 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 OTC 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
Underwriter. Such customers may subsequently engage in the sale or purchase of
the securities through or with the Underwriter. Although it has no
obligation to do so, the Underwriter may become a market maker and otherwise
effect transactions in securities of the Company, and, if it participates in
such market, may be a dominating influence in the trading of the securities. The
prices and the liquidity of the Units, Common Stock and Warrants may be
significantly affected by the degree, if any, of the participation of the
Underwriter in such market, should a market arise.
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<PAGE>
16. Risks of low-priced stocks; penny stock regulations. If the Company's
securities were delisted from The Nasdaq SmallCap Market (See "Risk Factors --
15. 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 Units,
Common Stock or 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 such
securities could be materially adversely affected.
17. Arbitrary offering price and terms. The price and composition of the
Units and the exercise price and other terms of the Warrants have been
determined by negotiation between the Company and the Underwriter 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.
19. Shares eligible for future sale; shares issuable pursuant to warrants,
options and preferred stock; registration rights. Almost all of the 3,819,721
shares of Common Stock outstanding at August 31, 1997, 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 the holding period
pursuant to Rule 144 of the Commission or the expiration of the restricted
period pursuant to Regulation S of the Commission. Rule 144 permits the sale of
restricted securities, subject to the Rule 144 volume limitations, one year
after the date of issuance by the Company or the date of transfer by an
affiliate of the Company. Affiliates of the Company will continue to be subject
to the volume limitations of Rule 144. 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 Underwriter. The lock-up
agreement provides for a limited release from the lock-up restrictions if
certain stock price levels are attained during such period.
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<PAGE>
As of August 31, 1997, the Company had reserved (a) 913,354 shares of
Common Stock issuable upon exercise of the Other Warrants with exercise prices
ranging from $7.50 per share to $50.70 per share with varying expiration dates
and (b) 465,388 shares of Common Stock which may be issued pursuant to the
Company's stock option plans, of which stock options to purchase 244,490 shares
were outstanding. The Other Warrants include warrants to purchase 816,666 shares
of Common Stock at $7.50 per share through March 31, 2001, which are principally
held by SISC and the Company's present and former directors and their designees.
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 Units, Common Stock
or Warrants, and no assurance can be given that the market for and market price
of the Common Stock will not be materially and adversely affected by the
registration and sale of any of such shares.
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 Units, Common Stock and Warrants. 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. In addition, the issuance of Preferred Stock with multiple
voting rights may adversely affect the Company's listing on The Nasdaq SmallCap
Market. The Company cannot issue additional shares of Preferred Stock for two
years from the date of this prospectus without the consent of the Underwriter.
21. No public market for Units or Warrants. Prior to this Offering, there
has been no public trading market for the Units or Warrants. Although the Common
Stock is listed on The Nasdaq SmallCap Market and the Company has applied
to have the Units and Warrants listed on 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.
22. Dilution. Purchasers of the Units will incur a dilution of $2.65 per
share, or 66% from the initial public offering price of the Units, without
allocating any value to the Warrants. See "Dilution."
23. Forward-looking statements. Prospective investors are cautioned that
the statements in this Prospectus that are not descriptions of historical facts
may be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified under "Risk Factors" and elsewhere
in this Prospectus or in documents incorporated by reference in this Prospectus.
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DILUTION
The net tangible book value of the Company's Common Stock at June 30, 1997
[Unaudited] was approximately $.85 per share. All share and per share
information included in this Prospectus has been restated to reflect a
one-for-six reverse split effective June 20, 1997. Net tangible book value
represents the amount of the Company's tangible assets reduced by the amount of
its liabilities. Without taking into effect any change in net tangible book
value of the Company after June 30, 1997 other than as a result of the sale of
the 1,000,000 shares of Common Stock included in the Units, after deducting fees
and other estimated expenses of the Offering and ascribing no value to the
Warrants, the Company's net tangible book value as of June 30, 1997
would have been approximately $1.35 per share. This amount represents an
immediate increase in net tangible book value per share of approximately $.50 to
the present stockholders and an immediate dilution (the difference between the
offering price of the shares and the net tangible book value per share after the
Offering) per share of approximately $2.65 to the purchasers of the Units.
The following table illustrates the dilution of one share of Common Stock as of
June 30, 1997:
Offering price per share of Common Stock $4.00
Net tangible book value per share at June 30, 1997 $.85
Increase per share attributable to sale of the Units offered hereby .50
---
Pro forma net tangible book value per share after Offering $1.35
Dilution to public investors $2.65*
* If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $1.41 per share of Common Stock,
resulting in an increase in the net tangible book value per share of $.56 and
dilution to the public investors of $2.59 per share.
<PAGE>
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 Callable Common Stock Purchase Warrants ("1994
Warrants"). The 1994 Warrants expired unexercised in May 1997, with no 1994
Warrants having been exercised. The Common Stock has been traded on The Nasdaq
SmallCap Market since September 22, 1994. The symbol for the Common Stock is
"TGSI."
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The high and low closing prices for the Company's Common Stock since January 1,
1995 are as set forth below.
Common Stock
High Low
1995
First Quarter 23.25 12.00
Second Quarter 28.50 21.00
Third Quarter 25.50 12.75
Fourth Quarter 21.00 8.25
1996
First Quarter 10.12 5.62
Second Quarter 10.50 7.31
Third Quarter 11.81 8.25
Fourth Quarter 13.50 8.62
1997
First Quarter 12.56 6.75
Second Quarter 9.18 1.56
Third Quarter (through September 19) 3.88 1.56
- ------------------------------------------ --------------------------
The closing price for the Common Stock on September 19 , 1997 was $3.875
per share. These quotations reflect inter- dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions and
have been restated to reflect the one-for-six reverse split effective June 20,
1997.
As of August 31, 1997, the Company believes that there were approximately
1,750 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.
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<PAGE>
USE OF PROCEEDS
The Company intends to utilize the net proceeds from the sale of the Units
pursuant to this Prospectus, estimated at approximately $3.0 million (assuming
the Underwriter's over-allotment option is not exercised), substantially as
follows:
(a) Approximately $1.3 million (43.9 of the net proceeds) to reduce
the Company's obligations to its asset based lender.1
(b) Approximately $200,000 (6.8%) to pay the Company's obligations to the
DOL-2
(c) The balance of approximately $1.5 million (50.7%) for working
capital and other general corporate purposes.
1 At June 30, 1997 [Unaudited] and August 31, 1997, the Company owed its
asset-based lender approximately $3.8 million and $4.0 million, respectively.
Pursuant to an amendment to the Company's agreement with its asset-based lender,
the Company's borrowing availability will be reduced to $3.0 million on November
1, 1997. The Company 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 DOL, the Company is to pay
the DOL the balance of its obligations to the DOL from the proceeds of this
Offering. At August 31, 1997, the unpaid balance was approximately $233,000.
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.
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<PAGE>
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.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to reflect the sale of the 1,000,000 Units offered
hereby and the application of a portion of the proceeds from this Offering to
pay short-term debt.
<TABLE>
<S> <C> <C>
June 30, 1997
Actual As Adjusted
(Dollars in thousands)
Short-term debt:
Loan payable -- asset-based lender1 $ 3,812 $ 2,512
Other notes payable2 138 138
--- ---
$ 3,950 $ 2,650
======= =======
Stockholders' equity:
Preferred Stock, par value $.01 per
share, 20,000,000 shares authorized,
none issued or outstanding Common Stock,
par value $.01 per share, 50,000,000
shares authorized, 3,819,721 shares
issued and outstanding and 4,819,721
shares issued and outstanding as adjusted-3 $ 38 $ 48
Capital in excess of par 5 12,888 15,838
Accumulated deficit (5,629) (5,629)
Deferred compensation fee (233) (233)
---- ----
Stockholders' equity $ 6,826 $10,024
======= =======
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 3 of Notes to Trans Global Services, Inc. Consolidated Financial
Statements.
</TABLE>
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<PAGE>
2 These notes were issued in connection with the acquisition of Avionics.
See Note 8 of Notes to Trans Global Services, Inc. Consolidated Financial
Statements.
3 Does not include an aggregate of 1,378,692 shares of Common Stock
reserved as follows: (a) 465,338 shares issuable pursuant to the Company's stock
option plans, of which stock options to purchase 245,316 shares are outstanding,
(b) 913,354 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 exercise of the Warrants or exercise of the
Underwriter's over-allotment option or Underwriter's Option. See "Certain
Transactions," "Description of Securities" and "Underwriting."
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, 1997 and 1996 and the years ended December 31,
1996, 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 Data1:
<TABLE>
<S>
<C> <C> <C> <C> <C>
Six Months Ended June 30, Year Ended December 31,
1997 1996 1996 1995 1994
Revenue $38,890 $28,468 $62,594 $63,152 $25,287
Gross profit 3,021 2,293 5,158 3,995 1,583
Net income (loss) from continuing operations 158 (569) (681) (4,413) (411)
Net income (loss) 158 (569) (681) (4,696) (411)
Net income (loss) per share of Common Stock .04 (.49) (.27) (8.88) (4.11)
Weighted average number of shares of Common
Stock outstanding 3,819 1,169 2,530 528 100
Balance Sheet Data:
December 31,
June 30, 1997 1996 1995 1994
Working capital (deficiency) $ (599) $ (755) $(2,401) $(1,805)
Total assets 14,202 13,100 12,763 10,345
Total liabilities 7,139 6,274 8,511 9,033
Accumulated deficit (5,629) (5,788) (5,106) (411)
Stockholders' equity 7,064 6,826 4,252 1,312
</TABLE>
1 Statement of operations data includes the operations of RMI commencing
November 22, 1994.
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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's 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, 1997 and 1996
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 1997,
Social Security taxes are payable on the first $65,400 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, 1997 (the "June 1997 period"), the
Company had revenues of $38.9 million, an increase of 36.6% from the revenue of
$28.5 million during the six months ended June 30, 1996 (the "June 1996
period"). The increase in revenue reflects the Company;s increased placement
efforts and its ability to more than replace one of its larger customers in the
aerospace industry which it lost in January 1996. During the June 1997 period,
approximately 62.7% of the Company's revenue was derived from its three largest
clients and 81% of such revenue was derived from its five largest clients.
During the June 1996 period, approximately 56.8 % of the Company's revenue was
derived from its three largest clients and 70.7% of such revenue was derived
from its five largest clients. See "Business -- Markets and Marketing." The
Company's gross margin for the June 1997 period was 7.8%, as compared to 8.0%
for June 1996 period. The decrease reflects a higher level of payroll taxes, as
a percentage of revenue, during the June 1997 period.
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<PAGE>
Although selling, general and administrative expenses were substantially
unchanged from the June 1996 period to the June 1997 period, such expenses
include Federal withholding tax penalties of $165,000 and $475,000 for the June
1997 and June 1996 periods, respectively. Selling, general and administrative
expenses other than Federal withholding tax penalties increased by 17.3% from
$1.8 million to $2.1 million, resulting from increased selling and marketing
expenses.
The Company finances its payroll obligations by borrowing from a
non-affiliated 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 June 1995 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. Pursuant to an amendment to the Company's agreement with its
asset-based lender, on November 1, 1997, the borrowing availability will be
reduced to $3.0 million and the Company will pay a fixed monthly fee of $10,500
to the asset-based lender. The fee will be subject to increases to the extent
that receivables in any month exceed $10.0 million. The interest rate of 2% in
excess of prime will not be affected by the amendment. The borrowings are
secured by a security interest in all of the Company's assets. At June 30, 1997,
borrowings from the asset-based lender were approximately $3.8 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, 1997 and 1996 was 10.5% and 10.25%,
respectively. During the June 1997 period, the interest expense was
approximately $383,000, a 17.5% increase from $326,000 for the June 1996 period
as a result of increased borrowings and slightly higher interest rates.
Amortization of customer lists and other intangible assets decreased 14.7%
from $231,000 in the June 1996 period to $197,000 in the June 1997 period.
The Company has not provided for income taxes for the June 1997 period
because of its ability to use the tax loss carryforwards from prior periods. The
Company did not provide for any net income tax benefits for the June 1996 period
to reflect the benefit of its net operating loss since, based on its operations
through June 30, 1996, pursuant to SFAS No. 109, "Accounting for Income Taxes,"
the Company had determined that it was more likely than not that the deferred
tax asset resulting from the net operating loss would not be used by the
Company.
As a result of the foregoing, the Company had net income of $158,000, or
$.04 per share, for the June 1997 period, as compared with a loss of $569,000,
or $.49 per share, for the June 1996 period. The Company believes that, with the
increased level of revenue and the stabilized level of selling, general and
administrative expenses, it can improve its operations following the completion
of this Offering by reducing its interest expense. The Company may also seek to
reduce its financing costs further by seeking to enter into agreements with
other financing sources which would offer lower financing costs. However, no
assurance can be given that the Company can or will operate profitably in
future.
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<PAGE>
Years Ended December 31, 1996 and 1995
Revenue for 1996 was $62.6 million, reflecting a 1% decrease from the
revenue of $63.2 million during 1995. This decrease is attributed to the loss of
a contract in January 1996, from one of the Company's larger customers in the
aerospace industry. By December 31, 1996, the Company had increased its revenue
base so that, at such date, the annual rate of revenue was greater than it was
prior to the loss of the customer. During 1996, approximately 61% of the
Company's revenue was derived from its three largest clients and 75% of such
revenue was derived from its five largest clients. See "Business --Markets and
Marketing." The Company's gross margin for 1996 was 8.2%, as compared to 6.3%
for 1995. The increase reflects a higher gross margin on the new contracts
entered into by the Company as compared with the lower gross margin on the
contract that was lost.
Selling, general and administrative expenses decreased by $1.9 million, or
30.0%, from $6.4 million in 1995 to $4.5 million for 1996. This decrease
reflects a high level of such expenses in 1995 resulting from the issuance of
securities to consultants in 1995 ($2.3 million) and penalties for late
withholding taxes ($1.0 million). During 1996, penalties for late withholding
taxes were $635,000.
During 1995, the Company incurred $528,000 of acquisition expenses relating
the issuance of securities 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. No comparable expenses were incurred in 1996.
The Company finances its payroll obligations by borrowing from a
non-affiliated 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 June 1995 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. Pursuant to a January 1997 amendment to the Company's agreement with
its asset-based lender, on April 1, 1997, the borrowing availability will be
reduced to $3.0 million and the Company will pay a fixed monthly fee of $10,500
to the asset-based lender. The fee will be subject to increases to the extent
that receivables in any month exceed $10.0 million. The interest rate of 2% in
excess of prime will not be affected by the amendment. The Company is
negotiating with the asset-based lender with respect to a deferral of the date
on which the reduction of availability becomes effective and has received oral
advice from such lender granting a reasonable extension. The borrowings are
secured by a security interest in all of the Company's assets. At December 31,
1996, such borrowings from the asset-based lender were approximately $3.7
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 December 31, 1996 and 1995 was 10.25%. During
the 1996, the interest expense was approximately $712,000, as compared to
$963,000 for 1995, a decrease of 26%, which reflects the reduced borrowing rates
which were effective in June 1995.
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<PAGE>
Amortization of customer lists and other intangible assets was unchanged
from 1995 to 1996. During 1996, the Company established a $300,000 reserve in
connection with the claim by the DOL arising from the acquisition of Job Shop
assets, which is reflected on the Consolidated Statements of Operations as a
contingency reserve. During the June 1997 period, the Company entered into an
agreement with the DOL pursuant to which the Company agreed to pay the DOL
$300,000.
The Company has not provided for income taxes for 1996 due to a current
period loss. Federal and state tax benefits have not been recognized for 1996
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.
As a result of the foregoing, the Company sustained a net loss of $681,000,
or $.04 per share, for 1996, as compared with a loss of $4.7 million, or $1.48
per share, for 1995. The Company believes that, with the reduced level of
selling, general and administrative expenses and improved gross margin, which
are reflected in the results of its operations for 1996, it can improve its
operations following the completion of this Offering by reducing its interest
expense through its amended agreement with its asset-based lender combined with
a lower level of borrowing and eliminating future late withholding tax
penalties, which affected the Company's operations since its organization. The
Company may also seek to reduce its financing costs further by seeking to enter
into agreements with other financing sources which would offer lower financing
costs. However, no assurance can be given that the Company can or will operate
profitably in future.
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
both 1995 and 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.
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<PAGE>
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.
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
with operating income of $277,000 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 $4.4 million, or $1.39 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.
Liquidity and Capital Resources
As of June 30, 1997, the Company had a working capital deficiency of
$599,000. Its working capital deficiency reflects (a) $3.8 million due to the
Company's asset-based lender, (b) payroll and related taxes and expenses of $2.4
million, (c) accounts payable and accrued expenses of $500,000 and (d) other
current obligations of $300,000. The payroll and related taxes and expenses
relates primarily to compensation to the Company's contract employees and
related taxes, which were paid during the first week of July 1997. At such date,
the Company required additional capital to enable it to reduce its expenses,
principally interest, and expand its operations. The principal source of funds,
other than its asset-based lender, has been 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.
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<PAGE>
At June 30, 1997, the Company owed approximately $3.8 million to its
asset-based lender. The Company had been advised that, as a result of a change
in its general lending policies, the asset-based lender was to reduce the
Company's maximum borrowing availability to $3.0 million, effective in November
1, 1997. In January 1997, the asset-based lender agreed to an amendment to its
agreement with the Company pursuant to which, at November 1, 1997, the borrowing
availability will be reduced to $3.0 million. Such reduction in borrowing
availability, if implemented prior to the receipt by the Company of the proceeds
of this Offering, would have a material adverse effect upon the Company's
business. The amendment also provides for a reduction in the monthly fee payable
to the asset-based lender. Although the Company is seeking alternative financing
sources, no assurance can be given that the Company can or will be able to
obtain an alternate financing source, the failure of which could have a material
adverse effect upon the Company.
The Company has entered into an agreement with the DOL which provides for
payments in the aggregate amount of $300,000, payable $16,667 per month,
provided, that, upon completion of this Offering, the Company is required to pay
the unpaid balance to the DOL. At June 30, 1997, the amount due to the DOL was
$250,000.
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.
The Company believes that the net proceeds from this Offering will be
sufficient to meet its capital requirements for twelve months following
completion of this Offering. However, no assurance can be given that the Company
will not require additional funds prior to such time or, if such funds are
required, that they will be available to the Company on acceptable terms.
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.
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<PAGE>
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's employees is performed at the client's premises and under the client's
direction, although the Company is the employer of record.
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<PAGE>
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.
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 a specific project or to meet peak 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.
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<PAGE>
The Company's largest customers for the six months ended June 30, 1997 were
Boeing, Northrop Grumman, Lockheed, Gulfstream Aerospace Corp. ("Gulfstream")
and Bell Helicopter Textron ("Bell Helicopter"), which accounted for
approximately $9.0 million, $7.8 million, $5.1 million, $3.6 million and $2.7
million, or 25.8%, 22.4%, 14.5%, 10.3% and 7.6% of revenue, respectively. The
Company's largest customers for the 1996 were Boeing, Lockheed, Northrop
Grumman, Gulfstream and Bell Helicopter, which accounted for approximately $16.3
million, $12.9 million, $9.1 million, $4.8 million and $3.7 million, or 25.6%,
20.8%, 14.4%, 8% and 6.4% of revenue, respectively. For the year ended December
31, 1995, Northrop 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. No other client accounted for 5% or more of the Company's revenues
in either the six months ended June 30, 1997 or the years ended December 31,
1996 or 1995.
Avionics' largest clients for 1994 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 1994.
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 contacts 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. Furthermore, the ability of the
Company to generate revenues is dependent not only upon its ability to obtain
contracts with clients, but also to provide its clients with qualified
employees. The market for qualified personnel is highly competitive, and the
Company competes with other companies in attracting employees.
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.
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<PAGE>
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 August 31, 1997, the Company had 954 employees, of which 902 were
contract service employees who performed services on the clients' premises and
52 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, they have 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.
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.
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<PAGE>
Properties
The Company leases an aggregate of approximately 16,000 square feet of
office facilities. Its executive offices are located on Long Island, New York,
and it 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 $220,000, 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 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." At September 1995, the stock of WWR was sold to a subsidiary of
Consolidated. See "Certain Transactions -- Sale of WWR."
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the directors 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 43 Chief financial officer and treasurer
Grazyna B. Wnuk 32 Secretary
E. Gerald Kay1 57 Director
Norman J. Hoskin1 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 publicly-traded subsidiary of
Consolidated that markets health information systems and other network based
software systems, as well as privately owned subsidiaries of Consolidated.
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, electro-optical products and three-dimensional imaging
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 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.
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<PAGE>
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 is also a director of certain
privately owned subsidiaries of Consolidated. 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. 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, Netsmart, Aqua
Care Systems, Inc., a water media filtration and remediation company, and
Spintek Gaming, Inc., a manufacturer of gaming equipment. He is also a director
of certain privately-owned subsidiaries of Consolidated.
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 has no audit or compensation committees.
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 for 1996, 1995 and 1994 to its chief executive officer and to
each other officer whose compensation exceeded $100,000 for 1996.
<TABLE>
<S> <C> <C> <C> <C> <C>
Annual Compensation Long-Term Compensation (Awards)
Restricted Stock Options, SARs
Name and Principal Position Year Salary Bonus Awards (Dollars) (Number)
Lewis S. Schiller, CEO1 1996 -- -- -- 92,500-2
1995 -- -- -- --
1994 -- -- -- --
Joseph G. Sicinski, President 1996 195,500 -- -- 200,000-3
1995 178,000 -- -- 41,666-3
1994 110,000 15,000 -- --
</TABLE>
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<PAGE>
1. 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 years ended December 31, 1996 and
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 $340,000, $250,000, $94,000 and $181,451, respectively.
2. Represents warrants to purchase 66,666 shares of Common Stock at $7.50
per share, an incentive stock option to purchase 25,000 shares of Common Stock
at $6.75 per share and a nonqualified stock option to purchase 833 shares at
$6.186 per share. Such options and warrants were granted at the fair market
value on the date of grant. Mr. Schiller transferred warrants to purchase 25,000
shares of Common Stock to members of his family. See "Management -- Stock Option
Plans" and "Certain Transactions."
3. Represents warrants to purchase 66,666 shares of Common Stock at $7.50
per share and an incentive stock option to purchase 133,333 shares of Common
Stock at $6.75 per share. Such options and warrants were granted at the fair
market value on the date of grant. In connection with the grant of the incentive
stock option to purchase 133,333 shares of Common Stock, Mr. Sicinski agreed to
the cancellation of an incentive stock option to purchase 41,666 shares of
Common Stock at $12.75, which was granted in 1995. See "Management -- Stock
Option Plans" and "Certain Transactions."
The annual salary payable by Consolidated to Mr. Schiller pursuant to his
employment agreement with Consolidated was $250,000, subject to a cost of living
increase, prior to September 1, 1996. Effective September 1, 1996, Mr.
Schiller's annual salary from Consolidated was increased to $500,000. In
addition, Mr. Schiller receives incentive compensation from Consolidated based
on the results of Consolidated's operations and owns 10% of Consolidated's or
SISC's equity interest in each of their operating subsidiaries and investments.
Mr. Schiller has received 10% of SISC's equity interest in the Company for
nominal consideration. Mr. Schiller has also received 10% of other securities
owned by SISC, including securities of other subsidiaries of SISC. See "Certain
Transactions."
In January 1995, Mr. Joseph G. Sicinski entered into a five-year employment
agreement with the Company pursuant 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 five-year term
commencing September 1, 1996 pursuant to which he receives 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.
The Company pays its non-management directors a fee of $500 per month.
The following table sets forth information concerning the exercise of
options and warrants during the year ended December 31, 1996 and the year-end
value of options held by the Company's officers named in the remuneration table.
No SARs have been granted.
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<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<S> <C> <C> <C> <C>
Number of
Securities Value of
Underlying Unexercised In-
Unexercised the-Money
Options at Fiscal Options at Fiscal
Year End-1 Year End-2
Shares Acquired Exercisable/ Exercisable/
Name Upon Exercise Value Realized Unexercisable Unexercisable
Lewis S. Schiller -- -- 75,416-3 $272,970/
-- --
Joseph G. Sicinski -- -- 95,998-4/ 382,000/
104,001 468,000
</TABLE>
1 Includes options which became exercisable on January 1, 1997.
2 Based on the closing price per share of Common Stock on December 31,
1996, which was $11.25.
3 Represents warrants to purchase 49,583 shares of Common Stock at $7.50
per share (41,666 shares) and $21.00 per share (7,196 shares), an
incentive stock option to purchase 25,000 shares of Common Stock
at $6.75 per share, and nonqualified stock options to purchase 833
shares of Common Stock at $6.186 per share.
4 Represents warrants to purchase 66,666 shares of Common Stock at $7.50
per share and an incentive stock option to purchase 29,332 shares of
Common Stock at $6.75 per share, which are currently exercisable, and
an incentive stock option to purchase 104,001 at $6.75 per share, which
are not currently exercisable.
During 1996, the board of directors approved the repricing of incentive
stock options granted to Mr. Joseph Sicinski in 1995, by the cancellation of
incentive stock options to purchase 41,666 shares at 12.75 per share and the
grant of an incentive stock option to purchase 133,333 shares of Common Stock at
$6.75 per share. The grant of the new option and cancellation of the old option
were based on the Company's improving results notwithstanding the decline in the
stock price. Set forth below is information concerning the repricing of such
options. Information is not included with respect to repricing of options
granted to Mr. Milton E. McNally, who was chief executive officer of the Company
prior to the consummation of the Trans Global Transaction in May 1995. In
February 1995, the Company reduced to $13.50 per share the exercise price of
outstanding options to purchase an aggregate of 15,416 shares of Common Stock
from $18.00 per share, as to 8,333 shares, $30.00 per share as to 5,000 shares
and $38.40 per share as to 2,083 shares.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Option Repricings
Number of Market Price
Securities of Stock at Exercise Price
Underlying Time of at Time of New Length of Original Term
Options Repricing or Repricing or Exercise Remaining at Date of
Name Date Repriced or Amendment Amendment Price Repricing or Amendment
Amended
Joseph B. Sicinski 3/18/96 41,666 shares $6.75 $12.75 $6.75 five years, five months
</TABLE>
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 25,000
shares of Common Stock. Options to purchase 20,682 shares of Common Stock were
granted at exercise prices of $18.00 as to 9,083 shares, $30.00 as to 2,433
shares and $30.00 as to 9,166 shares. The exercise price of all of such options
was reduced to $13.50 per share in February 1995. As of June 30, 1997, options
to purchase 1,691 shares 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 50,833 shares of Common
Stock. At August 31, 1997, options to purchase 48,333 shares of Common Stock
were granted pursuant to the 1995 Plan, of which options to purchase 45,333
shares had been exercised and options to purchase 3,000 shares at an exercise
price of $3.00 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 83,333 shares of Common Stock. In April 1996, the
board of directors approved, and in November 1996, the stockholders approved, an
amendment to the 1995 Incentive Plan which increased the number of shares of
Common Stock currently subject to the 1995 Incentive Plan to 415,388 shares. The
number of shares of Common Stock subject to the 1995 Incentive Plan
automatically increases by 5% of any shares of Common Stock issued by the
Company other than shares issued pursuant to the 1995 Incentive Plan, but
including any shares of Common Stock issuable pursuant to this Offering. 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 833 shares on
February 1st of each year, commencing February 1, 1996. Messrs. E. Gerald Kay
and Norman J. Hoskin are the directors who qualify as non-management directors
under the 1995 Plan.
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<PAGE>
Pursuant to the 1995 Incentive Plan, Messrs. Schiller, Kay and Joel S.
Kanter, who was a director of the Company until February 1997, were
non-management directors on February 1, 1996, each received an option to
purchase 833 shares of Common Stock at $6.186 per share, and Messrs. Hoskin, Kay
and Kanter, who were non-management directors on February 1, 1997, each received
an option to purchase 833 shares of Common Stock at $11.25 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 Incentive Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards. 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.
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<PAGE>
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
41,666 shares of Common Stock pursuant to the 1995 Plan at an exercise price of
$12.75 per share, being the fair market value on the date of grant. The option
was immediately exercisable as to 7,833 shares of Common Stock and becomes
exercisable as to an additional 7,833 shares of Common Stock on each of January
1, 1996, 1997, 1998 and 1999 and becomes exercisable as to the remaining 2,500
shares of Common Stock on January 1, 2000.
In March 1996, the committee granted incentive stock options to purchase an
aggregate of 218,333 shares of Common Stock at $6.75 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 133,333
shares of Common Stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, who received an option to purchase 25,000 shares of Common Stock, Mr.
Glen R. Charles, chief financial officer of the Company, who received an option
to purchase 16,666 shares of Common Stock, and sixteen other employees who
received options to purchase an aggregate of 43,333 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. Except for the options granted to Messrs. Schiller, Sicinski and Charles,
all options are immediately exercisable. The options granted to Messrs. Schiller
and Charles are immediately exercisable as to 14,666 shares and become
exercisable as to the remaining shares on January 1, 1997. The option granted to
Mr. Sicinski is immediately exercisable as to 14,666 shares and becomes
exercisable cumulatively as to an additional 14,666 shares on January 1 of each
year from 1997 to 2004 and becomes exercisable as to the remaining shares on
January 1, 2005.
The following table sets forth information concerning options granted
during the year ended December 31, 1996 pursuant to the Company's 1995 Incentive
Plan. See "Management -- Remuneration" and "Certain Transactions" for
information relating to the issuance of warrants to officers and directors. No
SARs were granted.
Option Grants in Year Ended December 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
Percent of Total
Number of Shares Options Granted
Underlying to Employees in Exercise Price
Name Options Granted Fiscal Year Per Share Expiration Date
Lewis S. Schiller 25,000 11.3% $6.75 3/17/06
833-1 0.3% 6.186 1/31/06
Joseph G. Sicinski 133,333 60.4% 6.75 3/17/06
All current executive officers 2 158,333 71.7% 6.75 3/17/06
16,666 7.5% 6.186 3/17/01
833-1 0.3% 6.186 1/31/06
All non-officer directors 1,666-1 0.8% 6.186 1/31/06
All other employees 43,333 19.6% 6.75 3/17/01
</TABLE>
1 These options are automatically granted pursuant to the 1995 Incentive Plan.
2 Including Messrs. Schiller and Sicinski.
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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 were
convertible into an aggregate of 166,666 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 were
are convertible into an aggregate of 250,000 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 were not convertible, but which had 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 83,333 shares of Common Stock at $21.00 per
share, which expired unexercised in May 1997. As a result of the March 1996
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 were automatically converted into 333,333 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 176,666 shares of Common Stock to SISC; however,
the actual issuance of the shares was 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 as has a value equal to $2.1 million.
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<PAGE>
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. At
December 31, 1996, WWR owed $325,000 to a nonaffiliated lender. The note, which
matured in June 1997, was guaranteed by Walnut and the Kanter Foundation. The
Kanter Foundation and Walnut are affiliated with Mr. Joel S. Kanter, who was a
director of the Company until February 1997. The Company, SISC and Consolidated
guaranteed the guarantee obligations of the Kanter Foundation and Walnut. In
addition, the Company was required to issue to the lender 520 shares per month
of Common Stock as long as the note is outstanding. An aggregate of 32,768
shares of Common Stock were issued pursuant to such agreement. In 1997, the
subsidiary of SISC which owned the stock of WWR sold the stock to a
nonaffiliated person, and the Company's obligations to the lender were
terminated.
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 TGS' redeemable 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% 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. Such fee will
increase to $15,000 per month upon completion of this Offering. 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.
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During the years ended December 31, 1996, 1995 and 1994, the largest amount
due to SISC was $1.1 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. The Company's advances from SISC bore interest
at 10% per annum. Prior to the SISC Recapitalization, the Company owed SISC
approximately $1.1 million. During 1996, pursuant to the SISC Recapitalization,
the Company issued to SISC 9,900 shares of Series F Preferred Stock and warrants
to purchase 533,333 shares of Common Stock at $7.50 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 9,900 shares of
Series F Preferred Stock were convertible into 1,650,000 shares of Common Stock.
As a result of the SISC Recapitalization, the Company's obligations to SISC were
reduced to $300,000, which was paid in 1996. The warrants to purchase
533,333 shares of Common Stock which were issued to SISC pursuant to the SISC
Recapitalization were subsequently transferred by SISC to officers and key
employees of Consolidated and its subsidiaries, including Mr. Joseph Sicinski,
president and a director of the Company, who received warrants to purchase
83,334 shares of Common Stock, and Ms. Grazyna B. Wnuk, secretary of the Company
and Consolidated and a director of Consolidated. See "Certain
Transactions--Other Related Party Transactions".
Pursuant to Mr. Schiller's employment agreement with Consolidated, Mr.
Schiller owns 10% of SISC's interest in its subsidiaries and investments,
including the Company's Common Stock, Preferred Stock and warrants held by SISC.
Mr. Schiller received 65,500 shares of Common Stock, warrants to purchase 7,916
shares of Common Stock and 2,500 shares of Series B and C Preferred Stock
pursuant to such employment agreement. In connection with the SISC
Recapitalization, SISC transferred to Mr. Schiller 1,000 shares of Series F
Preferred Stock, and Mr. Schiller's shares of Series B and C Preferred Stock
were canceled. Also in connection with the SISC Recapitalization, DLB exchanged
its shares of Series B and C Preferred Stock for 100 shares of Series F
Preferred Stock.
Mr. Schiller's employment agreement with Consolidated also provides that,
in the event of a merger or other sale by the Company of its business, he is
entitled to receive 20% of the gross profit, as defined, from any sale. Ms.
Grazyna B. Wnuk, secretary of the Company and secretary and a director of
Consolidated, has an employment agreement with Consolidated which provided that,
in the event of such a transaction, she is entitled to 1% of such gross profit.
To the extent that any such payments are made by the Company, the amount payable
to the stockholders will be reduced. As of the date of this Prospectus, the
Company has not conducted any formal or informal negotiations or discussions
with respect to any such transaction.
In October 1996, SISC converted 5,000 shares of Series F Preferred Stock
into 833,333 shares of Common Stock, and in December 1996, SISC converted the
remaining 3,900 shares of Series F Preferred Stock into 650,000 shares of Common
Stock, and Mr. Schiller and DLB converted their 1,000 and 100 shares of Series F
Preferred Stock into 166,666 and 16,666 shares of Common Stock, respectively.
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The Company has from time to time made advances to three SISC Affiliates
which are not owned or controlled by the Company. Such advances were
approximately $1.5 million, $1.2 million and $274,000 at December 31, 1996, 1995
and 1994, respectively. The amounts outstanding on such dates represent the
largest amounts outstanding during the respective periods ending on such dates.
The Company cannot estimate whether or when the SISC Affiliates will pay the
amounts due the Company because of their lack of available working capital, and,
accordingly, are treated as long term receivables at December 31, 1996. Advances
to the SISC Affiliates may continue. Of the advances to the SISC Affiliates,
advances to Arc were $973,000 at December 31, 1996 and $1.1 million at June 30,
1997. In addition, the Company pays the compensation and benefits of certain
non-executive employees who perform services for both the Company and Arc and
shares common space and other office expenses with Arc. The amount allocated to
Arc, which is approximately $150,000 per annum, is added to the obligations of
Arc 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 amendment to the Company's certificate of incorporation increasing
its authorized common stock, the 5,000 shares of Series E Preferred Stock were
automatically converted into 20,000 shares of Common Stock.
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, who was a director of the Company until February 1997,
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 30,180 shares
of Common Stock and warrants to purchase 15,090 shares of Common Stock at $21.00
per share in consideration for agreeing to such lockups, which related to an
aggregate of 60,360 shares of Common Stock. The warrants expired unexercised and
the lockup obligations have terminated.
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In October 1995, the Company authorized the issuance to each of Messrs. E.
Gerald Kay and Joel S. Kanter a warrant to purchase 12,500 shares of Common
Stock at $21.00 per share. In April 1996, the Company issued to each of Messrs.
Lewis S. Schiller and Joseph G. Sicinski a warrant to purchase 66,666 shares of
Common Stock at $7.50 per share and to each of Messrs. E. Gerald Kay, Joel S.
Kanter and Norman J. Hoskin, a warrant to purchase 50,000 shares of Common Stock
at $7.50 per share. In connection with such grants, Messrs. Kay and Kanter
agreed to waive the right to receive the previously authorized warrants, which
had not been issued.
In April 1996, pursuant to the SISC Recapitalization, SISC received
warrants to purchase 533,333 shares of Common Stock at $7.50 per share. In May
1996, SISC transferred warrants to purchase an aggregate of 108,331 shares of
Common Stock to key employees of Consolidated, including Mr. Lewis S. Schiller,
who is chairman of the board, chief executive officer and a director of the
Company and Consolidated and received warrants to purchase 16,666 shares of
Common Stock, and Ms. Grazyna B. Wnuk, who is secretary of the Company and
Consolidated and a director of Consolidated, who received warrants to purchase
33,333 shares of Common Stock. At the same time, Mr. Schiller transferred
warrants to purchase 8,333 shares of Common Stock to Ms. Wnuk and warrants to
purchase an aggregate of 33,333 shares of Common STock to his children and DLB.
In August 1997, SISC transferred warrants to purchase an aggregate of 425,000
shares of Common Stock to key employees of Consolidated and certain of its
subsidiaries, including Mr. Schiller, his children and DLB, who received
warrants to purchase an aggregate of 283,333 shares of Common Stock, Mr. Joseph
G. Sicinski, president and a director of the Company, who received warrants to
purchase 83,334 shares, and Ms. Wnuk, who received warrants to purchase 8,333
shares of Common Stock.
In August 1995, SISC granted Mr. Sicinski a five-year option to purchase
33,333 shares of Common Stock owned by SISC at $9.75 per share. In April 1996,
SISC granted Mr. Sicinski a five-year option to purchase 133,333 shares of
Common Stock owned by SISC at $1.50 per share, and the prior option was
canceled. The amended option was canceled unexercised.
In July 1997, SISC sold 258,333 shares of Common Stock to Mr. Joseph G.
Sicinski for $1.625 per share, which was the market price on the date of sale.
Mr. Sicinski issued his five-year non-recourse promissory note in payment of the
shares. In July 1997, SISC also transferred 85,005 shares of Common Stock to key
employees of Consolidated and certain of its subsidiaries, including Ms. Grazyna
B. Wnuk, who received 40,834 shares of Common Stock. At the same time, Mr.
Schiller transferred an aggregate of 33,331 shares of Common Stock to his
children and DLB.
The Company believes that the transactions with related parties were made
on terms that were no less favorable to the Company that would have been
available from non-affiliated third parties under similar circumstances.
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PRINCIPAL STOCKHOLDERS
Set forth below is information, as of August 31, 1997 and as adjusted to
give effect to the sale of the 1,000,000 shares of Common Stock included in the
1,000,000 Units offered by this Prospectus, 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 and for all officers and directors as a group.
Percent of Outstanding Common Stock
Name and Address-1 Shares
Outstanding As Adjusted
Lewis S. Schiller-2 1,887,501-3 46.8% 37.4%
160 Broadway
New York, NY 10038
SIS Capital Corp. 1,529,994 40.1% 31.7%
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038
Joseph G. Sicinski 454,331-4 11.3% 9.1%
1393 Veterans Memorial Highway
Hauppauge, NY 11788
E. Gerald Kay 51,666-5 1.3% 1.0%
225 Long Avenue
Hillside, NJ 07205
Norman J. Hoskin 50,833-6 1.3% 1.0%
2200 Corporate Blvd.
Boca Raton, FL 33431
All directors and officers as
a group (six individuals owning 2,545,991-3,4,5,6,7 58.5% 47.6%
stock or warrants)
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) 158,333 shares of Common Stock issuable upon the exercise of
warrants held by Mr. Schiller, (b) 833 shares issuable upon exercise of an
option held by Mr. Schiller, (c) 25,000 shares pursuant to an incentive stock
option held by Mr. Schiller, and (d) 1,529,994 shares of Common Stock owned
by SISC.
4 Includes (a) 29,332 shares of Common Stock issuable pursuant to an incentive
stock option to the extent that such option is presently exercisable and (b)
150,000 shares issuable upon exercise of a warrant held by Mr. Sicinski.
5 Represents 50,000 shares of Common Stock issuable upon exercise of a warrant
and 1,666 shares issuable upon exercise of an option held by Mr. Kay.
6 Represents 50,000 shares of Common Stock issuable upon exercise of a warrant
and 833 shares issuable upon exercise of an option held by Mr. Hoskin.
7 Includes 16,666 shares of Common Stock issuable upon exercise of an incentive
stock option held by one other officer and 50,000 shares of Common Stock
issuable upon exercise of a warrant held by another officer.
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DESCRIPTION OF SECURITIES
Capital Stock
The Company is authorized to issue 20,000,000 shares of Preferred Stock,
par value $.01 per share, and 50,000,000 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. 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 December 31, 1996,
there were 3,819,721 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 20,000,000 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. 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. The Company has
previously authorized five series of Preferred Stock, all of which have either
been converted into shares of Common Stock or have been canceled.
Pursuant to the underwriting agreement with the Underwriter, the Company
has agreed not to issue shares of capital stock, with certain exceptions,
without the consent of the Underwriter.
Series E Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled, upon payment of the exercise price
of $6.00 per share, to purchase one share of Common Stock during the two-year
period commencing one year from the date of this Prospectus or earlier with the
consent of the Underwriter. Unless previously redeemed, the Warrants are
exercisable during the two-year period commencing one year from 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 exempt from
qualification under the applicable securities laws of the state in which the
Exercising Holder resides.
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Commencing one year from the date of this Prospectus, or earlier with the
consent of the Underwriter (which consent may not be granted with respect to
a redemption prior to the date the Warrants may be exercised), 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 $.01 per Warrant, if the closing price per share
of the Common Stock is at least $10.00, subject to adjustment, for at least ten
consecutive trading days in a period of 30 consecutive trading days ending not
earlier than five 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 five business days (or such longer period to which the
Underwriter 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 paid, and 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 Warrants can only be
redeemed if, on the date the Warrants are called for redemption, there is a
current and 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, and the number of shares 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. A holder of Warrants will not possess any rights as a
stockholder of the Company unless and until the holder exercises the Warrants.
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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, the Company may provide in the agreement relating to the
transaction that each Warrant shall be converted into such securities of the
surviving or acquiring corporation or other entity as has a value equal to the
value of the Warrants (which shall not exceed the amount by which the
consideration to be received per share of Common Stock (valued on such date as
the Company's board of directors shall determine) exceeds the exercise price of
the Warrant). The value of the Warrants and securities being issued in exchange
therefor are to be determined by the Company's board of directors. In the event
that, in such a transaction, the value of the consideration to be received per
share of Common Stock is not greater than the exercise price of the Warrants,
the Warrants shall terminate and no consideration will be paid with respect
thereof.
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 between the Company
and American Stock Transfer & Trust Company, as warrant agent.
Other Warrants
There are also outstanding other warrants to purchase an aggregate of
913,354 shares of Common Stock at exercise prices ranging from $7.50 per share
to $50.70 per share. 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. See "Certain Transactions" for
information relating to the issuance of certain of the Other Warrants. See
"Underwriting" with respect to warrants issuable to the Underwriter upon
exercise of the Underwriter's Options.
Dividend Policy
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.
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Shares Eligible for Future Sale
Substantially all of the 3,819,721 shares of Common Stock outstanding at
August 31, 1997, 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 holding period pursuant to Rule 144 of the Commission or the
expiration of the restricted period pursuant to Regulation S of the Commission.
As amended effective in April 1997, Rule 144 permits the sale of restricted
securities, subject to the Rule 144 volume limitations, one year after the date
of issuance by the Company or the date of transfer by an affiliate of the
Company. All of such share will be eligible for sale pursuant to Rule 144 by
April 1997, except that the volume limitations will affect the number of shares
which may be sold pursuant to Rule 144 in any three-month period. Pursuant to
the Rule 144 volume limitations, a holder of restricted securities held for one
year may sell in any three month period the grater of 1% of the outstanding
Common Stock or the average weekly trading volume. A person who is not an
affiliate of the Company and who has held restricted securities for two years
may sell such securities without regard to the Rule 144 volume limitations. 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 Underwriter.
As of August 31, 1997, the Company had (a) warrants to purchase an
aggregate of 96,688 shares of Common Stock at exercise prices ranging from
$12.00 per share to $50.70 per share with various expiration dates, and (b)
warrants to purchase approximately 816,666 shares of Common Stock at $7.50 per
share through March 31, 2001, which are held principally by the Company's
present and former directors and their designees.
The Company has adopted three stock option plans pursuant to which a
maximum of 495,388 shares of the Common Stock may be issued, of which options to
purchase 253,991 shares are outstanding. See "Management -- Stock Option Plans."
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.
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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.
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 Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
UNDERWRITING
Patterson Travis, Inc. (the "Underwriter") has 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 Underwriter, 1,000,000 Units.
The Underwriter is committed to purchase and pay for all of the Units offered
hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Units to the public at the public offering price set forth on the
cover page of this Prospectus. The Underwriter 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 Underwriter, exercisable during
the 45 day period from the date of this Prospectus, to purchase up to a maximum
of 150,000 additional Units at the offering price, less the underwriting
discounts, for the sole purpose of covering over-allotments of the shares. The
Underwriting Agreement also provides that the Company will pay the
Underwriter a fee in the event the Company enters into an acquisition, merger
or similar transaction with a party introduced to it by the Underwriter. As
of the date of this Prospectus, the Underwriter has not introduced the
Company to any such party.
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The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units sold
(including any Units sold pursuant to the Underwriter's over-allotment option).
The Company has agreed to enter into a two-year consulting agreement with
the Underwriter pursuant to which the Company will pay the Underwriter 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 Underwriter 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 Underwriter for a period of 24 months from the date of this
Prospectus, subject to partial release in the event that the Common Stock
attains certain market price levels. The Company has also agreed that, during
the two-year period commencing on the date of this Prospectus, subject to
certain limited exceptions, it will not to issue securities without the consent
of the Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for a purchase price of $100.00, Underwriter's Options to purchase
from the Company up to 100,000 Units at an exercise price equal to 120% of the
initial public offering price per Unit. The Underwriter's Options are
exercisable for a four-year period commencing one year from the date of this
Prospectus. During the one-year period commencing on the date of this
Prospectus, the Underwriter's Options may not be sold, transferred, assigned or
hypothecated, except to the officers of the Underwriter or to selling group
members or officers or partners or members thereof, all of which shall be bound
by such restrictions. The Underwriter's Options will contain anti-dilution
provisions providing for adjustment under certain circumstances which are
similar to the anti-dilution provisions relating to the Warrants. The holders of
the Underwriter's Options have no voting, dividend or other rights as
stockholders of the Company with respect to Common Stock underlying the
Underwriter's Options. The holders of the Underwriter's 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 Underwriter's 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 Underwriter's Options. Such facts may adversely affect the
terms on which the Company could obtain additional financing. Any profit
received by the Underwriter on the sale of the Underwriter's Options or the
securities issuable upon exercise of the Underwriter's Options may be deemed
additional underwriting compensation.
-55-
<PAGE>
The Company has agreed during the term of the Underwriter's Options and for
two years thereafter to give advance notice to the holders of the Underwriter's
Options or underlying securities of its intention to file a registration
statement, and, in such case, the holders of the Underwriter's 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 Underwriter's
Options and underlying securities, 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 Underwriter's Options in filing
a registration at the expense of the holders of the Underwriter's Options or
underlying securities.
The Company has also agreed to pay the Underwriter a Warrant solicitation
fee equal to 6% 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 Regulation M of the Commission under the Exchange Act.
Regulation M the Commission pursuant to the Exchange Act may prohibit the
Underwriter from engaging in any market making activities with regard to the
Company's securities for a period of up to five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Underwriter 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 Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Underwriter 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 or
Warrants. The public offering price, the composition of the Units and the
exercise price and other terms of the Warrants have been arbitrarily determined
by negotiation between the Company and the Underwriter.
The Underwriter has informed the Company that sales to any account over
which the Underwriter exercises discretionary authority will not exceed 1% of
this Offering.
-56-
<PAGE>
LEGAL MATTERS
Esanu Katsky Korins & Siger, LLP, 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 Underwriter in connection
with this Offering.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Moore Stephens, P.C., independent certified public accountants,
as stated in their report 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.
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.
-57-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES PAGE
Report of Independent Certified Public Accounts F-3
Balance Sheets F-4
Statements of Operations F-6
Statements of Changes in Stockholders' Equity F-7
Statements of Cash Flows F-10
Notes to Financial Statements F-13
International Technical Services Division of Job Shop
Technical Services, Inc.
Report of Independent Certified Public Accountants F-29
Statement of Operations F-30
Statement of Changes in Divisional Equity F-31
Statement of Cash Flows F-32
Notes to Financial Statements F-33
F 1
<PAGE>
[This page intentionally left blank]
F2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Trans Global Services, Inc.
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Trans
Global Services, Inc. and its subsidiaries as of December 31, 1996 and 1995, and
the related statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
March 3, 1997
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
[Consolidated [Consolidated]
Unaudited]
<S> <C> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 338,956 $ 56,231 $ 210,597
Accounts Receivable - Net 5,964,303 5,190,056 4,869,116
Loans Receivable - Officer 47,500 42,500 22,500
Prepaid Expenses and Other Current Assets 122,102 230,074 80,966
---------- ---------- ----------
Total Current Assets 6,472,861 5,518,861 5,183,179
---------- ---------- ---------
Property and Equipment - Net 159,213 74,581 41,205
---------- ---------- ---------
Other Assets:
Due from Affiliates 1,619,476 1,508,502 1,234,428
Customer Lists 2,726,051 2,838,535 3,063,503
Goodwill - Net 799,835 824,125 872,705
Covenant Not-to-Compete -0- 60,381 241,833
Deferred Offering Costs 284,482 151,307 --
Other Assets 39,822 22,958 25,074
Investment in Preferred Stock of Affiliate 2,100,730 2,100,730 2,100,730
--------- ---------- --------
Total Other Assets 7,570,396 7,506,538 7,538,273
----------- --------- --------
Total Assets $14,202,470 $13,099,980 $12,762,657
=========== =========== ==========
See Notes to Financial Statements.
</TABLE>
F3
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1 9 9 6 1 9 9 5
[Consolidated [Consolidated]
Unaudited]
<S> <C> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued
Expenses $ 511,498 $ 283,356 $ 551,094
Accrued Payroll and Related Taxes
and Expenses 2,263,296 1,784,061 1,755,685
Accrued Payroll Tax Penalties 164,102 77,000 700,000
Voluntary Settlement Agreement 183,333 300,000 -
Loans Payable - Asset-Based Lender 3,811,700 3,690,875 3,678,702
Notes Payable - Bank -- -- 60,513
Note Payable - Other 138,230 138,230 138,230
Subordinated Debt Current Portion
- IRS Debt -- -- 700,000
--------- --------- --------
Total Current Liabilities 7,072,159 6,273,522 7,584,224
--------- --------- --------
Other Liabilities:
Due to Affiliates -- -- 926,832
Voluntary Settlement Agreement 66,667 -0- -0-
-------- --------- --------
Commitments and Contingencies [10] -- -- --
-------- --------- --------
Stockholders' Equity:
Preferred Stock, $.01 Par
Value, 20,000,000 Shares Authorized
Issued and Outstanding [None -
December 31, 1996, 25,000 Shares
each of Series A, B and C, 20,000
Shares of Series D [Liquidation
Preference of $1,700,000] and 5,000
Shares of Series E -December 31, 1995] -- -- 1,000
Common Stock, $.01 Par Value,
50,000,000 Shares Authorized, Issued
and Outstanding [3,819,721- June 30,1997
3,816,888- December 31, 1996 - 570,768
December 31, 1995] 38,197 38,168 5,708
Capital in Excess of Par Value 12,887,851 12,879,380 9,859,772
Deferred Consulting Fees (233,037) (303,473) (508,512)
Accumulated Deficit (5,629,367) (5,787,617) (5,106,367)
----------- ---------- ---------
Total Stockholders' Equity 7,063,644 6,826,458 4,251,601
--------- --------- ---------
Total Liabilities and
Stockholders' Equity $14,202,470 $13,099,980 $12,762,657
=========== =========== ===========
See Notes to Financial Statements. F4
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Y e a r s e n d e d
June 30, D e c e m b e r 31,
1997 1996 1 9 9 6 1 9 9 5 1 9 9 4
[Consolidated Unaudited] [Consolidated] [Consolidated] [Combined]
<S> <C> <C> <C> <C> <C>
Revenues ........................ $38,890,217 $28,468,322 $62,594,051 $63,151,995 $25,287,089
Cost of Services Provided ...... 35,869,085 26,174,852 57,436,052 59,157,016 23,704,230
------------ ------------ ----------- ----------- -----------
Gross Profit .................... 3,021,132 2,293,470 5,157,999 3,994,979 1,582,859
Operating Expenses:
Selling, General and Administrative
Expenses ....................... 2,285,328 2,282,904 4,396,503 6,358,030 997,122
Related Party Administrative
Expenses ...................... 60,000 60,000 120,000 90,000 --
Amortization - Intangibles ...... 197,221 230,777 455,200 455,197 308,974
Acquisition Expenses ............ -- -- -- 528,578 --
------------ ------------ ----------- ----------- -----------
Total Operating Expenses ........ 2,542,549 2,573,681 4,971,703 7,431,805 1,306,096
Operating Profit/[Loss] ......... 478,583 (280,211) 186,296 (3,436,826) 276,763
Other Income [Expenses]:
Interest Expense ............... (382,333) (325,865) (712,289) (963,211) (696,129)
Other Income [Expense] .......... 62,532 36,921 144,743 (12,890) 8,744
Settlement Costs ............... -- -- (300,000) -- --
------------ ------------ ----------- ----------- -----------
Total Other [Expenses]- Net .... (320,333) (288,616) (867,546) (976,101) (687,385)
Loss From Continuing Operations .. -- -- (681,250) (410,622)
------------ ------------ ----------- ----------- -----------
Discontinued Operations:
Loss from Discontinued Operations . -- -- -- (247,076) --
Loss on Sale of Discontinued Segment -- -- -- (35,742) --
------------ ------------ ----------- ----------- -----------
Total Discontinued Operations .... -- -- -- (282,818) --
------------ ------------ ----------- ----------- -----------
Net Income/(Loss) ............... $ 158,250 $ (568,827) $ (681,250) $(4,695,745) $ ( 410,622)
============ ============ =========== =========== ===========
Loss Per Share of Common Stock:
Continuing Operations $ .04 $ ( .49) $ (.27) $ (8.35) $ (4.11)
Discontinued Operations -- -- -- (.53) --
----------- ----------- ----------- ----------- -----------
Totals $ .04 $ ( .49) $ (.27) $ (8.88) $ (4.11)
=========== =========== =========== =========== ===========
Weighted Average Number of Shares
of Common Stock 3,819,424 1,169,486 2,530,495 528,782 100,000
============ ========== =========== =========== ===========
See Notes to Financial Statements.
</TABLE>
F5
<PAGE>
Trans Global Services, Inc.
Consolidated Statement of Stockholders Equity
<TABLE>
<CAPTION>
Shares Amounts
<S> <C> <C>
Preferred stock $0.01 Par Value Series "A"
Convertible participating Authorized 25,000
shares
Issuance of Stock at Inception 25,000 $ 250
Balance - December 31, 1994 25,000 250
Balance - December 31, 1995 25,000 250
Conversion of Series "A" Preferred Stock
to Common (25,000) (250)
-------- -------
Balance - December 31, 1996 0 0
Balance - June 30, 1997 [Unaudited] 0 0
======== =======
Preferred Stock $.01 Par Value Series
"B" & C"
Convertible Authorized 25,000 shares each
Issuance of Stock at Inception 50,000 $ 500
Balance - December 31, 1994 50,000 500
Balance - December 31, 1995 50,000 500
SISC Recapitalization (50,000) (500)
------- -----
Balance - December 31, 1996 0 0
Balance - June 30, 1997 [Unaudited] 0 0
====== =====
Preferred stock $.01 Par Value Series "D"
Convertible 6.25% Redeemable Authorized 20,000 shares
Issuance of Stock at Inception 20,000 $ 200
Balance - December 31, 1994 20,000 200
Balance - December 31, 1995 20,000 200
SISC Recapitalization (20,000) (200)
------- -----
Balance December 31, 1996 0 0
Balance June 30, 1997 [Unaudited] 0 0
======= ======
Preferred stock $0.01 Par Value Series "E"
Convertible participating Authorized 5,000 shares
Issuance of Stock at Inception -- --
Balance - December 31, 1994 -- --
Issuance of Preferred Stock to Repay Debt 5,000 50
------ ------
Balance - December 31, 1995 5,000 50
Conversion of Series "E" Preferred
Stock to Common (5,000) ( 50)
------- -----
Balance - December 31, 1996 0 0
Balance - June 30, 1997 [Unaudited] 0 0
======= ======
</TABLE>
F6
<PAGE>
Trans Global Services, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Shares Amount
<S> <C> <C>
Preferred stock $0.01 Par Value Series "F"
Convertible participating Authorized 10,000 shares
Issuance of Stock at Inception -- --
Balance - December 31, 1994 -- --
Balance - December 31, 1995 -- --
SISC Recapitialization 10,000 100
Conversion of Series F Preferred Stock to
Common Stock (10,000) (100)
------ ----
Balance- December 31, 1996 0 0
Balance - June 30, 1997 [Unaudited] 0 0
= =
Common Stock $.01 Par Value Authorized
20,000,000 Shares
Issuance of Stock at Inception 600,000 $ 6,000
------- -----
Balance - December 31, 1994 600,000 6,000
Acquisition of Concept 1,485,589 14,856
Exercise of Stock Options 767,000 7,670
Issuance of Common Stock -Private Placement 151,300 1,513
Issuance of Common Stock -Legend Stock 2,600 26
Issuance of Common Stock -Regulation S 390,000 3,900
Issuance of Common Stock -Sirrom Capital 3,120 31
Exercise of Stock Options 25,000 250
--------- ------
Balance - December 31, 1995 3,424,609 $ 34,246
Conversion of Series "A" and "E"
Preferred Stock to Common 2,120,000 21,200
Issuance of Common Stock -
Regulation S 5,500,000 55,000
Issuance of Common Stock-
Sirrom Capital 6,240 63
Deferred Issuance of Common Stock
Related to Acquisiton Stock of Concept 740,482 7,405
Deferred Issuance of Common Stock
Related to Sale of WWR 1,060,000 10,600
Conversion of Series F Preferred
Stock to Common Stock 10,000,000 100,000
Exercise of Common Stock Options 50,000 500
---------- -------
Balance - December 31, 1996 22,901,331 $229,014
Exercise of Stock Option 17,000 170
One-for-six Reverse Split (19,098,610) (190,987)
----------- --------
Balance - June 30, 1997 [Unaudited] 3,819,721 38,197
=========== ========
</TABLE>
F7
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
SHARES AMOUNT
<S> <C> <C>
Capital in Excess of Par Value
Issuance of Stock at Inception $ 1,715,300
---------
Balance - December 31, 1994 1,715,300
Acquisition of Concept 967,966
Exercise of Stock Options 3,226,366
Issuance of Common Stock-Private Placement 452,387
Issuance of Common Stock -Legend Stock (26)
Issuance of Preferred Stock to Repay Debt 199,950
Issuance of Common Stock -Regulation S 996,100
Issuance of Below Market Options 178,750
Issuance of Common Stock -Sale of WWR 1,537,000
Acquisition Expenses 528,578
Issuance of Common Stock -Sirrom Capital 10,499
Exercise of Stock Options 24,750
Reverse Merger Costs (117,854)
Forgiveness of Accrued Interest Prior Years 111,468
--------
Balance - December 31, 1995 $ 9,831,234
Conversion of Series "A" and "E" Preferred
Stock to Common (20,900)
Issuance of Common Stock -Regulation S 2,270,000
Issuance of Common Stock- Sirrom Capital 9,443
Deferred Issuance of Common Stock related to
Acquisition Stock of Concept (7,405)
Deferred Issuance of Common Stock related to
Sale of WWR (10,600)
SISC Recapitalization 750,600
Expiration of Below Market Options (138,125)
Issuance of Below Market Options 79,687
Conversion of Series F Preferred Stock to Common (99,900)
Exercise of Common Stock Option 24,500
--------
Balance - December 31, 1996 $ 12,688,534
Exercise of Stock Options 8,330
One-for-Six Reverse Split 190,987
----------
Balance - June 30, 1997 [Unaudited] $ 12,887,851
==========
Accumulated Deficit
Net [Loss] for the Period Ended December 31, 1994 $ (410,622)
--------
Balance - December 31, 1994 (410,622)
Net [Loss] for the Period Ended December 31, 1995 (4,695,745)
---------
Balance - December 31, 1995 (5,106,367)
Net [Loss] for the Period Ended December 31, 1996 (681,250)
---------
Balance - December 31, 1996 $ (5,787,617)
Net Income 158,250
----------
Balance - June 30, 1997 [Unaudited] $ (5,629,367)
=========
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
SHARES AMOUNT
<S> <C> <C>
Deferred Charges
Balance - December 31, 1994 $ --
Exercise of Stock Options (2,543,536)
Issuance of Below Market Options (178,750)
Amortization of Deferred Consulting Costs 2,213,774
---------
Balance - December 31, 1995 $ (508,512)
Amortization of Deferred Consulting Costs 230,108
Expiration of Below Market Options 138,125
Issuance of Below Market Options ( 79,687)
Recapture of Amortization on Expired Below
Market Options ( 83,507)
---------
Balance - December 31, 1996 $ ( 303,473)
Amortization of deferred consulting costs 70,436
---------
Balance - June 30, 1997 [Unaudited] $ ( 233,037)
============
Total Stockholders' Equity
Issuance of Stock at Inception $ 1,722,250
Net [Loss] for the Period Ended December 31, 1994 (410,622)
--------
Balance - December 31, 1994 1,311,628
Acquisition of Concept 982,822
Exercise of Stock Options 690,500
Issuance of Common Stock -Private Placement 453,900
Issuance of Preferred Stock to Repay Debt 200,000
Issuance of Common Stock -Regulation S 1,000,000
Issuance of Common Stock -Sale of WWR 1,537,000
Amortization of Deferred Consulting Costs 2,213,774
Acquisition Expenses 528,578
Issuance of Common Stock -Sirrom Capital 10,530
Exercise of Stock Options 25,000
Reverse Merger Costs (117,854)
Forgiveness of Accrued Interest Prior Years 111,468
Net [Loss] for the Period Ended December 31, 1995 (4,695,745)
---------
Balance - December 31, 1995 $ 4,251,601
Issuance of Common Stock -Regulation S 2,325,000
Issuance of Common Stock -Sirrom Capital 9,506
SISC Recapitalization 750,000
Amortization Deferred Consulting Costs 230,108
Recapture of Amortization on Expired Below
Market Options (83,507)
Exercise of Common Stock Options 25,000
Net [Loss] for the Period Ended December 31, 1996 (681,250)
-------
Balance - December 31, 1996 $ 6,826,458
Exercise of Stock Options 8,500
Amortization of deferred consulting costs 70,436
Net Income 158,250
---------
Balance - June 30, 1997 [Unaudited] $ 7,063,644
===========
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
Six Months End Years Ended
June 30, December 31,
1997 1996 1996 1995 1994
[Consolidated Unaudited} [Consolidated] [Consolidated] [Combined]
<S> ...... <C> <C> <C> <C> <C>
Operating Activities:
Net Income/(Loss) from Continuing
Operations ....................... $ 158,250 $ (568,827) $ (681,250) $ (4,412,927) $ (410,622)
Adjustments to
Reconcile Net Income/(Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ....... 217,562 240,479 477,160 466,817 316,253
Provision for Doubtful Accounts ....... -- -- -- 67,363 --
Loss on Disposal of Property and
Equipment ........................... -- -- -- -- 2,542
Charges from Option Exercise .......... -- -- 230,108 2,213,774 --
Recapture of Amortization on
Expired Below Market Options ......... -- -- (83,507) -- --
Settlement Costs ..................... -- -- 300,000 -- --
Non-Cash Expenses Related to
Trans Global Transaction ........... -- -- -- 528,578 --
Common Stock Issued for Services Rendered .. -- -- -- 10,530 --
Charges from Option Exercise .......... 70,436 159,672 -- -- --
Changes in Assets and Liabilities:
[Increase] Decrease in Assets:
Receivables (774,247) (70,799) (320,940) 473,305 (271,498)
Work in Process -- -- -- -- 22,600
Inventories -- -- -- 55,226 --
Loan Receivable - Officer ( 5,000) -- (20,000) (22,500) --
Prepaid Expenses and Other Current
Assets 107,972 (57,229) (149,108) (84,852) 25,897
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 228,142 70,547 (267,738) (544,981) (535,841)
Accrued Payroll and Related Taxes and
Expenses 479,235 1,175,170 28,376 1,076,504 (242,033)
Accrued Payroll Tax Penalties 87,102 475,000 (623,000) 700,000 --
----------- ---------- ---------- -------- ---------
Total Adjustments 411,202 1,992,840 (428,649) 4,939,764 (683,080)
----------- ---------- ---------- -------- ---------
Net Cash Provided by
Operating Activities 569,452 1,424,013 (1,109,899) 526,837 (1,093,702)
----------- ---------- ---------- -------- ------------
Loss from Discontinued Operations -- -- -- (282,818) --
Adjustments to Reconcile
Net Loss to Net Cash Used
for Discontinued Operations:
Gain on Sale of Discontinued Segment -- -- -- -- --
Depreciation and Amortization -- -- -- 149,906 --
Loss on Sale of Discontinued Segments -- -- -- 35,742 --
Other -- -- -- -- --
----------- ---------- ---------- -------- -----------
Net Cash Provided by Operating Activities -- -- -- (97,170) --
----------- ---------- ---------- -------- -----------
Net Cash -Operating
Activities-Forward $569,452 $1,424,013 $1,109,899) $ 429,667 $(1,093,702)
See Notes to Financial Statements.
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months End Years Ended
June 30, December 31,
1997 1996 1996 1995 1994
[Consolidated Unaudited] [Consolidated] [Consolidated] [Combined]
<S> <C> <C> <C> <C> <C>
Net Cash -Operating
Activities-Forward $ 569,452 $ 1,424,013 $ 1,109,899) $ 429,667 $(1,093,702)
Investing Activities:
Capital Expenditures (105,039) ( 40,790) (55,536) (110,384) (2,095)
Cash of Merged Company -- -- -- 504,210 --
Net [Advances to]and Repayments
to Affiliates (110,974) ( 129,268) (274,074) (791,105) 459,241
Net Cash of Subsidiary Sold -- -- -- (46,600) --
Proceeds on Sale of Property and Equipment -- -- -- -- 1,300
Other (16,864) 1,809 2,116 -- --
--------- ---------- ---------- --------- -------------
Net Cash-Investing Activities $( 232,877) $( 168,249) $ (327,494) $(443,879) 458,446
--------- ---------- ---------- --------- -------------
Financing Activities:
Net Advances from and [Payments] to
Asset-Based Lender $ 120,825 $(1,054,052) $ 12,173 $(340,459) $ 550,443
Repayment of Long-Term Debt -- -- -- (125,201) (144,837)
Repayment of Subordinated Debt -- ( 700,000) (700,000) (800,000) --
Net Advances/[Payments]to Affiliates -- 117,003 (176,832) (201,471) --
Issuance of Common Stock -- 375,000 2,334,506 1,453,900 --
Expenses Related to Merged Company -- -- -- (117,154) --
Exercise of Stock Options 8,500 -- 25,000 715,500 --
Deferred Offering Costs (133,175) -- (151,307) -- --
Cash Overdraft -- -- -- (360,306) 229,650
Repayment of Note Payable -- ( 30,000) (60,513) -- --
Payments on Voluntary Settlement Agreement ( 50,000) -- -- -- --
--------- ---------- ---------- --------- -----------
Net Cash-Financing Activities ( 53,850) (1,292,049) 1,283,027 224,809 635,256
Net Increase/[Decrease]in Cash and
Cash Equivalents 282,725 ( 36,285) (154,366) 210,597 --
Cash and Cash Equivalents-Beginning Period 56,231 210,597 210,597 -- --
-------- ---------- --------- --------- ---------
Cash and Cash Equivalents-End of Period $ 338,956 $ 174,312 $ 56,231 $ 210,597 $ --
========== ========= ============ ============ =========
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the years for:
Interest $ 382,865 $ 174,312 $ 712,289 $ 909,200 $ 696,129
Income Taxes $ -- $ -- $ -- $ -- $ --
See Notes to Financial Statements.
</TABLE>
F11
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the year ended December 31, 1996, the Company had the following:
Issued preferred stock to an affiliate and reduced amounts owed to such
affiliate by $750,000 plus accrued interest.
A stock option granted in 1995 expired without having been exercised as to
85,000 shares. This resulted in a recapture of $83,507 of amortization
expense. Additional stock options were granted and non-cash deferred
charges of $79,687 were incurred which will be amortized over the 2 year
life of the option.
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 charges 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.
F12
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[1] Basis of Presentation
Trans Global Services, Inc., a Delaware corporation, operates through two
subsidiaries, Avionics Research Holdings, Inc. ["Holdings"], formerly ARC
Acquisition Group ["ARC"] and Resource Management International,Inc. ["RMI"].
The Company is engaged in providing technical temporary staffing services
throughout the United States. The principal stockholder of the Company is SIS
Capital Corp. ["SISC"], a wholly-owned subsidiary of Consolidated Technology
Group Ltd. ["Consolidated"], a publicly held company.
On May 8, 1995, the Company acquired all of the issued and outstanding
capital stock of TGS 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, were converted into
2,000,0000 shares of Common Stock, (c) shares of two series of preferred stock
which were 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 were not convertible, but
which had an aggregate redemption price of approximately $1.7 million, and was
payable from 50% of the net proceeds received by the Company from the sale of
equity securities. None of such preferred stock was outstanding at December 31,
1996 [See Note 14]. The transactions by which the Company acquired the stock of
Trans Global is referred to as the "Trans Global Transaction."
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 Holdings 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", 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"], which conducted the Klipsch professional loudspeaker business, which
has been discontinued.
F13
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
As of September 30, 1995, the Company sold all of the issued and
outstanding shares of capital stock of WWR to an affiliate, SISC, 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. 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, would not likely be
paid in the near future. This payable was satisfied through the issuance of
1,000 shares by Consolidated, the parent of SISC, of a newly-created series of
Consolidated preferred stock, with a stated value of $2,100 per share, which
automatically converts on September 30, 2000 into such number of shares of
Consolidated's common stock as has a value equaling $2.1 million. This preferred
stock is reflected on the balance sheet as investment in Preferred Stock of
Affiliate.
The results of operations and cash flows for the years ended December 31, 1996,
1995 and 1994 reflect the operations of Trans Global from the beginning of the
period.
In June 1997, the Company effected a one-for-six reverse split of its
Common Stock. All share and per share information in these financial statements
give effect, where appropriate, to such reverse split.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The 1996 and 1995 consolidated financial
statements include the accounts of Trans Global Services, Inc. and its
subsidiaries, Holdings and RMI. All intercompany transactions have been
eliminated in consolidation.
Principles of Combination - The 1994 combined financials include the
accounts of Trans Global and its affiliates Holdings and RMI. The combined
financial statements reflect the results of statements of operations and
cash flows of Holdings from January 1, 1994 to December 31, 1994 and of RMI
from November 22, 1994 [period of acquisition] to December 31, 1994. All
intercompany transactions have been eliminated in combination.
Prepaid Expenses and Other Current Assets - Prepaid expenses consist of
approximately $173,000 and $78,000 of prepaid insurance at December 31, 1996 and
1995, respectively.
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
F14
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
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.
Deferred Offering Costs - Deferred offering costs of $151,000 were incurred
with respect to the Company's proposed public offering. If the offering is not
consummated, these costs will be expensed at that time.
Revenue Recognition - The Company records revenue as services are provided.
Stock Options and Similar Equity Instruments - On January 1, 1996, the
Company adopted the disclosure requirements of Statement of Financial Accounting
Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation," for stock
options and similar equity instruments [collectively, "Options"] issued to
employees, however, the Company will continue to apply the intrinsic value based
method of accounting for options issued to employees prescribed by Accounting
Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees" rather than the fair value based method of accounting prescribed by
SFAS No.123. SFAS No. 123 also applies to transactions in which an entity issues
its equity instruments to acquire goods or services from non- employees. Those
transactions must be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable.
Loss Per Share - Loss per share reflects the weighted average number of
shares outstanding for each period. The modified treasury stock method is used
for the year ended December 31, 1996. 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 increased its authorized common stock. The total number of shares to
be so issued was 1,800,482 of which 1,460,000 were issuable to SISC. Such shares
which are treated as outstanding from the date such shares were to be issued,
were issued following the March 1996 amendment to the Company's certificate of
incorporation increasing the authorized capital stock. The consideration for
such shares is included in additional paid-in capital. Upon the issuance of the
shares, the par value of the shares was transferred from additional paid-in
capital to common stock. In June 1997, the Company effected a one-for-six
reverse split of its Common Stock. All share and per share information in these
financial statements give effect, where appropriate, to such reverse split.
Common Stock equivalenst, consisting of warrants and options are not included
in the computation since their effect would be antidilutive.
[2] Summary of Significant Accounting Policies [Continued]
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.
F15
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
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. For each of the years ended December 31, 1996 and 1995, a
significant portion of the Company's receivables were derived from three
customers [See Note 13].
Due to the nature of its operations, the Company deposits, on a monthly
basis, amounts in excess of the federally insured limit in financial
institutions for the payment of payroll costs. Such amounts are reduced below
the federally insured limit as payroll checks are presented for payment. Such
reduction generally occurs over three to four business days. At December
31,1996, the Company had amounts on deposit with two financial institutions
which exceeded the federally insured limit by approximately $750,000. The
Company has not experienced any losses and believes it is not exposed to any
significant credit risk from cash and cash equivalents.
[3] Accounts Receivable and Loan Payable - Asset Based Lender
Receivables are shown net of an allowance for doubtful accounts of $62,500
at December 31, 1996 and 1995. The Company finances a majority of its
receivables from an asset-based lender under agreements entered into in February
1995 and subsequently amended. 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, 1996 plus 2% and a fee 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, 1996 and 1995, the total amount advanced by the
asset-based lender was $3,690,875 and $3,678,702, respectively. The weighted
average interest rate on this short-term borrowing outstanding as of December
31, 1996 and 1995 was approximately 10.25% and 11%, respectively.
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 $3 million effective April 1, 1997. The
Company is negotiating with the asset-based lender with respect to a deferral of
the date on which the reduction of availability becomes effective and has
received oral advice from such lender granting a reasonable extension. In lieu
of the .3% fee on the receivables financed, the asset-based lender, will charge
a flat administrative fee of $10,500 per calendar month, provided that the
outstanding receivables do not aggregate more than $10,000,000. An additional
fee will be charged on a prorata basis if such outstanding receivables exceed
$10,000,000 at any time during the month. This fee would be $954.55 for
$1,000,000 of receivables over $10,000,000. Although the Company is seeking
alternative financing sources, no assurance can be given that the Company can or
will be able to obtain an alternate financing source, the failure of which could
have a material adverse effect upon the Company.
F16
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
[4] Property and Equipment
Property and equipment at December 31, 1996 and 1995 is as follows:
<TABLE>
<S> <C> <C>
1 9 9 6 1 9 9 5
Equipment $ 288,337 $ 253,279
Furniture and Fixtures 171,770 180,452
Leasehold Improvements 1,039 1,039
------- -------
Totals - At Cost 461,146 434,770
Less: Accumulated Depreciation 386,565 393,565
Totals $ 74,581 $ 41,205
</TABLE>
Depreciation expense charged to operations was $22,160 in 1996 and $11,820 in
1995 and $5,973 in 1994.
[5] Intangibles
The Company acquired its subsidiaries [See Note 2] 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>
<S> <C> <C> <C> <C> <C> <C>
Accumulated Amortization Net of Amortization
Life December 31, December 31,
Years Cost 1996 1995 1996 1995
Customer Lists 15 $3,374,477 $535,942 $ 310,974 $2,838,535 $3,063,503
Goodwill 20 $ 971,623 $147,498 $ 98,918 $ 824,125 $ 872,705
Covenants
Not-to-Compete 5 $ 907,257 $846,876 $ 665,424 $ 60,381 $ 241,833
On January 1, 1996, the Company adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
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.
Management has determined that expected future cash flows [undiscounted and
without interest charges] exceed the carrying value of the intangibles at
December 31, 1996 and believes that no impairment of these assets has occurred.
It is at least reasonably possible that management's estimate of expected future
cash flows may change, in the near term.
</TABLE>
F17
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[6] Subordinated Debt
The Company, having been delinquent in filing certain payroll taxes during
the quarter ended March 31, 1996, has entered into an agreement with the
Internal Revenue Service ["IRS"] to pay those taxes, interest and penalties in
installments. At December 31, 1996 approximately $900,000 remained on that
balance, which is to be paid in four monthly installments of $150,000 with the
balance to be paid in a fifth monthly installment. All other taxes are current.
The Company continues to contest the penalties and is seeking to recover the
amount paid. The obligations to the IRS are subordinated to the obligations to
its asset-based lender.
The Company, as part of its acquisition of RMI, agreed to assume a certain
debt for delinquent taxes owed to the IRS. 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 was payable in 15 monthly
installments of $100,000 commencing May 31, 1995. This obligation was paid in
1996.
[7] Related Party Transactions
Trans Global 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 Trans
Global, Trans Global issued to SISC, in consideration for the shares of
Consolidated common stock issued in connection with the acquisitions of Holdings
and RMI assets, shares of a redeemable preferred stock. Trans Global also issued
to SISC warrants to purchase shares of its common stock. The Trans Global stock
and warrants were issued to SISC in consideration for the transfer of the stock
of Holding and RMI and the advances made by SISC. In connection with the
organization of Trans Global, Trans Global also issued a 3.4% interest to the
president of TGS, in exchange for certain rights he had with respect to the
stock of Holdings. Also in connection with the organization of Trans Global,
SISC transferred a 5% interest in its common stock and warrants in Trans Global
to DLB, Inc. ["DLB"] in exchange for DLB's 10% interest in Avionics. DLB is
owned by the wife of the chairman of the board and chief executive officer of
the Company, however, the chairman dislaims beneficial ownership in DLB or any
securities owned by DLB.
Pursuant to the Trans Global Transaction [See Note 1], the Company issued
to SISC, the president of the Company and DLB, who were the stockholders of
Trans Global, in exchange for the common stock, preferred stock and warrants of
Trans Global, an aggregate of (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 each of Series B and C Preferred Stock
which were convertible into an aggregate of 2,500,000 shares of Common Stock if
certain levels of income before income taxes are attained, and (d) 20,000 shares
of Series D 6.25% Redeemable Cumulative Preferred Stock ["Series D Preferred
Stock"], which were not convertible, but which had 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
amendment to the Company's certificate of incorporation increasing the
authorized Common Stock, the 25,000 shares of Series A Convertible Preferred
Stock were automatically converted into 2,000,000 shares of Common Stock. The
former stockholders of Trans Global have certain registration rights with
respect to securities issued pursuant to the Trans Global Transaction.
F18
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
In connection with the sale of WWR to an affiliate of SISC, the Company
issued to SISC 1,060,000 shares of Common Stock. In connection with such
transaction, WWR satisfied its obligation to pay approximately $2.1 million due
to the Company through the issuance of preferred stock of Consolidated, the
parent of SISC [See Note 1]. At the time of the transfer, WWR owed a
non-affiliated lender $530,000, and at December 31, 1996, the principal amount
of such note was $325,000. Certain companies which are affiliated with a person
who was a director of the Company until February 1997 have guaranteed this note.
The Company, SISC and Consolidated have guaranteed the guarantee obligations of
such guarantors. In addition, the Company is required to issue to the lender 520
shares of Common Stock each month that the loan is outstanding.
The Company has a management services agreement with a wholly-owned
subsidiary of Consolidated pursuant to which the Company pays a monthly fee of
$10,000 through March 2000. The monthly fee will increase to $25,000 upon
completion of its proposed public offering.
At 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 amendment to the Company's certificate of incorporation increasing its
authorized common stock, the 5,000 shares of Series E Preferred Stock was
automatically converted into 120,000 shares of Common Stock.
[7] Related Party Transactions [Continued]
SISC has advanced approximately $1,100,000 to the Company. Pursuant to an
exchange [the "SISC Recapitalization"], the Company issued to SISC 9,900 shares
of Series F Preferred Stock and warrants to purchase 3,200,000 shares of Common
Stock at $1.25 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. As part of the SISC Recapitalization, the Company issued 100
shares of Series F Preferred Stock to DLB, which owned 5% of the Series B and C
Preferred Stock. The 10,000 shares of Series F Preferred Stock were converted
into 10,000,000 shares of Common Stock in October and December 1996. As a result
of the SISC Recapitalization, the Company's obligations to SISC was reduced to
$300,000, which was paid in 1996.
In April 1996, the Company issued to its directors warrants to purchase an
aggregate of 1,700,000 shares of Common Stock at $1.25 per share. The warrants
which are the same as those issued to SISC pursuant to the SISC
Recapitalization, expire on April 1, 2001 and provide the holders with certain
registration rights. In connection with the issuance of such warrants, the
obligation of the Company to issue to two directors warrants to purchase an
aggregate of 150,000 shares at $3.50 per share was terminated. Such warrants
were authorized in October 1995, but the warrants were never issued.
F19
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has from time to time made advances to three subsidiaries of
SISC [the "SISC Subsidiaries"] which are not owned or controlled by the Company.
The aggregate amount of such advances outstanding on December 31, 1996 and 1995
was $1,509,000 and $1,235,000, respectively. The amounts outstanding on such
dates represent the largest amounts outstanding during the respective years.
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.
[8] Notes Payable
Bank - At December 31, 1995, a note payable to the bank in the amount of
$60,513, bearing interest at 9.45%, was payable on demand. During the year
ended December 31, 1996, the Company paid the bank note in full.
Other - At December 31, 1996 and 1995, a note payable to former stockholders
of an acquired subsidiary due September 1996 with interest at 7% remained
outstanding. The payment of principal and interest on this note has been
suspended pending the outcome of the Government Printing Office contingency [See
Note 11].
The weighted average interest rate on the above short-term borrowings
outstanding as of December 31, 1996 and 1995 was approximately 7.4% and 7.75%,
respectively.
[9] Income Taxes
For financial reporting purposes at December 31, 1996, the Company has net
operating loss carryforwards of approximately $5,500,000 expiring by 2011.
The Internal Revenue Code 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
2009 $ 400,000
2010 4,400,000
2011 700,000
Total $ 5,500,000
A deferred tax asset arising primarily from the benefits of net operating loss
carryforwards of approximately $2,200,000 is offset by a valuation allowance
of $2,200,000. The valuation allowance increased by $300,000 in 1996.
F20
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[10] Commitments
The Company leases office space and several office machines under operating
leases which expire in 1999. The following is an analysis of commitments as
of December 31, 1996:
1997 $ 97,974
1998 57,222
1999 810
Thereafter --
--------
Total $ 156,006
Rent expense amounted to $174,312, $141,684 and $67,776 for the years ended
December 31, 1996, 1995 and 1994, respectively.
[11] Contingencies
On May 14, 1991, the Government Printing Office wrote Holdings 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.
The United States Department of Labor and the independent trustees
[collectively "DOL"] have filed complaints against Job Shop Technical
Services, Inc. ["Job Shop"] and its principal stockholder [both are
non-affiliates of the Company] 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
21, 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, it has negotiated an agreement with the DOL for payment in
the amount of $300,000 to settle this matter. Such amount has been accrued
at December 31, 1996.
The Company is the guarantor of a note, of which $325,000 is outstanding at
December 31, 1996, issued by WWR to a non-affiliated lender.
F21
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS,
[11] Contingencies [Continued]
Due to the uncertainties in the legal process it is reasonably possible that
management's view of the outcomes of the above matters may change in the near
term.
[12] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards ["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,
1996 and 1995:
<TABLE>
<S> <C> <C> <C> <C>
Carrying Amount Fair Value
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
Investment Preferred Stock of Affiliate $2,100,730 $2,100,730 $2,100,730 $2,100,730
Debt Maturing Within One Year $4,129,105 $4,577,445 $4,129,105 $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 investment
in preferred stock of affiliate is based upon the fair value of the guarantee
of fair value issued by such affiliate. The Company is contingently liable
for a debt arrangement totaling $325,000 at December 31, 1996. 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
In 1996, three customers of the Company, accounted for approximately
$16,000,000, $13,000,000 and $9,000,000, respectively of sales. Accounts
receivable of $2,850,000 were due from these customers collectively at
December 31, 1996. Three customers of the Company accounted for approximately
$20,000,000, $9,000,000 and $6,000,000, respectively, of the sales for 1995.
Accounts receivable of approximately $1,350,000 were due from these customers
collectively at December 31, 1995.
</TABLE>
F22
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[14] Employment and Management Contracts
In September 1996, the President of Trans Global entered into a five-year
employment agreement pursuant to which he receives annual compensation of
$234,000, 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. This agreement supersedes his
employment agreement of January 1995.
In January 1995, the Company entered into a consulting agreement through March
31, 2000 with the Trinity Group, Inc. ["Trinity"], a wholly owned subsidiary
of Consolidated. 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, 1996, the authorized capital stock of the Company consisted of
20,000,000 shares of Preferred Stock, par value $.01 per share, and 50,000,000
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.
At December 31, 1996, there were no shares of any series of Preferred Stock
outstanding. At December 31, 1995, there were five series of Preferred Stock
outstanding-- the Series A, B, C, D, and E Preferred Stock. The Series A, B,
C and D Preferred Stock were issued in connection with the Trans Global
Transaction [See Notes 1 and 7]. The Series E Preferred Stock was issued in
exchange for the cancellation of debt by SISC [See Note 7].
The Series A and E Preferred Stock were automatically converted into 333,333
and 20,000 shares of Common Stock, respectively, upon the March 1996
amendment to the Company's certificate of incorporation which increased the
authorized capital stock. The Series B and C Preferred Stock were convertible
into Common Stock if certain earnings levels were attained. The Series E
Preferred Stock was not convertible and was redeemable for $1.7 million.
See Note 7 in connection with (a) the issuance of securities in connection
with the Trans Global Transaction, (b) the issuance of Common Stock in
connection with the sale of WWR, (c) the SISC Recapitalization and (d) the
issuance of warrants to directors of the Company.
In May 1995, contemporaneously with the Trans Global Transaction, the
Company issued in a private placement 25,216 units for $18.00 per unit or an
aggregate of $453,900. Net proceeds from such offering were $428,300. Each unit
consisted of one share of Common Stock and a warrant to purchase one-half share
of Common Stock at an exercise price of $21.00 per share. The warrants are
exercisable for 45 days after the effective date of a registration statement
which includes such warrants.
F23
<PAGE>
TRANS GLOBAL SERVICES,INC.
NOTES TO FINANCIAL STATEMENTS
[15] Stockholders Equity [Continued]
In connection with the Trans Global Transaction, the Company issued an
aggregate of 35,913 shares of Common Stock and warrants to purchase an
aggregate of 17,956 shares of Common Stock at $21.00 per share in exchange for
the agreement of certain holders of restricted securities to a lock-up with
respect to such shares. The warrants expire in May 1997. Entities which may
be affiliated with a former director received 30,180 shares of Common Stock
and warrants to purchase 15,090 shares.
Also in connection with the Trans Global Transaction, the Company issued
20,833 shares of Common Stock to an investment banking firm as a finders'
fee.
At December 31, 1996, there were also outstanding warrants to purchase
94,540 shares of Common Stock at $42.00 per share, which were issued in
connection with the Company's February 1994 initial public offering and expire
in May 1997, and warrants to purchase an aggregate of 49,285 shares of Common
Stock at prices ranging from $12.00 per share to $50.70 per share, of which
warrants to purchase an aggregate of 20,014 shares are held by entities who
may be affiliated with a former director of the Company.
Outstanding warrants as of December 31, 1996 is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
No. of No. of
Warrants Exercise FMV at Warrants
Date of Grant Issued Price Date of Grant Exercised Expiration Date
April 1996 816,166 7.50 7.50 -- April 2001
May 1995 75,650 21.00 18.00 -- [A]
May 1995 17,956 21.00 18.00 -- May 1997
May 1995 83,333 21.00 18.00 -- May 1997
February 1994 94,540 42.00 39.00 -- May 1997
February 1994 9,166 50.70 39.00 -- February 1999
February 1994 28,243 42.00 39.00 -- May 1997
November 1993 8,332 39.00 39.00 -- November 1998
August 1993 3,540 12.00 12.00 -- August 1998
---------
Total 1,136,926
=========
[A] Exercisable for 45 days after the effective date of a registration
statement which includes such warrants.
In April 1996, the Company issued warrants to purchase 533,333 shares of
Common Stock a related party pursuant to an equity transaction with such related
party. In April 1996, the Company issued warrants to purchase 283,333 shares of
Common Stock to directors. The exercise price of all of such warrants was $7.50
per share, which was equal to their fair value at that date. At December 31,
1996, none of the above warrants issued were canceled and all warrants are
exercisable. At December 31, 1996, their are no additional warrants subject to
grant.
</TABLE>
F24
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATMENTS
[15] Stockholders Equity [Continued]
In April 1996, the Company issued to each Messrs. Lewis S. Schiller and
Joseph G.Sicinski a warrant to purchase 66,666 shares of Common Stock at $7.50
per share and to each of Messrs. E. Gerald Kay, Joel S. Kanter and Norman J.
Hoskin, a warrant to purchase 50,000 shares of Common Stock at $7.50 per share.
In connection with such grants, Messrs. Kay and Kanter agreed to waive the right
to receive previously authorized warrants, which had not been issued.
On January 2, 1996 and July 26, 1996, the Company sold 83,333 shares of
Common Stock and 833,333 shares of Common Stock pursuant to Regulation S of the
Securities Act of 1933 and received net proceeds of $375,000 and $2,000,000,
respectively.
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, 127,833 shares of Common Stock were granted and
exercised, at an average price of $5.40 per share, resulting in $2,543,536 of
deferred charge costs computed as follows:
<TABLE>
<S> <C>
Shares 127,833
Value of Stock at Date of Grant [Weighted Average] $ 25.29885
----------------
3,234,036
Exercise Price (690,500)
----------------
Total Charges Deferred at the Time of Exercise $ 2,543,536
================
</TABLE>
In accordance with the agreements relating to the various parties involved,
amortization of the deferred portion in the amount of $101,000 and $2,213,774
was charged to income from operations for the years ended December 31, 1996 and
1995, respectively. The unamortized deferred consulting expense is recorded in
the equity section of the balance sheet. Such deferred charges are being
amortized over four years, based on the terms of the related contracts.
Below Market Stock Options - On August 14, 1995, an option was granted
under the Company's 1995 stock incentive plan [See Note 16] to a consultant to
purchase 18,333 shares of Common Stock, at a price of $6.00 per share. The
market value of the stock at the date of grant was $15.75 per share. The
deferred charges amount to:
<TABLE>
<S> <C>
Shares 18,333
Value of Stock at Date of Grant $ 15.75
-------------
288,750
Exercise Price 110,000
-------------
Total Charges Deferred at the Time of Exercise $ 178,750
=============
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATMENTS
The option was exercised as to 4,166 shares of 18,333 shares on October 9,
1995. Such exercise was made by a reduction in the Company's indebtedness to
SISC. This option expired on August 14, 1996 with 14,166 shares unexercised.
It was replaced with a new grant to purchase 14,166 shares at $3.00 per share
with an expiration date of August 13, 1998. The market value of the stock at
the date of grant was $8.625. The deferred charges amount to:
[15] Stockholders Equity [Continued]
<TABLE>
<S> <C>
Shares 14,166
Value of Stock at Date of Grant $ 8.625
------------
122,188
Exercise Price 42,500
------------
Total Charges Deferred at the Time of Exercise $ 79,688
============
The option was exercised as to 8,333 shares of the 14,166 shares of Common
Stock as of December 31, 1996.
[16] 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 25,000
shares of Common Stock. Options to purchase 20,683 shares of Common Stock were
granted at exercise prices of $18.00 as to 9,083 shares, $30.00 as to 2,433
shares and $30.00 as to 9,166 shares. The exercise price of all of such options
was reduced to $13.50 per share in February 1995. As of August 31, 1995, options
to purchase 1,691 shares of Common Stock 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 50,833
shares of Common Stock. At August 31,1995, options to purchase 48,333 shares of
Common Stock were granted pursuant to the 1995 Plan, of which options to
purchase 34,166 shares of Common Stock were exercised and options to purchase
14,166 shares of Common Stock at an exercise price of $6.00 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 83,333 shares of Common Stock. In April and November
1996, the board of directors and stockholders approved an amendment to the 1995
Incentive Plan which increased the number of shares of Common Stock currently
subject to the 1995 Incentive Plan to 415,388 shares of Common Stock. The number
of shares of Common Stock subject to the 1995 Incentive Plan automatically
increases by 5% of any shares of Common Stock issued by the Company other than
shares issued pursuant to the 1995 Incentive Plan. In August 1995, the Company
granted to an officer six-year incentive stock options to purchase an aggregate
of 41,666 shares of Common Stock pursuant to the 1995 Incentive Plan at an
exercise price of $12.75 per share, being the fair market value on the date of
grant. The option is immediately exercisable as to 7,833 shares of Common Stock
and becomes exercisable as to an additional 7,800 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.
</TABLE>
F26
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[16] Stock Option Plans [Continued]
In April 1996, the committee granted incentive stock options to purchase an
aggregate of 218,327 shares of Common Stock at $6.75 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 133,333
shares of Common Stock, Mr. Lewis S. Schiller, chairman of the board of the
Company, who received an option to purchase 25,000 shares of Common Stock, one
other officer, who received an option to purchase 16,666 shares of Common Stock,
and sixteen other employees who received options to purchase an aggregate of
43,333 shares of Common Stock. In conncetion 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].
No compensation cost was recognized for stock-based employee awards.
A summary of the activity under the Company's stock option plans is as
follows:
<TABLE>
<S> <C> <C> <C>
1993 Plan 1995 Plan 1995 Incentive Plan
Options Outstanding- January 1, 1995 20,683 -- --
Granted -- 48,333 41,666
Exercised -- ( 34,167) --
Expired ( 1,692) -- --
-------- --------- -------
Options Outstanding- December 31, 1995 18,991 14,166 41,666
Granted -- 14,166 218,327
Exercised -- (18,333) --
Canceled -- (14,166) ( 41,666)
-------- --------- ---------
Options Outstanding- December 31, 1996 18,991 5,833 218,327
======== ========= ==========
Options Exercisable- December 31, 1996 18,991 5,833 114,326[A]
======== ========= ==========
[A] Includes options which became exercisable on January 1, 1997
Weighted Average Exercise Price $ 13.50 $ 5.25 $ 7.65
========= ========= ==========
Weighted Average Fair
Value at Date of Grant $ 13.50 $ 5.25 $ 7.65
========= ========= ==========
</TABLE>
F27
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[16] Stock Option Plans [Continued]
If the Company had accounted for the issuance of all options and compensation
based warrants pursuant to the fair value based method of SFAS No. 123, the
Company would have recorded compensation expense totaling $1,724,000 and
$393,000 for the years ended December 31, 1996 and 1995, respectively, and the
Company's net loss and net loss per share would have been as follows:
<TABLE>
<S> <C> <C>
Years ended
December 31,
1 9 9 6 1 9 9 5
Net Loss as Reported $ (681,250) $(4,695,745)
============= ============
Pro Forma Net Loss $ (2,405,250) $(5,088,745)
============= ============
Net Loss Per Share as Reported $ (.27) $ (8.88)
============= ============
Pro Forma Net Loss Per Share $ (.95) $ (9.62)
============= ============
The fair value of options and warrants [See Note 15] at date of grant was
estimated using the fair value based method with the following weighted
average assumptions:
Expected Life [Years] 2
Interest Rate 5.8%
Annual Rate of Dividends 0%
Volatility 84.0%
The weighted average fair value of the Common Stock at date of grant using
the fair value based method during 1996 and 1995 is estimated at $7.32 and
$4.38, respectively.
[17] 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.
[18] Proposed Public Offering
In October 1996, the Company filed a registration statement with respect to a
proposed public offering of its securities.
</TABLE>
F28
<PAGE>
TRANS GLOBAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[19] Unaudited Statements
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial positon of the Company as of
June 30, 1997 and the results of its operations for the six months ended June
30, 1997 and 1996. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of the results for the entire year or any
future interim period.
[20] New Authoritative Accounting Pronouncement
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. The provisions of SFAS No. 125
must be applied prospectively; retroactive application is prohibited, and early
application is not allowed. SFAS No. 125 supersedes SFAS No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse". While both SFAS No.125
and SFAS No. 77 required a surrender of "control" of financial assets to
recognize a sale, the SFAS No. 125 requirements of sale are generally more
stringent. SFAS No. 125 is not expected to have a material impact on the Company
because they haven't been recognizing sales under SFAS No. 77 and will also not
be under SFAS No.125. Some provisions of SFAS No.125, which are unlikely to
apply to the Company, have been deferred by the FASB.
The FASB has issued SFAS No.128 "Earnings Per Share" and SFAS No. 129
"Disclosure of Information About Capital Structure." Both are effective for
financial statements issued for periods ending after December 15,1997. SFAS
No.128 simplifies the computation of earning per share by replacing the
presentation of primary earnings per share with a presentation of basic earnings
per share. The statement requires dual presentation of basic and diluted
earnings per share by entities with complex capital structures. Basic earnings
per share includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of securities
that could share in the earnings of an entity similar to fully diluted earnings
per share.
While the Company has not analyzed SFAS No. 128 sufficiently to determine
its long-term impact on per share reported amounts, SFAS No. 128 should not have
a significant effect on historically reported per share loss amounts. SFAS No.
129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
F29
<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.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
July 7, 1995 F30
<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)
==================
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.
F31
<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.
F32
<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.
F33
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[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.
[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.
F34
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[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.
[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.
[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.
F35
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
[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.
F36
<PAGE>
TRANS GLOBAL SERVICES, INC.
EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT
State of
Company Incorporation
- ------------------- --------------
TGS Services Corp. Delaware
Resource Management International, Inc. Delaware
d/b/a The RMI Group
Avionics Research Holdings, Inc. Delaware
Avionics Research Corp. New York
Avionics Research Corp. of Florida Florida
<PAGE>
No dealer, salesperson or any other
person has been authorized to give
any information or to make any
representations other than those
contained in this Prospectus in
connection with the offer made
by this Prospectus, and, if given
or made, such information or
representations must not be relied
on as having been authorized by 1,000,000 Units
the Company or by the Underwriter. TRANS GLOBAL SERVICES, INC.
This Prospectus does not constitute
an offer to sell or a solicitation
of an offer to buy any securities
offered hereby to any person in any Each Unit Consisting of
jurisdiction in which such offer or One Shares of Common Stock and
solicitation was not authorized or in One Series E Redeemable Common
which the person making such offer or Stock Purchase Warrant
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...........................................6
Dilution..............................................12
Market for Common Stock; Dividends....................12
Use of Proceeds.......................................13
Capitalization........................................14
Selected Financial Data ..............................15
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......15
Business..............................................19 PROSPECTUS
Management............................................23
Certain Transactions..................................27
Principal Stockholders................................31
Description of Securities.............................32
Underwriting..........................................35
Legal Matters.........................................36
Experts.............................................. 36
Additional Information .............................. 37 Patterson Travis, Inc.
Index to Financial Statements........................F-1
--------------------------- , 1997
Until , 1997 (25 days after the date of this Prospectus) all dealers
effecting transactions in the registered securities, 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 underwriter and with respect to their unsold allotments or subscriptions.
<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 30,000.00*
Accountants' fees and expenses 120,000.00*
Legal fees 180,000.00*
Transfer agent's and warrant agent's
fees and expenses 5,000.00*
Blue Sky fees and expenses 35,000.00*
Representative's non-accountable
expense allowance 120,000.00*
Representative's consulting fee 100,000.00
Miscellaneous 29,680.38*
Total $640,000.00*
* Estimated
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Option.
1.3 Form of Selected Dealers Agreement.
1.4-1 Form of Financial Consulting Agreement.
2.1-2 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.
2.2-2 The Concept Disclosure Letter delivered pursuant to the Agreement.
2.3-2 The Trans Global Disclosure Letter delivered pursuant to the Agreement.
2.4-3 Asset purchase agreement dated August 19, 1994, among ITS Management
Corp., Job Shop Technical Services, Inc. ("Job Shop") and Ralph Corace.
2.5-3 Disclosure letter of Job Shop dated August 19, 1994, as supplemented on
September 10, 1994.
3.1-1 Restated Certificate of Incorporation.
3.2-1 Certificate of Designation for the Series F Preferred Stock.
3.3 [Deleted].
3.4-3 By-Laws.
4.1 Warrant Agreement between the Registrant and American Stock Transfer &
Trust Company, as Warrant Agreement, to which is attached a form of
Series E Redeemable Common Stock Purchase Warrant.
5.1-4 Opinion of Esanu Katsky Korins & Siger, LLP.
10.1-1 Employment agreement dated September 1, 1996, between the Registrant
and joseph G. Sicinski.
10.2-3 Management services agreement dated January 1, 1995 between Trans
Global Services, Inc. and The Trinity Group, Inc.
10.3-5 1995 Long-Term Incentive Plan.
10.4-6 1993 Stock Option Plan.
10.5-6 1995 Incentive Stock Plan.
10.6-3 Agreement dated as of September 30, 1995 between SIS Capital Corp. and
the Registrant.
10.7-3 Agreement dated as of September 30, 1995 between Consolidated
Technology Group Ltd., WWR Technology, Inc. and the Registrant.
II-1
<PAGE>
10.8-3 Form of Series A Common Stock Purchase Warrants.
10.9-3 Form of Series B Common Stock Purchase Warrants.
10.10-3 Form of Series C Common Stock Purchase Warrants.
10.11-6 Form of Callable Common Stock Purchase Warrants issued in the
Registrant's initial public offering.
10.12-6 Form of Registrant's Warrant.
10.13-6 Form of August Financing Warrants.
10.14-6 Form of October Bridge Financing Warrants.
10.15-6 Form of Consulting Warrant.
10.16-1 Form of Subscription Agreement.
10.17-1 Form of Offshore Securities Subscription Agreement.
10.18-1 Form of Series D Common Stock Purchase Warrant.
10.19-1 Payment agreement between the Internal Revenue Service and Resource
Management International, Inc.
10.20 Amendment dated as of September 15, 1997 between the Registrant and
The Trinity Group, Inc.
10.21-1 Agreement dated February 3, 1995 between the Registrant and Metro
Factors, Inc.
10.22-1 Letter agreements dated January 29, 1997 and February 5, 1997 between
the Registrant and Metro.
10.23 Voluntary settlement agreement between Resource Management
Corporation, the Secretary of Labor and the court appointed
independent trustee of the Job Shop Technical Services Inc.401(k)Plan.
11.1 Computation of earnings/[loss] per share.
24.1 Consent of Moore Stephens, P.C. (See Page II-4).
24.2 [Deleted].
24.3-4 Consent of Esanu Katsky Korins & Siger LLP (included in Exhibit 5.1).
25.1-1 Powers of attorney.
27.1-7 Financial data schedule.
1 Previously filed.
2 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.
3 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.
4 To be filed by amendment.
5 Filed as a exhibit to the Registrant's definitive proxy material for its
special meeting of stockholders for November 1996 and incorporated herein
by reference.
6 Filed as an exhibit to the Registrant's Registration Statement on Form
SB-2, File No. 33-73178 and incorporated herein by reference.
7 Filed as an exhibit to the Registrant's Quarterly Report of Form 10-Q
and incorporated herein by reference.
(b) Financial Statement Schedules
None
II-2
<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 25th day of September, 1997.
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.
Signature Title
Lewis S. Schiller* Chairman of the Board, Chief
Lewis S. Schiller Executive Officer and Director
(Principal Executive Officer)
Glen R. Charles* Treasurer and Chief Financial
Glen R. Charles Officer (Principal Financial and
Accounting Officer)
Joseph G. Sicinski* Director
Joseph G. Sicinski *By: Lewis S. Schiller
Lewis S. Schiller
Attorney-in-fact
Norman J. Hoskin* Director September 25, 1997
Norman J. Hoskin
E. Gerald Kay* Director
E. Gerald Kay
II-3
<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 3, 1997, accompanying the financial statements of Trans
Global Services, Inc. (ii) 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 outcome of certain litigation and an
investigation, and (iii) 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
September 25, 1997
II-4
1,000,000 Units
(Each Unit consisting of one share of Common Stock, par value $.01 per
share, and one Class E Redeemable Common Stock Purchase Warrant, each
exercisable to purchase one share of Common Stock)
TRANS GLOBAL SERVICES, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1997
Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
Trans Global Services, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter") an aggregate of 1,000,000
Units (each Unit consisting of one share of Common Stock, par value $.01 per
share ("Common Stock"), and one Class E Redeemable Common Stock Purchase Warrant
("Warrants") to purchase one share of Common Stock at $6.00 per share for a
period of two (2) years commencing _________, 1998, subject to redemption in
certain instances. 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 150,000 additional Units.
Unless the context otherwise requires, the aggregate of 1,000,000 shares of
Common Stock and Warrants to be sold by the Company, together with all or any
part of the 150,000 Units which the Underwriter has the option to purchase, and
the shares of Common Stock and the Warrants comprising such Units, are herein
called the "Units." The Common Stock to be outstanding after giving effect to
the sale of the Units are herein called the "Shares." The Shares and Warrants
included in the Units (including the Units which the Underwriter 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 Underwriter 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. 333-14289) on Form S-1 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 active 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, 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 Underwriter specifically for use
in the preparation thereof. It is understood that the statements set forth in
the Prospectus on page __ with respect to stabilization, the paragraph under the
heading "Underwriting" relating to concessions to certain dealers, and the
identity of counsel to the Underwriter 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 Underwriter for inclusion in the
Registration Statement and Prospectus, as the case may be.
(c) The Company and the 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 as of September 30, 1996, 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 Company's capital stock conforms to all statements
relating thereto contained in the Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
3
<PAGE>
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, 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 holders thereof will
be 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 and no personal liability will attach to the ownership
thereof. The Warrant Agreement has been duly authorized and, when executed and
delivered pursuant to this Agreement, 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 Shares and the Warrants contained in the Underwriter's
Options (as defined in the Registration Statement) have been duly authorized
and, when duly issued and delivered, such Shares and Warrants will constitute
valid and legally binding obligations of the Company enforceable in accordance
with their terms and entitled to the benefits provided by the Underwriter's
Options, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally or by general equitable
principles and the indemnification contained in paragraph 7 of the Underwriter's
Options may be unenforceable. The shares of Common Stock included in the
Underwriter's Options (and the shares of Common Stock issuable upon exercise of
the Warrants included therein) when issued and sold, will be duly authorized,
validly issued, fully paid and non-assessable and free of preemptive rights and
no personal liability will attach to the ownership thereof.
(f) This Agreement and the Underwriter's Options 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 Underwriter's
Options, except such as may be required under the Act, state securities laws or
by the National Association of Securities Dealers, Inc. (The "NASD").
4
<PAGE>
(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 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., who have given their report on
certain financial statements filed with the Commission as a part of the
Registration Statement, are with respect to the Company, independent public
accountants within the meaning of 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. The information set forth under the
caption "Selected Financial Data" in the Prospectus fairly present, on the basis
stated in the Prospectus, the information included therein.
5
<PAGE>
(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 any 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 other), net worth, results of operations, business,
key personnel or properties of them 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 a Material Adverse Effect on
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 or its
Subsidiaries are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, (i) 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 (ii) there is no tax deficiency which has
been, or to the knowledge of the Company, may be asserted against the Company or
its Subsidiaries which would result in a Material Adverse Effect.
(n) Except as disclosed in the 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 its 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.
6
<PAGE>
(p) On the Closing Dates (as 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 Units 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) 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.
(s) Except as disclosed in the Prospectus, no officer, director, or
stockholder of the Company or its Subsidiaries has any NASD affiliation.
(t) No other firm, corporation or person has any rights to underwrite an
offering of any of the Company's securities.
(u) 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 has made all required
filings, 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 contained herein, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $3.60 per Unit, at the place and time hereinafter
specified, 1,000,000 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
Underwriter and the Company) at 10:00 a.m., New York time, ____________, 1997,
or at such later time and date as the Underwriter may designate in writing to
the Company at least two business days prior to such purchase, but not later
than _________, 1997, such time and date of payment and delivery for the First
Units being herein called the "First Closing Date."
7
<PAGE>
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements contained
herein, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of 150,000
additional Units at the same price per Unit as the Underwriter shall pay for the
First Units being sold pursuant to the provisions of subsection (a) of this
Section 2 (such additional Units being referred to herein as the "Option
Units"). This option may be exercised within 45 days after the effective date of
the Registration Statement upon written notice by the Underwriter 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 Underwriter 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 55 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, New York 10022 (or at
such other place as may be designated by agreement between the Underwriter and
the Company). The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter 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 Underwriter as provided herein.
(c) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriter hereunder available to the
Underwriter for inspection at least two full business days prior to the First
Closing Date or the Option Closing Date, as the case may be,(which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as the Underwriter may request, at least
three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Units to be purchased by
the Underwriter hereunder will be delivered by the Company to the Underwriter
for the account of the Underwriter against payment of the respective purchase
prices therefor by the Underwriter, by wire transfer or certified or bank
cashier's check in New York Clearing House Funds, payable to the order of the
Company.
In addition, in the event the Underwriter 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, New York 10022 (or at such other
place as may be designated by agreement between the Underwriter and the
Company), 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 the Underwriter for the Underwriter's account registered in such names
and in such denominations as the Underwriter may reasonably request.
8
<PAGE>
It is understood that the Underwriter 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 is declared effective
by the Securities and Exchange Commission (the "SEC").
3. Covenants of the Company. The Company covenants and
agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to be declared 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 the Underwriter 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 the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its 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 Underwriter 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 been declared effective) and (B)
25 days after the date on which the Registration Statement shall have been
declared effective, the Company will prepare and file with the Commission,
promptly upon the Underwriter's request, any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel to the
Company and the Underwriter, 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 the
Underwriter, and provide the Underwriter with 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 the Underwriter 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 Underwriter and dealers to use the Prospectus in connection with the sale of
the Units for such period as in the opinion of counsel to the Underwriter and
the Company the use thereof is required to comply with the applicable provisions
of the Act and the Rules and Regulations.
9
<PAGE>
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
Underwriter or dealer, of any event of which the Company has knowledge and which
materially affects the Company or the securities of the Company, or which in the
opinion of counsel for the Company and counsel for the Underwriter 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 the Underwriter promptly and forthwith
prepare and furnish to the Underwriter copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as the
Underwriter 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 Underwriter, except that in
case the Underwriter 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 Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter 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
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 will otherwise cooperate and use its best efforts to qualify to
register the Units for sale under the securities or "Blue Sky" laws of such
jurisdictions as the Underwriter may reasonably 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 securities 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 Underwriter deem reasonably necessary, but not
for a period of less than three (3) years.
10
<PAGE>
(c) If the sale of the Units provided for herein is not consummated as a
result of the Company's actions or failure to take such actions as the
Underwriter reasonably believes are reasonably required to complete the
transaction, 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 actual accountable out-of-pocket expenses of the Underwriter
(including the reasonable fees and expenses of counsel to the Underwriter),
which shall not exceed $200,000. If the sale of the Units provided herein is not
consummated and the reasons therefore are reasonably related to a Material
Adverse Effect on the Company, the Company shall pay the Underwriter promptly
its actual out-of-pocket expenses not to exceed $100,000.
(d) The Company will use its best efforts (i) to 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 for a
period of five (5) years from the Effective Date.
(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 the Underwriter 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. In addition, the Company, at its own expense, shall deliver to the
Underwriter for a three (3) year period following the effective date, copies of
all transfer sheets (daily, etc.) relating to the Company's securities.
(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.
11
<PAGE>
(g) The Company will deliver to the Underwriter 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 Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's 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 the Underwriter may reasonably request.
The Company will deliver to the Underwriter on or promptly after 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
Underwriter may from time to time reasonably request.
(h) The Company will deliver to the Underwriter as soon as it is
practicable copies of all reports filed with the Commission under the Exchange
Act.
(i) The Company will apply the net proceeds from the sale of the Units
substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(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
Underwriter and counsel to the Company, may be reasonably necessary or advisable
in connection with the distribution of the Units, 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 that maximum number of its
authorized but unissued securities which are issuable upon exercise of the
Warrants and Underwriter's Options and warrants thereunder outstanding from time
to time.
(l) For a period of twenty-four (24) months from the Effective Date, no
officers or directors, nor any 5% or greater shareholder of the Company's
securities prior to the offering, as well as all holders of restricted
securities of the Company, will, directly or indirectly, offer, sell (including
any short sale), grant any option for the sale of, transfer or gift (except for
estate planning or charitable transfers or other privates sales, provided the
transferees agree to be bound by the same restrictions on transfer), acquire any
option to dispose of, or otherwise dispose of any shares of capital stock
without the prior written consent of the Underwriter, 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 shares owned by such
persons 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). In addition, all such persons shall waive any of their registration
rights with respect to all such securities for such twenty-four (24) month
period. In addition, the Company agrees not to file any other registration
statement to register any securities of the Company for such twenty-four (24)
month period, and will not grant any future registration rights without the
prior written consent of the Underwriter for the same twenty-four (24) month
periods.
12
<PAGE>
If necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed, as required by such Blue-Sky Laws. Such twenty
four (24) month lock up period is modified as follows: Commencing 12 months from
the Effective Date (a) if the Common Stock is trading at $10 or more per share
and the average daily trading volume of the Common Stock is 50,000 shares or
more, in each case for a period of ten (10) consecutive trading days, then such
persons subject to such lock up shall be entitled to sell twenty five percent
(25%) of their holdings and (b) if the Common Stock is trading at $12 or more
per share and the average daily trading volume of the Common Stock is 50,000
shares or more, in each case for a period of ten (10) consecutive trading days,
then such persons subject to such lock up shall be entitled to sell an
additional twenty five percent (25%) of their holdings. In addition, the Company
shall not issue any shares of its capital stock (or securities convertible into
capital stock) for a twenty four (24) month period without the Underwriter's
consent, following the Effective Date other than (i) pursuant to the Warrants
(ii) options to purchase shares of Common Stock under employee stock option
plans in accordance with the succeeding sentence, so long as the vesting
provisions of such options do not result in greater than 300,000 shares of
Common Stock vesting in such 24-month period, and(iii) pursuant to
recapitalizations, acquisitions, mergers and other combinations (in which case
the Underwriter's consent shall not be unreasonably withheld). The Company may
grant options to purchase up to 300,000 shares of Common Stock under employee
stock option plans to the Company's employees, officers, directors or other
consultants or advisors during the twenty-four (24) month period following the
Effective Date without the prior written consent of the Underwriter. The grant
of additional options during such period will require the Underwriter's prior
written consent. With respect to such options to purchase 300,000 shares, the
Company may not grant options at exercise prices which are less than the Market
Price at the date of the grant without the prior written consent of the
Underwriter.
Shares of Common Stock issuable to employees (other than officers,
directors or 5% shareholders) under the Company's stock option plans shall be
subject to a 12-month lock-up period. The Company may file a S-8 Registration
Statement covering its option plan provided that any shares issuable that are
subject to the lock-up referred to in the preceeding sentence shall bear a
restrictive legend reflecting such lock-up.
For purposes of this Agreement, Market Price shall mean (i) the average
closing bid price for any ten (10) consecutive trading days ending within five
(5) days prior to the date of issuance of the Common Stock as reported by the
Nasdaq Market or the NASD Electronic Bulletin Board, or (ii) the last reported
sale price, for ten (10) consecutive business days ending within five (5) days
of the date of issuance on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange.
(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, Common Stock and Class E Warrants on 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, 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 the Units, Shares, or the Warrants or to facilitate the sale or
resale of the Securities. 13
<PAGE>
(o) On the First Closing Date and simultaneously with the delivery of the
Units, the Company shall execute and deliver to the Underwriter the
Underwriter's Options. The Underwriter's Options will be substantially in the
form filed as an Exhibit to the Registration Statement.
(p) Intentionally omitted.
(q) Upon the Closing Dates, the Company will have in force a key person
life insurance policy on the life of Joseph Sicinski, in the amount of
$1,000,000.00 and will maintain such insurance during the three year period
commencing with the First Closing Date.
(r) 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, if required by the Act,
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 Underwriter and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption 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.
(s) For a period of five (5) years from 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 and the filing of the Company's 10-Q quarterly
report, provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) The Underwriter shall have the right to request the Company to use its
best efforts to nominate one (1) nominee of the Underwriter for election to the
Board of Directors for three (3) years following the Effective Date, and in each
case the Company will use its best efforts to cause such nominee to be elected
to the Board of Directors. Until such time as the Underwriter exercises its
right to require the Company to use its best efforts to cause a nominee of the
Underwriter to be elected to the Board of Directors and until such time as such
nominee begins to serve on the Board of Directors, the Company agrees to allow a
representative designated by the Underwriter from time to time to receive
timely, written notice of all Board of Directors meetings and notice of all
telephonic Board meetings and the right to attend all Board meetings and
participate in all telephonic Board meetings. The Underwriter shall also have
the right to obtain copies of the minutes from all Board of Directors meetings
for three (3) years following the Effective Date of the Registration Statement,
whether or not a representative of the Underwriter attends or participates in
any such Board meeting. The Company agrees to reimburse the Underwriter
immediately upon the Underwriter's request therefor of any reasonable travel and
lodging expenses directly incurred by the Underwriter in connection with its
representative attending Company Board meetings on the same basis for other
Board members. In addition, the Company shall compensate such representative as
it does all other outside directors of the Company.
14
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(u) The Company agrees to enter into a two year financial consulting
agreement with the Underwriter whereby the Underwriter shall provide the Company
with financial advisory services following the closing in exchange for which the
Company shall pay the Underwriter an aggregate amount of $100,000 on the First
Closing Date.
(v) The Company agrees to pay the Underwriter a Warrant Solicitation fee of
6.0% of the exercise price of any of the Warrants exercised beginning one (1)
year after the Effective Date if (a) the Market Price of the Company's Common
Stock on the date the Warrant is exercised in greater than the exercise price of
the Warrant, (b) the exercise of the Warrant is solicited by the Underwriter and
the Underwriter is designated in writing by the holder of such Warrant as the
soliciting broker, (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 Regulation M
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).
(w) For a period of three years from the Effective Date, at the request of
the Underwriter, 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.
(x) The Company agrees to hire a public relations firm reasonably
acceptable to the Underwriter and to retain such firm, or a replacement firm,
for a period of three years from the Effective Date.
(y) On or prior to the date hereof, the Company shall have entered into an
employment agreement with Joseph Sicinski on terms and conditions satisfactory
to the Underwriter.
4. Conditions of Underwriters' Obligation. The obligations of the
Underwriter 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 the
Closing Dates) of and compliance with the 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 the Underwriter may agree in writing; on or prior to the
Closing Dates 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 the Underwriter's
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.
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(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 Underwriter, to
the effect that:
(i) The Company and each of its active subsidiaries (the "Subsidiaries")
(a) has been duly incorporated and is a validly existing corporation in good
standing under the laws of the state of its incorporation with full corporate
power and authority to own its properties and to conduct its business as set
forth in the Registration Statement and Prospectus; and (b) is duly licensed or
qualified as a foreign corporation in all jurisdictions in which it owns or
leases real property except where failure to be so qualified or licensed would
have no material adverse effect; provided, that no opinion is given as to the
good standing of the Company in [specified states where not in good standing].
(ii) All of the issued and outstanding stock of each of the Subsidiaries is
owned by the Company.
(iii) The authorized capital stock of the Company at , 1997 is as set forth
under the caption "Capitalization" in the Prospectus; all of the outstanding
shares of Common Stock (a) are duly and validly authorized and issued, fully
paid and non-assessable; (b) do not have any, and were not issued in violation
of any, preemptive rights under the Company's certificate of incorporation or
by-laws or any other agreement known to us, and (c) are not subject to any
restrictions on voting or transfer known to such counsel except as described in
the Prospectus or as required by law.
(iv) The Company has authorized and reserved for issuance (a) the shares of
Common Stock issuable as part of the Units and as part of the units (the "UPO
Units") issuable pursuant to the Purchase Option, (b) the shares of Common Stock
issuable upon exercise of the Warrants or the Warrants issuable as part of the
UPO Units, pursuant to the terms of, and upon receipt of any consideration
required by, this Agreement, the Warrants, the Purchase Option and the Warrant
Agreement, as the case may be, and when issued upon such exercise, such shares
of Common Stock (A) will be duly and validly authorized and issued, fully paid
and non-assessable, (B) will not have been issued in violation of the
pre-emptive rights pursuant to the Company's certificate of incorporation or any
agreement known to such counsel and (C) will not be not subject to any
restrictions on voting or transfer known to such counsel other than as may be
imposed by the Act.
(v) The Warrants and the Unit Purchase Option conform to the descriptions
thereof that are contained in the Prospectus (excluding financial statements)
and, when issued as provided in this Agreement will constitute the valid,
binding and enforceable obligations of the Company.
(vi) To the best of our knowledge, neither the filing of the Registration
Statement nor the offering of the Units as contemplated by this Agreement gives
rise to any registration rights or other rights, other than those which have
been waived or satisfied, relating to the registration under the Act of any
shares of Common Stock, except that the holders of certain warrants which have
an exercise price of not less than $ per share have certain registration rights.
(vii) To the best of our knowledge, no consents, approvals, authorizations
or orders of agencies, officers or other regulatory authorities are necessary
for the valid authorization, issue or sale of the Securities pursuant to this
Agreement, except such as may be required under the Act or state securities or
blue sky laws.
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(viii) The certificates evidencing the shares of Common Stock and Warrants
are in proper legal form; the holders of the Warrants have the right to purchase
shares of Common Stock on the terms and subject to the conditions set forth in
the Warrant Agreement.
(ix) This Agreement, the Warrant Agreement, the Purchase Option have been
duly authorized and executed by the Company and constitute the valid and binding
agreement of the Company.
(x) The Company has full power and lawful authority to authorize, issue and
sell the Securities on the terms and conditions set forth in this Agreement and
in the Registration Statement and Prospectus, and the execution and delivery of
this Agreement, the Warrant Agreement, and the Purchase Option, and the
consummation of the transactions contemplated hereby and thereby will not
conflict with, or constitute a default under, any indenture, mortgage, deed or
trust, note or any other agreement or instrument known to such counsel to which
the Company is now a party, the certificate of incorporation and by-laws of the
Company or, to the best of our knowledge, any law, order, rule or regulation,
writ, injunction or decree of any government, governmental instrumentality, or
court having jurisdiction over the Company or its business or properties.
(xi) We know of no actions, suits or proceedings at law or in equity of a
material nature pending, or to our knowledge, threatened, against the Company
before or by any state commission, regulatory body, or administrative agency or
other governmental body, wherein an unfavorable ruling, decision or finding
would materially adversely affect the business or financial condition of the
Company or which question either (a) the validity of the Securities, this
Agreement, the Warrant Agreement or the Purchase Option, or (b) any action taken
or to be taken by the Company pursuant to the Underwriting Agreement, the
Warrant Agreement or the Purchase Option, which are not disclosed in or
contemplated by the Prospectus.
(xii) The Registration Statement has become effective under the Act and, to
the best of our knowledge, no order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Act.
(xiii) The Company is a reporting company pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company's
registration statement on Form 8-A pursuant to which the Preferred Stock and
Warrants were registered pursuant to the Exchange Act, has been declared
effective by the Commission, and, to the best of such counsel's knowledge, since
June 1995, the Company has filed all reports on Forms 10-KSB, 10-QSB and 8-K
which were required to be filed.
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Furthermore, the Registration Statement and the Prospectus (except as to
the financial statements and other financial information contained therein and
thereto, as to which no opinion is expressed), comply as to form in all material
respects with the requirements of the Act and the rules and regulations (the
"Rules") of the Commission under the Act. In passing upon the form of such
documents, such counsel have assumed the correctness and completeness of the
statements made or included therein by the Company and takes no responsibility
for the accuracy, completeness or fairness of the statements contained therein
except insofar as such statements relate to the description of the Securities or
relate to such counsel. However, in the course of the preparation by the Company
of the Registration Statement and the Prospectus, such counsel had conferences
with officers and directors of the Company with a view to imparting to them a
clear understanding of the requirements of the Act and the Rules with reference
to the preparation of registration statements and prospectuses, and such
counsel's examination of the Registration Statement and the Prospectus and their
discussions in the above-mentioned conferences did not disclose to such counsel
any information which gave them reason to believe that the Registration
Statement, as of the effective date thereof (except as to the financial
statements and other financial information contained therein, as to which no
opinion is expressed), contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; or that the Prospectus (except as to
the financial statements and other financial information contained therein, as
to which no opinion is expressed) contained any untrue statement of a material
fact or omits to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
Such counsel have reviewed all contracts filed as exhibits to the Registration
Statement, and do not know of any agreements to which the Company is a party
required to be filed as exhibits to the Registration Statement which have not
been so filed.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter 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 the Delaware General Corporation Law 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.
(b) Intentionally Omitted.
(c) 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 Underwriter.
(d) The Underwriter shall have received a letter prior to the effective
date of the Registration Statement 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 the Underwriter.
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(e) 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 and its Subsidiaries, taken as a whole 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, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (f).
(f) Intentionally Omitted.
(g) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the Underwriter to purchase and pay for the Option Units will be
subject (as of the date hereof and 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 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.
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(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 Underwriter, which opinions shall be
substantially the same in scope and substance as the opinions furnished to you
at the initial Closing Date pursuant to Sections 4(b) hereof, except that such
opinions, where appropriate, shall cover the Option Units.
(iii) At the Option Closing Date there shall have been 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 Underwriter, substantially the same
in scope and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) 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 Underwriter confirming the
information in their letter referred to in Section 4(d) 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 Units shall be reasonably
satisfactory in form and substance to you, and you and Bernstein & Wasserman,
LLP, counsel to the Underwriter, 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 either of the
Closing Dates, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock or the Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or 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 by the Commission or the
NASD.
(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 Underwriter under this Agreement may be
canceled at, or at any time prior to, either of the Closing Dates by the
Underwriter 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 Underwriter to the Company.
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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 Underwriter may agree in writing.
(b) At the Closing Dates, 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 Units on exercise of the
option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter 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
Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter 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)
relate to and 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
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 Underwriter 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 is made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter 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 Units to any person if the misstatement or omission was
corrected in the Prospectus but a copy of the Prospectus was not delivered to
such person by the Underwriter in accordance with this Agreement 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.
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(b) The Underwriter 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 Section 15 of the Act or
Section 20(a) of the Exchange 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 Underwriter specifically for use in the preparation thereof and
for any violation by the Underwriter 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 Underwriter or its
representative, provided that such violation is not based upon any violation 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 Underwriter as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Underwriter 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 unless the omission so to notify prejudices the indemnifying party.
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.
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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 under the code of professional responsibility
for the indemnified party to be represented by seperate 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 with
interest thereon.
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 the Underwriter 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) such proportional amount of such losses, claims,
damages, or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus plus all other
compensation paid to the Underwriter 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 Underwriter
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 Underwriter and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such untrue statement or omission.
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The Company and the Underwriter agree that it would not be just and equitable if
the respective obligations of the Company and the Underwriter 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 1(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 Underwriter and each person who controls the Underwriter 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 Underwriter 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 Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did 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 by the Underwriter 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 Units contemplated hereby; all expenses,
including reasonable fees and disbursements of counsel to the Underwriter, in
connection with the qualification of the Units under the state securities or
Blue Sky laws which the Underwriter shall designate (which legal fees (not
including filing fees or expenses) shall be $35,000); the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, if applicable, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Units, Common
Stock, and Warrants on NASDAQ or any other securities exchange; the cost of
printing the certificates representing the securities comprising the Units; the
fees of the transfer agent and warrant agent, reasonable and traditional
advertising costs, meetings and presentation costs; and costs of bound volumes
(3 sets for the Underwriter) and prospectus memorabilia (12 cubes for the
Underwriter). The Company shall pay any and all taxes (including any transfer,
franchise, capital stock, or other tax imposed by any jurisdiction) on sales of
the Units 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.
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(b) In addition to the foregoing expenses the Company shall at the First
Closing Date pay to the Underwriter a non-accountable expense allowance of
$120,000. In the event the over-allotment option is exercised, the Company shall
pay to the Underwriter at the Option Closing Date an additional amount in the
aggregate equal to 3.0% of the gross proceeds received upon exercise of the
over-allotment option. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (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 Underwriter's obligations hereunder required to be fulfilled by the Company
is not fulfilled) the Company shall not be liable for any expenses of the
Underwriter, including the Underwriter's legal fees. In the event the
transactions contemplated hereby are not consummated by reason of the Company's
actions or failure to take such actions as the Underwriter reasonably believes
are reasonably required to complete the transaction contemplated herein, the
Company shall be liable, in addition to the expenses itemized in Section 8(a)
above, for the actual accountable out-of-pocket expenses of the Underwriter
(including reasonable legal fees and expenses of counsel to the Underwriter)
which shall not exceed $200,000 (less any amount previously paid or payable
pursuant to the next sentence). In the event the transactions contemplated
hereby are not consummated due to a Material Adverse Effect or to adverse market
conditions, the Company shall be liable for the actual out-of-pocket expenses of
the Underwriter, including reasonable legal fees, not to exceed in the aggregate
$100,000.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter 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 Underwriter, 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 Underwriter 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. This Agreement shall become effective upon its
execution.
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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
material legal or governmental proceeding or action relating generally to the
Company's or its Subsidiaries 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 and its Subsidiaries, taken as a whole,
financial or otherwise, whether or not arising in the ordinary course of
business.
(b) If the Underwriter elects 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 the Underwriter, by telephone or telegram,
confirmed by letter.
11. Underwriter's Options. At or before the First Closing Date, the Company
will sell the Underwriter or its designees for a consideration of $.001 per
option and upon the terms and conditions set forth in the form of the
Underwriter's Options annexed as an exhibit to the Registration Statement,
Underwriter's Options to purchase 100,000 Units. In the event of conflict in the
terms of this Agreement and the Underwriter's Options with respect to language
relating to the Underwriter's Options, the language of the Underwriter's Options
shall control.
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12. Covenants of the Underwriter. You covenant and agree with the Company
as follows:
(a) Compliance with Laws. In connection with the offer and sale of Units,
you shall comply with any applicable requirements of the Act, the Exchange Act,
the NASD and the applicable state securities or "Blue Sky" laws, and the rules
and regulations thereunder.
(b) Accuracy of Information. No information supplied by you for use in the
Registration Statement, Preliminary Prospectus, Prospectus or Blue Sky
Application will contain any untrue statements of a material fact or omit to
state any material fact necessary to make such information not misleading.
(c) No Additional Information. You will not give any information or make
any representation in connection with the offering of the Units other than that
contained in the Prospectus.
(d) Sale of Units. You shall solicit, directly or through Selected Dealers,
purchasers of the Units only in the jurisdictions in which you have been advised
by the Company that such solicitation can be made, and in which you or the
soliciting Selected Dealer, as the case may be, are qualified to so act.
13. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect
regardless of any investigation made by or on behalf of the Underwriter, 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 Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Patterson Travis, Inc., One Battery Park Place, 2nd
Fl., New York, NY 10004, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, NY 10022, Attention: Stuart Neuhauser, Esq., or if sent
to the Company, will be mailed, delivered, or telecopied and confirmed to it at
1393 Veterans Memorial Highway, Hauppauge, NY 11788 with a copy sent to Esanu
Katsky Korins & Siger, 605 Third Avenue, New York, NY 10158, Attention: Asher S.
Levitsky, P.C. 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 Underwriter, the Company, any person controlling the Company
or the Underwriter, 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 Underwriter 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.
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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).
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
Underwriter 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 Underwriter 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:
Option to Purchase
100,000 Units
TRANS GLOBAL SERVICES, INC.
UNIT PURCHASE OPTION
Dated: ______, 1997
THIS CERTIFIES that Patterson Travis, Inc., One Battery Park Plaza, New
York, NY 10005 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from Trans Global Services, Inc., a Delaware corporation
(hereinafter referred to as the "Company"), at the prices and during the periods
as hereinafter specified, 100,000 Units ("Units") consisting of the Company's
common stock and warrants to purchase the Company's common stock. Each Unit
consists of one (1) share of the Company's common stock, $.01 par value ("Common
Stock") and one (1) Class E Redeemable Common Stock Purchase Warrant to purchase
one (1) share of Common Stock at an exercise price of $6.00 per share ("Class E
Warrants" or "Warrants"). The Class E Warrants are exercisable until ________,
2000.
The Units have been registered under a Registration Statement on Form SB-2
(File No. 333-14289) declared effective by the Securities and Exchange
Commission on ________, 1997 (the "Registration Statement"). This Option (the
"Option") to purchase 100,000 Units (the "Option Units") was originally issued
pursuant to an underwriting agreement between the Company and Patterson Travis,
Inc., as underwriter (the "Underwriter"), in connection with a public offering
of approximately 1,000,000 Units (the "Public Units") through the Underwriter,
in consideration of $.001 per Option Unit.
Except as specifically otherwise provided herein, the Common 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 ________, 1997 executed in connection with such public
offering (the "Warrant Agreement"), and except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Common Stock and the Warrants included in the Units, and the shares of
Common Stock underlying 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 percentage changes to the Warrants
included in the Option Units shall be simultaneously effected.
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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 ____________, 1998 and _______, 2002, inclusive,
the Holder shall have the option to purchase Units hereunder at a price of $4.80
per Unit (subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise
Price").
(b) After _________, 2002 (five (5) years from the Effective
Date), the Holder shall have no right to purchase any 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 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 earliest date that both this Option is surrendered and
payment is made in accordance with the foregoing provisions of this paragraph
2, and other provisions are complied with and the person or persons in whose
name or names the certificates for shares of Common Stock and Warrants shall be
issuable upon such exercise shall become the holder or holders of record of such
Common Stock and Warrants at that time and date. The Common Stock and Warrants
and the certificates for the Common 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. For a period of one (1) year from the Effective Date, this Option
shall not be transferred, sold, assigned, or hypothecated, 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 during such period. After such one
(1) year period any such assignment must be accompanied by an immediate exercise
of such assigned portion of this 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 Units as are purchasable
hereunder.
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<PAGE>
4. The Company covenants and agrees that all shares of Common Stock
which may be issued as part of the Units purchased hereunder and the Common
Stock which may be issued upon exercise of the Warrants will, upon issuance, be
duly and validly issued, fully paid and nonassessable, and no personal liability
will attach to the holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common 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 exercise of the Warrants included in the Units.
5. This Option shall not entitle the Holder to any voting,
dividend, or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, 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 seven
(7) 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, all or any of the Units underlying the Option, the Common Stock, or
Warrants included in the Units or the Common Stock issuable upon the exercise of
the Warrants (the "Registrable Securities"). 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 reasonable 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.
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<PAGE>
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 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
SecuritiesNotwithstanding 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 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, the Units, or any
of the underlying securities contained in the 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 Units and/or any of the securities underlying
the 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 provided it owns at least 50% of the Option) 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 one occasion during the term of
this Option. The Holder may at its option request the registration of any of the
securities underlying the Option 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 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
Units as a unit, or separately
4
<PAGE>
as to the Common Stock and/or Warrants included in the Units and/or the Common
Stock issuable upon 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
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 Regulation M 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; (iv) for the period of the financial statements called for in such
filing, the Company has only unaudited financial statements, unless the
underwriter agrees that such filing need not include audited financial
statements or (v) 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 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 120 days (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. The demand registration rights granted hereunder will expire
no later than five (5) years from the effective date of this offering.
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<PAGE>
(c) The term "50% holder" as used in this paragraph 6 shall
mean the holder of more than 50% of the Common Stock and the Warrants underlying
the Option, as if exercised, (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 Common Stock held by such
owner or owners as well as the number of shares then issuable upon exercise of
the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating to any
shares of Common Stock or Warrants issued or issuable upon the exercise of any
Options, is filed under the Act, or is 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,
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 which 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
thereto, 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; 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 such securities to
any person if the misstatement or omission was corrected in the final prospectus
related thereto but such final prospectus was not delivered by the Distributing
Holder to such person at or prior to sale of such securities.
6
<PAGE>
(b) Each 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) and each other Distributing
Holder, if any, 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 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 unless it is prejudiced thereby 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:
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(a) In case the Company shall (i) declare a dividend or make a distribution on
its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide
or reclassify its outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares of Common 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, 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 Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common 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 Common Stock outstanding immediately after giving effect
to such action and the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such action. In such event, there
shall be no adjustment to the number of shares of Common 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 Common Stock entitling them to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock) at
a price (the "Subscription Price") (or having a conversion price per share) less
than the current market price of the Common 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 an Option Unit 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 Common Stock
outstanding on the record date mentioned below and 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 the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and 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 shareholders 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 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 Common Stock (or securities convertible into Common Stock) actually
delivered.
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<PAGE>
(c) In case the Company shall hereafter distribute to the holders of its
Common 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 an Option Unit 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 Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (e)
below), less the fair market value per share (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 Common Stock outstanding multiplied by such current market
price per share of Common 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
Securities purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Securities initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the 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 Common 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 Common 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 ten
cents ($0.10) in such price; provided, however, that any adjustments which by
reason of this Subsection (f) 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-tenth 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 Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
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<PAGE>
(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 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 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 Common 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 Common Stock
contained in Subsections (a) to (f), inclusive above.
9. No adjustment pursuant to Section 8 hereof to the Exercise Price of the
Option will be made, however,
(i) upon the sale or exercise of any Warrants, including without limitation
the sale or exercise of any of the Warrants comprising the Option; or
(ii) upon the sale of any shares of Common Stock included in the Units in
the Company's public offering, including, without limitation, shares sold upon
the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible Securities
in a private placement unless the issuance or sale price is less than 85% of the
fair market value of the Common Stock on the date of issuance, in which case the
adjustment shall only be for the difference between 85% of the fair market value
and the issue or sale price;
(iv) upon the issuance or sale of Common Stock or Convertible Securities to
(a) shareholders of any corporation which merges into the Company or from which
the Company acquires assets and some or all of the consideration consists of
equity securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition or (b) to any corporation or
person from which the Company acquires assets but only if no adjustment is
required pursuant to any other provision of this Section 9; or
(vii) upon the issuance or sale of (i) up to 300,000 options for the
purchase of Common Stock to employees, officers, directors, advisors or
consultants under the Company's Stock Option Plan at Market Price (as defined in
the Registration Statement) or (ii) Common Stock issued upon the exercise of
options granted under such Stock Option Plan.
10. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
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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 as of the date first above written.
TRANS GLOBAL SERVICES, INC.
By:____________________________________
Name:
Title:
(Corporate Seal)
1
<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., each Unit consisting of one share of
$.01 Par Value Common Stock and one Class E Redeemable Common Stock Purchase
Warrant, and herewith makes payment of $______________ therefor, and requests
that the Warrants and certificates for shares of Common Stock be issued in the
name(s) of, and delivered to ________________________ whose address(es) is
(are)_________________________________________.
-----------------------
Dated:
2
<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
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:
------------------------------
Name:
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
1
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.
1,000,000 UNITS
CONSISTING OF
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 CLASS E REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
Dear Sirs:
1. Patterson Travis, Inc., named as the underwriter in the enclosed
Preliminary Prospectus (the "Underwriter"), proposes to offer on a firm
commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, approximately 1,000,000 units (including any additional
units offered pursuant to an over-allotment option, the "Firm Units") of Trans
Global Services, Inc. (the "Company") each consisting of one (1) share of common
stock par value $.01 per share (the "Common Stock") and one (1) Class E
Redeemable Common Stock Purchase Warrant (the "Warrant"), to purchase one share
of Common Stock. 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 Underwriter 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 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
1
<PAGE>
and withholding. Units are to be offered to the public at a price of $4.00 per
Unit. Selected Dealers will be allowed a concession of ___% of the 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
Underwriter 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
securities 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 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 Underwriter to give any
2
<PAGE>
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 Underwriter 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 Underwriter 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 Underwriter 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) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct Rules 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 Shares 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.
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
3
<PAGE>
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 Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter 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 Underwriter 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. 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.
14. All communications from you should be directed to us at the office
of the Underwriter, Patterson Travis, Inc., One Battery Park Plaza, New York, NY
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.
------------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1997
[Name of Dealer]
- -----------------------------
Name:
Title:
1
<PAGE>
To: Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
We hereby subscribe for _____________ Units of Trans Global Services,
Inc., each Unit consisting of one (1) share of common stock, par value $.01 per
share (the "Common Stock") and one (1) Class E Redeemable Common Stock Purchase
Warrant (the "Class E Warrants"), to purchase one share of Common Stock, 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 Rule 2740 of the NASD Conduct
Rules, 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 Rules 2730 and 2750 of the NASD Conduct Rules.
[Name of Dealer]
---------------------------------
By:______________________________
Address
------------------------------
------------------------------
Dated _____________________, 1997
2
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1997, by and between Trans Global
Services, Inc., a Delaware corporation (the "Company") and American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,000,000 units (the
"Units"), each Unit consisting of one share of common stock, par value $.01 per
share ("Common Stock"), and one Series E Redeemable Common Stock Purchase
Warrants (the AWarrants"), pursuant to an underwriting agreement (the
AUnderwriting Agreement") dated as of [ ], 1997, between the Company and
Patterson Travis, Inc. (the AUnderwriter"), the Company may issue up to one
million one hundred fifty thousand (1,150,000) Warrants; and
WHEREAS, in connection with the issuance, pursuant to the Underwriting
Agreement, to the Underwriter or its designees of an option (the"Underwriter's
Option"), the Company may issue up to one hundred thousand (100,000) 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:
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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 six dollars ($6.00) per share, subject to adjustment from time to time
pursuant to the provisions of Paragraph 9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants, in accordance with the terms of this Agreement,
which price shall be one cent ($.01) 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. 333-14289, which was declared effective by the
Commission on [ ], 1997.
(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.
(i) "Warrant Certificate" shall mean the certificates (attached hereto as
Exhibit A);
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York City time on
the first to occur of (i) [ ], 2000, 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 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(a) of this Agreement.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
4. Exercise.
(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, or
earlier with the consent of the Underwriter, 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT 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. (ANASD"), (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 six percent (6%) (the
"Underwriter's Fee") of the Purchase Price to the Underwriter (a portion of
which may be reallowed by the Underwriter to the dealer who solicited the
exercise, which may also be the Underwriter). In the event the Underwriter's Fee
is not paid within ten (10) days of the date on which the Company receives
Warrant Proceeds, then the Underwriter's Fee shall begin accruing interest at an
annual rate of prime plus three (3)%, payable by the Company to the Underwriter
at the time the Company pays the Underwriter"s Fee. Within five (5) business
days after exercise, the Warrant Agent shall send to the Underwriter a copy of
the reverse side of each Warrant exercised. The Underwriter shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this Paragraph 4(b). In addition, the Underwriter 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 the
Underwriter'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 the Underwriter that
the required the Underwriter's Fee has been received by the Underwriter.
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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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, 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 Underwriter, 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.
(g) Notwithstanding any other provisions of this Agreement, no Warrants
issued upon exercise of the Underwriter's Option and no shares of Common Stock
issuable upon exercise of such Warrants may 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
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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
8. Redemption.
(a) Commencing eighteen (18) months from the Effective Date or earlier with
the consent of the Underwriter, the Company shall have the right, on not less
than thirty (30) nor more than sixty (60) days notice given prior to the
Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Warrants at the Redemption Price, provided that the Market Price of
the Common Stock shall equal or exceed the ATarget Price." The ATarget Price"
shall mean one hundred sixty six and 2/3 percent (166-2/3%) of the Purchase
Price. Market Price for the purpose of this Paragraph 8 shall mean, if the
Common Stock is listed on the Nasdaq Stock Market 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 average of the closing bid and asked
prices) 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 ten (10) days ending within five (5) 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 Underwriter 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 the Underwriter 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
Underwriter.
(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 to 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(d) Any right to exercise a Warrant, and any right of the holders of the
Underwriter's Option to receive Warrants upon exercise of the Underwriter's
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 Compan 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 Underwriter's 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 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 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 Compan'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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT 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
Underwriter's Option prior to such adjustment of the number of Warrants shall
become that number of Warrants or an Underwriter's 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 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT 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 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 (which shall not exceed the
amount by which the consideration to be received per share of Common Stock
(valued on such date as the Company's board of directors shall determine)
exceeds the exercise price of the Warrant), 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. In the event that, in such a
transaction, the value of the consideration to be received per share of Common
Stock is not greater than the exercise price of the Warrants, the Warrants shall
terminate and no consideration will be paid with respect thereof.
(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 to 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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.
(m) As used in this Paragraph 9, the term ACommon Stock" shall mean and
include the Company's Common Stock authorized on the Effective Date 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 Effective Date 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
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:
(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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT 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 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
canceled 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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, 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 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
(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 the Underwriter.
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 1393 Veterans Memorial Highway,
Hauppauge, New York 11788, telecopier (516) 724-0039, Attention: Mr. Lewis S.
Schiller, Chairman of the Board, and Mr. Joseph G. Sicinski, President, or to
the Warrant Agent at its Corporate Office, telecopier (718) 236-2641. Either
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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
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.
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
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. WA Warrants
Void after , 2000 or earlier upon redemption.
TRANS GLOBAL SERVICES, INC
SERIES A 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 A 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 during the two-year
period commencing _______________, 1998, or earlier as provided in the Warrant
Agreement (as hereinafter defined), by delivery of this Warrant, with 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 $6.00, subject to adjustment as
provided in the Warrant Agreement (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 , 1997, by
and between the Company and the Warrant Agent.
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 ,
2000 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.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
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, , 1999, or earlier as provided in the Warrant Agreement, this
Warrant may be redeemed at the option of the Company, at a redemption price of
$.01 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 166-2/3% 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 $.01 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.
The Company has agreed to pay a fee of 6% of the Purchase Price upon certain
conditions as specified in the Warrant Agreement upon the exercise of this
Warrant.
<PAGE>
TRANS GLOBAL SERVICES, INC.
WARRANT AGREEMENT
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.
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:
By:
Countersigned:
AMERICAN STOCK TRANSFER & [Seal]
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 Aunsolicited" 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 Patterson Travis, Inc.
-----------------------------------------------
(Name of NASD Member if other than Patterson Travis, 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.
The Trinity Group, Inc.
160 Broadway
New York, New York 10038
September 15, 1997
Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, NY 11788
Re: Management Services Agreement
Gentlemen:
This will confirm our agreement and understanding that, effective with the
month in which Trans Global Services, Inc. (the "Company") receives the proceeds
from its proposed public offering, the monthly fee payable pursuant to the
Management Services Agreement dated January 1, 1995 between the Company and The
Trinity Group, Inc. will increase to $15,000. This amendment supersedes and
terminates the amendment dated as of January 1, 1997 to the Management Services
Agreement.
THE TRINITY GROUP, INC.
By:
Lewis S. Schiller, CEO
AGREED TO:
TRANS GLOBAL SERVICES, INC.
By:
Joseph G. Sicinski, President
IN RE: JOB SHOP TECHNICAL SERVXCES, XNC. 401(k) PROFIT SHARING PLAN
VOLUNTARY SETTLEMENT AGREEMENT
RESOURCE MANAGEMENT INTERNATIONAL INC.("Resource Management 11) , f ormerly
known as ITS MANAGEMENT CORP. , (11 ITS ROBERT B. REICH, Secretary of Labor,
United States Department of Labor, ("the Secretary"), and JOHN BRASLOW, Court
appointed Independent Trtstee of the JOB SHOP TECHNICAL SERVICES INC. 401(K)
PROFIT SHARING PLAN ("Job Shop 401(k) Plan"), agree as follows: WHEREAS, on
August 19, 1994 ITS purchased all the assets of JOB SHOP TECHNICAL SERVICES,
INC. ("Job Shop"), Plan Sponsor of the,Job Shop 401(k) Plan, and at the time of
said purchase Job Shop had failed to forward monies withheld from employees
@@paychecks for contribution to the Job Shop 401(k) Plan, and; WHEREAS, the
Secretary and John Braslow have asserted claims against Resource Management
relating to the August 19, 1994 Purchase by ITS of the assets of Job Shop
arising under Title I Of the EmPlo . yee Retirement Income Security Act Of 1974,
as amended, (IIERIsAil), 29 u.S.C. lool, 9-t 2-e-q-, and based on theories Of
successor corporate liability, and; WHEREAS, the parties desire to resolve all
Potential disputes over these questions ,without resort to further
administrative or legal proceedings.
NOW, THEREFORE, it is mutually agreed between the Secretary, John Braslow,
on behalf of the Job Shop 401(k) Plan, and Resource
Management, that:
1 Resource Management, without admitting or denying any 'violation of ERISA,
the Secretary, and John Braslow, on behalf of the Job Shop 401'(k . )Plan, agree
to this settlement as a full and complete resolution of all claims that have
been, or could be, asserted by the Secretary or John Braslow on behalf of the
Job Shop 401 (k) Plan arising out of the August 19, 1994 purchase by ITS of the
assets of Job Shop. The Secretary of Labor and the Independent Trustee agree
that they will not resort to administrativ,ii-'o-r other legal proceedings
against Resource Management with respect to these issues.
2. This settlement is not binding on any government agency other than the
United States Department of Labor.
3. Resource Management shall pay to the Job Shop 401(k) Plan the principal
amount of $300,ooo.00. such payment shall be made in a lump sum on or before
March 31, 1997. In the even , t however that the public offering of stock by
Resource Management is not completed, in accordance with the terms of the
offering, on or before March 31, 19-97, Resource Management shall pay the
principal amount of $300,000.oo in 18 monthly installments, with, interest
accruing on the balance of the principal due, beginning on April 1, 1997 at a
rate equal to the post judgment interest rate that would be applicable if this
were a judgment under 28 U.S.C. 1961. The first installment of $16,666.78 is due
and payable on April 1, 1997. -The remaining seventeen installments of
$16,666.66 in principal, plus interest, are due on the first day of each month
thereafter, continuing until all payments are made. Resource Management may
pre-pay any installment.
<PAGE>
4. In the event that Resource Management defaults in the payment of any
amount due under this Settlement Agreement, and fails to correct said default
within 20 days of the mailing by the Independent Trustee or his successor, of
written notice of such default, the entire principal amount remaining to be paid
under this Settlement Agreement shall become due and payable immediately and
the Independent Trustee may take whatever steps are necessary to exercise the
Plan's rights with respect to this agreement.
5. Resource Management shall provide the Secretary with notice of each
payment made to the Job Shop 401 (k) Plan under the terms of this Settlement
Agreement by mailing a copy of proof of each such payment to John E. Wehrum,
Regional Director, Pension Welfare Benefits Administration, 1633 Broadway, Room
226, New York, New York 10019.
6. Each party to this agreement shall bear his/its own costs disbursements
and attorneys fees. RESOURCE MANAGEMENT INTERNATIONAL, INC.
By: Joseph G. Sicinski
Corporate Resolution attached.
CORP. SEAL
JOAN EBERT ROTHERMEL, ESQ.
Attorney for Resource Management
ROBERT B. REICH
Secretary of Labor
United StatesDepartmerif
BY:
KEVIN E.'CROWLEY
Attorney
JOB SHOP TECHNICAL SERVICES, INC. 401(k) PROFIT SHARING PLAN
BY:
JOH@K BRASLOW
Independent Trustee
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended Six Months Ended Years Ended Years Ended
June 30, 1997 June 30,1996 December 31,1996 December 31
Primary EPS Fully Diluted EPS Primary EPS Fully Diluted EPS 1 9 9 5 1 9 9 4
Net Loss -Historical $158,250 $158,250 $(568,827) $ (681,250) $ (681,250) $(4,695,745) $(410,622)
Adjustments Per
Modified Treasury
Stock Method 201,911 288,873 448,289 440,238
-------- ------- ---------- ---------- ---------- ------------- --------
Adjusted Net Income/ Loss
- Primary 360,161 (232,961)
======== ==========
Adjusted Net Income/ Loss
- Fully Diluted 387,123 (241,012)
======= =========
Income/Loss Per Share:
Income/Loss Per Share-Note 1 0.08 (0.49) (0.01) (1.48) (0.68)
======= ========= ========== ====== ========
Loss Per Share-
Assuming Full
Dilution - Note 2 0.09 (0.21) (0.01) (0.49) (0.68)
======= ======== ======= ====== =======
Note 1: Computed by dividing net loss by the weighted average number of
common shares (15,182,970, 3,172,696 and 600,000) for the years ended
December 31, 1996, 1995 and 1994 respectively adjusting it by items (i) to
(v) below using the modified treasury stock method of calculating earnings
per share.
(i) Assumes that 1,325,000 1995 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase an aggregate of
1,924,597 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 shares were exercised at the beginning of the period and that
the proceeds were used to purchase treasury stock at the average market
price of the Company's common stock for the period as quoted on the
NASDAQ, retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 35,000 shares were exercised at
the beginning of the period and that the proceeds were used to purchase
treasury stock at the average market price of the Company's common stock
for the period as quoted on the NASDAQ , retire debt and to invest the
balance.
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE
Note 1 [Continued]
(v) Assumes that 113,950 1993 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at the
average market price of the Company's common stock for the period as
quoted on the NASDAQ, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedule 1.
Note 2: Computed by dividing net loss by the weighted average number of common
shares (15,182,970, 3,172,696 and 600,000) for the years ended December 31,
1996, 1995 and 1994 respectively adjusting it by items (i) to (v) below using
the modified treasury stock method of calculating earnings per share.
(i) Assumes that 1,325,000 1995 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
(ii) Assumes common stock purchase warrants to purchase an aggregate of
1,924,597 common shares were exercised at the beginning of the period
and that the proceeds were used to purchase treasury stock at the
market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
(iii) Assumes common stock purchase warrants to purchase an aggregate of
4,900,000 shares were exercised at the beginning of the period and that
the proceeds were used to purchase treasury stock at the market price
of the Company's common stock at December 31, 1996 as quoted on the
NASDAQ, retire debt and to invest the balance.
(iv) Assumes that stock options to purchase 35,000 shares were exercised
at the beginning of the period and that the proceeds were used to
purchase treasury stock at the market price of the Company's common
stock at December 31, 1996 as quoted on the NASDAQ , retire debt and to
invest the balance.
(v) Assumes that 113,950 1993 Stock Incentive Plan stock options
outstanding at December 31, 1996 were exercised at the beginning of the
period and that the proceeds were used to purchase treasury stock at
the market price of the Company's common stock at December 31, 1996 as
quoted on the NASDAQ, retire debt and to invest the balance.
The proceeds received from the above transactions would then be used to
purchase treasury stock up to 20%, retire debt and the remaining balance
invested. See Schedule 2.
Note: This calculation is submitted in accordance with the Securities Act of
1934 Release No. 9083, although it is contrary to Para. 40 of APB 15
because it may produce an anti-dilutive result.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [Continued]
<TABLE>
<CAPTION>
SCHEDULE 1.
PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996
<S> <C>
Weighted average # of shares o/s 12/31/96 15,182,970
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - directors 15,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS options 35,000
Options pursuant to 1993 option plan 113,950
--------
Total issuable 8,298,547
Total that can be reacquired:
(15,182,970 x 20%) 3,036,594
---------
Issued not reacquired 5,261,953
Proceeds Price # of shares
<S> <C> <C> <C>
Options pursuant to 1995
Stock Incentive Plan - employees $ 1.125 1,310,000 1,473,750
Options pursuant to 1995
Stock Incentive Plan - directors $ 1.031 15,000 15,465
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $ 1.250 4,900,000 6,125,000
SMACS options $ 0.500 35,000 17,500
Options pursuant to 1993 option plan $ 2.250 113,950 256,388
--------
17,593,042
Limitation
3,036,594 shares x 1.5379(avg FMV) 4,669,978
----------
Total proceeds remaining to retire debt 12,923,064
Outstanding short - term debt 6,273,522
- - A/P and accrued expenses 283,356
- - Note payable (Gov't printing ofce) 138,230
- - Accrued litigation settlement 300,000
5,551,936
Net income effects of debt retirement: at 7/1/96
Interest expense per P&L = 712,289 for full year
retired 7/1/96 = net interest expense 356,150
Remaining proceeds for cash 7,371,128
---------
Cash invested in money market fund @ 2.5% interest for 6 months
7371128 @ 2.5% /2 92,139
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE [Continued]
SCHEDULE 1- PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996 [continued]
<TABLE>
<CAPTION>
<S> <C> <C>
P&L impact
Reduction of interest expense 356,150
Additional interest income 92,139
-------
448,289
Weighted average # of shares o/s 12/31/96 15,182,970
Options and warrants not reacquired 5,261,953
---------
Total 20,444,923
==========
December 31, 1996 Net income per F/S (681,250)
Adjustment per modified treasury stock method 448,289
-------
Adjusted net loss (232,961)
Primary EPS -232961/20,444,923= -0.011394564802
($0.01)
Total reacquired
<S> <C> <C> <C>
Options pursuant to
1995 Stock Incentive Plan - employees 1.53788 1,310,000 2,014,623
Options pursuant to
1995 Stock Incentive Plan - directors 1.53788 15,000 23,068
Series A, B, C Warrants 1.53788 1,924,597 2,959,799
Series D Warrants 1.53788 4,900,000 7,535,612
SMACS options 1.53788 35,000 53,826
Options pursuant to 1993 option plan 1.53788 113,950 175,241
----------
Total proceeds remaining to retire debt 12,762,169
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 -COMPUTATION OF EARNINGS PER SHARE [Continued]
<TABLE>
<CAPTION>
SCHEDULE 2
FULLY DILUTED EARNINGS PER SHARE - DECEMBER 31, 1996
<S> <C>
Weighted average # of shares o/s 12/31/96 15,182,970
Total issuable warrants and options
Options pursuant to 1995 Stock Incentive Plan - employees 1,310,000
Options pursuant to 1995 Stock Incentive Plan - directors 15,000
Series A, B, C Warrants 1,924,597
Series D Warrants 4,900,000
SMACS options 35,000
Options pursuant to 1993 option plan 113,950
--------
Total issuable 8,298,547
Total that can be reacquired:
(15,182,970 x 20%) 3,036,594
Issued not reacquired 5,261,953
Proceeds Price # of shares
<S> <C> <C> <C>
Options pursuant to
1995 Stock Incentive Plan - employees $1.125 1,310,000 1,473,750
Options pursuant to
1995 Stock Incentive Plan - directors $1.031 15,000 15,465
Series A, B, C Warrants Various 1,924,597 9,704,939
Series D Warrants $1.250 4,900,000 6,125,000
SMACS options $0.500 35,000 17,500
Options pursuant to 1993 option plan $2.250 113,950 256,388
17,593,042
3,036,594 shares x 1.750( FMV at 12/31/96) 5,314,040
----------
Total proceeds remaining to retire debt 12,279,002
Outstanding short - term debt 6,273,522
- - A/P and accrued expenses 283,356
- - Note payable (Gov't printing ofce) 138,230
- - Accrued litigation settlement 300,000
-------- 5,551,936
---------
Remaining proceeds for cash 6,727,066
Net income effects of debt retirement: at 7/1/96
Interest expense per P&L = 712,289 for full year
retired 7/1/96 = net interest expense 356,150
Cash invested in money market fund @ 2.5% interest for 6 months
6727066@ 2.5%/2 84,088
</TABLE>
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [Continued]
<TABLE>
<CAPTION>
<S> <C> <C>
P&L impact
Net loss per F/S (681,250)
Reduction of interest expense 356,150
Additional interest income 84,088
---------
Adjusted net loss (241,012)
Weighted average # of shares o/s 12/31/96 15,182,970
Options and warrants not reacquired 5,261,953
---------
Total 20,444,923
Fully diluted EPS -241012/20,444,92 = ($0.0118)
</TABLE>
