As filed with the Securities and Exchange Commission on March 19, 1997
Registration No. 333-14289
================================================================================
Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 4
To
Form S-1
Registration Statement under the Securities Act of 1933
Trans Global Services, Inc.
Asher S. Levitsky P.C.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
(212) 953-6000
Fax: (212) 953-6899
(Name, address and telephone number of agent for service)
Copies to:
Lewis S. Schiller, Chief Executive Officer Stuart Neuhauser, Esq.
Trans Global Services, Inc. Bernstein & Wasserman, LLP
1770 Motor Parkway 950 Third Avenue
Hauppauge, NY 11788 New York, NY 10022
(516) 582-9000 (212) 826-0730
Fax: (516) 582-9052 Fax: (212) 371-4730
Calculation of Registration Fee
================================================================================
<TABLE>
<CAPTION>
Maximum
Amount to be Maximum Offering Aggregate Registration
Title of each class of securities to be registered Registered Price Per Unit(1) Offering Price Fee
- -------------------------------------------------- ---------- ----------------- -------------- ---
<S> <C> <C> <C> <C>
Units, each Unit consisting of one share of Series G 1,150,000 Units $6.00 $6,900,000.00 $2,379.30
Convertible Redeemable Preferred Stock, par value
$.01 per share, and one Series E Redeemable Common
Stock Purchase Warrants(2)
Common Stock, par value $.01 per share(3),(4) -- -- -- --
Common Stock, par value $.01 per share(4),(5) 1,150,000 Shs. 2.50 2,875,000.00 991.38
Representative's Unit Purchase Options(6) 100,000 Optns. .001 100.00 .04
Units, each Unit consisting of one share of Series G 100,000 Units 9.90 990,000.00 341.38
Convertible Redeemable Preferred Stock, par value
$.01 per share, and one Series F Redeemable Common
Stock Purchase Warrants(4),(7)
Common Stock, par value $.01 per share(4),(8) -- -- -- --
Common Stock, par value $.01 per share(4),(9) 100,000 Shs. 4.125 412,500.00 142.24
------
$3,854.34
=========
====================================================================================================================================
(Footnotes on following page)
</TABLE>
<PAGE>
(Footnotes from preceding page)
(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Includes 150,000 Units issuable upon exercise of the Underwriters'
over-allotment option.
(3) Represents an indeterminate number of shares of Common Stock issuable
upon conversion of the Series G Convertible Redeemable Preferred Stock
("Series G Preferred Stock").
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution
provisions of the Warrants, the Series G Preferred Stock, the Series E
Common Stock Purchase Warrants ("Warrants"), the Underwriters' Unit
Purchase Options and the Series F Redeemable Common Stock Purchase
Warrants ("Series F Warrants") issuable upon exercise of the Unit
Purchase Options.
(5) Represents shares of Common Stock issuable upon exercise of the Warrants
included in the Units offered pursuant to this Registration Statement.
(6) Represents options (the "Unit Purchase Options") to purchase 100,000
units to be issued to the Representative, each such unit consisting of
one share of Series G Preferred Stock and one Series F Warrant.
(7) Represents units issuable upon exercise of the Unit Purchase Options.
(8) Represents an indeterminate number of shares of Common Stock issuable
upon conversion of the Series G Preferred Stock issuable pursuant to
the Unit Purchase Options.
(9) Represents shares of Common Stock issuable upon exercise of the Series F
Warrants issuable pursuant to the Unit Purchase Options.
<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 Description of Securities
Registered
10. Interest of Named Experts and Counsel N.A.
11. Information with Respect to the (a)-(c) Prospectus Summary,
Registrant Business
(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
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION DATED MARCH 19, 1997
1,000,000 Units
Trans Global Services, Inc.
(Each Unit consisting of one share of Series G Convertible Redeemable
Preferred Stock, par value $.01 per share, and 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 Series G Convertible Redeemable
Preferred Stock ("Series G Preferred Stock") and one Series E Redeemable Common
Stock Purchase Warrant (the "Warrants"). The Series G Preferred Stock and
Warrants comprising the Units will be separately transferable immediately upon
issuance. Each share of Series G Preferred Stock pays an annual dividend of $.12
per share, is convertible, commencing one year from the date of this Prospectus
or earlier with the consent of the Company and Patterson Travis, Inc., the
representative of the Underwriters (the "Representative"), into six shares of
Common Stock, subject to adjustment, and may be redeemed by the Company for
$6.00 per share commencing one year from the date of this Prospectus on not less
than 30 nor more than 60 day's notice. Each Warrant entitles the holder to
purchase one share of Common Stock at $2.50 per share, subject to adjustment,
during the three-year period commencing on the date of this Prospectus. The
Warrants are redeemable by the Company, commencing one year from the date of
this Prospectus or earlier with the consent of the Representative, for $.05 per
Warrant, on not more than 60 nor less than 30 days' written notice if the
average closing price per share of Common Stock is at least $3.00 (subject to
adjustment) for at least 20 trading days ending not earlier than 15 days prior
to the date the Warrants are called for redemption. See "Description of
Securities."
Prior to this Offering, there has been no public market for the Units,
Series G Preferred Stock or Warrants. The initial public offering price and
composition of the Units, the conversion rate and other terms of the Series G
Preferred Stock and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Representative, and
are not related to the Company's assets, book value, financial condition or
other recognized criteria of value. The Company's Common Stock and Callable
Common Stock Purchase Warrants ("1994 Warrants") are traded on The Nasdaq
SmallCap Market under the symbols TGSI and TGSIW, respectively. Although the
Company has applied for the inclusion of the Units, Series G Preferred Stock and
Warrants on The Nasdaq SmallCap Market under the symbols TGSIU, TGSIP and TGSIZ,
respectively, there can be no assurance that an active trading market in such
securities will develop or be sustained.
---------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS
WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS," WHICH BEGIN ON PAGE 7.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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 . . . . . . . . . $6.00 $ .60 $5.40
- --------------------------------------------------------------------------------
Total (3). . . . . . . . . $6,000,000 $600,000 $5,400,000
================================================================================
(footnotes on page 2)
The Units are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to the approval of
certain legal matters by counsel and certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of the certificates
representing the Series G Preferred Stock and Warrants comprising the Units will
be made against payment therefor at the offices of the Representative at One
Battery Park Plaza, New York, New York 10004 on , 1997.
Patterson Travis, Inc.
The date of this Prospectus is , 1997
<PAGE>
(footnotes from Cover Page)
(1) Excludes additional compensation to be received by the Representative
in the form of (a) a non-accountable expense allowance equal to 3% of
the gross proceeds of this Offering ($.24 per Unit) for a total of
$180,000 ($207,000 if the Underwriters' over-allotment option is
exercised in full), (b) a two-year consulting agreement pursuant to
which the Company will pay the Representative a fee of $100,000, and
(c) options (the "Unit Purchase Options") to purchase 100,000 units at
$9.90 per unit exercisable during the four-year period commencing one
year from the date of this Prospectus. In addition, the Company has
agreed to indemnify the Underwriters against certain liabilities,
including liability under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of the Offering of approximately
$640,000 ($.64 per Unit), which are payable by the Company and which
include the Representative's non-accountable expense allowance and
consulting fee.
(3) The Company has granted to the Representative an option, exercisable on
its own behalf or on behalf of the Underwriters, within 45 days after
the date of this Prospectus, to purchase up to an additional 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
$6,900,000, $690,000 and $6,210,000, respectively. See "Underwriting."
The Company is subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the regional
offices of the Commission at Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The 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 UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
SERIES G PREFERRED STOCK AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ STOCK MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITERS. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF
THE SECURITIES THROUGH OR WITH THE UNDERWRITERS. ALTHOUGH THEY HAVE NO
OBLIGATION TO DO SO, THE UNDERWRITERS MAY BECOME MARKET MAKERS AND OTHERWISE
EFFECT TRANSACTIONS IN THE SECURITIES, AND, IF THE UNDERWRITERS PARTICIPATE IN
SUCH MARKET, THEY MAY BE DOMINATING INFLUENCES IN THE TRADING OF THE SECURITIES.
THE PRICES AND THE LIQUIDITY OF THE SECURITIES MAY BE SIGNIFICANTLY AFFECTED BY
THE DEGREE, IF ANY, OF THE PARTICIPATION OF THE UNDERWRITERS IN SUCH MARKET,
SHOULD A MARKET DEVELOP.
- 2 -
<PAGE>
PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in
this Prospectus. It does not purport to be complete and is qualified in its
entirety by reference to more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Trans Global Services, Inc. (the "Company"), is engaged in providing
technical temporary staffing services. In performing such services, the Company
addresses the current trend of major corporations in "downsizing" and
"outsourcing" by providing engineers, designers and technical personnel on a
temporary contract assignment basis pursuant to contracts with major
corporations. The engagement may relate to a specific project or may cover an
extended period based on the client's requirements. The Company seeks to offer
its clients a cost-effective means of work force flexibility and the elimination
of the inconvenience associated with the employment of temporary personnel, such
as advertising, initial interviewing, fringe benefits and record keeping.
Although the employees provided by the Company are on temporary contract
assignment, they work with the client's permanent employees; however, they may
receive different compensation and benefits than permanent employees.
In providing its services, the Company engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Company charges
its clients for services based upon the hourly payroll cost of the personnel.
Each temporary employee submits to the Company a weekly time sheet with work
hours approved by the client. The employee is paid on the basis of such hours,
and the client is billed for those hours at agreed upon billing rates.
The Company is a Delaware corporation which was incorporated in
September 1993 under the name Concept Technologies Group, Inc. ("Concept"). The
Company's executive offices are located at 1770 Motor Parkway, Hauppauge, New
York 11788, telephone (516) 582-9000.
In May 1995, Concept acquired all of the issued and outstanding stock
of Trans Global Services, Inc., a Delaware corporation now known as TGS Services
Corp. ("TGS"), in exchange for a controlling interest in the Company. Such
transaction is referred to as the "Trans Global Transaction." See "Certain
Transactions -- The Trans Global Transaction." In March 1996, the Company
changed its corporate name to Trans Global Services, Inc. Prior to May 1995, the
Company's primary business was the operation, through WWR Technology, Inc.
("WWR"), of the Klipsch(R) professional loudspeaker business. As a result of the
Trans Global Transaction, the Company's principal business became the provision
of technical temporary staffing services. See "Certain Transactions -- The Trans
Global Transaction." As of September 30, 1995, the Company sold the stock of WWR
to an affiliated party. See "Certain Transactions -- Sale of WWR."
TGS is a Delaware corporation which was incorporated in January 1995 to
hold the stock of its two subsidiaries, Avionics Research Holdings, Inc.
("Holdings") and Resource Management International, Inc. ("RMI"). Prior to
January 1995, the stock of Holdings and RMI was held by SIS Capital Corp.
("SISC"), which is a wholly-owned subsidiary of Consolidated Technology Group
Ltd. ("Consolidated"). Consolidated is a public company whose businesses
include, in addition to the Company, the management and operation of magnetic
resonance imaging centers, the manufacture and sale of electro-mechanical and
electro-optical products, a range of telecommunications services, computerized
health information systems and related services which are offered to health care
providers, and the marketing and selling of three dimensional imaging products.
Holdings was formed to acquire the stock of two related companies, Avionics
Research Corporation of New York and Avionics Research Corp. of Florida
(collectively, "Avionics") in December 1993. RMI was formed in 1994 to acquire
assets of Job Shop Technical Services, Inc. ("Job Shop") in November 1994. RMI
conducts business under the name The RMI Group. Avionics has been engaged in the
contract engineering business since its organization in 1954, and RMI commenced
such business in November 1994, with the acquisition of assets from Job Shop.
References to the Company refer to the Company and TGS and its
subsidiaries, unless the context indicates otherwise. References to Concept
relate to the Company prior to the consummation of the Trans Global Transaction
in May 1995.
At December 31, 1996, SISC was the owner of approximately 48.9% of the
Company's outstanding Common Stock and held warrants which, if converted and
exercised, would result in SISC's ownership of approximately 54.5% of the Common
Stock. Mr. Lewis S. Schiller, chairman of the board and chief executive officer
of the Company, is also chairman of the board and chief executive officer of
Consolidated, SISC, Netsmart Technologies, Inc. ("Netsmart"), a public
corporation of which SISC owns a majority of the Common Stock, and Lafayette
Industries, Inc. ("Lafayette"), a public corporation controlled by SISC. Mr.
Schiller
- 3 -
<PAGE>
and SISC together owned approximately 53.9% of the Company's outstanding Common
Stock and held warrants and options which, if exercised, would result in their
ownership of approximately 59.7% 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, which monthly fee will increase to $25,000
commencing with the month in which this Offering is completed. Mr. Norman J.
Hoskin, a director of the Company, is a director of Consolidated, Netsmart,
Lafayette and certain subsidiaries of Consolidated. Mr. E. Gerald Kay, a
director of the Company, is a director of Lafayette and certain subsidiaries of
Consolidated. See "Management -- Directors and Executive Officers".
THE OFFERING
Securities Offered: 1,000,000 Units at $6.00 per
Unit. Each Unit consists of one share of
Series G Convertible Redeemable Preferred
Stock ("Series G Preferred Stock") and
one Series E Redeemable Common Stock
Purchase Warrant (the "Warrants"). The
shares of Series G Preferred Stock and
Warrants comprising the Units will be
separately transferable immediately upon
issuance.
Description of Series G Preferred Stock:
Redemption: The Series G Preferred Stock is
redeemable by the Company, at its option,
for $6.00 per share, in whole at any time
and in part from time to time commencing
one year from the Effective Date on not
less than 30 nor more than 60 days
notice.
Conversion: Commencing one year from the Effective
Date, or earlier with the consent of the
Company and the Representative, each
share of Series G Preferred Stock will be
convertible into six shares of Common
Stock, subject to adjustment in the event
of any stock split, distribution,
dividend, combination of shares or other
transaction having the effect of a
reverse split or other recapitalizations
or similar transactions.
Liquidation: Upon the liquidation, dissolution or
winding up of the Company, the holders of
the Series G Preferred Stock will receive
a preference of $6.00 per share. Upon
receipt of such preference, the holders
of the Series G Preferred Stock will not
be entitled to any further payment. In
the event of the merger or consolidation
of the Company, the shares of Series G
Preferred Stock then outstanding will be
deemed converted into Common Stock
immediately prior to the effective time
of the transaction.
Dividends: Annual dividends of $.12 per share of
Series G Preferred Stock, payable
semiannually, in cash or shares of Common
Stock, as the Company shall determine.
After payment of the semi-annual
dividend, each share of Series G
Preferred Stock shall receive the same
per share dividend as is payable with
respect to one share of Common Stock
payable during the semi-annual dividend
period.
No Voting Rights: The holders of the Series G Preferred
Stock have no voting rights except as
required by law.
Description of Warrants:
Exercise of Warrants: The Warrants are exercisable for the
three-year period commencing on the date
of this Prospectus. Subject to redemption
by the Company, the Warrants may be
exercised at any time during such
exercise period at an exercise price of
$2.50 per share, subject to adjustment.
Redemption: The Warrants are redeemable by the
Company commencing one year from the date
of this Prospectus, or earlier with the
consent of the Representative, at $.05
per Warrant provided that the average
closing price per share of the Common
Stock is at least $3.00 per share,
subject to adjustment, for a period of 20
trading days ending not earlier than 15
trading days prior to the date the board
of directors calls the Warrants for
redemption.
- 4 -
<PAGE>
Use of Proceeds: The net proceeds of this Offering will be
used to pay outstanding loans and
obligations and for working capital and
other corporate purposes. See "Use of
Proceeds."
Risk Factors: Purchase of the Units involves a high
degree of risk and should be considered
only by investors who can afford to
sustain a loss of their entire
investment. See "Risk Factors" and
"Dilution."
Nasdaq Symbols:
Common Stock TGSI
1994 Warrants TGSIW
Units TGSIU
Series G Preferred Stock TGSIP
Series E Warrants TGSIZ
Common Stock and Warrants(1) Outstanding:
At the date of this Prospectus:
22,901,331 shares of Common Stock(2)
567,245 1994 Warrants(3)
As Adjusted(4):
22,901,331 shares of Common Stock(2)
1,000,000 shares of Series G Preferred Stock
1,000,000 Warrants
567,245 1994 Warrants(3)
(1) Does not include privately held warrants to purchase an aggregate of
6,257,352 shares of Common Stock at exercise prices ranging from $1.25
to $8.45 (collectively, the "Other Warrants").
(2) Does not include a maximum of 2,792,332 shares of Common Stock which
may be issued pursuant to the Company's stock option plans, of which
stock options to purchase 1,523,950 shares of Common Stock issuable
upon exercise of the 1994 Warrants, 6,257,352 shares of Common Stock
issuable upon exercise of the Other Warrants, or any shares of Common
Stock issuable upon conversion of the Series G Preferred Stock or the
exercise of the Warrants, the Underwriters' over-allotment option or
Unit Purchase Options or the securities underlying the Unit Purchase
Options.
(3) The 1994 Warrants were issued as part of the Company's initial public
offering in February 1994, have an exercise price of $7.00 per share,
and expire in May 1997.
(4) Reflects the issuance of the 1,000,000 shares of Series G Preferred
Stock and 1,000,000 Warrants comprising the Units offered hereby.
- 5 -
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share amounts)
Statement of Operations Data(1):
- --------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue $62,594 $63,152 $25,287
Net (loss) from continuing operations (681) (4,413) (411)
Net (loss) (681) (4,696) (411)
Net (loss) per share of Common Stock (.04) (1.48) (.68)
Weighted average number of shares of
Common Stock outstanding 15,183 3,173 600
Ratio of earnings to fixed charges (2) (2) (2)
</TABLE>
Balance Sheet Data:
- -------------------
<TABLE>
<CAPTION>
December 31, 1996 December 31,
----------------------------------- ---------------------
As Adjusted(3) Actual 1995 1994
----------------- ----------------- ---- ----
<S> <C> <C> <C> <C>
Working capital (deficiency) $ 4,156 $(755) $(2,401) $(1,805)
Total assets 15,860 13,100 12,763 10,345
Total liabilities 4,274 6,274 8,511 9,033
Accumulated deficit (5,788) (5,788) (5,106) (411)
Stockholders' equity(4) 11,586 6,826 4,252 1,312
- -----------------------
</TABLE>
(1) Statement of operations data includes the operations of RMI commencing
November 22, 1994.
(2) Earnings during this period were insufficient to cover combined fixed
charges and Preferred Stock dividends. The dollar amounts of the
coverage deficiencies were as follows: $771, $4,503 and $501 for the
years ended December 31, 1996, 1995 and 1994.
(3) As adjusted to reflect the receipt by the Company of the net proceeds
from the sale of the 1,000,000 Units offered hereby, and the use of a
portion of the proceeds of this Offering to pay certain debt. See "Use
of Proceeds" and "Capitalization."
(4) Stockholders' equity at December 31, 1996, as adjusted, includes $4,760
relating to Preferred Stock.
- 6 -
<PAGE>
RISK FACTORS
The purchase of the Units offered hereby involves a high degree of risk
and should be considered only by investors who can afford to sustain the loss of
their entire investment. In analyzing this Offering, prospective investors
should carefully consider the following factors, among others.
1. Continuing and substantial losses.
(a) Losses from continuing operations. During the years ended
December 31, 1996, 1995 and 1994, the Company sustained losses from continuing
operations of $681,000, or $.04 per share, $4.4 million, or $1.39 per share, and
$411,000, or $.68 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 $1.48 per share. At December 31, 1996, the Company
had an accumulated deficit of approximately $5.8 million. The results of
operations for 1994 reflect the operations of Holdings for the entire year and
RMI commencing November 22, 1994. If the acquisition of Job Shop assets were
consummated as of January 1, 1994, the pro forma results of operations of the
Company and Job Shop for 1994 would reflect revenue of $64.8 million and a loss
of $2.3 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(b) Penalties for late payment of withholding tax. During the
years ended December 31, 1996 and 1995, the Company incurred penalties of
$550,000 and $1.0 million, respectively, for penalties resulting from the late
payment of withholding taxes. See "Risk Factors 4. -- Recent delinquency in
payment of payroll tax obligations."
(c) 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 December 31, 1996, the Company's borrowings from the
asset-based lender were $3.7 million . In January 1997, the asset-based lender
agreed to an amendment to the agreement, effective April 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 to
enable the Company to become current in its payment of payroll taxes, thus
eliminating the penalties, and reduce financing costs, however no assurance can
be given that it can or will be able to reduce its financing costs.
(d) Low gross margins. For the years ended December 31, 1996,
1995 and 1994, the Company's gross margins were approximately 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. See "Risk Factors 2. --Substantial
capital requirements; acceleration of obligations to asset-based lender." Under
its agreements with its clients, the Company is required to pay its employees
and pay all applicable Federal and state withholding and payroll taxes prior to
receipt of payment from the clients. Furthermore, the Company's payments from
its clients are based upon the hourly rate paid to the employee, without regard
to when payroll taxes are payable with respect to the employee. Accordingly, the
Company's cost of services are greater during the first part of the year, when
Federal Social Security taxes and state unemployment and related taxes, which
are based on a specific level of compensation, are due. Thus, until the Company
satisfies 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."
2. Substantial capital requirements; acceleration of obligations to
asset-based lender.
(a) Working capital deficiency. As of December 31, 1996, the
Company had a working capital deficiency of $755,000. Its working capital
deficiency reflects (i) $3.7 million due to the Company's asset-based lender,
(ii) payroll and related taxes and expenses of $1.9 million, and (iii) accounts
payable and accrued expenses of $280,000. 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 January 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 December 31, 1996, the Company owed
approximately $3.7 million to its asset-based lender. The Company had been
advised that, as a result of a change
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in its general lending policies, the Company's asset-based lender was to reduce
the Company's maximum borrowing availability. In January 1997, the asset-based
lender agreed to an amendment to its agreement with the Company pursuant to
which, at April 1, 1997, the borrowing availability will be reduced to $3.0
million. 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."
(c) Continuing cash requirements. During 1996, the Company had
significant obligations for withholding taxes, including interest and penalties.
In July 1996, the Company received $2 million from the sale of Common Stock. The
Company used approximately $1.3 million of such proceeds to pay delinquent
withholding tax obligations, including interest and penalties. In connection
with such payments, the Company entered into an agreement with the Internal
Revenue Service ("IRS") pursuant to which the Company is to pay the balance of
$1.5 million, plus interest, in eight monthly installments of $150,000,
commencing in September 1996 and a final installment of approximately $300,000
in May 1997. One of the conditions to the IRS' agreement is the timely payment
by the Company of its current withholding tax obligations on an ongoing basis.
At December 31, 1996 and February 28, 1997, the amount due to the IRS was
$900,000 and $600,000, respectively. See "Risk Factors 4. -- Recent delinquency
in payment of payroll tax obligations."
The Company is continuing to seek ways to lower its cost of
money. In view of the Company's relatively low gross margin, which was
approximately 8.2% for 1996, 6.3% for 1995 and 6.2% for 1994, and its interest
costs, which were approximately 1.1% and 1.5% of revenue for 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 negotiate more favorable borrowing rates. However, no
assurance can be given any increase in its capital base resulting from this
Offering will enable the Company to operate profitably.
(d) 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."
3. Potential claim by Department of Labor, other potential claim.
The United States Department of Labor and the independent court-appointed
trustee of the Job Shop 401(k) Plan (collectively, "DOL") has filed a complaint
against Job Shop and its principal stockholder for civil violations of ERISA
resulting from the failure of Job Shop to deposit employee contributions to Job
Shop's 401(k) retirement plan. A similar complaint was filed by former employees
of Job Shop against Job Shop, its principal stockholder and others. At November
22, 1994, the amount due to the Job Shop 401(k) plan was approximately $3.0
million, which amount may have increased since such date as a result of interest
and penalties. Neither the Company nor RMI, the subsidiary that acquired assets
and assumed certain obligations of Job Shop in November 1994, has been named as
a defendant in either of such actions. The DOL has raised with the Company the
possibility that RMI may be liable with respect to Job Shop's ERISA liability as
a successor corporation or purchaser of plan assets, even though RMI did not
assume such obligations and paid value for those assets which it did purchase.
Although the Company believes that RMI is not a successor corporation to Job
Shop and is not responsible for Job Shop's ERISA violations, the DOL may take a
contrary position. If the DOL takes such a position and prevails, it would have
a material adverse effect upon the operations of RMI and possibly the Company as
a whole. During the nine months ended September 30, 1996, the Company
established a $300,000 reserve with respect to the DOL claim. The Company has a
proposed agreement with the DOL pursuant to which it will pay $300,000 to the
DOL in satisfaction of any claims the DOL may have against it. A portion of the
proceeds of this Offering are allocated to such payment. 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.
4. Recent delinquency in payment of payroll tax obligations; use of
proceeds to pay tax obligations. The nature of the technical temporary staffing
industry is that the service company, such as the Company, pays its employees
weekly, but does not receive payment from its clients until the following week.
As a result of the size of the tax deposit and because of the lack of available
cash under its financing arrangement, the Company, as of June 30, 1996, was
approximately five weeks late in payment of Federal withholding tax of
approximately $1.6 million. As a result of such failure, the IRS imposed
interest and
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significant penalties. During 1996 and 1995, the Company's selling, general and
administrative expenses included approximately $635,000 and $1.0 million,
respectively, in penalties for late withholding payments. During July and
August, the Company paid the IRS approximately $1.3 million on account of such
withholding tax obligations, including interest and penalties, and entered into
a payment agreement with the IRS pursuant to which (a) the Company agreed to pay
the remaining $1.5 million, plus interest, in eight monthly installments of
$150,000, commencing in September 1996, and a final installment of $300,000 in
May 1997, and (b) the IRS agreed to subordinate its lien to the lien of the
Company's asset-based lender. The IRS' agreement is contingent upon the
Company's making timely payments of its withholding tax obligations. At December
31, 1996, the Company owed the IRS approximately $900,000 pursuant to its
agreement with the IRS, and the Company was current in its withholding tax
obligations. At February 28, 1997, the amount due to the IRS was approximately
$600,000. The Company intends to use approximately $600,000, or 12.4% of the net
proceeds of this Offering, to pay the IRS. See "Use of Proceeds."
5. 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 1996 were The Boeing Company
("Boeing"), Lockheed-Martin Corporation ("Lockheed") and Northrop Grumman
Corporation ("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. 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. 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 "Business -- Markets and Marketing."
6. 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."
7. 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 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, 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 10,000,000 shares of Common Stock in October and December
1996. See "Certain Transactions." No shares of Series F Preferred Stock are
presently outstanding.
The Company has made advances to three subsidiaries of SISC ("SISC
Subsidiaries") which are not owned or controlled by the Company. Such advances
were approximately $1.5 million at December 31, 1996. The Company cannot predict
whether or when these advances will be repaid because of the SISC Subsidiaries'
lack of working capital, and the receivables from the SISC Subsidiaries are
included as long-term receivables on the Company's balance sheet.
At September 30, 1995, the stock of WWR was sold to a subsidiary of
Consolidated. See "Certain Transactions -- Sale of WWR." At such time, WWR owed
$530,000 to a nonaffiliated lender. The outstanding principal amount of such
loan to December 31, 1996 was $325,000. The note matures in June 1997 and is
guaranteed by Walnut Capital Corp. ("Walnut") and
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the Kanter Family Foundation (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 have guaranteed
the guarantee obligations of the Kanter Foundation and Walnut.
Trinity, a subsidiary of Consolidated and an affiliate of SISC, has a
management services agreement with the Company pursuant to which the Company is
to pay Trinity $10,000 per month through March 2000, which monthly fee will
increase to $25,000 commencing with the month in which this Offering is
completed. 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."
A portion of the proceeds of this Offering is being used to make
certain tax payments to the IRS. See "Use of Proceeds." To the extent that any
of such taxes are not paid by the Company, certain officers of the Company may
have personal liability with respect thereto.
8. 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 is in a position to determine the terms and conditions
of any transactions between the Company and Consolidated, SISC and the SISC
Subsidiaries. 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 -- 7. Substantial obligations to
and from related parties; related party transactions," "Risk Factors -- 14.
Continued Control by SISC" and "Management -- Directors and Executive Officers."
9. Broad discretion as to use of proceeds; potential unspecified
acquisitions. Approximately $2.8 million, representing approximately 58.0% 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."
10. 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.
11. 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.
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
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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."
14. Continued control by SISC. As of December 31, 1996, SISC and Mr.
Lewis S. Schiller beneficially owned 48.9% and 5.0% 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, SISC holds presently exercisable warrants to purchase
2,550,000 shares of Common Stock at $1.25 per share and 267,500 shares of Common
Stock at $3.50 per share, and Mr. Schiller holds presently exercisable warrants
to purchase 250,000 shares of Common Stock at $1.25 per share and 47,500 shares
of Common Stock at $3.50 per share and options to purchase 5,000 shares of
Common Stock at $1.03 per share and 150,000 shares of Common Stock at $1.125 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,
59.7% 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 and 1994 Warrants are, and the Units,
Series G Preferred Stock and Warrants are expected to be, included in The Nasdaq
SmallCap Market. For continued inclusion on The Nasdaq SmallCap Market, (i) the
Company will have to maintain at least $2,000,000 in total assets and $1,000,000
in capital and surplus, (ii) the minimum bid price of the Common Stock will have
to be $1.00 per share, (iii) there must be at least 100,000 shares in the public
float valued at $1,000,000 or more, (iv) the Common Stock must have at least two
active market makers, and (v) the Common Stock must be held by at least 300
holders. In addition, the Company may be required to maintain a stock price of
at least $1.00 per share. Nasdaq has recently announced proposed changes which
make the criteria for continued inclusion in the Nasdaq SmallCap Market
stricter. If the Company is unable to satisfy Nasdaq's requirements for
continued listing, such securities may be delisted from The Nasdaq SmallCap
Market. In such event, trading, if any, in such securities would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
Nasdaq's "Electronic Bulletin Board." Consequently, the liquidity of the
Company's securities could be impaired, not only in the number of securities
which could be bought and sold, but also through delays in the timing of
transactions, reduction in security analysts' and the news media's coverage of
the Company, and lower prices for the Company's securities than might otherwise
be attained.
A significant number of the Units may be sold to customers of the
Underwriters. Such customers may subsequently engage in the sale or purchase of
the securities through or with the Underwriters. Although they have no
obligation to do so, the Underwriters may become market makers and otherwise
effect transactions in securities of the Company, and, if they participate in
such market, may be dominating influences in the trading of the securities. The
prices and the liquidity of the securities may be significantly affected by the
degree, if any, of the participation of the Underwriters in such market, should
a market arise.
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 Common
Stock, Units, Preferred Stock and Warrants if the Common Stock is listed on The
Nasdaq SmallCap Market and has certain price and volume information provided on
a current and continuing basis or meet certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will continue to qualify for exemption from these restrictions. If
the Company's securities were subject to the rules on penny stocks, the market
liquidity for the Common Stock or Warrants could be materially adversely
affected.
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17. Potential adverse effect of redemption of Warrants. Commencing
one year from the date of this Prospectus, or earlier with the consent of the
Representative, the Warrants may be redeemed by the Company at a redemption
price of $.05 per Warrant upon not more than 60 nor less than 30 days' notice if
the average closing price per share of the Common Stock is at least $3.00,
subject to adjustment, during 20 trading days ending not earlier than 15 days
prior to the date of the Warrants are called for redemption. Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price therefor at a time when it may be disadvantageous for the holder to do so,
to sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price, which, at the time
the Warrants are called for redemption, is likely to be substantially less than
the market value of the Warrants. The Company will not call the Warrants for
redemption except pursuant to a currently effective prospectus and registration
statement. See "Description of Securities --Series E Redeemable Common Stock
Purchase Warrants."
18. Current prospectus and state registration required to exercise
Warrants. Holders of the Warrants will only be able to exercise the Warrants if
(a) a current prospectus under the Securities Act relating to the shares of
Common Stock issuable upon exercise of the Warrants is then in effect and (b)
such securities are qualified for sale or exemption from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise of any Warrants
subsequent to nine months from the date of this Prospectus. Prior to the
expiration of nine months from the date of this Prospectus, it may be necessary
to amend or supplement this Prospectus under certain conditions, in which event
the Warrants could not be exercised prior to the date of the amended Prospectus
or supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
returned by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside. See
"Description of Securities -- Series E Redeemable Common Stock Purchase
Warrants."
The Company has registered or qualified the Warrants for sale in a
limited number of states. Although the Company is not aware of any states which
prohibit the registration or qualification of securities of the type offered by
the Company and anticipates that it will qualify for available after-market
exemptions in a majority of states within several months after the completion of
the Offering, there can be no assurance that an exception permitting the
exercise of the Warrants will be available in any jurisdiction other than in
those states which the Common Stock and Warrants were initially registered or
are exempt from registration at the time a holder seeks to exercise Warrants.
19. Arbitrary offering price and terms. The price and composition of
the Units, the conversion rate and other terms of the Series G Preferred Stock
and the exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Representative and do not necessarily
bear any relation to the results of the Company's operations or its financial
condition or any other indicia of value.
20. No Common Stock dividends anticipated. The Company presently
intends to retain future earnings, if any, in order to provide funds for use in
the operation and expansion of its business and, accordingly, does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The annual dividend requirement of the Series G Preferred Stock is $90,000,
which are payable in cash or in shares of Common Stock, as the board of
directors may determine. If the Over-Allotment Option and the Representative's
Unit Purchase Option are exercised, the annual dividend on the Series G
Preferred Stock will be $150,000.
21. Shares eligible for future sale; shares issuable pursuant to
warrants, options and preferred stock; registration rights. Approximately
9,400,000 of the 22,901,331 shares of Common Stock outstanding at December 31,
1996, may be publicly sold as a result of either the registration of such shares
as part of the Company's initial public offering in February 1994, the
expiration of the 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 become eligible for sale pursuant to Rule 144 in
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. SISC and the
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Company's directors and executive officers have agreed to a 24-month lockup
during which they may not sell their shares without the prior approval of the
Representative.
As of December 31, 1996, the Company had (a) outstanding 1994 Warrants
to purchase 567,245 shares of Common Stock at $7.00 per share through May 1997,
which warrants are publicly traded, (b) warrants to purchase an aggregate of
1,302,352 shares of Common Stock at exercise prices ranging from $2.00 to $7.00
per share with various expiration dates, and (c) warrants to purchase 4,900,000
shares of Common Stock at $1.25 per share through April 2001, which are held by
SISC and the Company's directors. In addition, the underwriter of the Company's
initial public offering holds unit purchase options to purchase 55,000 of the
units issued in the Company's initial public offering in February 1994, at $8.45
per unit through February 1999. Each such unit consisted of one share of the
Company Common Stock and a warrant to purchase one share of the Company Common
Stock at $7.00 per share through May 1997, after giving effect to extensions
from the original maturity date of February 1996.
The Company has adopted three stock option plans pursuant to which a
maximum of 2,792,332 shares of the Common Stock may be issued, of which options
to purchase 1,523,950 shares are outstanding.
The Company cannot predict the effect, if any, that the issuance of
shares of Common Stock upon exercise of options or warrants or the registration
of such shares will have on the market for and market price of the Common Stock.
22. Potential adverse impact of Preferred Stock on rights of holders
of Common Stock. The Company's certificate of incorporation authorizes the
issuance of so-called "blank check" preferred stock with the board of directors
having the right to determine the designations, rights, preferences and
privileges of the holders of one or more series of Preferred Stock. Accordingly,
the board of directors is empowered, without stockholder approval, to issue
Preferred Stock with voting, dividend, conversion, liquidation or other rights
which could adversely affect the voting power and equity interest of the holders
of Common Stock. The board of directors has in the past issued shares of
Preferred Stock with the right to vote more than one vote per share. The
Preferred Stock could be utilized as a method of discouraging, delaying or
preventing a change of control of the Company. The possible impact on takeover
attempts could adversely affect the price of the Company Stock. Although the
Company has no present intention to issue any additional shares of Preferred
Stock or to create any additional series of Preferred Stock, the Company may
issue such shares in the future.
23. No public market. Prior to this Offering, there has been no
public trading market for the Units, Series G Preferred Stock or Warrants.
Although the Common Stock and 1994 Warrants are listed on The Nasdaq SmallCap
Market and the Company has applied to have the Units, Series G Preferred Stock
and Warrants included in The Nasdaq SmallCap Market, there can be no assurance
that an active market in any of such securities will develop or, if such a
market develops, that it will be sustained.
24. Dilution. Assuming conversion of all of the Series G Preferred
Stock, without allocating any value to the Warrants, purchasers of the Units
will incur dilution in the net tangible book value per share of Common Stock of
$.27 or 73%, from the initial public offering price of $1.00 per share, based on
the conversion rate of six shares of Common Stock for each share of Series G
Preferred Stock.
MARKET FOR COMMON STOCK; DIVIDENDS
The Company's securities have been traded on The Nasdaq SmallCap Market
since the Company's initial public offering on February 15, 1994, pursuant to
which the Company sold units (the "1994 Units"), each 1994 Unit consisting of
one share of Common Stock and one 1994 Warrant. The Common Stock and 1994
Warrants have been traded on The Nasdaq SmallCap Market since September 22,
1994. From July 28, 1994, when the Units were split into their individual
components and trading of the Common Stock and 1994 Warrants commenced on The
Nasdaq SmallCap Market, the symbols for the Common Stock and 1994 Warrants were
"CTGI" and "CTGIW," respectively. Effective on September 21, 1995, the trading
symbols were changed to "TGSI" and "TGSIW," respectively.
- 13 -
<PAGE>
The high and low closing bid prices for the Company's Common Stock and
1994 Warrants since September 1994, when the trading in 1994 Units terminated
and trading in the Common Stock and 1994 Warrants commenced are as follows:
Common Stock 1994 Warrants
High Low High Low
1994
Third Quarter
(from September 22) $5-7/8 $4-5/8 $1-1/4 $5/8
Fourth Quarter 5-3/4 3-1/8 1-3/8 1/2
1995
First Quarter 3-7/8 2 1 3/8
Second Quarter 4-3/4 3-1/2 7/8 5/8
Third Quarter 4-1/4 2-1/8 15/16 5/16
Fourth Quarter 3-1/2 1-3/8 1/2 11/32
1996
First Quarter 1-11/16 15/16 15/32 3/16
Second Quarter 1-3/4 1-7/32 1/2 5/16
Third Quarter 1-31/32 1-3/8 11/32 7/32
Fourth Quarter 2-1/4 1-7/16 7/32 5/32
1997
First Quarter (through March 13) 2-3/32 1-1/4 5/32 1/8
The closing bid prices for the Common Stock and 1994 Warrants on March
13, 1997 were $1 9/16 and $1/8, respectively. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
As of February 28, 1997, the Company believes that there were
approximately 1,500 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. See
"Description of Securities -- Series G Preferred Stock" in connection with
dividends payable with respect to the Series G Preferred Stock.
USE OF PROCEEDS
The Company intends to utilize the net proceeds from the sale of the
Units issued pursuant to this Prospectus, estimated at approximately $4.8
million (assuming the Underwriters' over-allotment option is not exercised),
substantially as follows:
(a) Approximately $1.2 million (25.2% of the net proceeds) to
reduce the Company's obligations to its asset-based lender.(1)
(b) Approximately $800,000 (16.8%) to prepay the Company's
obligations to the IRS and the DOL.(2)
(c) The balance of approximately $2.8 million (58.0%) for working
capital and other general corporate purposes.
(1) At December 31, 1996 and March 13, 1997, the Company owed its
asset-based lender approximately $3.7 million and $4.0 million,
respectively. Pursuant to a January 1997 amendment to the Company's
agreement with its asset-based lender, the Company's borrowing
availability will be reduced to $3.0 million on April 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 IRS, the Company is to pay
the $1.5 million plus interest in eight monthly installments of
$150,000, commencing in September 1996, and a final installment of
$300,000 in May 1997. As of March 15, 1997, the amount due to the IRS
was approximately $500,000. The Company intends to prepay all or a
portion of its obligations to the IRS from the proceeds of this
Offering. However, the Company reserves the right to pay
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<PAGE>
the IRS in accordance with its agreement, in which event the proceeds
allocated to the prepayment of the Company's obligations to the IRS, to
the extent not so used, will be used for working capital and other
corporate purposes. Pursuant to a proposed agreement with the DOL, the
Company is to pay the DOL $300,000 from the proceeds of this Offering.
The total amount due to the IRS and the DOL as of March 15, 1997 is
approximately $800,000.
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.
The Company may use a portion of the proceeds of this Offering in
connection with acquisitions, joint ventures or other arrangements, which
management deems necessary or desirable in connection with the development of
the Company's business and related activities. The Company has not entered into
any letters of intent or agreements with respect to any such arrangements or
transactions. However, to the extent that the Company negotiates such a
transaction which requires payment of cash, the Company will use a portion of
the proceeds allocated to working capital and other corporate purposes to make
such acquisition. In this connection, the Company may reallocate all or a
portion of the proceeds allocated to payment of the Company's asset-based lender
and the prepayment of the Company's obligations to the IRS. "Business --
Potential Business Agreements."
Pending the application of the funds as described above, said funds
will be invested in short-term interest-bearing deposits and securities.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 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>
<CAPTION>
December 31, 1996
-----------------------------------
Actual As Adjusted
------ -----------
(Dollars in thousands)
<S> <C> <C>
Short-term debt:
Loan payable -- asset-based lender(1) $3,691 $2,491
Other notes payable(2) 138 138
------ ------
$3,829 $2,629
====== ======
Stockholders' equity:
Preferred Stock, par value $.01 per share, 20,000,000 shares authorized(3) of
which:
1,250,000 shares are designated as Series G Convertible Redeemable
Preferred Stock, none issued or outstanding, 1,000,000 shares
outstanding, as adjusted3 -- --
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
22,851,331 shares issued and outstanding and as adjusted(4) 229 229
Capital in excess of par(5) 12,688 17,448
Accumulated deficit (5,788) (5,788)
Deferred compensation fee (303) (303)
------- -------
Stockholders' equity $ 6,826 $11,586
======= =======
- -------------
</TABLE>
(1) The Company's loan from its asset-based lender bears interest at prime
plus 2%. In addition, the Company pays a fee of .3% of the face amount
of all invoices financed, regardless of the amount borrowed against the
invoice. See Note 2 of Notes to Trans Global Services, Inc.
Consolidated Financial Statements.
(2) See Note 8 of Notes to Trans Global Services, Inc. Consolidated
Financial Statements.
(3) The liquidation preference of the Series G Preferred Stock is $6.00 per
share. The Series G Preferred Stock is redeemable at $6.00 per share.
See "Description of Capital Stock -- Series G Preferred Stock" for
information concerning the rights, preferences and privileges of the
holders of the Series G Preferred Stock.
(4) Does not include an aggregate of 10,184,174 shares of Common Stock
reserved as follows: (a) 2,792,332 shares issuable pursuant to the
Company's stock option plans, of which stock options to purchase
1,434,100 shares are outstanding, (b) 567,245 shares of Common Stock
issuable pursuant to the 1994 Warrants, and (c) 6,257,352 shares of
Common Stock issuable upon exercise of the Other Warrants. The number
of reserved shares of Common Stock does not include any shares of
Common Stock issuable upon conversion of the Series G Preferred Stock,
or the exercise of the Warrants, the Underwriters' over-allotment
option or Unit Purchase Options or the securities underlying the Unit
Purchase Options.
See "Certain Transactions," "Description of Securities" and
"Underwriting."
(5) Includes $4,850, as adjusted, relating to the Preferred Stock.
See "Business -- Property" and Note 10 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements for information concerning the
Company's long-term lease obligations.
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<PAGE>
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 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. This data should be read in conjunction with the financial
statements of the Company and the related notes which are included elsewhere in
this Prospectus.
Statement of Operations Data(1):
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
Revenue $62,594 $63,152 $25,287
Net (loss) from continuing operations (681) (4,413) (411)
Net (loss) (681) (4,696) (411)
Net (loss) per share of Common Stock (.04) (1.48) (.68)
Weighted average number of shares of
Common Stock outstanding 15,183 3,173 600
Ratio of earnings to fixed charges (2) (2) (2)
Balance Sheet Data:
- -------------------
December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
Working capital (deficiency) $(755) $(2,401) $(1,805)
Total assets 13,100 12,763 10,345
Total liabilities 6,274 8,511 9,033
Accumulated deficit (5,788) (5,106) (411)
Stockholders' equity 6,826 4,252 1,312
- ------------
(1) Statement of operations data includes the operations of RMI commencing
November 22, 1994.
(2) Earnings during this period were insufficient to cover combined fixed
charges and Preferred Stock dividends. The dollar amounts of the
coverage deficiencies were as follows: $771, $4,503 and $501 for the
years ended December 31, 1996, 1995 and 1994.
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.
- 17 -
<PAGE>
Years ended December 31, 1996 and 1995
Revenue from technical temporary staffing services is based on the
hourly cost of payroll plus a percentage. The success of the Company's business
will be dependent upon its ability to generate sufficient revenues to enable it
to cover its fixed costs and other operating expenses, and to reduce its
variable costs, principally its interest. Under its agreements with its clients,
the Company is required to pay its employees and pay all applicable Federal and
state withholding and payroll taxes prior to receipt of payment from the
clients. Furthermore, the Company's payments from its clients are based upon the
hourly rate paid to the employee, without regard to when payroll taxes are
payable with respect to the employee. Accordingly, the Company's cost of
services are greater during the first part of the year, when Federal Social
Security taxes and state unemployment and related taxes, which are based on a
specific level of compensation, are due. Thus, until the Company satisfies its
payroll tax obligations, it will have a lower gross margin than after such
obligations are satisfied. Furthermore, to the extent that the Company
experiences turnover in employees, its gross margin will be adversely affected.
For example, in 1996, Social Security taxes are payable on the first $62,700 of
compensation. Once that level of compensation is paid with respect to any
employee, there is no further requirement for the Company to pay Social Security
tax for such employee. Since most of the Company's employees receive
compensation in excess of that amount, the Company's costs with respect to any
employee are significantly higher during the period when it is required to pay
Social Security taxes than it is after such taxes have been paid.
For 1996, the Company had revenues of $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 on January 1, 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 lockup
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 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 or earlier at the request of the Company,
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 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.
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
- 18 -
<PAGE>
The Company has not provided for income taxes for the 1996 period due
to a current period loss. Federal and state tax benefits have not been
recognized for the 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 $4.3 million,
or $1.44 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.
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.
- 19 -
<PAGE>
Years Ended December 31, 1994 and 1993
The results of operations for the Company for 1994 reflect the
operations of Avionics for the entire year and the operations of RMI from
November 22, 1994, when RMI acquired assets of Job Shop. Avionics was acquired
in December 1993. RMI acquired assets of Job Shop, including its customer list,
in exchange for 750,000 shares of common stock of Consolidated, the sole
stockholder of SISC, and the payment of certain of Job Shop's obligations to the
IRS pursuant to a settlement agreement with the IRS.
The Company has sustained losses since its organization. Although the
Company had an operating profit of $277,000 on revenue of $25.3 million for the
year ended December 31, 1994, it shows a loss of $411,000 for the year
principally as a result of interest expense of $696,000. Selling, general and
administrative expenses in 1994 were affected by a credit of $159,000
representing a refund of a tax penalty previously paid. Net income was also
affected by the amortization of intangibles of $309,000, a significant portion
resulted from the November 1994 acquisition of Job Shop assets.
The operations of Job Shop from January 1, 1994 to November 22, 1994
showed an operating profit of $206,000 and a net loss of $1.9 million on revenue
of $39.5 million. Job Shop's interest expense for the period was $871,000.
During 1994, the Company financed its payroll obligations by borrowing
from an asset-based lender at interest rates of 2% and 4% in excess of prime.
The Company also paid a fee of .33% and 1.0% of the face amount of the invoices
financed, regardless of the amount borrowed against the invoice. At December 31,
1994, such borrows were $4.0 million, which was the maximum available under its
borrowing formula. The interest rates payable by the Company at December 31,
1994 were 9.65% as to $1.5 million and 11.65% as to $2.5 million. The combined
interest expense for the Company and Job Shop during 1994 was approximately $1.6
million.
Liquidity and Capital Resources
As of December 31, 1996, the Company had a working capital deficiency
of $755,000. Its working capital deficiency reflects (a) $3.7 million due to the
Company's asset-based lender, (b) payroll and related taxes and expenses of $1.9
million, and (c) accounts payable and accrued expenses of $280,000. 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 January 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.
At December 31, 1996, the Company owed approximately $3.7 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 $1 million, effective in late
October 1996, which date had been orally extended until January 1997. In January
1997, the asset-based lender agreed to an amendment to its agreement with the
Company pursuant to which, at April 1, 1997, or earlier at the request of the
Company, the borrowing availability will be reduced to $3.0 million. 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 and its subsidiaries have certain outstanding notes. One of
these notes, issued by WWR in the amount of $324,000 at December 31, 1996, is
guaranteed by certain entities which are affiliated with a former director of
the Company. The Company and Consolidated have guaranteed the guarantee
obligations of certain of such entities. The Company's obligation on its
guarantee continues notwithstanding the sale of WWR to an affiliate of SISC in
September 1995. See "Certain Transactions."
In November 1994, RMI purchased assets of Job Shop. The DOL has raised
with the Company the possibility that RMI may be liable with respect to Job
Shop's ERISA liability as a successor corporation or purchaser of plan assets,
even though RMI did not assume such obligations and paid value of those assets
which it did purchase. At November 22, 1994, the date of the purchase of the Job
Shop assets, the amount due to the Job Shop 401(k) plan was approximately $3.0
million, which amount may have increases since such date as a result of interest
and penalties. Although the Company believes that RMI is not a successor
corporation to Job Shop and is not responsible for Job Shop's ERISA violations,
the DOL may take a contrary position. The Company and the DOL are currently
engaged in discussions. If an agreement cannot be reached by the parties
involved and the DOL prevails in court, it could have a material adverse effect
upon the operations of RMI and possibly the Company as a whole. At September 30,
1996, the Company had reserved $300,000 with respect to the claim by the DOL,
which management believed
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<PAGE>
to be the maximum range of recovery by the DOL; however, no assurance can be
given that such reserve will be adequate. The Company has a proposed agreement
with the DOL providing for the payment to the DOL of $300,000 from the proceeds
of this Offering. A portion of the proceeds of this Offering is allocated to
such payment. See "Use of Proceeds."
In May 1991, prior to the acquisition of Avionics by the Company, the
Government Printing Office wrote Avionics asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. Although
the Company believes that these claims are without merit and intends to contest
these claims vigorously if reasserted, it believes that the ultimate disposition
of this matter will not have a material adverse affect on the Company's
consolidated financial position.
In August 1996, the Company entered into an agreement with the IRS to
pay its delinquent payroll taxes, interest and penalties. The Company paid $1.3
million and has agreed to pay the balance in eight equal monthly installments of
$150,000, commencing in September 1996, with the remaining balance of $300,000
to be paid in May 1997. The IRS has agreed to subordinate its lien to the lien
of the Company's asset-based lender provided that the Company is in compliance
with current IRS regulations concerning the timely deposit of Federal employment
and withholding taxes. At February 28, 1997, the Company owed the IRS
approximately $600,000 pursuant to its agreement with the IRS, and the Company
was current in its withholding tax obligations.
BUSINESS
Since May 1995, the Company's principal business has been technical
temporary staffing service. In performing such services, the Company, through
its two wholly-owned subsidiaries, Holdings and RMI, addresses the current trend
of major corporations in "downsizing" and "outsourcing" by providing engineers,
designers and technical personnel on a temporary contract assignment basis
pursuant to contracts with major corporations. The engagement may relate to a
specific project or may cover an extended period based on the client's
requirements. The Company believes that the market for outsourcing services such
as those offered by the Company results from the trend in employment practices
by major corporations in the aerospace, electronics, energy, engineering and
telecommunications industries to reduce their permanent employee staff and to
supplement their staff with temporary personnel on an as-needed basis. The
Company seeks to offer its clients a cost-effective means of work force
flexibility and the elimination of the inconvenience associated with the
employment of temporary personnel, such as advertising, initial interviewing,
fringe benefits and record keeping. Although the employees provided by the
Company are on temporary contract assignment, they work with the client's
permanent employees; however, they receive different compensation and benefits
than permanent employees.
In providing its services, the Company engages the employees, pays the
payroll and related costs, including FICA, worker's compensation and similar
Federal and state mandated insurance and related payments. The Company charges
its clients for services based upon the hourly payroll cost of the personnel.
Each temporary employee submits to the Company a weekly time sheet with work
hours approved by the client. The employee is paid on the basis of such hours,
and the client is billed for those hours at agreed upon billing rates.
The Company also offers its clients a range of integrated logistical
support services which are performed at the Company's facilities. These
services, which are ancillary to a project, include the management of technical
documents involving technical writing, preparation of engineering reports, parts
provisioning documents and test equipment support documents, establishing
maintenance concepts and procedures, and providing manpower and personnel
support. In performing these services, the Company hires the necessary employees
for its own account and may work with the client in developing and preparing the
documentation. Payments would be made pursuant to a purchase order from the
client on a project basis and not as a percentage of the cost of the employees.
To date, the integrated logistics support business has not generated more than
nominal revenue, and no assurance can be given that the Company will generate
any significant revenue or profit from such services.
The Company's strategy has been directed at increasing its customer
base and providing additional services, such as integrated logistics support, to
its existing customer base. The Company believes that the key to profitability
is to provide a range of services to an increased customer base. In this
connection, the Company is increasing its marketing effort both through its own
personnel and in marketing efforts with other companies that offer complementary
services.
Markets and Marketing
The market for the Company's services is comprised of major
corporations in such industries as aerospace, electronics, energy, engineering,
computer services and telecommunications, where "downsizing" and "outsourcing"
have become an
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<PAGE>
increasingly important method of cost reduction. Typically, a client enters into
an agreement with one or a small number of companies to serve as employer of
record for its temporary staff, and its agreements are terminable by the client
without significant notice.
The Company maintains a computerized data base of technical personnel
based upon their qualifications and experience. The data base, which contains
more than 100,000 names, is generated through employees previously employed by
the Company, referrals and responses to advertisements placed by the Company in
a variety of local media, including newspapers, yellow pages, magazines and
trade publications. Part of its responsibilities for any engagement is the
recruitment and initial interviewing of potential employees, with the client
conducting any final interviews it deems necessary. The majority of work
performed by the Company' employees is performed at the client's premises and
under the client's direction, although the Company is the employer of record.
The Company markets its services to potential clients through its
officers, management and recruitment personnel who seek to provide potential
clients with a program designed to meet the client's specific requirements. The
marketing effort utilizes referrals from other clients, sales calls, mailings
and telemarketing. The Company also conducts an ongoing program to survey and
evaluate the clients' needs and satisfaction with the Company's services, which
it uses as part of its marketing effort.
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.
The Company's largest customers for the 1996 were Boeing, Lockheed,
Northrop Grumman, Gulfstream Aerospace Corp. and Bell Helicopter Textron, which
accounted for approximately $16 million, $13 million, $9 million, $5 million and
$4 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 nine months ended September 30, 1996 or the
year ended December 30, 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
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<PAGE>
million and $7.5 million, or 22% and 17% of such combined revenue for 1994, were
the only clients which accounted for more than 10% of the combined revenue of
RMI and Job Shop. Four other clients, three of which are in the aerospace
industry, accounted for aggregate revenue of $14.7 million, or 51% of the
combined revenue of RMI and Job Shop for 1994.
Competition
The business of providing employees on either a permanent or temporary
basis is highly competitive and is typically local in nature. The Company
competes with numerous technical service organizations, a number of which are
better capitalized, better known, have more extensive industry contracts and
conduct extensive advertising campaigns aimed at both employers and job
applicants. The Company believes that the ability to demonstrate a pattern of
providing reliable qualified employees is an important aspect of developing new
business and retaining existing business. 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.
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 December 31, 1996, the Company had 963 employees, of which 921 were
contract service employees who performed services on the clients' premises and
42 were executive and administrative employees. Each of the Company's offices is
staffed by recruiters and sales managers. Each contract service employee enters
into a contract with the Company which sets forth the client for whom and the
facility at which the employee's services are to be performed and the rate of
pay. If an employee ceases to be required by the Company's clients for any
reason, the Company has no further obligation to the employee. Although
assignments can be for as short as 90 days, in some cases, it has been for
several years. The average assignment is in the range of six to nine months. The
Company's employees are not represented by a labor union, and the Company
considers its employee relationship to be good.
- 23 -
<PAGE>
Litigation and Claims
There is no material litigation pending or threatened against the
Company.
The DOL has filed a complaint against Job Shop and its principal
stockholder for civil violations of ERISA resulting from the failure of Job Shop
to deposit employee contributions to Job Shop's 401(k) retirement plan. A
similar complaint was filed by former employees of Job Shop against Job Shop,
its principal stockholder and others. At November 22, 1994, the amount due to
the Job Shop 401(k) plan was approximately $3.0 million, which amount may have
increased since such date as a result of interest and penalties. Neither the
Company nor RMI, the subsidiary which acquired assets and assumed certain
obligations of Job Shop in November 1994, has been named as a defendant in
either of such actions. The DOL has raised with the Company the possibility that
RMI may by liable with respect to Job Shop's ERISA liability as a successor
corporation or purchaser of plan assets, even though RMI did not assume such
obligations and paid value for the Job Shop assets which it did purchase.
Although the Company believes that RMI is not a successor corporation to Job
Shop and is not responsible for Job Shop's ERISA violations, the DOL may take a
contrary position. If the DOL takes such a position and prevails, it would have
a material adverse effect upon the operations of RMI and possibly the Company as
a whole. Although the Company is engaged in discussions with the DOL, no
assurance can be given that such discussions will result in any settlement
acceptable to the Company. However, in connection with the negotiations with the
DOL and with the consent of the IRS, the Company has paid into escrow $400,000
of the money due the IRS in connection with the agreement with the IRS relating
to the acquisition of Job Shop assets. See Note 11 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements. During the nine months ended
September 30, 1996, the Company established a $300,000 reserve with respect to
the DOL's claim, however, no assurance can be given that such reserve will be
adequate.
In May 1991, prior to the acquisition of Avionics by the Company, the
Government Printing Office wrote the Company asking for reimbursement of
approximately $300,000 for allegedly unauthorized work on two programs. The
Company believes that these claims are without merit and intends to contest
these claims vigorously if reasserted. The Company believes that the ultimate
disposition of this matter will not have a material adverse affect on the
Company's consolidated financial position. See Note 9 of Notes to Trans Global
Services, Inc. Consolidated Financial Statements.
Properties
The Company leases an aggregate of approximately 12,800 square feet of
office facilities at two locations in Long Island, New York, where it maintains
its executive offices. It also rents modest office space in Houston, Texas,
Phoenix, Arizona, Arlington, Texas, Los Angeles, California, Seattle,
Washington, Orlando, Florida and Wichita, Kansas. The aggregate annual rent
payable by the Company is approximately $160,000, which is subject to annual
increases. The Company believes that its present office space is adequate for
its present needs and that additional office space is readily available on
commercially reasonable terms.
Former Business of the Company
Prior to May 1995, Concept's principal business was the operation,
through WWR, of the Klipsch(R) professional loudspeaker business. It also is the
developer and owner of several proprietary technologies with applications in
environmental noise cancellation, medical monitoring, defense and
communications. No significant revenue was generated from these activities,
which have been discontinued by the Company. For the years ended December 31,
1994 and 1993, Concept had losses of $1.6 million, or $1.30 per share, and $1.4
million, or $1.95 per share, respectively, on revenue of $2.4 million and $3.0
million, respectively.
WWR was incorporated in 1992 to acquire the professional products
business segment of the Klipsch loudspeaker line from Klipsch. Klipsch's primary
market has traditionally been the home high fidelity loudspeaker business. It
had also developed a reputation as a manufacturer of rugged, well-designed
loudspeakers for the professional, commercial and theater sound markets. The
Company believed that the acquisition of the assets of the Klipsch professional
speaker line would give WWR a major name in the industry.
Concept's business focus from the time of the acquisition of the
Klipsch professional speaker business until its disposition of WWR was to become
a significant factor in the professional loudspeaker market, which is defined as
any application for loudspeakers other than those used for home and automotive
entertainment purposes. Although the Company sought to market the Klipsch
speaker line and develop its other businesses, it was not able to operate
profitably and, as a result, sought a business opportunity which it felt could
develop into a profitable business. Following this strategy, Concept entered
into the Trans Global
- 24 -
<PAGE>
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."
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 Kay(1) 57 Director
Norman J. Hoskin(1) 61 Director
- ------
(1) Member of the stock option committee.
Mr. Lewis S. Schiller has been chairman of the board, chief executive
officer and a director of the Company since the consummation of the Trans Global
Transaction in May 1995. He served in the same capacities for TGS since its
organization in January 1995 until the completion of the Trans Global
Transaction in May 1995. Mr. Schiller is chairman of the board and chief
executive officer of Consolidated, a corporation which, through subsidiaries, is
engaged in various businesses. Mr. Schiller is also chairman of the board, chief
executive officer and a director of Netsmart, a majority owned subsidiary of
Consolidated that markets health information systems and other network based
software systems, and Lafayette, a publicly-traded corporation controlled by
SISC which is engaged in various manufacturing businesses. Consolidated's
businesses include, in addition to the Company, the management and operation of
magnetic resonance imaging centers, the manufacture and sale of
electro-mechanical and electro-optical products, a range of telecommunications
services, computerized health information systems and related services which are
offered to health care providers, and the marketing and selling of three
dimensional imaging products. Mr. Schiller has held his positions with
Consolidated for more than the past five years. Mr. Schiller devotes a
significant portion of his time to the business of Consolidated and its other
subsidiaries, and he devotes only a portion of his time to the business of the
Company.
Mr. Joseph G. Sicinski has been president and a director of the Company
since the consummation of the Trans Global Transaction in May 1995. He served in
the same capacities for TGS since its organization in January 1995, and served
as president of a predecessor of TGS since September 1992. For more than eight
years prior thereto, he was executive vice president of corporate marketing for
Interglobal Technical Services, Inc., which was engaged in providing technical
temporary staffing services.
Mr. Glen R. Charles has been chief financial officer and treasurer of
the Company since May 1995 and of TGS since its organization in January 1995. He
served as chief financial officer of RMI since its acquisition in November 1994.
From 1992 to November 1994, he was engaged in the private practice of
accounting. For more than five years prior thereto, he was chief financial
officer of Telephone Support Systems, Inc., a manufacturer of telecommunications
peripheral equipment.
Ms. Grazyna B. Wnuk has been the secretary of the Company since May
1995. She is also secretary of Consolidated, a position she has held since 1991.
She is also a director of Consolidated.
Mr. E. Gerald Kay has been a director of the Company since the
consummation of the Trans Global Transaction in May 1995. He has been chairman
of the board and chief executive officer of Chem International, Inc., a
pharmaceutical manufacturer, Manhattan Drug Co., Inc., a wholesaler of
pharmaceutical products, The Vitamin Factory, Inc., a chain of retail vitamin
stores, and Connaught Press, Inc., a publisher for more than the past five
years. From 1988 to 1990, he was also president and a director of The Rexall
Group, Inc., a distributor of Rexall brand products. Mr. Kay is a director of
Lafayette and was a director of Netsmart from 1994 until December 1996.
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<PAGE>
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,
Lafayette, Aqua Care Systems, Inc., a water media filtration and remediation
company, and Spintek Gaming, Inc., a manufacturer of gaming equipment.
The Board of Directors presently has one committee, the stock option
committee, which was formed in 1995 and which administers the Company's 1993
Stock Option Plan, the 1995 Stock Incentive Plan and the 1995 Long Term
Incentive Plan.
The Company's Certificate of Incorporation provides that to the fullest
extent provided by Delaware law, a director shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. The Certificate of Incorporation also contains broad indemnification
provisions. These provisions do not affect the liability of any director under
Federal or applicable state securities laws.
Remuneration
Set forth below is information with respect to compensation paid or
accrued by the Company for 1996, 1995 and 1994 to its chief executive officer
and to each other officer whose compensation exceeded $100,000 for 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation (Awards)
Restricted Stock Options, SARs
Name and Principal Position Year Salary Bonus Awards (Dollars) (Number)
- --------------------------- ---- ---------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Lewis S. Schiller, CEO(1) 1996 -- -- -- 555,000(2)
1995 -- -- -- --
1994 -- -- -- --
Joseph G. Sicinski, President 1996 195,500 -- -- 1,200,000(3)
1995 178,000 -- -- 250,000(3)
1994 110,000 15,000 -- --
- -----------
</TABLE>
(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 400,000 shares of Common Stock at $1.25
per share, an incentive stock option to purchase 150,000 shares of
Common Stock at $1.125 per share and a nonqualified stock option to
purchase 5,000 shares at $1.03 per share. Such options and warrants
were granted at the fair market value on the date of grant. Mr.
Schiller transferred warrants to purchase 150,000 shares to members of
his family. See "Management -- Stock Option Plans" and "Certain
Transactions."
(3) Represents warrants to purchase 400,000 shares of Common Stock at $1.25
per share and an incentive stock option to purchase 800,000 shares of
Common Stock at $1.125 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 800,000 shares
of Common Stock, Mr. Sicinski agreed to the cancellation of an
incentive stock option to purchase 250,000 shares of Common Stock at
$2.125, which was granted in 1995. See "Management -- Stock Option
Plans" and "Certain Transactions."
Pursuant to his employment agreement with Consolidated, Mr. Schiller
received, prior to September 1, 1996, an annual salary of $250,000, subject to a
cost of living increase, a bonus equal to 10% of Consolidated's net income
before income taxes or cash flow, whichever is greater, in excess of $350,000.
Effective September 1, 1996, Mr. Schiller's base salary was increased to
$500,000. Pursuant to his employment agreement with Consolidated, Mr. Schiller
has the right to acquire 10% of SISC's interest in its subsidiaries and
investments, including its investment in the Company, at 110% of SISC's cost.
See "Certain Transactions."
In January 1995, Mr. Joseph G. Sicinski entered into a five-year
employment agreement with the Company pursuant to which he received annual
compensation of $180,000, subject to an annual cost of living increase.
Effective September 1, 1996,
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<PAGE>
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.
In August 1995, SISC granted Mr. Sicinski a five-year option to
purchase 200,000 shares of Common Stock owned by SISC at $1.625 per share. In
April 1996, SISC granted Mr. Sicinski a five-year option to purchase 800,000
shares of Common Stock owned by SISC at $.25 per share, and the prior option was
canceled. The Company granted Mr. Sicinski certain demand and piggy-back
registration rights with respect to the shares of Common Stock issuable upon
exercise of such option.
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.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
Lewis S. Schiller -- -- 555,000 $272,969/
-- --
Joseph G. Sicinski -- -- 47,000/ 382,000/
203,000 486,000
- ---------------
</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 $1.875.
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 250,000 shares at $2.125 per share and the
grant of an incentive stock option to purchase 800,000 shares of Common Stock at
$1.125 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 $2.25 per share the exercise price of
outstanding options to purchase an aggregate of 92,500 shares of Common Stock
from $3.00, as to 50,000 shares, $5.00 as to 30,000 shares and $6.40 as to
12,500 shares.
- 27 -
<PAGE>
Option Repricings
<TABLE>
<CAPTION>
Number of
Securities Market Price
Underlying of Stock at Exercise Price
Options Time of at Time of New Length of Original Term
Repriced or Repricing or Repricing or Exercise Remaining at Date of
Name Date Amended Amendment Amendment Price Repricing or Amendment
<S> <C> <C> <C> <C> <C> <C>
Joseph B. Sicinski 3/18/96 250,000 shares(1) $1.125 $2.125 $1.125 five years, five months
</TABLE>
(1) In addition, in April 1996, SISC granted Mr. Sicinski an option to
purchase 800,000 shares of Common Stock at $.25 per share. In August
1995, SISC had granted Mr. Sicinski an option to purchase 200,000
shares of Common Stock at $1.625 per share. This option was canceled in
connection with the April 1996 grant.
Stock Option Plans
The Company has three stock option plans. In 1993, the Company adopted
the 1993 Stock Incentive Plan (the "1993 Plan"), covering an aggregate of
150,000 shares of Common Stock. Options to purchase 124,100 shares of Common
Stock were granted at exercise prices of $3.00 as to 54,500 shares, $5.00 as to
14,600 shares and $5.00 as to 55,000 shares. The exercise price of all of such
options was reduced to $2.25 per share in February 1995. As of August 31, 1996,
options to purchase 10,150 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 305,000 shares of
Common Stock. At December 31, 1996, options to purchase 290,000 shares of Common
Stock were granted pursuant to the 1995 Plan, of which options to purchase
255,000 shares had been exercised and options to purchase 35,000 shares at an
exercise price of $.50 per share were outstanding.
In May 1995, the board of directors adopted, and, in March 1996, the
stockholders approved the 1995 Long Term Incentive Plan (the "1995 Incentive
Plan"), initially covering 500,000 shares of Common Stock. In April 1996, the
board of directors approved, 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 2,492,332 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. The
information contained in this Prospectus relating to the 1993 Plan, the 1995
Plan and the 1995 Incentive Plan (collectively, the "Plans") is qualified in its
entirety by the text of such plans, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Awards under the Plans may be made to key employees, including
officers, and directors of the Company and its subsidiaries. Members and
alternate members of the stock option committee are not eligible for options
under the 1995 Incentive Plan, except that the 1995 Incentive Plan provides for
the automatic grant to outside directors of non-qualified options to purchase
5,000 shares on February 1st of each year, commencing February 1, 1996. Messrs.
E. Gerald Kay and Norman J. Hoskin are the directors who qualify as
non-management directors under the 1995 Plan. Pursuant to the 1995 Incentive
Plan, Messrs. Schiller, Kay and 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 5,000 shares of Common Stock at $1.031 per
share, and Messrs. Hoskin, Kay and Kanter, who were non-management directors on
February 1, 1997, each received an option to purchase 5,000 shares of Common
Stock at $1.875 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.
- 28 -
<PAGE>
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.
In August 1995, the Company granted to Mr. Joseph G. Sicinski,
president of the Company, a six-year incentive stock option to purchase an
aggregate of 250,000 shares of Common Stock pursuant to the 1995 Plan at an
exercise price of $2.125 per share, being the fair market value on the date of
grant. The option was immediately exercisable as to 47,000 shares of Common
Stock and becomes exercisable as to an additional 47,000 shares of Common Stock
on each of January 1, 1996, 1997, 1998 and 1999 and becomes exercisable as to
the remaining 15,000 shares of Common Stock on January 1, 2000.
In March 1996, the committee granted incentive stock options to
purchase an aggregate of 1,310,000 shares of Common Stock at $1.125 per share,
being the fair market value on the date of grant. Such options were granted to
Mr. Joseph G. Sicinski, president of the Company, who received an option to
purchase 800,000 shares of Common Stock, Mr. Lewis S. Schiller, chairman of the
board of the Company, who received an option to purchase 150,000 shares of
Common Stock, Mr. Glen R. Charles, chief financial officer of the Company, who
received an option to purchase 100,000 shares of Common Stock, and sixteen other
employees who received options to purchase an aggregate of 260,000 shares of
Common Stock. In connection with the grant to Mr. Sicinski, he agreed to the
cancellation of the previously granted incentive stock options. The option
granted to Messrs. Schiller and Sicinski have a ten-year term, and the other
options have five year terms. 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 88,000 shares and become exercisable as to the remaining shares on January 1,
1997. The option granted to Mr. Sicinski is immediately exercisable as to 88,000
shares and becomes exercisable cumulatively as to an additional 88,000 shares on
January 1 of each year from 1997 to 2004 and becomes exercisable as to the
remaining 8,000 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.
- 29 -
<PAGE>
Option Grants in Year Ended December 31, 1996
<TABLE>
<CAPTION>
Percent of Total
Number of Shares Options Granted
Underlying to Employees in Exercise Price
Name Options Granted Fiscal Year Per Share Expiration Date
<S> <C> <C> <C> <C>
Lewis S. Schiller 150,000 11.3% $1.125 3/17/06
5,000(1) 0.3% 1.031 1/31/06
Joseph G. Sicinski(2) 800,000 60.4% 1.125 3/17/06
All current executive officers(3) 950,000 71.7% 1.125 3/17/06
100,000 7.5% 1.125 3/17/01
All non-officer directors 10,000(1) 0.8% 1.031 1/31/06
All other employees 260,000 19.6% 1.125 3/17/01
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</TABLE>
(1) These options are automatically granted pursuant to the 1995 Incentive
Plan.
(2) In addition, in April 1996, SISC granted Mr. Sicinski an option to
purchase 800,000 shares of Common Stock at $.25 per share. In August
1995, SISC had granted Mr. Sicinski an option to purchase 200,000
shares of Common Stock at $1.625 per share. This option was canceled in
connection with the April 1996 grant.
(3) Including Messrs. Schiller and Sicinski. April 1996, the Company
canceled this option and granted Mr. Sicinski a ten- year incentive
stock option to purchase 800,000 shares of Common Stock at $1.125 per
share.
CERTAIN TRANSACTIONS
The Trans Global Transaction
On May 8, 1995, the Company acquired all of the issued and outstanding
capital stock of TGS and issued (a) 1,000,000 shares of Common Stock, (b) 25,000
shares of Series A Convertible Participating Preferred Stock ("Series A
Preferred Stock"), (c) 25,000 shares of Series B Preferred Stock which are
convertible into an aggregate of 1,000,000 shares of Common Stock if net income
before income taxes, as defined, is either $500,000 for 1995 or $1.5 million for
either 1996 or 1997, (d) 25,000 shares of Series C Preferred Stock which are
convertible into an aggregate of 1,500,000 shares of Common Stock if net income
before income taxes, as defined, is $1.5 million for either 1996 or 1997, and
(e) 20,000 shares of Series D 6.25% Redeemable Cumulative Preferred Stock
("Series D Preferred Stock"), which are not convertible, but which have an
aggregate redemption price of approximately $1.7 million. In addition, in
connection with the Trans Global Transaction, the Company issued two-year
warrants to purchase an aggregate of 500,000 shares of Common Stock at $3.50 per
share. As a result of the March 1996 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 2,000,000 shares of Common Stock.
As a result of, and at the time of, the Trans Global Transaction, SISC
owned approximately 32.2% of the outstanding Common Stock, and 59.3% of the
voting rights on all matters, including the election of directors, except where
the holders of Common Stock are required by law to vote as a single class. As a
result, SISC had the power to elect all of the directors of the Company. Mr.
Lewis S. Schiller, chairman of the board, chief executive officer and a director
of the Company, is the chairman of the board, chief executive officer and a
director of Consolidated and SISC. Accordingly, both Consolidated and Mr.
Schiller may be deemed control persons with respect to the Company.
Sale of WWR
At June 30, 1995, the Company owed SISC approximately $1.1 million.
Subsequent to June 30, 1995, the Company repaid $225,000 to SISC, and SISC
advanced $275,000 to the Company and WWR to enable the Company to pay a $275,000
debenture due to Klipsch, Inc. ("Klipsch"), the company from which WWR purchased
its loudspeaker business. The debenture became due on June 30, 1995. The advance
was required because the Company and WWR did not have the cash to make the
payment. As of September 30, 1995, the Company transferred the stock of WWR to
an affiliate of SISC in consideration for which SISC released the Company from
its obligations with respect to the $275,000 advance. In connection with the
transaction,
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<PAGE>
the Company issued 1,060,000 shares of Common Stock to SISC; however, the actual
issuance of the shares has been deferred until the number of authorized shares
of the Company's Common Stock was increased. WWR had, at the time of the
transaction, a deficiency in stockholders' equity of approximately $1.4 million.
Among WWR's liabilities was approximately $2.1 million payable to the Company,
which, based upon WWR's historical and current cash flow, was not likely to be
paid in the near future. This payable was satisfied through the issuance by
Consolidated of shares of a newly created series of preferred stock which
converts on September 30, 2000 into such number of shares of Consolidated's
common stock, not to exceed 2.8 million shares, as has a value equal to $2.1
million. The directors believed that the transaction was in the best interest of
the Company because it removed a $1.4 million net deficit from the Company's
balance sheet, the business of WWR was not related to the business of the
Company, and the Company has no experience in manufacturing operations. During
the period from the completion of the Trans Global Transaction until the sale of
WWR, the operations of WWR had been supervised by personnel of SISC and its
affiliates and not by the Company. Furthermore, WWR was a defendant in
litigation commenced by Klipsch, Inc. claiming that the license agreement
pursuant to which WWR has the right to use the Klipsch name and certain patents
has terminated. The 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 have guaranteed the guarantee obligations of the Kanter
Foundation and Walnut. In addition, the Company is required to issue to the
lender 520 shares per month of Common Stock as long as the note is outstanding.
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, which monthly
fee will increase to $25,000 commencing with the month in which this Offering is
completed. 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.
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 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. The 9,900 shares of
Series F Preferred Stock were convertible into 9,900,000 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.
Pursuant to Mr. Schiller's employment agreement with Consolidated, Mr.
Schiller has the right to acquire 10% of SISC's interest in its subsidiaries and
investments, including the Company's Common Stock, Preferred Stock and warrants
held by SISC, at 110% of SISC's cost. At the closing of the Trans Global
Transaction, Mr. Schiller exchanged such right for a right to purchase 10% of
SISC's common stock, convertible preferred stock and warrants in the Company.
Mr. Schiller has exercised his right to purchase 393,000 shares of Common Stock,
warrants to purchase 47,500 shares of Common Stock and 2,500 shares of Series B
and C Preferred Stock. In connection with the SISC Recapitalization, SISC
transferred to Mr. Schiller 1,000 shares of Series F
- 31 -
<PAGE>
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.
In October 1996, SISC converted 5,000 shares of Series F Preferred
Stock into 5,000,000 shares of Common Stock, and in December 1996, SISC
converted the remaining 3,900 shares of Series F Preferred Stock into 3,900,000
shares of Common Stock, and Mr. Schiller and DLB converted their 1,000 and 100
shares of Series F Preferred Stock into 1,000,000 and 100,000 shares of Common
Stock, respectively.
The Company has from time to time made advances to three SISC
Subsidiaries 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 Subsidiaries 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 Subsidiaries may continue. In addition, the Company pays the
compensation and benefits of certain non-executive employees who perform
services for both the Company and one of the SISC Subsidiaries and share common
space and other office expenses. The amount allocated to such SISC Subsidiary,
which is approximately $150,000 per annum, is added to the obligations of the
SISC Subsidiary to the Company.
As of June 30, 1995, SISC converted $200,000 of the Company's
obligations to SISC into 5,000 shares of Series E Preferred Stock. In March
1996, as a result of the 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 120,000 shares of Common Stock.
At December 31, 1996, WWR owed $325,000 to a nonaffiliated lender. The
note matures in June 1997 and is 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 have guaranteed the guarantee obligations of the Kanter Foundation
and Walnut.
Other Related Party Transactions
The Company was organized in September 1993 as Concept Technologies
Group, Inc. to acquire the stock of three companies, each of which was
controlled by Walnut. Walnut may be deemed a promoter of the Company. Following
the acquisition of such subsidiaries and until the Trans Global Transaction,
Walnut may be deemed a controlling stockholder of the Company. As a result of
family relationships, the Kanter Foundation, The Holding Company and Windy City,
as well as certain members of the Kanter family may be deemed affiliates of the
Company. Mr. Joel Kanter, 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 181,080
shares of Common Stock and warrants to purchase 90,540 shares of Common Stock at
$3.50 per share in consideration for agreeing to such lockups, which related to
an aggregate of 362,160 shares of Common Stock.
In October 1995, the Company authorized the issuance to each of Messrs.
E. Gerald Kay and Joel S. Kanter a warrant to purchase 75,000 shares of Common
Stock at $3.50 per share. In April 1996, the Company issued to each of Messrs.
Lewis S. Schiller and Joseph G. Sicinski a warrant to purchase 400,000 shares of
Common Stock at $1.25 per share and to each of Messrs. E. Gerald Kay, Joel S.
Kanter and Norman J. Hoskin, a warrant to purchase 300,000 shares of Common
Stock at $1.25 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.
During 1994 and 1995 the Company engaged Plaza Street Holdings, Inc.
("Plaza Street") to perform consulting services in connection with possible
acquisition or merger candidates for the Company. Plaza Street is wholly-owned
by Mr. Michael Alan
- 32 -
<PAGE>
Faber, who is a vice president of Walnut. Plaza Street received $50,000 for
services rendered during 1994 (of which $15,000 was paid in 1995) and 1995.
Prior to completion of the Company's initial offering in February 1994,
the Company borrowed funds on an unsecured, short term basis from Walnut for
working capital. The borrowing did not exceed $90,000, bore interest at 10% per
annum and was repaid from the proceeds of the Issuer's initial public offering.
The Company believes that the transaction 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.
PRINCIPAL STOCKHOLDERS
Set forth below is information as of March 15, 1997 as to each person
owning of record or known by the Company, based on information provided to the
Company by the persons named below, to own beneficially at least 5% of the
Company's Common Stock, of each nominee for director and for all officers and
directors as a group.
Percent of Outstanding
Name and Address(1) Shares Common Stock
Lewis S. Schiller(2) 15,610,000(3) 59.7%
160 Broadway
New York, NY 10038
SIS Capital Corp. 14,004,5004 54.5%
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038
Joseph G. Sicinski 1,476,0005 6.3%
1770 Motor Parkway
Hauppauge, NY 11788
E. Gerald Kay 305,000(6),(7) 1.3%
225 Long Avenue
Hillside, NJ 07205
Norman J. Hoskin 300,000(7),(8) 1.3%
2200 Corporate Blvd.
Boca Raton, FL 33431
All directors and officers as a
group (seven individuals owning
stock or warrants) 17,241,000(3),(5),(6),(7),(8) 62.3%
- -----------
(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) 297,500 shares of Common Stock issuable upon the exercise
of warrants held by Mr. Schiller, (b) 5,000 shares issuable upon
exercise of an option held by Mr. Schiller, (c) 150,000 shares pursuant
to an incentive stock option held by Mr. Schiller; (d) 11,187,000
shares of Common Stock owned by SISC, and (e) 2,817,500 shares of
Common Stock issuable upon exercise of warrants held by SISC.
(4) Includes 2,817,500 shares of Common Stock issuable upon exercise of
warrants held by SISC. SISC has granted Mr. Joseph G. Sicinski an
option to purchase 800,000 of its shares of Common Stock which may be
shares owned by SISC or issuable upon exercise of warrants owned by
SISC.
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<PAGE>
(5) Includes (a) 176,000 shares of Common Stock issuable pursuant to an
incentive stock option, (b) 100,000 shares issuable upon exercise of a
warrant held by Mr. Sicinski and (c) 800,000 shares of Common Stock
issuable pursuant to an option granted by SISC to Mr. Sicinski.
(6) Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant and 5,000 shares issuable upon exercise of an option held by
Mr. Kay.
(7) Represents 300,000 shares of Common Stock issuable upon exercise of a
warrant held by Mr. Hoskin.
(8) Includes 100,000 shares of Common Stock issuable upon exercise of an
incentive stock option held by one other officer and 250,000 shares of
Common Stock issuable upon exercise of a warrant held by another
officer.
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 22,901,331 shares of Common Stock outstanding.
Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
the Company, and there are no redemption or sinking fund provisions with regard
to the Common Stock. All outstanding shares of Common Stock are, and those
issuable pursuant to this Prospectus or upon exercise of the Warrants will be
when issued as provided in this Prospectus, validly issued, fully paid, and
nonassessable. Stockholders do not have cumulative voting rights.
The Company's Board of Directors is authorized to issue, from time to
time and without further stockholder action, up to 3,000,000 shares of preferred
stock in one or more distinct series. The Board of Directors is authorized to
fix the following rights and preferences, among others, for each series: (i) the
rate of dividends and whether such dividends shall be cumulative; (ii) the price
at and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of voluntary or involuntary liquidation;
(iv) whether or not a sinking fund shall be provided for the redemption or
purchase of shares; (v) the terms and conditions on which shares may be
converted; and (vi) whether, and in what proportion to any other series or
class, a series shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per share. Except as set
forth in this Prospectus, the Company has no plans, agreements or understandings
with respect to the designation of any series or the issuance of any shares of
preferred stock.
There is presently one series of Preferred Stock which is authorized --
the Series G Preferred Stock. Set forth below is information concerning such
series of Preferred Stock. The Board of Directors may create other series of
Preferred Stock which are either junior or senior to or on a parity with the G
Preferred Stock as to dividends and/or on any voluntary or mandatory liquidation
without the approval of the holders of such series of Preferred Stock. The
Company has previously authorized six other series of Preferred Stock, all of
which have either been converted into shares of Common Stock or have been
canceled. Such other series of Preferred Stock have been terminated.
Series G Preferred Stock
The Company has authorized the issuance of 1,250,000 shares of Series G
Preferred Stock, none of which are issued or outstanding. Holders of shares of
Series G Preferred Stock are entitled to receive, when and as declared by the
Board of Directors of the Company, out of funds of the Company legally available
for payment, dividends at an annual rate of $.12 per share. Dividends are
payable semi-annually on the first day of April and October of each year,
commencing October 1, 1997, to holders of record on the preceding March 15 and
September 15, respectively. Dividends shall accrue from the closing date of this
Offering, and are payable in cash or in shares of Common Stock, valued at fair
market value, as the Company's board of directors shall determine. After payment
of the semi-annual dividend, each share of Series G Preferred Stock shall
receive the same per share dividend as is payable with respect to one share of
Common Stock payable during the semi-annual dividend period, which
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<PAGE>
shall be the semi-annual period ending on the day before such dividend payment
date. For the purpose of determining whether a dividend with respect to the
Common Stock is payable during a semi-annual dividend period, if the record date
for determining holders of Common Stock entitled to receive a dividend is during
such dividend period, the dividend shall be treated as a dividend payable during
such semi-annual dividend period.
Except as required by law, the holders of the Series G Preferred Stock
have no voting rights.
The holders of the Series G Preferred Stock will be entitled at any
time, commencing one year from the date of this Prospectus, or earlier with the
consent of the Company and the Representative, subject to prior redemption, to
convert each share of Series G Preferred Stock into six shares of Common Stock
of the Company. If the Series G Preferred Stock is called for redemption,
conversion rights will expire at the close of business on the business date
prior to the redemption date. The conversion rate is subject to adjustment upon
the occurrence of certain events.
The Company shall have the right to redeem the shares of Series G
Preferred Stock at a redemption price of $6.00 per share, plus accumulated and
unpaid dividends, at any time commencing one year from the date of this
Prospectus. The Series G Preferred Stock may be redeemed in whole at any time
and in part from time to time. Once the Series G Preferred Stock becomes
redeemable, the Company may redeem the Series G Preferred Stock upon at least
30, but not more than 60, days' prior written notice to the registered holders.
If the Series G Preferred Stock is called for redemption, conversion rights will
expire at the close of business on the business day prior to the redemption
date.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, after payment has been made on any securities of
the Company which rank senior to the Series G Preferred Stock, holders of shares
of Series G Preferred Stock will be entitled to receive from the assets of the
Company $6.00 per share plus accrued and unpaid dividends to the payment date,
before any payment or distribution is made to holders of shares of Common Stock
or any other series or class of stock hereafter issued which ranks junior as to
liquidation rights to the Series G Preferred Stock. Thereafter, the holders of
the Series G Preferred Stock will not be entitled to any additional payment on
liquidation.
Series E Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled, upon payment of the exercise
price of $2.50 per share, to purchase one share of Common Stock. Unless
previously redeemed, the Warrants are exercisable during the three-year period
commencing on the date of this Prospectus. A holder of the Warrants (an
"Exercising Holder") will only be able to exercise the Warrants if (a) a current
prospectus under the Securities Act relating to the shares of Common Stock
issuable upon exercise of the Warrants is then in effect, and (b) such
securities are qualified for sale or exemption from qualification under the
applicable securities laws of the state in which the Exercising Holder resides.
The Warrants are subject to redemption by the Company, on not more than
60 nor less than 30 days' written notice, at a price of $.05 per Warrant,
commencing one year from the date of this Prospectus, or earlier with the
consent of the Representative, if the average closing price per share of the
Common Stock is at least $3.00, subject to adjustment, for at least 20 trading
days ending not earlier than 15 days prior to the date on which the Warrants are
called for redemption. Holders of Warrants will automatically forfeit their
rights to purchase the shares of Common Stock issuable upon exercise of such
Warrants unless the Warrants are exercised before the close of business on the
business day immediately prior to the date set for redemption. All of the
outstanding Warrants must be redeemed if any are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants by
first class mail, postage prepaid, within ten business days (or such longer
period to which the Representative may consent) after the Warrants are called
for redemption, but no earlier than the sixtieth nor later than the thirtieth
day before the date fixed for redemption. The notice of redemption shall specify
the redemption price, the date fixed for redemption, the place where the Warrant
certificates shall be delivered and the redemption price to be paid, and that
the right to exercise the Warrants shall terminate at 5:00 p.m. (New York City
time) on the business day immediately preceding the date fixed for redemption.
The Warrants can only be redeemed if, on the date the Warrants are called for
redemption, there is an effective registration statement covering the issuance
of the shares of Common Stock issuable upon exercise of the Warrants.
The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised.
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<PAGE>
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain specified
events, such as stock dividends, stock splits, mergers, sale of substantially
all of the Company's assets and other similar events.
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until the holder exercises the
Warrants.
Although the Warrants have a fixed exercise price and a formula for
adjustments in certain events and have a fixed expiration date, it is possible
that in the future the Company may wish to reduce the exercise price or extend
the exercise period of the Warrants. The Company has no plans to reduce such
price or extend the exercise period of the Warrants. No Warrants with amended
terms may be exercised unless and until a post-effective amendment to the
registration statement of which this Prospectus is a part or a new registration
statement has been declared effective by the Commission.
The Warrants are issued pursuant to a warrant agreement among the
Company and American Stock Transfer & Trust Company, as warrant agent.
1994 Warrants
In February 1994, the Company, in its initial public offering, sold an
aggregate of 567,245 units, each unit consisting of one share of Common Stock
and one 1994 Warrant. Each 1994 Warrant entitles the holders to purchase one
share of Common Stock at $7.00 per share. The 1994 Warrant were exercisable
until August 14, 1996, and the exercise period was extended to May 1997. The
1994 Warrants may be redeemed by the Company for $.10 per 1994 Warrant if the
price of the Common Stock is at least $6.00 per share for 30 consecutive trading
days.
The 1994 Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the 1994 Warrants or, if the 1994 Warrants are called for redemption, the day
prior to the redemption date at the offices of the warrant agent for the 1994
Warrants, accompanied by payment of the full exercise price for the number of
Warrants being exercised.
The 1994 Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such as
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events.
The Company is not required to issue fractional shares of Common Stock,
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until the holder exercises the
Warrants.
The 1994 Warrants may not be exercised unless there is a current and
effective registration statement covering the issuance of the shares of Common
Stock on exercise of the 1994 Warrants. As of the date of this Prospectus, the
Company has not filed such a registration statement and, accordingly, the 1994
Warrants may not be exercised.
Other Warrants
There are also outstanding other warrants to purchase an aggregate of
6,257,352 shares of Common Stock at exercise prices ranging from $1.25 to $8.45
per share with varying exercise periods. The Other Warrants contain provisions
that protect the holders thereof against dilution by adjustment of the exercise
price in certain events, such as stock dividends, stock splits, mergers, sale of
substantially all of the Company's assets, and for other extraordinary events.
The holders of certain of these warrants have registration rights with respect
to the warrants or the underlying shares of Common Stock. See "Certain
Transactions" for information relating to the issuance of certain of the Other
Warrants. See "Underwriting" with respect to warrants issuable to the
Underwriters upon exercise of the Unit Purchase Options.
- 36 -
<PAGE>
Dividend Policy
Except for the obligation of the Company to pay dividends with respect
to the Series G Preferred Stock, the Company presently intends to retain future
earnings, if any, in order to provide funds for use in the operation and
expansion of its business and accordingly does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. See "Description of
Securities -- Series G Preferred Stock" for information concerning dividends
payable with respect to the Series G Preferred Stock.
Shares Eligible for Future Sale
Approximately 9,400,000 of the 22,901,331 shares of Common Stock
outstanding at December 31, 1996, may be publicly sold as a result of either the
registration of such shares as part of the Company's initial public offering in
February 1994, the expiration of 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 Representative.
As of December 31, 1996, the Company had (a) outstanding 1994 Warrants
to purchase 567,245 shares of Common Stock at $7.00 per share through November
1996, which warrants are publicly traded, (b) warrants to purchase an aggregate
of 1,302,352 shares of Common Stock at exercise prices ranging from $2.00 to
$7.00 per share with various expiration dates, and (c) warrants to purchase
4,900,000 shares of Common Stock at $.50 per share through April 2001, which are
held by SISC and the Company's directors. In addition, the underwriter of the
Company's initial public offering holds unit purchase options to purchase 55,000
of the units issued in the Company's initial public offering in February 1994,
at $8.45 per unit through February 1999. Each such unit consists of one share of
Common Stock and a warrant to purchase one share of Common Stock at $7.00 per
share through August 1996.
The Company has adopted three stock option plans pursuant to which a
maximum of 2,792,332 shares of the Common Stock may be issued, of which options
to purchase 1,523,950 shares are outstanding.
The Company cannot predict the effect, if any, that the issuance of
shares of Common Stock upon exercise of options or warrants or the registration
of such shares will have on the market for and market price of the Common Stock.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate or associate of such person who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding certain employee stock ownership
plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. An "interested stockholder" is defined as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
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
- 37 -
<PAGE>
to be governed by Section 203, effective twelve months after adoption. Neither
the certificate of incorporation nor the by-laws of the Company currently
excludes the Company from the restrictions imposed by Section 203.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and the Series G Preferred
Stock and the Warrant Agent for the Warrants is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005.
UNDERWRITING
The several underwriters, of which Patterson Travis, Inc. (the
"Representative") is the representative, have severally agreed, on the terms and
subject to the conditions of the Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the following
Units:
Number of Units
Patterson Travis, Inc.
---------
Total 1,000,000
=========
The Underwriters are committed to purchase and pay for all of the Units
offered hereby on a "firm commitment" basis if any are purchased.
The Representative has advised the Company that the Underwriters
propose to offer the Units to the public at the respective public offering
prices set forth on the cover page of this Prospectus. The Underwriters may
allow to certain dealers, who are members of the National Association of
Securities Dealers, Inc. ("NASD"), concessions not exceeding $. per Unit, of
which not more than $. per Unit may be reallowed to other dealers who are
members of the NASD. After the initial public offering, the offering price, the
concession and the reallowance may be changed.
The Company has granted an option to the Underwriters, which may be
exercised by the Representative for its own account or for the account of the
several Underwriters, exercisable during the 45 day period from the date of this
Prospectus, to purchase up to a maximum of 150,000 additional Units at the
offering price, less the underwriting discounts, for the sole purpose of
covering over-allotments of the Units. The Underwriting Agreement also provides
that the Company will pay the Representative a fee in the event the Company
enters into an acquisition, merger or similar transaction with a party
introduced to it by the Representative. As of the date of this Prospectus, the
Representative has not introduced the Company to any such party.
The Company has agreed to pay to the Representative a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units sold
(including any Units sold pursuant to the Underwriters' over-allotment option).
The Company has agreed to enter into a two-year consulting agreement
with the Representative pursuant to which the Company will pay the
Representative, on its own behalf and not as representative of the Underwriters,
a fee of $100,000, which is to be paid in full at the closing of this Offering.
During the period of the consulting agreement, the Representative will be
reimbursed for its Company-authorized out-of-pocket expenses.
The Company's officers, directors, 5% stockholders and their affiliates
have agreed not to sell publicly any of their securities without the written
consent of the Representative for a period of 24 months from the date of this
Prospectus.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for a purchase price of $100.00, Unit Purchase Options to purchase
from the Company up to 100,000 units at an exercise price equal to 165% of the
initial public
- 38 -
<PAGE>
offering price per unit. The units issuable upon exercise of the Unit Purchase
Options are similar to the Units offered hereby, except that, (i) the warrants
included in such units are Series F Redeemable Common Stock Purchase Warrants
("Series F Warrants") and have an exercise price of $4.125 per share and (ii) in
the event that the Unit Purchase Options are exercised after the redemption (but
before the expiration) of the Warrants, the Series F Warrants underlying the
Unit Purchase Options are immediately redeemable by the Company. The Unit
Purchase Options are exercisable for a four-year period commencing one year from
the date of this Prospectus, except that, if the Warrants expire prior to the
exercise of the Unit Purchase Options, upon such exercise the Company will issue
one share of Series G Preferred Stock and no warrants. During the one-year
period commencing on the date of this Prospectus, the Unit Purchase Options may
not be sold, transferred, assigned or hypothecated, except to the officers of
the Underwriters or to selling group members or officers or partners or members
thereof, all of which shall be bound by such restrictions. The Unit Purchase
Options will contain anti-dilution provisions providing for adjustment under
certain circumstances similar to those applicable to the Warrants included in
the Units. The holders of the Unit Purchase Options have no voting, dividend or
other rights as stockholders of the Company with respect to securities
underlying the Unit Purchase Options. The holders of the Unit Purchase Options
have been given the opportunity to profit from a rise in the market for the
Company's securities at a nominal cost, with a resulting dilution in the
interests of stockholders. The holders of the Unit Purchase Options can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain equity capital, if then needed, by a new equity offering on
terms more favorable than those provided by the Unit Purchase Options. Such
facts may adversely affect the terms on which the Company could obtain
additional financing. Any profit received by the Underwriters on the sale of the
Unit Purchase Options or the securities issuable upon exercise of the Unit
Purchase Options may be deemed additional underwriting compensation.
The Company has agreed during the term of the Unit Purchase Options and
for two years thereafter to give advance notice to the holders of the Unit
Purchase Options or underlying securities of its intention to file a
registration statement, and, in such case, the holders of the Unit Purchase
Options and underlying securities shall have the right to require the Company to
include the underlying securities in such registration statement at the
Company's expense. At the demand of the holders of a majority of holders of the
Unit Purchase Options and underlying Common Stock, including Common Stock issued
or issuable upon exercise of the Series F Warrants issuable upon exercise of the
Unit Purchase Options, during the term of the Unit Purchase Options, the Company
will also be required to file one such registration statement at the Company's
expense. In addition, the Company has agreed to cooperate with the holders of
the Unit Purchase Options in filing a registration at the expense of the holders
of the Unit Purchase Options or underlying securities.
The Company has also agreed to pay the Representative, in its
individual capacity and not as representative of the Underwriters, a Warrant
solicitation fee equal to 5% of the exercise price of the Warrants, a portion of
which may be reallowed to a member of the NASD who solicited or assisted in the
solicitation of the exercise of the Warrants. The Warrant exercise fee shall not
be payable with respect to any Warrant exercises prior to the first anniversary
of the date of this Prospectus and may be paid only if (i) the market price of
the Common Stock on the date the Warrant is exercised is greater than the
exercise price of the Warrant, (ii) the exercise of the Warrant was solicited by
a member of the NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise, (iii) the Warrant is not held in a discretionary account, (iv)
disclosure of the compensation arrangements are made, in addition to the
disclosure provided in this Prospectus, in documents provided to holders of
warrants at the time of exercise, and (v) the solicitation of the Warrant was
not made in violation of Regulation M of the Commission under the Securities
Exchange Act of 1934.
Regulation M of the Commission pursuant to the Exchange Act may
prohibit the Representative from engaging in any market making activities with
regard to the Company's securities for up to five business days prior to any
solicitation by the Representative of the exercise of Warrants until the later
of the termination of such solicitation activity or the termination (by waiver
or otherwise) of any right that the Representative may have to receive a fee for
the exercise of Warrants following such solicitation. As a result, the
Representative may be unable to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
Prior to this Offering there has been no public market for the Units,
Series G Preferred Stock or Warrants. The public offering price and composition
of the Units, the conversion rate and other terms of the Series G Preferred
Stock and the exercise price and other terms of the Warrants have been
arbitrarily determined by negotiation between the Company and the
Representative.
The Representative has informed the Company that sales to any account
over which the Underwriters exercise discretionary authority will not exceed 1%
of this Offering.
- 39 -
<PAGE>
LEGAL MATTERS
Esanu Katsky Korins & Siger, 605 Third Avenue, New York, New York
10158, counsel for the Company, have given their opinion as to the authorization
and valid issuance of the shares of Common Stock and Warrants comprising the
Units offered by this Prospectus. Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, New York 10022, is acting as counsel for the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of the Company 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.
- 40 -
<PAGE>
[This page intentionally left blank]
- 41 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Trans Global Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants................... F-3
Balance Sheets as of December 31, 1996 and 1995...................... F-4
Statements of Operations for the years ended December 31, 1996,
1995 and 1994....................................................... F-6
Statements of Changes in Stockholders' Equity for years ended
December 31, 1996, 1995 and 1994.................................... F-7
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994....................................................... F-9
Notes to Financial Statements........................................ F-12
International Technical Services Division of Job Shop Technical
Services, Inc.
Report of Independent Certified Public Accountants................... F-26
Statement of Operations for the period January 1 to November
21, 1994............................................................ F-27
Statement of Changes in Divisional Equity for the period January
1 to November 21, 1994.............................................. F-28
Statement of Cash Flows for the period ended January 1 to
November 21, 1994................................................... F-29
Notes to Financial Statements........................................ F-30
. . . . . . . . . . .
<PAGE>
[This page intentionally left blank]
F-2
<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
F-3
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
------------
1 9 9 6 1 9 9 5
------- -------
[Consolidated] [Consolidated]
Assets:
Current Assets:
Cash and Cash Equivalents $ 56,231 $ 210,597
Accounts Receivable - Net 5,190,056 4,869,116
Loans Receivable - Officer 42,500 22,500
Prepaid Expenses and Other
Current Assets 230,074 80,966
--------------- ---------------
Total Current Assets 5,518,861 5,183,179
--------------- ---------------
Property and Equipment - Net 74,581 41,205
--------------- ---------------
Other Assets:
Due from Affiliates 1,508,502 1,234,428
Customer Lists 2,838,535 3,063,503
Goodwill - Net 824,125 872,705
Covenant Not-to-Compete 60,381 241,833
Deferred Offering Costs 151,307 --
Other Assets 22,958 25,074
Investment in Preferred Stock
of Affiliate 2,100,730 2,100,730
--------------- ---------------
Total Other Assets 7,506,538 7,538,273
--------------- ---------------
Total Assets $ 13,099,980 $ 12,762,657
=============== ===============
See Notes to Financial Statements.
F-4
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31,
------------
1 9 9 6 1 9 9 5
------- -------
[Consolidated] [Consolidated]
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $ 283,356 $ 551,094
Accrued Payroll and Related Taxes
and Expenses 1,784,061 1,755,685
Accrued Payroll Tax Penalties 77,000 700,000
Accrued Litigation Settlement 300,000 --
Loans Payable - Asset-Based Lender 3,690,875 3,678,702
Notes Payable - Bank -- 60,513
Note Payable - Other 138,230 138,230
Subordinated Debt Current Portion
- IRS Debt -- 700,000
--------------- ---------------
Total Current Liabilities 6,273,522 7,584,224
--------------- ---------------
Other Liability:
Due to Affiliates -- 926,832
--------------- ---------------
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
[22,901,331 - December 31, 1996, 3,424,609
- December 31, 1995] 229,014 34,246
Capital in Excess of Par Value 12,688,534 9,831,234
Deferred Consulting Fees (303,473) (508,512)
Accumulated Deficit (5,787,617) (5,106,367)
--------------- ---------------
Total Stockholders' Equity 6,826,458 4,251,601
--------------- ---------------
Total Liabilities and Stockholders'
Equity $ 13,099,980 $ 12,762,657
=============== ===============
See Notes to Financial Statements.
F-5
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
[Consolidated] [Consolidated] [Combined]
<S> <C> <C> <C>
Revenues $ 62,594,051 $ 63,151,995 $ 25,287,089
Cost of Services Provided 57,436,052 59,157,016 23,704,230
--------------- ---------------- ---------------
Gross Profit 5,157,999 3,994,979 1,582,859
--------------- ---------------- ---------------
Operating Expenses:
Selling, General and Administrative Expenses 4,396,503 6,358,030 997,122
Related Party Administrative Expenses 120,000 90,000 --
Amortization - Intangibles 455,200 455,197 308,974
Acquisition Expenses -- 528,578 --
--------------- ---------------- ---------------
Total Operating Expenses 4,971,703 7,431,805 1,306,096
--------------- ---------------- ---------------
Operating Profit [Loss] 186,296 (3,436,826) 276,763
--------------- ---------------- ---------------
Other Income [Expenses]:
Interest Expense (712,289) (963,211) (696,129)
Other Income [Expense] 144,741 (12,890) 8,744
Settlement Costs (300,000) -- --
--------------- ---------------- ---------------
Total Other [Expenses] - Net (867,548) (976,101) (687,385)
--------------- ---------------- ---------------
Loss From Continuing Operations (681,252) (4,412,927) (410,622)
--------------- ---------------- ---------------
Discontinued Operations:
Loss from Discontinued Operations -- (247,076) --
Loss on Sale of Discontinued Segment -- (35,742) --
--------------- ---------------- ---------------
Total Discontinued Operations -- (282,818) --
--------------- ---------------- ---------------
Net Loss $ (681,252) $ (4,695,745) $ (410,622)
=============== ================ ===============
Loss Per Share of Common Stock:
Continuing Operations $ (.04) $ (1.39) $ (.68)
Discontinued Operations -- (.09) --
--------------- ---------------- ---------------
Totals $ (.04) $ (1.48) $ (.68)
=============== ================ ===============
Weighted Average Number of Shares of
Common Stock 15,182,970 3,172,696 600,000
=============== ================ ===============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Preferred Stock
Preferred Stock Preferred Stock $.01 Stock $0.01 Par $0.01 Par Value
$0.01 Par Value Preferred Par Value Series "D" Value Series "E" Convertible
"A" Convertible Stock $.01 Par Convertible 6.25% Convertible Participating
Participating Value Series "B" & "C" Redeemable Participating Series "F"
------------- ---------------------- ---------- ------------- ----------
Authorized Convertible Authorized Authorized Authorized Authorized
25,000 Shares 25,000 Shares Each 20,000 Shares 5,000 Shares 10,000 Shares
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Stock at
Inception 25,000 $ 250 50,000 $ 500 20,000 $ 200 -- $ -- -- $ --
Net [Loss] for the Period
Ended December 31, 1994 -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------ ------ ------ ------ ------
Balance - December 31,
1994 25,000 250 50,000 500 20,000 200 -- -- -- --
Acquisition of Concept -- -- -- -- -- -- -- -- -- --
Exercise of Stock Options -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Private Placement -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Legend Stock -- -- -- -- -- -- -- -- -- --
Issuance of Preferred
Stock to Repay Debt -- -- -- -- -- -- 5,000 50 -- --
Issuance of Common Stock
- Regulation S -- -- -- -- -- -- -- -- -- --
Issuance of Below Market
Options -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Sale of WWR -- -- -- -- -- -- -- -- -- --
Amortization of Deferred
Consulting Costs -- -- -- -- -- -- -- -- -- --
Acquisition Expenses -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Sirrom Capital -- -- -- -- -- -- -- -- -- --
Exercise of Stock Options -- -- -- -- -- -- -- -- -- --
Reverse Merger Costs -- -- -- -- -- -- -- -- -- --
Forgiveness of Accrued
Interest Prior Years -- -- -- -- -- -- -- -- -- --
Net Loss -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------ ------ ------ ------- ------
Balance - December 31,
1995 - Forward 25,000 $ 250 50,000 $ 500 20,000 $ 200 5,000 $ 50 -- $ --
(continued)
</TABLE>
See Notes to Financial Statements.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock $.01
-----------------
Par Value Authorized Capital in Total
20,000,000 Shares Excess of Accumulated Deferred Stockholders'
Shares Amount Par Value Deficit Charges Equity
------- ------- ----------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Stock at
Inception 600,000 $ 6,000 $ 1,715,300 $ -- $ -- $ 1,722,250
Net [Loss] for the Period
Ended December 31, 1994 -- -- -- (410,622) -- (410,622)
------- ------- ----------- -------- ---------- ----------
Balance - December 31,
1994 600,000 6,000 1,715,300 (410,622) -- 1,311,628
Acquisition of Concept 1,485,589 14,856 967,966 -- -- 982,822
Exercise of Stock Options 767,000 7,670 3,226,366 -- (2,543,536) 690,500
Issuance of Common Stock
- Private Placement 151,300 1,513 452,387 -- -- 453,900
Issuance of Common Stock
- Legend Stock 2,600 26 (26) -- -- --
Issuance of Preferred
Stock to Repay Debt -- -- 199,950 -- -- 200,000
Issuance of Common Stock
- Regulation S 390,000 3,900 996,100 -- -- 1,000,000
Issuance of Below Market
Options -- -- 178,750 -- (178,750) --
Issuance of Common Stock
- Sale of WWR -- -- 1,537,000 -- -- 1,537,000
Amortization of Deferred
Consulting Costs -- -- -- -- 2,213,774 2,213,774
Acquisition Expenses -- -- 528,578 -- -- 528,578
Issuance of Common Stock
- Sirrom Capital 3,120 31 10,499 -- -- 10,530
Exercise of Stock Options 25,000 250 24,750 -- -- 25,000
Reverse Merger Costs -- -- (117,854) -- -- (117,854)
Forgiveness of Accrued
Interest Prior Years -- -- 111,468 -- -- 111,468
Net Loss -- -- -- (4,695,745) -- (4,695,745)
--------- ------- ----------- --------- ---------- ---------
Balance - December 31,
1995 - Forward 3,424,609 $34,246 $ 9,831,234 $(5,106,367) $ (508,512) $ 4,251,601
(concluded)
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred Preferred Stock
Preferred Stock Preferred Stock $.01 Stock $0.01 Par $0.01 Par Value
$0.01 Par Value Preferred Par Value Series "D" Value Series "E" Convertible
"A" Convertible Stock $.01 Par Convertible 6.25% Convertible Participating
Participating Value Series "B" & "C" Redeemable Participating Series "F"
------------- ---------------------- ---------- ------------- ----------
Authorized Convertible Authorized Authorized Authorized Authorized
25,000 Shares 25,000 Shares Each 20,000 Shares 5,000 Shares 10,000 Shares
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31,
1995 - Forwarded 25,000 $ 250 50,000 $ 500 20,000 $ 200 5,000 $ 50 -- $ --
Conversion of Series
"A" and "E" Preferred
Stock to Common (25,000) (250) -- -- -- -- (5,000) (50) -- --
Issuance of Common Stock
- Regulation S -- -- -- -- -- -- -- -- -- --
Issuance of Common Stock
- Sirrom Capital -- -- -- -- -- -- -- -- -- --
Deferred Issuance of
Common Stock Related
to Acquisition Stock
of Concept -- -- -- -- -- -- -- -- -- --
Deferred Issuance of
Common Stock Related
to Sale of WWR -- -- -- -- -- -- -- -- -- --
SISC Recapitalization -- -- (50,000) (500) (20,000) (200) -- -- 10,000 100
Amortization of Deferred
Consulting Costs -- -- -- -- -- -- -- -- -- --
Expiration of Below
Market Options -- -- -- -- -- -- -- -- -- --
Issuance of Below
Market Options -- -- -- -- -- -- -- -- -- --
Recapture of Amortization
on Expired Below
Market Options -- -- -- -- -- -- -- -- -- --
Conversion of Series F
Preferred Stock to
Common Stock -- -- -- -- -- -- -- -- (10,000) (100)
Exercise of Common Stock
Options -- -- -- -- -- -- -- -- -- --
Net Loss -- -- -- -- -- -- -- -- -- --
------ ------- ------ ------ ------ ------ ------ ------ ------ -----
Balance - September 30,
1996 [Unaudited] -- $ -- -- $ -- -- $ -- -- $ -- 10,000 $ 100
====== ======= ====== ====== ====== ====== ====== ====== ====== ======
(continued)
</TABLE>
See Notes to Financial Statements.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock $.01
-----------------
Par Value Authorized Capital in Total
20,000,000 Shares Excess of Accumulated Deferred Stockholders'
Shares Amount Par Value Deficit Charges Equity
--------- ------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31,
1995 - Forwarded 3,424,609 $34,246 $ 9,831,234 $(5,106,367) $ (508,512) $4,251,601
Conversion of Series
"A" and "E" Preferred
Stock to Common 2,120,000 21,200 (20,900) -- -- --
Issuance of Common Stock
- Regulation S 5,500,000 55,000 2,320,000 -- -- 2,375,000
Issuance of Common Stock
- Sirrom Capital 6,240 63 9,443 -- -- 9,506
Deferred Issuance of
Common Stock Related
to Acquisition Stock
of Concept 740,482 7,405 (7,405) -- -- --
Deferred Issuance of
Common Stock Related
to Sale of WWR 1,060,000 10,600 (10,600) -- -- --
SISC Recapitalization -- -- 750,600 -- -- 750,000
Amortization of Deferred
Consulting Costs -- -- -- -- 230,108 230,108
Expiration of Below
Market Options -- -- (138,125) -- 138,125 --
Issuance of Below
Market Options -- -- 79,687 -- (79,687) --
Recapture of Amortization
on Expired Below Market
Options -- -- -- -- (83,507) (83,507)
Conversion of Series F
Preferred Stock to
Common Stock 10,000,000 100,000 (99,900) -- -- --
Exercise of Common Stock
Options 50,000 500 24,500 -- -- 25,000
Net Loss -- -- -- (681,250) -- (681,250)
---------- -------- ----------- ----------- ---------- ---------
Balance - December 31,
1996 22,901,331 $229,014 $12,688,534 $(5,787,617) $ (303,473) $6,826,458
========== ======== =========== =========== ========== ==========
(concluded)
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
[Consolidated] [Consolidated] [Combined]
<S> <C> <C> <C>
Operating Activities:
Loss from Continuing Operations $ (681,250) $ (4,412,927) $ (410,622)
--------------- ---------------- ---------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 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 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Receivables (320,940) 473,305 (271,498)
Work in Process -- -- 22,600
Inventories -- 55,226 --
Loan Receivable - Officer (20,000) (22,500) --
Prepaid Expenses and Other Current Assets (149,108) (84,852) 25,897
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (267,738) (544,981) (535,841)
Accrued Payroll and Related Taxes and Expenses 28,376 1,076,504 (242,033)
Accrued Payroll Tax Penalties (623,000) 700,000 --
--------------- ---------------- ---------------
Total Adjustments (428,649) 4,939,764 (683,080)
--------------- ---------------- ---------------
Net Cash - Continuing Operations (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 - Continuing Operations -- (97,170) --
--------------- ---------------- ---------------
Net Cash - Operating Activities - Forward $ (1,109,899) $ 429,667 $ (1,093,702)
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Y e a r s e n d e d
D e c e m b e r 31,
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
[Consolidated] [Consolidated] [Combined]
<S> <C> <C> <C>
Net Cash - Operating Activities - Forwarded $ (1,109,899) $ 429,667 $ (1,093,702)
--------------- ---------------- ---------------
Investing Activities:
Capital Expenditures (55,536) (110,384) (2,095)
Cash of Merged Company -- 504,210 --
Net [Advances to] and Repayments to Affiliates (274,074) (791,105) 459,241
Net Cash of Subsidiary Sold -- (46,600) --
Proceeds on Sale of Property and Equipment -- -- 1,300
Other 2,116 -- --
--------------- ---------------- ---------------
Net Cash - Investing Activities (327,494) (443,879) 458,446
--------------- ---------------- ---------------
Financing Activities:
Net Advances from and [Payments] to Asset-Based
Lender 12,173 (340,459) 550,443
Repayment of Long-Term Debt -- (125,201) (144,837)
Repayment of Subordinated Debt (700,000) (800,000) --
Net [Payments] to Affiliates (176,832) (201,471) --
Issuance of Common Stock 2,334,506 1,453,900 --
Expenses Related to Merged Company -- (117,154) --
Exercise of Stock Options 25,000 715,500 --
Deferred Offering Costs (151,307) -- --
Cash Overdraft -- (360,306) 229,650
Repayment of Note Payable (60,513) -- --
--------------- ---------------- ---------------
Net Cash - Financing Activities 1,283,027 224,809 635,256
--------------- ---------------- ---------------
Net [Decrease] Increase in Cash and
Cash Equivalents (154,366) 210,597 --
Cash and Cash Equivalents - Beginning of Years 210,597 -- --
--------------- ---------------- ---------------
Cash and Cash Equivalents - End of Years $ 56,231 $ 210,597 $ --
=============== ================ ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 712,289 $ 909,200 $ 696,129
Income Taxes $ -- $ -- $ --
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During the year ended December 31, 1996, the Company had the following:
o Issued preferred stock to an affiliate and reduced amounts owed to such
affiliate by $750,000 plus accrued interest.
o 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:
o 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.
o 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.
o Issued stock options and received exercise proceeds of $715,500 and
incurred non-cash deferred changes of $2,213,774.
o An affiliate forgave $111,468 of accrued interest payable which has been
recorded as a contribution to capital.
See Notes to Financial Statements.
F-11
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[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.
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.
F-12
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[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 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
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. Common Stock equivalents, consisting of warrants and
options are not included in the computation since their effect would be
anti-dilutive.
F-13
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[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.
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. 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.
F-14
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[4] Property and Equipment
Property and equipment at December 31, 1996 and 1995 is as follows:
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
------ ================== ==============
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>
<CAPTION>
Accumulated Amortization Net of Amortization
Life December 31, December 31,
---- ------------ ------------
Years Cost 1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
----- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
[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
amounts 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.
F-15
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[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 disclaims 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.
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.
F-16
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[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.
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.
F-17
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------
[9] Income Taxes [Continued]
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.
[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.
F-18
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[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>
<CAPTION>
Carrying Amount Fair Value
December 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 6 1 9 9 5
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
[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.
F-19
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[14] Employment and Management Contracts [Continued]
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. On January 1, 1997, the Company agreed to increase the monthly fee to
$25,000 per month, effective during the month in which the Company receives the
proceeds from its proposed public offering.
[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 2,000,000
and 120,000 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 151,300 units for $3.00 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 three shares of Common
Stock at $3.50 per share. The warrants are exercisable for 45 days after the
effective date of a registration statement which includes such warrants.
In connection with the Trans Global Transaction, the Company issued an aggregate
of 215,482 shares of Common Stock and warrants to purchase an aggregate of
107,740 shares of Common Stock at $3.50 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 181,080 shares of Common Stock and warrants to purchase
90,540 shares.
Also in connection with the Trans Global Transaction, the Company issued 125,000
shares of Common Stock to an investment banking firm as a finders' fee.
At December 31, 1996, there were also outstanding warrants to purchase 567,245
shares of Common Stock at $7.00 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 295,712 shares of Common Stock at prices
ranging from $2.00 per share to $8.45 per share, of which warrants to purchase
an aggregate of 120,087 shares are held by entities who may be affiliated with a
former director of the Company.
F-20
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------
[15] Stockholders Equity [Continued]
Outstanding warrants as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
No. of Warrants Exercise FMV at No. of Warrants
Date of Grant Issued Price Date of Grant Exercised Expiration Date
------------- ------ ----- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
April 1996 4,900,000 1.25 1.25 -- April 2001
May 1995 453,900 3.50 3.00 -- [A]
May 1995 107,740 3.50 3.00 -- May 1997
May 1995 500,000 3.50 3.00 -- May 1997
February 1994 567,245 7.00 6.50 -- May 1997
February 1994 55,000 8.45 6.50 -- February 1999
February 1994 169,462 7.00 6.50 -- May 1997
November 1993 50,000 6.50 6.50 -- November 1998
August 1993 21,250 2.00 2.00 -- August 1998
---------------
Total 6,824,597
</TABLE>
[A] Exercisable for 45 days after the effective date of a registration statement
which includes such warrants.
In April 1996, the Company issued 3,200,000 warrants to a related party pursuant
to an equity transaction with such related party. In April 1996, the Company
issued 1,700,000 warrants to directors at an exercise price of $1.25 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.
On January 2, 1996 and July 26, 1996, the Company sold 500,000 shares of common
stock and 5,000,000 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, 767,000 shares were granted and exercised , at an
average price of $.90 per share, resulting in $2,543,536 of deferred charge
costs computed as follows:
Shares 767,000
Value of Stock at Date of Grant [Weighted Average] $ 4.216475
----------------
3,234,036
Exercise Price (690,500)
Total Charges Deferred at the Time of Exercise $ 2,543,536
---------------------------------------------- ================
In accordance with the agreements relating to the various parties involved,
amortization of the deferred portion in the amount of $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.
F-21
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #11
- --------------------------------------------------------------------------------
[15] Stockholders Equity [Continued]
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
110,000 shares of common stock, at a price of $1.00 per share. The market value
of the stock at the date of grant was $2.625 per share. The deferred charges
amount to:
Shares 110,000
Value of Stock at Date of Grant $ 2.625
----------------
288,750
Exercise Price 110,000
Total Charges Deferred at the Time of Exercise $ 178,750
---------------------------------------------- ================
The option was exercised as to 25,000 shares of 110,000 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 85,000 shares unexercised. It
was replaced with a new grant to purchase 85,000 shares at $.50 per share with
an expiration date of August 13, 1998. The market value of the stock at the date
of grant was $1.4375. The deferred charges amount to:
Shares 85,000
Value of Stock at Date of Grant $ 1.4375
----------------
122,188
Exercise Price 42,500
Total Charges Deferred at the Time of Exercise $ 79,688
---------------------------------------------- ================
The option was exercised as to 50,000 shares of the 85,000 shares 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 150,000 shares
of Common Stock. Options to purchase 124,100 shares of Common Stock were granted
at exercise prices of $3.00 as to 54,500 shares, $5.00 as to 14,600 shares and
$5.00 as to 55,000 shares. The exercise price of all of such options was reduced
to $2.25 per share in February 1995. As of August 31, 1995, options to purchase
10,150 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 305,000 shares of Common
Stock. At August 31, 1995, options to purchase 290,000 shares of Common Stock
were granted pursuant to the 1995 Plan, of which options to purchase 205,000
shares were exercised and options to purchase 85,000 shares at an exercise price
of $1.00 per share were outstanding. In May 1995, the board of directors
adopted, and, in March 1996, the stockholders approved the 1995 Long Term
Incentive Plan [the "1995 Incentive Plan"], initially covering 500,000 shares of
Common Stock.
In April 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 2,492,332 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.
F-22
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #12
- --------------------------------------------------------------------------------
[16] Stock Option Plans [Continued]
In August 1995, the Company granted to an officer six-year incentive stock
options to purchase an aggregate of 250,000 shares of Common Stock pursuant to
the 1995 Incentive Plan at an exercise price of $2.125 per share, being the fair
market value on the date of grant. The option is immediately exercisable as to
47,000 shares of Common Stock and becomes exercisable as to an additional 47,000
shares of Common Stock on each of January 1, 1996, 1997, 1998 and 1999 and
becomes exercisable as to the remaining 15, 000 share of Common Stock on January
1, 2000.
In April 1996, the Company issued to each of Messrs. Lewis S. Schiller and
Joseph G. Sicinski a warrant to purchase 400,000 shares of Common Stock at $1.25
per share and to each of Messrs. E. Gerald Kay, Joel S. Kanter and Norman J.
Hoskin, a warrant to purchase 300,000 shares of Common Stock at $1.25 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.
In April 1996, the committee granted incentive stock options to purchase an
aggregate of 1,310,000 shares of common stock at $1.125 per share, being the
fair market value on the date of grant. Such options were granted to Mr. Joseph
G. Sicinski, president of the company, who received an option to purchase
800,000 shares of common stock, Mr. Lewis S. Schiller, chairman of the board of
the Company, who received an option to purchase 150,000 shares of common stock,
one other officer, who received an option to purchase 100,000 shares of common
stock, and eleven other employees who received options to purchase an aggregate
of 260,000 shares of common stock. In connection with the grant to Mr. Sicinski,
he agreed to the cancellation of the previously granted incentive stock options.
The option granted to Messrs. Schiller and Sicinski have a ten year term, and
the other options have five year terms [See Note 15].
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>
<CAPTION>
1993 Plan 1995 Plan 1995 Incentive Plan
--------- --------- -------------------
<S> <C> <C> <C>
Options Outstanding - January 1, 1995 124,100 -- --
Granted -- 290,000 250,000
Exercised -- (205,000) --
Expired (10,150) -- --
------------ ------------ -------------
Options Outstanding - December 31, 1995 113,950 85,000 250,000
Granted -- 85,000 1,325,000
Exercised -- (50,000) --
Canceled -- (85,000) (250,000)
------------ ------------ -------------
Options Outstanding - December 31, 1996 113,950 35,000 1,325,000
--------------------------------------- ============ ============ =============
Options Exercisable - December 31, 1996 113,950 35,000 1,325,000
--------------------------------------- ============ ============ =============
Weighted Average Exercise Price $ 2.25 $ 0.88 1.28
</TABLE>
F-23
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #13
- --------------------------------------------------------------------------------
[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:
Years ended
December 31,
1 9 9 6 1 9 9 5
------- -------
Net Loss as Reported $ (681,252) $ (4,695,745)
================ ===============
Pro Forma Net Loss $ (2,405,252) $ (5,088,745)
================ ===============
Net Loss Per Share as Reported $ (.04) $ (1.48)
================ ===============
Pro Forma Net Loss Per Share $ (.16) $ (1.60)
================ ===============
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 options at date of grant using the fair value
based method during 1996 and 1995 is estimated at $1.22 and $.73, 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.
[19] 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
likely to apply to the Company, have been deferred by the FASB.
F-24
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Sheet #14
- --------------------------------------------------------------------------------
[19] New Authoritative Accounting Pronouncement [Continued]
The FASB has issued SFAS No. 128 "Earnings Per Share" and SFAS 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 earnings 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 retrival.
. . . . . . . . . . . . . .
F-25
<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
F-26
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE PERIOD JANUARY 1 TO NOVEMBER 21, 1994.
- --------------------------------------------------------------------------------
Revenues $ 39,519,655
Cost of Services Provided 37,009,818
----------
Gross Margin 2,509,837
---------
Operating Expenses:
Selling Expenses 949,863
General and Administrative Expenses 1,353,764
---------
Total Operating Expenses 2,303,627
---------
Operating Profit 206,210
-------
Other Expenses:
Provision for Doubtful Accounts -
Due from Affiliate 1,070,955
Excise Taxes 176,393
Interest Expense 871,114
---------
Total Other Expenses 2,118,462
---------
Net [Loss] $ (1,912,252)
===============
See Notes to Financial Statements.
F-27
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN DIVISIONAL EQUITY FOR THE PERIOD JANUARY 1 TO NOVEMBER
21, 1994.
- --------------------------------------------------------------------------------
Accumulated
[Deficit]
Balance - January 1, 1994 $ (3,731,796)
Net [Loss] (1,912,252)
Totals $ (5,644,048)
==============
See Notes to Financial Statements.
F-28
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS FOR THE PERIOD JANUARY 1 TO NOVEMBER 21, 1994.
- --------------------------------------------------------------------------------
Operating Activities:
Net [Loss] $ (1,912,252)
---------------
Adjustments to Reconcile Net [Loss] to
Net Cash [Used for] Operating Activities:
Depreciation and Amortization 9,647
Provision for Doubtful Accounts - Accounts Receivable 198,317
Provision for Doubtful Accounts - Due from Affiliate 1,070,955
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (1,070,282)
Deposits (828)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (322,002)
Payroll Taxes Payable (185,366)
Due to 401[k] Profit-Sharing Plan 2,121,493
---------
Total Adjustments 1,821,934
---------
Net Cash - Operating Activities (90,318)
------
Investing Activities:
Net Advances to Affiliates (709,426)
Repayment - Due from Officer 49,477
------
Net Cash - Investing Activities (659,949)
-------
Financing Activities:
Loans Payable - Factor 2,096,820
Payments of Loans Payable - Bank (1,347,820)
---------
Net Cash - Financing Activities 749,000
-------
Net [Decrease] in Cash (1,267)
-----
Cash - Beginning of Period 33,934
------
Cash - End of Period $ 32,667
===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 571,114
See Notes to Financial Statements.
F-29
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] Organization, Line of Business and Significant Accounting Policies
[A] Organization - International Technical Services ["ITS"] is one of the
divisions of Job Shop Technical Services, Inc. ["Job Shop"] and has no separate
legal status or existence. The income and expenses in the divisional statement
of operations relate to the operations of ITS.
The other division of Job Shop is the Computer Design Services Division ["CDS"].
The CDS division sells computer aided design systems.
[B] Line of Business - The ITS division provides engineering personnel primarily
in the aerospace, marine, electronics and energy industries on a temporary basis
to its customers located throughout the United States.
[C] Significant Accounting Policies
Receivables - Job Shop finances a majority of the receivables of the ITS
division under an agreement entered into in August 1994. The agreement expires
in August of 1995 and has maximum availability of funds of $2,500,000. Funds can
be advanced in an amount equal to 85% of the total face amount of outstanding
and unpaid receivables, with the factor having the right to reserve 15% of the
outstanding and unpaid receivables financed. The interest rate is equal to the
base lending rate of an agreed upon bank, which was 7.25% at November 21, 1994,
plus 4.0% and a commission of 1.0% of the receivables financed. The factor has a
security interest in all accounts receivables, contracts, personal property and
fixtures of the Company.
Concentration of Credit Risk - The Company extends credit to customers which
results in accounts receivable arising from its normal business activities. It
routinely assesses the financial strength of its customers and based upon
factors surrounding the credit risk of the customers believes that its accounts
receivable credit risk exposure is limited.
Property and Equipment and Depreciation - Property and equipment are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Revenue Recognition - The ITS division records revenue as services are provided
by engineering personnel.
Income Taxes - Job Shop is an S corporation under the provisions of the Internal
Revenue Code and applicable state statutes and, accordingly, is not subject to
federal and income based on income.
[2] Relationship with Corporate Entity and Affiliated Divisions
As indicated in Note 1, each of the two divisions of Job Shop operate in
separate lines of business. The management of Job Shop believes that expenses
recorded by each division are indicative of what such expenses would have been
if each of the divisions operated as a stand-alone entity, and that no expense
allocations, to either division, is required.
The charges by ITS to the CDS division arise primarily from payroll, payroll tax
and employee benefit charges paid by the ITS division for employees of the CDS
division. The ITS division acts as a common paymaster for both divisions. The
accompanying statement of operations and [deficit] does not include any interest
income charged by the ITS division to the CDS division on any balances due by
the CDS division.
F-30
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[3] Provision for Doubtful Accounts - Due from Affiliate
As of July 7, 1995, the balance due to the ITS division from the CDS division
has not been repaid. The management of the ITS division believes that such
balance will not be repaid. Therefore, a provision for doubtful accounts of the
total amount due of $1,070,955 has been provided in the statement of operations.
[4] Due to 401[k] Profit-Sharing Plan
The liability to the 401[k] profit-sharing plan consists of employees'
compensation deferrals from June 1993 to November 21, 1994 which have not been
remitted by Job Shop to the plan's trustee. The liability of $2,999,545 includes
accrued interest of $350,877 on the employees' balances.
The above represents violations of the Employee Retirement Income Security Act
of 1974, the Internal Revenue Code and other statutes, and could jeopardize the
plan's qualified and tax exempt status.
A provision $176,393 for excise taxes relating to the above prohibited
transactions is included in statement of operations. The total amount provided
through November 21, 1994 for excise taxes is $361,393. See Note 5 for an action
commenced by the employees of the division related to unremitted employees'
compensation deferrals.
[5] Commitments and Contingencies
[A] Unremitted Federal Withholding and FICA Tax Liabilities - As of November 21,
1994, the Company had not remitted $2,000,000 of 1992 employees' federal and
FICA withholding taxes, FICA taxes, interest and penalties, to the Internal
Revenue Service. Pursuant to an agreement of sale of the assets of the business
[See Note 7], this liability was assumed by the buyer and a repayment plan has
been worked out between such buyer and the Internal Revenue Service. However,
the Job Shop is liable for any payments not made by the buyer to the Internal
Revenue Service.
[B] Leases - The division occupies space in various locations leased by Job Shop
There is no formal lease agreement between Job Shop and the ITS division.
However, the ITS division does pay rent due under such leases directly to
various landlords under an informal agreement with Job Shop. Minimum lease
payments required on leases with an initial or remaining term in excess of one
year are as follows:
For the years ended
December 31,
1994 $ 2,368
1995 8,016
1996 8,353
1997 2,109
-----------------
Total $ 20,846
----- =================
Rent expense for the period January 1, 1994 to November 21, 1994 totaled
$67,586. The lease for the New York office of Job Shop expired in December 1994
and was not renewed by the buyer of the assets of the business [See Note 7].
Subsequently, such buyer relocated its New York office to new premises.
F-31
<PAGE>
INTERNATIONAL TECHNICAL SERVICES DIVISION OF JOB SHOP TECHNICAL
SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[5] Commitments and Contingencies [Continued]
[C] Litigation - During January 1995 and as amended in March 1995, the employees
of ITS filed a complaint against ITS and Job Shop, its president and others
seeking $3,000,000 or more, plus interest, punitive damages and other equitable
or remedial relief, removal of the plan administrator and trustee and the
appointing of an independent administrator and a court-designated trustee. ITS,
Job Shop and its president have denied any wrongdoing or liability, asserted
cross-claims against codefendants for indemnity and other relief and are
vigorously defending the action. The codefendants have denied any liability in
regard to this. At this time, no determination of the likelihood of a favorable
or unfavorable outcome can be made nor can any estimate of the amount or range
of potential loss.
The Company is also a defendant in a action which alleges breach of contract,
breach of fiduciary duty and fraud. ITS, Job Shop and its president are
vigorously contesting this matter. At this time, no determination of the
likelihood of a favorable or unfavorable outcome can be made.
[6] Economic Dependency
Revenues from three customers amounted to $20,780,918 and comprised
approximately 52.6% of total revenues for the period January 1, 1994 to November
21, 1994.
[7] Subsequent Event
On November 21, 1994, pursuant to an asset purchase agreement dated as of August
19, 1994, among Job Shop, its sole stockholder and ITS Management Corp. [ITS
Man. Corp.] a Delaware Corporation and wholly-owned subsidiary of the
Consolidated Technology Group, Ltd. [Consolidated], ITS Man. Corp. acquired
substantially all of the assets of Job Shop in exchange for 750,000 shares of
Consolidated common stock valued at $281,250, and the assumption of certain
scheduled liabilities. The principal liability assumed was a $2,000,000
obligation due to the Internal Revenue Service pursuant to a settlement
arrangement which Job Shop had negotiated [See Note 5A]. The initial $500,000
payment was made in November 1994, the balance is due in 15 monthly installments
of $100,000, commencing May 1995. The liability not assumed by the buyer is the
amount due to the 401[k] profit-sharing plan [See Note 4]. This liability is
subject to litigation as more fully described in Note 5C.
. . . . . . . . .
F-32
<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 1,000,000 Units
information or representations must not be relied
on as having been authorized by the Company or by
the Underwriters. This Prospectus does not Trans Global Services, Inc.
constitute an offer to sell or a solicitation of
an offer to buy any securities offered hereby to (Each Unit Consists of
any person in any jurisdiction in which such offer one share of Series G
or solicitation was not authorized or in which the Convertible Preferred
person making such offer or solicitation is not Stock and one Series E
qualified to do so or to anyone to whom it is Reedeemable Common
unlawful to make such offer or solicitation. Stock Purchase Warrant)
Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that there
has been no change in the circumstances of the
Company of the facts herein set forth since the
date of this Prospectus.
TABLE OF CONTENTS
Page
Prospectus Summary.............................. 3
Risk Factors.................................... 7
Market for Common Stock; Dividends............. 13
Use of Proceeds................................ 14
Capitalization................................. 16
Selected Financial Data ....................... 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations.. 18
Business....................................... 21
Management..................................... 25
Certain Transactions........................... 30 PROSPECTUS
Principal Stockholders......................... 34
Description of Securities...................... 35
Underwriting................................... 39
Legal Matters.................................. 40
Experts........................................ 41 Patterson Travis, Inc.
Additional Information ........................ 41
Index to Financial Statements................. F-1
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 , 1997 dealers to deliver a
Prospectus when acting as underwriters and with
respect to their unsold allotments or
subscriptions.
,1997
<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 100,000.00*
Legal fees 150,000.00*
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 180,000.00
Representative's consulting fee 100,000.00
Miscellaneous 19,680.38*
------------
Total $640,000.00*
* Estimated
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Form of Underwriting Agreement.
1.2 Form of Unit Purchase Option.
1.3(1) 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 Form of Certificate of Designation for the Series G Convertible
Preferred Stock.
3.4(3) By-Laws.
4.1 Form of Warrant Agreement among the Registrant and American
Stock Transfer & Trust Company, as Warrant Agent, to which the
form of Series E Redeemable Common Stock Purchase Warrant is
included as an exhibit.
5.1(1) Opinion of Esanu Katsky Korins & Siger.
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.
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.
II-1
<PAGE>
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(1) Amendment dated as of January 1, 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.
11.1 Computation of loss per share.
24.1 Consent of Moore Stephens, P.C. (See Page II-4).
24.2 [Deleted].
24.3(1) Consent of Esanu Katsky Korins & Siger (included in Exhibit
5.1).
25.1(1) Powers of attorney.
27.1 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.
(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 19th day of March, 1997.
TRANS GLOBAL SERVICES, INC.
By:_________________
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
- ------------------------- Executive Officer and Director
Lewis S. Schiller (Principal Executive Officer)
GLEN R. CHARLES* Treasurer and Chief Financial
- ------------------------- Officer (Principal Financial and
Glen R. Charles Accounting Officer)
JOSEPH G. SICINSKI* Director
- -------------------------
Joseph G. Sicinski *By:______________________
Lewis S. Schiller
Attorney-in-fact
NORMAN J. HOSKIN* Director March 19, 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 operations, changes in divisional equity and cash flows of the
International Technical Services 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
March 19, 1997
II-4
<PAGE>
Exhibit 1.1
1,000,000 Units
Each unit consisting of one (1) Share of Series G Convertible Redeemable
Preferred Stock, par value $.01 per share
and
One (1) Series E Redeemable Common Stock Purchase Warrant
TRANS GLOBAL SERVICES, INC.
UNDERWRITING AGREEMENT
New York, New York
_____________, 1997
Patterson Travis, Inc.
One Battery Park Plaza
New York, New York 10004
Trans Global Services, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you, as representative of the several underwriters
referred to in the Prospectus (as defined below) (the "Representative"), an
aggregate of 1,000,000 Units, each Unit consisting of one (1) share of Series G
Convertible Redeemable Preferred Stock, par value $.01 per share ("Preferred
Stock") and one (1) Series E Redeemable Common Stock Purchase Warrant
("Warrants"). Each Warrant entitles the registered holder thereof to purchase
one (1) share of Common Stock at an exercise price of $2.50 per share for a
period of three (3) years, commencing on the Effective Date through ___________,
2000. The Warrants are subject to redemption by the Company at any time after
____________, 1998 (twelve (12) months from the Effective Date) or earlier with
the consent of the Representative and the Company, at $.05 per warrant, if the
closing bid price per share of Common Stock has equaled or exceeded $3.00 per
share, subject to adjustment, for any 20 consecutive business days ending within
15 trading days prior to the date the Warrants are called for redemption. In
addition, the Company proposes to grant to the Underwriter the option referred
to in Section 2(b) to purchase all or any part of an aggregate of 150,000 Units.
Unless the context otherwise requires, the aggregate of 1,000,000 Units
to be sold by the Company, together with all or any part of the 150,000 Units
which the Representative has the option to purchase, and the shares of Preferred
Stock and the Warrants comprising such Units, are herein called the "Units". The
Preferred Stock to be outstanding after giving effect to the sale of the Units
are herein call the "Shares. The Shares and Warrants included in the Units
(including
<PAGE>
the Units which the Representative has the option to purchase pursuant to
Section 2(b)), are herein collectively called the "Securities."
You have advised the Company that you desire to purchase the Units.
The Company confirms the agreements made by it with respect to the purchase of
the Units by the Representative as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-14289) 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 and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement"
2
<PAGE>
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.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all respects
conform to the requirements of the Act and the Rules and Regulations; and (ii)
neither the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Representative specifically for
use in the preparation thereof. It is understood that the statements set forth
in the Prospectus with respect to the public offering price of the Units,
stabilization, under the heading "Underwriting" and the identity of counsel to
the Representative under the heading "Legal Matters" constitute for purposes of
this Section and Section 6(b) the only information furnished in writing by or on
behalf of the Representative for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company and 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 December 31, 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.
3
<PAGE>
(e) The Units, shares of Preferred Stock, and all shares of
Common Stock issuable upon the conversion of the Preferred Stock or the exercise
of the Warrants when paid for, issued and delivered pursuant to this Agreement,
will have been duly authorized, issued and delivered and will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or other laws affecting the right of creditors generally or by general equitable
principles, and entitled to the rights and preferences provided by the
Certificate of Designation, which will be in substantially the form filed as an
exhibit to the Registration Statement. The terms of the Preferred Stock and the
Common Stock issuable upon the conversion of the Preferred Stock or the exercise
of the Warrants conform to the description thereof in the Registration Statement
and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to
this Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance upon the exercise of the Warrants and
when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized validly issued, fully paid and
non-assessable and free of preemptive rights. The Warrant Agreement has been
duly authorized and, when executed and delivered pursuant to this Agreement,
assuming due authorization, execution and delivery by the transfer agent, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Warrants and Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Preferred Stock, Warrants and Common Stock underlying the
Purchase Option (as defined in the Registration Statement), have been duly
authorized and, when paid for, issued and delivered pursuant to this Agreement
will constitute valid and legally binding obligations of the Company enforceable
in accordance with their terms and entitled to the benefits provided by the
Purchase Option, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The units, ("Option Units"), shares of Preferred
Stock and Series F Common Stock Purchase Warrants ("Series F Warrants") issuable
upon exercise of the Purchase Option (and the shares of Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Series F Warrants)
when issued and paid for in accordance with this Agreement, the Purchase Option
and the
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Warrant Agreement, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights.
(f) This Agreement and the Purchase Option have been duly and
validly authorized, executed and delivered by the Company. The Company has full
power and authority to authorize, issue and sell the Units to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or in connection
with the authorization, issuance and sale of the Units or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), neither the Company nor its
Subsidiaries are in violation, breach or default of or under, and consummation
of the transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company or its Subsidiaries pursuant to the terms of
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its Subsidiaries is a party or
by which the Company or its Subsidiaries may be bound or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company or its Subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or its
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus,
the Company and its Subsidiaries have good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to their business; all of
the material leases and subleases under which the Company or its Subsidiaries is
the lessor or sublessor of properties or assets or under which the Company or
its Subsidiaries hold properties or assets as lessee or sublessee as described
in the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company or its Subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or its
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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. which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with
related notes, set forth in the Prospectus or the Registration Statement present
fairly the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or its Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or its
Subsidiaries or any material adverse change or any development involving, so far
as the Company or its Subsidiaries can now reasonably foresee a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties of it which would have a
Material Adverse Effect; provided, however, that losses may have continued
subsequent to December 31, 1996.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the financial condition, business prospects, net worth, or properties
of the Company or its Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or
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to the knowledge of the Company, 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 Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of such
businesses and have not received any notice of conflict with the asserted rights
of others in respect thereof. To the best knowledge of the Company, none of the
activities or business of the Company or its Subsidiaries are in violation of,
or cause the Company or its Subsidiaries to violate, any law, rule, regulation
or order of the United States, any state, county or locality, or of any agency
or body of the United States or of any state, county or locality, the violation
of which would have a Material Adverse Effect.
(o) Neither the Company nor its Subsidiaries have, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and Subsidiaries' internal accounting controls and procedures
are sufficient to cause the Company and its Subsidiaries to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Representative
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company and its
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
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(r) Intentionally Omitted.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the
Company to the Underwriter or as disclosed in the Registration Statement, no
officer, director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
(v) The Company is a reporting company under Section 12(g) of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and as such,
since becoming a reporting company thereunder, the Company 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 herein
contained, the Company agrees to issue and sell to the Representative and the
Representative agrees to buy from the Company at $5.40 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 Representative and the Company) at 10:00 a.m., New York time, on
____________, 1997, or at such later time and date as the Representative may
designate in writing to the Company at least two business days prior to such
purchase, but not later than _____________, 1997 such time and date of payment
and delivery for the First Units being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Representative (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 150,000 Units to cover over allotments at the same price per Unit
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<PAGE>
as the Representative 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
30 days after the effective date of the Registration Statement upon written
notice by the Representative to the Company advising as to the amount of Option
Units as to which the option is being exercised, the names and denominations in
which the certificates for such Option Units are to be registered and the time
and date when such certificates are to be delivered. Such time and date shall be
determined by the Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option (but in no event
more than 40 days after the First Closing Date), nor in any event prior to the
First Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Units against payment therefor shall take
place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York,
NY 10022 (or at such other place as may be designated by agreement between the
Representative and the Company). The option granted hereunder may be exercised
only to cover over-allotments in the sale by the Representative of First Units
referred to in subsection (a) above. No Option Units shall be delivered unless
all First Units shall have been delivered to the Representative as provided
herein.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Representative hereunder available
to you for checking at least one full business days prior to the First Closing
Date or the Option Closing Date (which are collectively referred to herein as
the "Closing Dates"). The certificates shall be in such names and denominations
as you may request, at least two full business days prior to each Closing Date.
Delivery of the certificates at the time and place specified in this Agreement
is a further condition to the obligations of the Representative.
Definitive certificates in negotiable form for the securities
comprising the Units to be purchased by the Representative hereunder will be
delivered by the Company to you for the account of the Representative against
payment of the respective purchase prices by the Representative, by wire
transfer or certified or bank cashier's checks in New York Clearing House funds,
payable to the order of the Company.
In addition, in the event the Representative exercises the
option to purchase from the Company all or any portion of the Option Units
pursuant to the provisions of subsection (b) above, payment for such Units shall
be made to or upon the order of the Company by wire transfer or certified or
bank cashier's checks payable in New York Clearing House funds at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, N.Y., at the time and
date of delivery of such Units as required by the provisions of subsection (b)
above, against receipt of the certificates for such Units by you for your
account registered in such names and in such denominations as you may reasonably
request.
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It is understood that the Representative proposes to offer the
Units to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and agrees
with the Representative that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have reasonably objected in writing or which is not in compliance with the Act
and the Rules and Regulations. At any time prior to the later of (A) the
completion by the Representative of the distribution of the Units contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been declared effective) and (B) 25
days after the date on which the Registration Statement shall have become or
been declared effective, the Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the Company and the
Representative, may be reasonably necessary or advisable in connection with the
distribution of the Units.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Units for offering in any jurisdiction,
or of the institution of any proceedings for any of such purposes, and will use
its best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Representative and dealers to use
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<PAGE>
the Prospectus in connection with the sale of the Units for such period as in
the opinion of counsel to the Representative and the Company the use thereof is
required to comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period as a
Prospectus is required under the Act to be delivered in connection with sales by
the Representative or dealer of any event of which the Company has knowledge and
which materially affects the Company or the Units of the Company, or which in
the opinion of counsel for the Company and counsel for the Representative should
be set forth in an amendment of the Registration Statement or a supplement to
the Prospectus in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to amend
or supplement the Prospectus to comply with law or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Representative, except that in case the Representative is
required, in connection with the sale of the Units to deliver a Prospectus nine
months or more after the effective date of the Registration Statement, the
Company will upon request of and at the expense of the Representative, amend or
supplement the Registration Statement and Prospectus and furnish the
Representative with reasonable quantities of prospectuses complying with Section
10(a)(3) of the Act.
The Company will comply with the Act, the Rules and
Regulations and the Exchange Act and the rules and regulations thereunder in
connection with the offering and issuance of the Units.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify or
register the Units for sale under the Units or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in Units or to execute a general consent of service of
process in any jurisdiction in any action other than one arising out of the
offering or sale of the Units. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Representative deem reasonably necessary.
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(c) If the sale of the Units provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Representative, up to $100,000
(including the reasonable fees and expenses of counsel to the Representative).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii) to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year,
but no earlier than the filing of such information with the Commission a balance
sheet of the Company and any of its Subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any Subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing of
such information with the Commission, consolidated summary financial information
of the Company for such quarter in reasonable detail; (iii) as soon as they are
publicly available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active Subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
Subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the Representative such number of conformed copies of the
Registration Statement, including such financial statements but without
exhibits, and
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of all amendments thereto, as the Representative may reasonably request. The
Company will deliver to or upon your order, from time to time until the
effective date of the Registration Statement, as many copies of any Preliminary
Prospectus filed with the Commission prior to the effective date of the
Registration Statement as you may reasonably request. The Company will deliver
to the Representative on the effective date of the Registration Statement and
thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Representative may from time to time
reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Securities substantially for the purposes set forth under "Use of Proceeds"
in the Prospectus.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Representative and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) (1) For a period of twenty four (24) months from the
effective date of the Registration Statement, no officer, director or 5% or
greater shareholder of any securities prior to the offering will, directly or
indirectly, offer, sell (including any short sale), grant any option for the
sale of, acquire any option to dispose of, or otherwise dispose of any shares of
capital stock or securities convertible into capital stock without the prior
written consent of the Representative, other than as set forth in the
Registration Statement. In order to enforce this covenant, the Company shall
impose stop-transfer instructions with respect to the securities owned by such
individuals prior to the offering until the end of such period (subject to any
exceptions to such limitation on transferability set forth in the Registration
Statement). If necessary to
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comply with any applicable Blue-sky Law, the shares held by such individuals
will be escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by
the Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty four (24)
months following the effective date, directly or indirectly, offer, sell, issue
or transfer any shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement other than a
Form S-8 covering securities issued to full-time employees under plans approved
by the Company's shareholders.), without the prior written consent of the
Representative. Options granted pursuant to plans must be exercisable at the
fair market value on the date of grant.
(m) Upon completion of this offering, the Company will make
all filings required, including registration under the Exchange Act, to obtain
the listing of the Units, Preferred Stock and the Warrants in The Nasdaq
SmallCap Market system, and will use its best efforts to effect and maintain
such listing for at least five years from the date of this Agreement.
(n) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which it believes might reasonably be expected to
cause or result in the stabilization or manipulation of the price of any of the
Units, Preferred Stock, Warrants or Common Stock.
(o) On the First Closing Date and simultaneously with the
delivery of the Units, the Company shall execute and deliver to you the Purchase
Option. The Purchase Option will be substantially in the form filed as an
Exhibit to the Registration Statement.
(p) On the First Closing Date, the Company will have in force
key person life insurance on the life of Joseph Sicinsky in an amount of not
less than $500,000, payable to the Company, and will use its best efforts to
maintain such insurance during the three year period commencing with the First
Closing Date.
(q) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Representative as
many copies of each
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such Prospectus as such Representative or dealer may reasonably request. The
Company shall not call for redemption of any of the Warrants unless a
registration statement covering the securities underlying the Warrants has been
declared effective by the Commission and remains current at least until the date
fixed for redemption.
(r) For a period of five (5) years following the Effective
Date, the Company will maintain registration with the Commission pursuant to
Section 12(g) of the Exchange Act and will provide to the Representative copies
of all filings made with the Commission pursuant to the Exchange Act. In the
event that the Company fails to maintain registration with the Commission
pursuant to Section 12(g) during such five year period, the Company will provide
reasonable access to an independent accountant designated by the Representative,
to all books, records and other documents or statements that reflect the
Company's financial status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Representative a warrant
solicitation fee of 5.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Representative) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Representative
and the holder of the warrant designates the Representative in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f) solicitation of
the exercise is in compliance with the NASD Notice to Members 81-38 (September
22, 1981).
(t) For a period of three years from the Effective Date, at
the request of the Representative, the Company shall provide promptly, at the
expense of the Company, copies of the Company's daily transfer sheets furnished
to it by its transfer agent and copies of the securities position listings
provided to it by the Depository Trust Company.
(u) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the
Representative, equal to five percent (5%) of the first $3,000,000 of the
consideration involved in any transaction, 4% of the next $3,000,000 of
consideration involved in the transaction, 3% of the next $2,000,000, 2% of the
next $2,000,000 and 1% of the excess, if any, for future consummated
transactions, if any, introduced by the Representative (including mergers,
acquisitions, joint ventures, and any other business for the Company introduced
by the Representative) consummated by the Company
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(an "Introduced Consummated Transaction"), in which the Representative
introduced the other party to the Company during a period ending five years
following the First Closing Date; and
(ii) That any such finder's fee due hereunder will be
paid in cash or other consideration that is acceptable to the Representative, at
the closing of the particular Introduced Consummated Transaction for which the
finder's fee is due. It consideration received by the Company is not cash, the
Representative will receive payment in like kind.
(v) Upon the first Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to the
Representative, a two year financial consulting agreement in the form attached
as an Exhibit to the Registration Statement which shall require the Company to
pay the Representative $100,000.00 on the First Closing Date (the "Financial
Consulting Agreement").
(w) For a period of five (5) years following the Effective
Date the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For the three (3) year period commencing on the First
Closing Date, the Company shall have at least two (2) independent (ie.,
non-management) directors acceptable to the Representative as members of the
Company's Board of Directors, one (1) of which may be designated by the
Representative. In addition, the Representative may appoint an advisor who will
be able to attend all meetings of the Board of Directors. However, if the Board
of Directors determines that confidential information is to be discussed during
any part of any meeting attended by such advisor, it shall have the right to
exclude the advisor from the meeting during such discussion. The Representative
shall also have the right to obtain copies of the minutes, if requested, from
all Board of Directors meetings for three (3) years following the Effective Date
of the Registration Statement, whether or not a nominee of the Representative
attends or participates in any such Board meeting. The Company agrees to
reimburse the Representative immediately upon the Representative's request
therefor of any reasonable travel and lodging expenses directly incurred by the
Representative in connection with its representative attending Company Board
meetings on the same basis for other Board members.
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4. Conditions of Representative's Obligation. The obligations of the
Representative to purchase and pay for the Units which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of each
Closing Date) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which you may agree in writing; on or prior to each
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your knowledge or
to the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Esanu Katsky Korins & Siger,
counsel for the Company, in form and substance satisfactory to counsel for the
Representative, to the effect that:
i. The Company and 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 December
31, 1996 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
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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 Preferred 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 (I) upon conversion of the Preferred Stock in
accordance with the Certificate of Designation, (II) upon exercise of the
Warrants or the Series F Common Stock Purchase Warrants ("Series F 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 Series F
Warrants, the Purchase Option and the Warrant Agreement, as the case may be, and
when issued upon such conversion or exercise, such shares of Preferred Stock and
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, the Series F 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 $3.50 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.
viii. The certificate evidencing the shares of Preferred Stock
and Common Stock are in proper legal form; the holders of the Preferred Stock
have the conversion rights set forth in the Certificate of Designation and 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.
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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.
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
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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 Representative or counsel for the Representative
shall reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of the United
States or of the State of New York or 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.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating
to this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Representative.
(e) You shall have received a letter prior to the Effective
Date and again on and as of the First Closing Date from Moore Stephens, P.C.,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
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(f) At each Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of each
Closing Date taking into account for the Option Closing Dates the effect of the
transactions contemplated hereby and the Company or its Subsidiaries shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change, or to the Company or its Subsidiaries's
knowledge, any development involving a prospective material adverse change, in
the business, properties, condition (financial or otherwise), results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company or its Subsidiaries from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company or its Subsidiaries shall not have incurred any
material liabilities or entered into any material agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
Prospectus; (iv) except as set forth in the Prospectus, no action, suit or
proceeding at law or in equity shall be pending or threatened against the
Company or its Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company or its Subsidiaries before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company 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).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Representative to purchase and pay
for the Option Units referred to therein will be subject (as of the date hereof
and as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective
at the Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending, or, to your
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<PAGE>
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission for
additional information shall have been complied with to the satisfaction of the
Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Esanu Katsy Korins & Siger, counsel to
the Company, dated as of the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Representative, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Units.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Representative, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Moore
Stephens, P.C., dated the Option Closing Date and addressed to the
Representative confirming the information in their letter referred to in Section
4(e) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a date
not more than five business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Securities
shall be reasonably satisfactory in form and substance to you, and you and
Bernstein & Wasserman, LLP, counsel to the Representative, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Units, Preferred Stock or Warrants and no proceedings for the
taking of such action shall have been instituted or shall be pending, or, to the
knowledge of the Company, shall be contemplated by the Commission or the NASD.
The Company represents that at the date hereof it has no knowledge that any such
action is in fact contemplated against it by the Commission or the NASD.
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(i) If any of the conditions herein provided for in this
Section shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Representative under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Representative notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation shall
be without liability of the Representative to the Company.
5. Conditions of the Obligations of the Company, The obligation
of the Company to sell and deliver the Units is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Representative may agree
in writing.
(b) At the Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Securities on
exercise of the Over-Allotment Option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Representative and each person, if any, who controls the Representative within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all reasonable attorneys'
fees), to which such Representative or such controlling person may become
subject, under the Act or otherwise, and (ii) to reimburse, as incurred, the
Representative and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities; insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) relating to (i) and (ii) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, (B) any blue sky application
or other document executed by the Company specifically for that purpose
containing written information
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specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units under the securities
laws thereof (any such application, document or information being hereinafter
called a "Blue Sky Application"), or arise out of or are based upon the omission
or alleged omission to state in the Registration Statement, any Preliminary
Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that the Company
will not be required to indemnify the Representative and any controlling person
or be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Representative specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto, provided, further
that the indemnity with respect to any Preliminary Prospectus shall not be
applicable on account of any losses, claims, damages, liabilities or litigation
arising from the sale of Securities to any person if a copy of the Prospectus
was not delivered to such person at or prior to the written confirmation of the
sale to such person. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) The Representative will indemnify and hold harmless the
Company, each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the
Representative specifically for use in the preparation thereof and for any
violation by the Representative in the sale of such Units of any applicable
state or federal law or any rule, regulation or instruction thereunder relating
to violations based on unauthorized statements by Representative or its
representative; provided that such violation is not based upon any violation
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of such law, rule or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Representative as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Representative may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
under the code of professional responsibility for the indemnified party to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by all of the indemnified parties). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party. If it is
ultimately determined that indemnification is not permitted, then an indemnified
party will return all monies advanced to the indemnifying party.
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7. Contribution.
In order to provide for just and equitable contribution under
the Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Representative shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Representative is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon and the
Company shall be responsible for the remaining portion; provided, however, that
if such allocation is not permitted by applicable law then allocated in such
proportion as is appropriate to reflect relative benefits but also the relative
fault of the Company and the Representative and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company or the Representative and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Representative agree that it
would not be just and equitable if the respective obligations of the Company and
the Representative to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate damages or by
any other method of allocation that does not take account of the equitable
considerations referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Representative and each person who
controls the Representative shall be entitled to contribution from the Company,
its officers, directors and controlling persons, and the Company, its officers,
directors and controlling persons shall be entitled to contribution from the
Representative to the full extent permitted by law. The foregoing contribution
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Representative. No contribution shall be requested with regard to the settlement
of any matter from any party who did
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not consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Units to the Representative is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Representative, in connection with the qualification of the Units under the
state securities or blue sky laws which the Representative shall designate; the
cost of printing and furnishing to the Representative copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Units, Preferred
Stock and Warrants on Nasdaq or any other securities exchange, the cost of
printing the certificates representing the Securities; fees for bound volumes
and prospectus memorabilia and the fees of the transfer agent and warrant agent.
The Company shall pay any and all taxes (including any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales to the
Representative hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to the Representative a non-accountable expense
allowance of $180,000. In the event the overallotment option is exercised, the
Company shall pay to the Representative at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon exercise
of the overallotment option. In the event the transactions contemplated hereby
are not consummated by reason of any action by the Representative (except if
such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition to
the Representative's obligations hereunder required to be fulfilled by the
Company is not fulfilled) the Company shall not be liable for any expenses of
the Representative, including the Representative's legal fees. In the event the
transactions contemplated hereby are not consummated by reason of the Company
being unable to perform its obligations hereunder in all material respects, the
Company shall be liable for the actual accountable out-of-pocket expenses of the
Representative, including reasonable legal fees, not to exceed in the aggregate
$100,000.
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(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Representative or from any other person for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Representative, against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all reasonable attorneys' fees), to which the Representative
or person may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Units. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Units, or the time when the Units are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment it is
impracticable to offer the sale or to enforce contracts made by the
Representative for the resale of the Units agreed to be purchased hereunder by
reason of (i) the Company or its Subsidiaries having sustained a material loss,
whether or not insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action, order or
decree, (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof), (iv) a banking moratorium having
been declared by federal or New York state authorities, (v) an outbreak of major
international hostilities involving the United States or other substantial
national or international calamity has occurred, (vi) a pending or threatened
material legal or governmental proceeding or action relating generally to the
Company's or its Subsidiaries
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business, or a notification having been received by the Company or its
Subsidiaries of the threat of any such proceeding or action, which would
materially adversely affect the Company or its Subsidiaries; (vii) except as
contemplated by the Prospectus, the Company or its Subsidiaries is merged or
consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Representative to have a
material adverse impact on the business, financial condition or financial
statements of the Company or its Subsidiaries; (ix) any material adverse change
in the financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement, or (x) any material adverse change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the earnings, business prospects or
general condition of the Company and its Subsidiaries, taken as a whole
financial or otherwise, whether or not arising in the ordinary course of
business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Representative or its designees for a consideration of $100, and upon the terms
and conditions set forth in the form of Purchase Option annexed as an exhibit to
the Registration Statement, a Purchase Option to purchase an aggregate of
100,000 Units. In the event of conflict in the terms of this Agreement and the
Purchase Option with respect to language relating to the Purchase Option, the
language of the Purchase Option shall control.
12. Representations and Warranties of the Representative.
The Representative represents and warrants to the Company that
it is registered as a broker-dealer in all jurisdictions in which it is offering
the Units and that it will comply with all applicable state or federal laws
relating to the sale of the Units, including but not limited to, violations
based on unauthorized statements by the Representative or its representatives.
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<PAGE>
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Representative and the
undertakings set forth in or made pursuant to this Agreement will remain in full
force and effect until three years from the date of this Agreement, regardless
of any investigation made by or on behalf of the Representative, the Company or
any of its officers or directors or any controlling person and will survive
delivery of and payment of the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Patterson Travis, Inc., One Battery Park Plaza, New
York, New York 10004, with a copy sent to Bernstein & Wasserman, LLP, 950 Third
Avenue, New York, New York 10022, Attention: Stuart Neuhauser, or if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at 1770
Motor Parkway, Hauppauge, New York 11788, with a copy sent to Esanu Katsky
Korins & Siger, 605 Third Avenue, New York, New York 10158, Attention: Asher S.
Levitsky 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 Representative, the Company, any person controlling the Company or the
Representative, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from the Representative of the Units.
16. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts
each of which shall be deemed to constitute an original and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
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18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Representative and the Company.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Representative in accordance with
its terms.
Very truly yours,
TRANS GLOBAL SERVICES, INC.
By:________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
PATTERSON TRAVIS, INC.
By:________________________
Name:
Title:
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<PAGE>
Exhibit 1.2
Option to Purchase
100,000 Units
TRANS GLOBAL SERVICES, INC.
PURCHASE OPTION
Dated: ________ __, 1997
THIS CERTIFIES that Patterson Travis, Inc., One Battery Park Plaza, New
York, NY 10004 (hereinafter sometimes referred to as the "Holder"), is entitled
to purchase from TRANS GLOBAL SERVICES, INC. (hereinafter referred to as the
"Company"), at the prices and during the periods as hereinafter specified, up to
100,000 Units, each consisting of one (1) share of Series G Preferred Stock, par
value $.01 per share ("Preferred Stock"), and one (1) Series F Redeemable Common
Stock Purchase Warrant ("Warrants"). Each Warrant entitles the registered holder
thereof to purchase one (1) share of Common Stock at an exercise price of $4.125
per share. The Warrants (hereinafter, the "Warrants") are exercisable for a
three year period, commencing on the Effective Date.
The Units have been registered under a Registration Statement on Form
SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on ________ __, 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 representative of the several underwriters (the "Representative"), in
connection with a public offering of 1,000,000 Units (the "Public Units")
through the Representative, in consideration of $100.00 received for the Option.
Except as specifically otherwise provided herein, the Preferred Stock
and the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of ________ __, 1997, executed in connection
<PAGE>
with such public offering (the "Warrant Agreement"), except that the holder
shall have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Preferred Stock and the Warrants included in the
Option, and the shares of Common Stock underlying the Preferred Stock and the
Warrants, as more fully described in paragraph 6 of this Option. In the event of
any reduction of the exercise price of the Warrants included in the Public
Units, the same changes to the Warrants included in the Option Units and the
components thereof shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between ________ __, 1998 (one (1) year from the Effective
Date) and ________ __, 2002, inclusive, the Holder shall have the option to
purchase Units hereunder at a price of $9.90 per Unit (subject to adjustment
pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After ________ __, 2002, the Holder shall have no
right to purchase any Option Units hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Units specified in
the above-mentioned purchase form together with applicable stock transfer taxes,
if any; and (iii) delivery to the Company of a duly executed agreement signed by
the person(s) designated in the purchase form to the effect that such person(s)
agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c)
and (d) of paragraph 7 hereof. This Option shall be deemed to have been
exercised, in whole or in part to the extent specified, immediately prior to the
close of business on the date this Option is surrendered and payment is made in
accordance with the foregoing provisions of this paragraph 2, and the person or
persons in whose name or names the certificates for shares of
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Preferred Stock and Warrants shall be issuable upon such exercise shall become
the holder or holders of record of such Preferred Stock and Warrants at that
time and date. The Preferred Stock and Warrants and the certificates for the
Preferred Stock and Warrants so purchased shall be delivered to the Holder
within a reasonable time, not exceeding ten (10) days, after the rights
represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated for a period of one (1) year from the Effective Date, except that
it may be transferred to successors of the Holder, and may be assigned in whole
or in part to any person who is an officer of the Holder or selling group member
of the offering during such period. Any transfer after one (1) year must be
accompanied with an immediate exercise of the Option. Any such assignment shall
be effected by the Holder (i) executing the form of assignment at the end hereof
and (ii) surrendering this Option for cancellation at the office or agency of
the Company referred to in paragraph 2 hereof, accompanied by a certificate
(signed by an officer of the Holder if the Holder is a corporation), stating
that each transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by the Holder
(including the Holder) a new Option or Options of like tenor and representing in
the aggregate rights to purchase the same number of Option Units as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Preferred Stock
which may be issued as part of the Option Units purchased hereunder, and the
Common Stock which may be issued upon conversion of the Preferred Stock or
exercise of the Warrants will, upon issuance, be duly and validly issued, fully
paid and nonassessable. The Company further covenants and agrees that during the
periods within which this Option may be exercised, the Company will at all times
have authorized and reserved a sufficient number of shares of its Preferred
Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon the conversion of the Preferred Stock or exercise of the Warrants
included in the Option Units.
5. This Option shall not entitle the Holder to any voting,
dividend, or other rights as a stockholder of the Company.
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<PAGE>
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, whether the Holder holds the
Option or has exercised the Option and holds Option Units or any of the
securities underlying the Option Units, by written notice at least 30 days prior
to the filing of any post-effective amendment to the Registration Statement or
of any new registration statement or post-effective amendment thereto under the
Act covering any securities of the Company, for its own account or for the
account of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of five years from the effective
date of the Registration Statement, upon the request of the Holder, include in
any such post-effective amendment or registration statement, such information as
may be required to permit a public offering of the Option, all or any of the
Units underlying the Option, the Preferred Stock, or Warrants included in the
Units or the Common Stock issuable upon the conversion of the Preferred Stock or
exercise of the Warrants (the "Registrable Securities"). The Company shall
supply prospectuses and such other documents as the Holder may request in order
to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder designates provided that the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and do any and all other acts and things which may be
reasonably necessary or desirable to enable such Holders to consummate the
public sale or other disposition of the Registrable Securities, and furnish
indemnification in the manner provided in paragraph 7 hereof. The Holder shall
furnish information and indemnification as set forth in paragraph 7 except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities. The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
holders of Registrable Securities requested to be included in the registration
to include such securities in such underwritten offering on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering advises the holders of Registrable Securities that the total
amount of securities which they intend to
4
<PAGE>
include in such offering is such as to materially and adversely affect the
success of such offering, then the amount of securities to be offered for the
accounts of holders of Registrable Securities shall be eliminated, reduced, or
limited to the extent necessary to reduce the total amount of securities to be
included in such offering to the amount, if any, recommended by such managing
underwriter or underwriters (any such reduction or limitation in the total
amount of Registrable Securities to be included in such offering to be borne by
the holders of Registrable Securities proposed to be included therein pro rata).
The Holder will pay its own legal fees and expenses and any underwriting
discounts and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a) hereof to
the effect that such holder desires to register under the Act this Option or any
of the underlying securities contained in the Option Units underlying the Option
under such circumstances that a public distribution (within the meaning of the
Act) of any such securities will be involved then the Company will promptly, but
no later than 60 days after receipt of such notice, file a post-effective
amendment to the current Registration Statement or a new registration statement
pursuant to the Act, to the end that the Option, the Units and/or any of the
securities underlying the Option Units may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts to
cause such registration to become and remain effective for a period of 120 days
(including the taking of such steps as are reasonably necessary to obtain the
removal of any stop order); provided that such holder shall furnish the Company
with appropriate information in connection therewith as the Company may
reasonably request in writing. The 50% holder (which for purposes hereof shall
mean any direct or indirect transferee of such holder) may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act with respect to the
Registrable Securities on only two occasions during the term of this Option. The
Holder may at its option request the registration of the Option, the Units
and/or any of the securities underlying the Option Units in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Units
5
<PAGE>
issuable upon exercise of the Option and even though the Holder has not given
notice of exercise of the Option. The 50% holder may, at its option, request
such post-effective amendment or new registration statement during the described
period with respect to the Option, the Units or separately as to the Preferred
Stock and/or Warrants included in the Option Units and/or the Common Stock
issuable upon the conversion of the Preferred Stock or the exercise of the
Warrants, and such registration rights may be exercised by the 50% holder prior
to or subsequent to the exercise of the Option. Within ten business days after
receiving any such notice pursuant to this subsection (b) of paragraph 6, the
Company shall give notice to the other holders of the Options, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders. Each holder electing to include its Registrable Securities
in any such offering shall provide written notice to the Company within twenty
(20) days after receipt of notice from the Company. The failure to provide such
notice to the Company shall be deemed conclusive evidence of such holder's
election not to include its Registrable Securities in such offering. Each holder
electing to include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of only one such post-effective amendment or new registration
statement shall be borne by the Company, except that the holders shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing
of any registration statement pursuant to this Section 6(b) otherwise required
to be prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten public offering and such underwriter has refused in writing,
the
6
<PAGE>
Company's request to waive such lock-up. In the event of such postponement, the
Company shall be required to file the registration statement pursuant to this
Section 6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain
such registration statement or post-effective amendment current under the Act
for a period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall
mean the holder of at least 50% of the Preferred Stock and the Warrants
underlying the Option Units (or the Common Stock issuable upon conversion of the
Preferred Stock or the Common Stock issuable upon exercise of the
Warrants)(considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated by
determining the number of shares of Preferred Stock held by such owner or owners
as well as the number of shares of Common Stock then issuable upon conversion of
the Preferred Stock or exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses,
7
<PAGE>
claims, damages, or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person and underwriter for any legal or other expenses reasonably incurred by
the Distributing Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder or any other Distributing Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said
8
<PAGE>
final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder for
use in the preparation thereof; and will reimburse the Company or any such
director, officer, or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Preferred Stock in shares of Preferred
Stock, (ii) subdivide or reclassify its outstanding shares of Preferred Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Preferred Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision,
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<PAGE>
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Preferred Stock
outstanding after giving effect to such action, and the numerator of which shall
be the number of shares of Preferred Stock outstanding immediately prior to such
action. Notwithstanding anything to the contrary contained in the Warrant
Agreement, in the event an adjustment to the Exercise Price is effected pursuant
to this Subsection (a) (and a corresponding adjustment to the number of Option
Units is made pursuant to Subsection (d) below), the exercise price of the
Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Preferred Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Preferred Stock outstanding immediately prior to such
action. In such event, there shall be no adjustment to the number of shares of
Preferred Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Preferred Stock entitling
them to subscribe for or purchase shares of Preferred Stock (or securities
convertible into Preferred Stock) at a price (the "Subscription Price") (or
having a conversion price per share) less than the current market price of the
Preferred Stock (as defined in Subsection (e) below) on the record date
mentioned below, the Exercise Price shall be adjusted so that the same shall
equal the price determined by multiplying the number of shares then comprising
Option Units by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Preferred Stock outstanding on the record
date mentioned below and the number of additional shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Preferred Stock, and the denominator of which shall be the sum of the number
of shares of Preferred Stock outstanding on such record date and the number of
additional shares of Preferred Stock offered for
10
<PAGE>
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Preferred Stock are not
delivered (or securities convertible into Preferred Stock are not delivered)
after the expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Preferred Stock (or securities
convertible into Preferred Stock) actually delivered.
(c) Intentionally Omitted.
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Option Units purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Units initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b)
or (c) above, the current market price per share of Preferred Stock at any date
shall be deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Preferred
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least fifteen
cents ($0.15) in such price; provided, however, that any adjustments which by
reason of this Subsection
11
<PAGE>
(i) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder. All calculations
under this Section 8 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section 8 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Preferred
Stock, or any subdivision, reclassification or combination of Preferred Stock,
hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Preferred Stock or securities convertible into
Preferred Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly, but no later than 10 days after any
request for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Option Units issuable upon
exercise of this Option and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the Holder, at the
address set forth herein, and shall cause a certified copy thereof to be mailed
to its transfer agent, if any. The Company may retain a firm of independent
certified public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation required by
this Section 8, and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
this Option shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Stock contained in Subsections (a) to (g), inclusive above.
(i) No adjustments shall be made in connection with
future public offerings.
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<PAGE>
(j) In the event of the occurrence of any of the events set
forth in Section 8(a) through (c) above with respect to the Common Stock of the
Company, the provisions of Section 8(a) through (i) above shall apply and all
references to "Preferred Stock" therein shall be deemed substituted by
references to "Common Stock".
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, Trans Global Services, Inc., has caused this Option
to be signed by its duly authorized officers under its corporate seal, and this
Option to be dated ________ __, 1997.
TRANS GLOBAL SERVICES, INC.
By:______________________________
Lewis S. Schiller
Chairman and Chief Executive
Officer
(Corporate Seal)
14
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
____ Units of Trans Global Services, Inc., consisting of one (1) share of Series
G Convertible Preferred Stock, $.01 par value per share and one (1) Series F
Redeemable Common Stock Purchase Warrant and herewith makes payment of
$______________ therefor, and requests that the Warrants and certificates for
shares of Preferred Stock be issued in the name(s) of, and delivered to
_________________________ whose address(es) is (are) __________________________
__________________________.
Dated:
1
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units of
Trans Global Services, Inc., in the numbers set forth below represented by the
foregoing Option to the extent of _____ Units and appoints
_________________________________ attorney to transfer such rights on the books
of Trans Global Services, Inc., with full power of substitution in the premises.
Dated:
By: ______________________________
Address:
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In the presence of:
<PAGE>
Exhibit 3.3
CERTIFICATE OF DESIGNATION OF
TRANS GLOBAL SERVICES, INC.
Series G Convertible Redeemable Preferred Stock
Pursuant to Section 151(g) of the Delaware General Corporation Law,
Trans Global Services, Inc., a Delaware corporation (the "Corporation"), does
hereby certify as follows:
1. The following resolution was duly adopted by the Board of
Directors of the Corporation on February 4, 1997:
RESOLVED, that pursuant to Article 4 of the Certificate of
Incorporation of this Corporation, there be created a series of the
Preferred Stock, par value $.01 per share ("Preferred Stock"), of this
Corporation consisting of one million two hundred fifty million
(1,250,000) shares, to be designated as the Series G Convertible
Redeemable Preferred Stock ("Series G Preferred Stock"), and that the
holders of such shares shall have the rights, preferences and
privileges set forth in Exhibit A to this Resolution; and it was
further
RESOLVED, that the officers of this Corporation be, and they
hereby are, authorized and empowered to execute and file with the
Secretary of State of the State of Delaware, a certificate of
designation setting forth the rights, preferences and privileges of the
holders of the Series G Preferred Stock.
2. Set forth as Exhibit A to this Certificate of Amendment to the
Certificate of Designation is a true and correct copy of the rights, preferences
and privileges of the holders of the Series G Preferred Stock.
3. All shares of this Corporation's Series A Convertible Participating
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
6.25% Redeemable Cumulative Preferred Stock, Series E Convertible Participating
Preferred Stock and Series F $6 Convertible Preferred Stock having been either
converted into shares of this Corporation's Common Stock or acquired by the
Corporation and canceled, such series of Preferred Stock have been canceled and
the shares formerly designated for such series of Preferred Stock have the
status of authorized but unissued shares of Preferred Stock, without designation
as to series until such stock is once more designated as part of a particular
series by the Corporation's Board of Directors.
IN WITNESS WHEREOF, Trans Global Services, Inc. has caused this
certificate to be signed by the chairman of the board and attested by its
secretary this th day of February, 1997.
ATTEST:
By:________________________________________
Lewis S. Schiller, Chairman of the Board
__________________________
Grazyna B. Wnuk, Secretary
<PAGE>
Exhibit A
The designation of, the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to, the Series G Convertible
Preferred Stock are as follows:
1. Designation and Number of Shares. The designation of this series
of one million two hundred fifty thousand (1,250,000) shares of preferred stock,
par value $.01 per share ("Preferred Stock"), created by the Board of Directors
of the Corporation pursuant to the authority granted to it by the certificate of
incorporation of the Corporation is "Series G Convertible Preferred Stock,"
which is hereinafter referred to as the "Series G Preferred Stock." In the event
that the Corporation does not issue the maximum number of shares of Series G
Preferred Stock or in the event of the conversion of shares of Series G
Preferred Stock into this Corporation's common stock, par value $.01 per share
("Common Stock"), pursuant to Paragraph 4 of this Certification of Designation,
or in the event that the Corporation shall redeem, acquire and cancel any shares
of Series G Preferred Stock, the Corporation may, from time to time, by
resolution of the Board of Directors, reduce the number of shares of Series G
Preferred Stock authorized, provided, that no such reduction shall reduce the
number of authorized shares to a number which is less than the number of shares
of Series G Preferred Stock then issued or reserved for issuance. The number of
shares by which the Series G Preferred Stock is reduced shall have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors.
2. Dividend Rights.
(a) (i) The holders of the Series G Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds of this Corporation legally available therefor, cash dividends at an
annual rate of twelve cents ($.12) per share, subject to the provisions of
Paragraphs 2(c) and (e) of this Certification of Designation. Dividends shall be
payable in semi-annual installments. Such installments shall be paid on the
dividend payment dates, as hereinafter defined. Dividend payment dates shall be
September 1 and March 1 of each year, with the first dividend payment date being
September 1, 1997. Dividends shall be payable on the dividend payment dates to
holders of Series G Preferred Stock of record on the 15th day of the preceding
August and February, respectively. Each semi-annual period ending on the day
before a dividend payment date is referred to as a "dividend period." Dividends
payable on the first dividend payment date shall accrue from the date of
issuance of the first shares of Series G Preferred Stock pursuant to a public
offering of the Corporation's securities which include the Series G Preferred
Stock.
(ii) Dividends payable with respect to the Series G
Preferred Stock may be paid in either cash or in shares of the Corporation's
common stock, par value $.01 per share ("Common Stock"), as the Corporation's
Board of Directors shall determine. If the Board of Directors determines to make
payment in shares of Common Stock, the number of shares shall be determined by
dividing the dividends payable per shares of common Stock by the value of one
share of Common Stock. No fractional shares shall be issued, the Corporation
shall pay cash equal to the value of any fractional shares which would be
payable. The value per share of Common Stock, for purposes of determining the
number of shares of Common Stock to be issued in payment of the dividend and the
amount payable with respect to any fractional shares shall be determined as
follows. If the Common Stock is listed on the New York or American Stock
Exchange or admitted to unlisted trading privileges on either of such exchanges
or is traded on The Nasdaq Stock Market or other automated quotation system
which provides information as to the last sale price, the value
<PAGE>
shall be the average of the reported last sale price of one share of Common
Stock on such exchange or market for the five trading days preceding the record
date for determining holders of Series G Preferred Stock entitled to dividends,
or if no such sale is made on any of such days, the average of the closing bid
and asked prices for such day on such exchange or market shall be used. If the
Common Stock is not so listed or admitted to unlisted trading privileges, the
value shall be the average of the mean of the reported last bid and asked prices
of one share of Common Stock as reported by Nasdaq or the National Quotation
Bureau, Inc. or other similar reporting service selected by the Company's board
of directors, for such five trading day period. If the Common Stock is not so
listed or admitted to unlisted trading privileges and bid and asked prices are
not so reported, the value of one share of Common Stock shall be an amount, not
less than book value, determined in such reasonable manner as may be prescribed
by the Board of Directors.
(b) The amount of any dividends "accrued" on any share of Series
G Preferred Stock at any dividend payment date shall be deemed to be the amount
of any unpaid dividends accumulated thereon to and including such dividend
payment date, whether or not earned or declared, and the amount of dividends
"accrued" on any share of Series G Preferred Stock at any date other than a
dividend payment date shall be calculated as the amount of any unpaid dividends
accumulated thereon to and including the last preceding dividend payment date,
whether or not earned or declared, plus an amount calculated on the basis of the
annual dividend rate of twelve cents ($.12) per share for the period after such
last preceding dividend payment date to and including the date as of which the
calculation is made.
(c) In addition to the dividend payable with respect to the
Series G Preferred Stock pursuant to Paragraph 2(a) of this Certificate of
Designation (the "Preferred Dividend"), in any dividend period, after payment of
or provision for the Preferred Dividend due with respect to such dividend
period, the Corporation shall pay with respect to each share of Series G
Preferred Stock the same per share dividend as is payable with respect to one
share of Common Stock if, and to the extent that, such dividend with respect to
the Common Stock is payable during such dividend period. A dividend with respect
to the Common Stock shall be deemed to be payable during a dividend period if
the record date for determining holders of Common Stock entitled to receive the
dividend is during such dividend period.
(d) Except as provided in this Certification of Designation, no
dividends shall be declared or paid or set aside for payment on any class or
series of capital stock ranking on a parity with or junior to the Series G
Preferred Stock as to dividends for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for payment thereof is set aside for such payment on the Series G
Preferred Stock for all dividend periods terminating on or prior to the dividend
payment date of such dividends on any such series or class. When dividends are
not paid in full upon the shares of Series G Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the Series G
Preferred Stock, all dividends declared upon shares of Series G Preferred Stock
and such other series of Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Series G Preferred Stock shall in
all cases bear to each other the same ratio that the accrued dividends per share
on the shares of Series G Preferred Stock and such other series of Preferred
Stock bear to each other. Holders of shares of Series G Preferred Stock shall
not be entitled to dividends thereon, whether payable in cash, property or
stock, in excess of the full cumulative dividends thereon, as provided in this
Certification of Designation. No dividend on Series G Preferred Stock shall be
declared or paid or set apart for payment with respect to any dividend payment
date unless full dividends, including accumulated dividends, if any, on any
series or class of capital stock ranking, as to dividends, prior to Series G
Preferred Stock which are to have been paid on or prior to such dividend payment
date have been or
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<PAGE>
contemporaneously are declared and paid or declared and a sum sufficient for
payment thereof has been set aside for all dividend periods for such series or
class terminating on or prior to such dividend payment date.
(e) As long as any shares of Series G Preferred Stock are
outstanding, no dividends (other than a dividend in any series or class of
capital stock ranking junior to Series G Preferred Stock as to both dividends
and payments in the event of voluntary or involuntary dissolution, liquidation
or winding up), shall be declared or paid or set aside for payment and no other
distribution shall be declared or made upon any such junior series or class of
capital stock, and no such junior series or class of capital stock or any series
of Preferred Stock on a parity with Series G Preferred Stock as to both
dividends and payments in the event of voluntary and involuntary dissolution,
liquidation or winding up shall be redeemed, purchased or otherwise acquired for
any consideration by the Corporation or by any subsidiary (which shall mean any
corporation or entity, the majority of voting power to elect directors of which
is held directly or indirectly by the Corporation), except by conversion into or
exchange for any such junior series or class of capital stock; unless, in each
case, the full cumulative dividends on all outstanding shares of Series G
Preferred Stock shall have been paid in full for all past dividend periods or
unless the holders of a majority of the Series G Preferred Stock then
outstanding shall consent thereto.
(f) In the event that any holder of Series G Preferred Stock
shall surrender his shares for conversion pursuant to the provisions of
Paragraph 4 of this Certification of Designation, the holder shall be entitled
to dividends to the extent provided for in Paragraph 4(d) of this Certification
of Designation.
3. Voting Rights.
(a) Except as otherwise required by law, the holders of the
Series G Preferred Stock shall have no voting rights.
(b) The Corporation is not restricted from creating other
series of Preferred Stock which may be senior or junior to or on a parity with
the Series G Preferred Stock as to dividends and/or on voluntary or involuntary
dissolution, liquidation or winding up without the consent of the holders of the
Series G Preferred Stock.
4. Conversion into Common Stock.
(a) Each holder of the Series G Preferred Stock will have the
right, at any time commencing one year from the date (the "Public Offering
Date") on which the first registration statement under the Securities Act of
1933, as amended, relating to an offering by the Corporation of securities which
includes the Series G Preferred Stock is declared effective by the Securities
and Exchange Commission, or earlier with the consent of the Corporation and the
representative of the underwriters with respect to such offering, to convert any
shares of Series G Preferred Stock into shares of Common Stock at the conversion
rate hereinafter defined (the "Conversion Rate"). The consent of the Corporation
shall be evidenced by a resolution of the Board of Directors and shall relate to
all of the shares of Series G Preferred Stock,
(b) The Conversion Rate shall mean the number of shares of
Common Stock issuable upon conversion of one (1) share of Series G Preferred
Stock. The Conversion Rate shall be six (6) shares of Common Stock, subject to
adjustment as provided in Paragraph 4(e) of this Certificate of Designation.
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<PAGE>
(c) Conversion of the Series G Preferred Stock shall be
effected by surrender of the certificate representing the shares of Series G
Preferred Stock being converted to the transfer agent for the Series G Preferred
Stock, or, if none shall have been appointed, to the Corporation, together with
the form of notice of election to convert as may be provided from time to time
by the Corporation.
(d) No payment or adjustment shall be made upon any conversion
or on account of any accrued dividends on the Series G Preferred Stock or the
Common Stock issued upon such conversion. Shares of Series G Preferred Stock
shall be deemed to have been converted immediately prior to the close of
business on the day of the surrender for conversion of the certificate therefor,
together with the form of notice of election provided by the Corporation duly
signed by the holder thereof, and the person or persons entitled to receive
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock as of such time. As
promptly as practicable on or after the conversion date, the Corporation or its
transfer agent shall issue and shall deliver a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion,
together with a cash payment in lieu of any fraction of any share, as
hereinafter provided, to the person or persons entitled to receive the same.
Notwithstanding the foregoing provisions of this Paragraph 4(d) if, at the time
of conversion, there shall be accumulated but unpaid dividends, other than any
dividend payable with respect to a record date subsequent to the date of such
conversion, the Corporation shall, at the time of such conversion, pay to the
converting holder of Series G Preferred Stock the amount of such unpaid
dividends.
(e) The Conversion Rate shall be subject to adjustment as
follows:
(i) In case the Corporation shall after the date this
Certificate of Designation is filed (the "Filing Date"), (A) pay a dividend or
make a distribution on its shares of Common Stock in shares of Common Stock, (B)
subdivide, split or reclassify its outstanding Common Stock into a greater
number of shares, (C) effect a reverse split or otherwise combine or reclassify
its outstanding Common Stock into a smaller number of shares, or (D) issue any
shares by reclassification of its shares of Common Stock, the Conversion Rate 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 the shares of Series G Preferred
Stock converted after such date shall be entitled to receive the aggregate
number and kind of shares which, if such shares had been converted immediately
prior to such time, he would have owned upon such conversion 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 4(e)(i) shall occur.
(ii) No increase or decrease in the Conversion Rate shall
be required unless such adjustment would require an increase or decrease of at
least one percent (1%); provided, however, that any adjustments which by reason
of this Paragraph 4(e)(ii) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Paragraph 4(e) shall be made to the nearest one-hundredth (1/100) of a share.
(iii) The Corporation may retain a firm of independent
public accountants of recognized standing selected by the Board of Directors
(who may be the regular accountants employed by the Corporation) to make any
computation required by this Paragraph 4(e), and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
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<PAGE>
(iv) In the event that at any time, as a result of an
adjustment made pursuant this Paragraph 4(e), the holder of shares of Series G
Preferred Stock thereafter shall become entitled to receive any shares of the
Corporation, other than Common Stock, thereafter the number of such other shares
so receivable upon conversion of shares of Series G Preferred Stock 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 this Paragraph 4.
(v) In addition to the adjustments provided for in this
Paragraph 4(e), the Corporation may modify the Conversion Rate in a manner which
will increase the number of shares of Common Stock issuable upon conversion of
the Series G Preferred Stock if the Corporation believes that such adjustment is
necessary or desirable in order to avoid adverse Federal income tax consequences
to the holders of the Common Stock.
(f) Whenever the Conversion Rate shall be adjusted as required
by the provisions of Paragraph 4(e) of this Certificate of Designation, the
Corporation shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Conversion Rate, setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
any holder of shares of Series G Preferred Stock, and the Corporation shall,
forthwith after each such adjustment, mail a copy of such certificate by first
class mail to the holder of Series G Preferred Stock at such holders' addresses
set forth in the Corporation's books and records.
(g) In case:
(i) the Corporation shall pay any dividend or make any
distribution upon Common Stock (other than a regular cash dividend payable out
of retained earnings or cash supplies); or
(ii) the Corporation shall offer to the holders of Common
Stock for subscription or purchase by them any share of any class or any other
rights, or
(iii) any reclassification of the capital stock of the
Corporation, consolidation or merger of the Corporation with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Corporation to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Corporation shall be
effected;
then in any such case, the Corporation shall cause to be mailed by first class
mail to the record holders of Series G Preferred Stock at least ten (10) days
prior to the date specified in (A) and (B) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (A) a record is to be taken for the purpose of such dividend, distribution
or rights, or (B) such reclassification, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(h) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Corporation, or in
case of any consolidation or merger of the Corporation into another corporation
(other than a merger with a subsidiary in which merger the Corporation is the
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<PAGE>
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock or
the class issuable upon conversion of Series G Preferred Stock) or in case of
any sale, lease or conveyance to another corporation of the property of the
Corporation as an entirety, the Corporation shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder of
the Series G Preferred Stock shall have the right thereafter by converting the
Series G Preferred Stock, to receive the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been received
upon conversion of the Series G Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Certificate of Designation. The foregoing provisions of this Paragraph 4(h)
shall similarly apply to successive reclassifications, capital reorganizations
and changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(i) No fractional shares or script representing fractional
shares shall be issued upon the conversion of shares of Series G Preferred
Stock. If, upon conversion of any shares of Series G Preferred Stock as an
entirety, the holder would, except for the provisions of this Paragraph 4(i), be
entitled to receive a fractional share of Common Stock, then an amount equal to
such fractional share multiplied by the fair market value per share of the
Corporation's Common Stock on the last business day prior to the date of
conversion. The fair market value per shall mean the closing price (or average
of the closing high bid and low asked prices if there is no sale on such date)
on the Nasdaq Stock Market or the New York or American Stock Exchange, if the
Common Stock is admitted to trading or listed on the such market or stock
exchange, or if not so listed or admitted to trading, the average of the
reported highest bid and lowest asked prices as reported by Nasdaq or the
National Quotation Bureau, Inc. or similar reporting service selected by the
Board of Directors, or if no such prices are available, the current market value
shall be determined in good faith by the Board of Directors.
(j) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock the full number of shares of Common Stock then issuable upon the
conversion of all shares of Series G Preferred Stock then outstanding.
(k) The Common Stock issuable upon conversion of the Series G
Preferred Stock shall, when so issued, be duly and validly authorized and
issued, fully paid and nonassessable.
5. Redemption.
(a) The Corporation may, at any time commencing one (1) year
after the Public Offering Date, redeem the Series G Preferred Stock in whole at
any time or in part from time to time upon not less than thirty (30) nor more
than sixty (60) days' prior written notice at the redemption price per share of
six and no/100 dollars ($6.00) dollars. The Corporation is not required to
provide for the redemption of any shares of Series G Preferred Stock through the
operation of a sinking fund. Any determination by the Corporation to redeem any
or all of the Series G Preferred Stock shall by made by the Corporation's Board
of Directors.
(b) The date on which the Corporation is to redeem any Series G
Preferred Stock pursuant to Paragraph 5(a) of this Certificate of Designation is
referred to as the "Redemption Date" with respect to
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<PAGE>
the shares of Series G Preferred Stock being redeemed. From and after the close
of business on the business day immediately preceding the Redemption Date, any
shares of Series G Preferred Stock as to which the Corporation shall have
exercised its right of redemption shall cease to have any voting, dividend or
other rights, and the holder of such shares shall only have the right to receive
payment of the redemption price; provided, however, that this Paragraph 5(b)
shall not apply if the Corporation shall default in the payment of the
redemption price.
(c) In the event that the Corporation redeems only a portion of
the Series G Preferred Stock, the Corporation shall redeem such shares in a
manner which approximates a prorata redemption of the holders of the Series G
Preferred Stock, and in making such redemption, the Corporation may fully redeem
holders of Series G Preferred Stock whose holdings are insubstantial relative to
the number of Series G Preferred Stock being redeemed.
(d) If any dividends on Series G Preferred Stock are in arrears,
no purchase or redemption shall be made of any stock ranking junior to or on a
parity with Series G Preferred Stock as to dividends or upon liquidation (other
than a purchase or redemption made by issuance for delivery of such junior
stock); provided, however, that any monies theretofore deposited in any sinking
fund with respect to any Preferred Stock of the Corporation in compliance with
the provisions of such sinking fund thereafter may be applied to the purchase or
redemption of such Preferred Stock in accordance with the terms of such sinking
fund regardless of whether at the time of such application full cumulative
dividends upon shares of Series G Preferred Stock outstanding to the end of the
last completed dividend period shall have been paid or declared and set aside
for payment; and provided, further, however, that the foregoing shall not
prevent the purchase of shares of Preferred Stock ranking on a parity with
Series G Preferred Stock as to dividends and upon liquidation, dissolution or
winding up pursuant to a purchase or exchange offer made on the same terms to
the holders of all the outstanding Preferred Stock so ranking on a parity with
Series G Preferred Stock as to dividends and upon liquidation, dissolution of
winding up.
(e) Any shares of Series G Preferred Stock which shall at any
time have been redeemed, shall, after such redemption, have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors.
6. Liquidation Rights.
(a) In the event of the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, holders of the Series G
Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount per share equal to six and no/100 dollars ($6.00) per
share, plus a sum equal to all unpaid dividends theretofore declared before any
payment or distribution upon dissolution, liquidation or winding up shall be
made on any series or class of capital stock ranking junior to Series G
Preferred Stock as to such payment or distribution, and after all such payments
or distributions have been made on any series or class of capital stock ranking
senior to the Series G Preferred Stock as to such payment or distribution.
(b) After payment of the preference set forth in Paragraph
6(a)(i) of this Certification of Designation, the holders of the Series G
Preferred Stock shall have no right to any further payment with respect to their
shares of Series G Preferred Stock.
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(c) The sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property and assets of the Corporation shall be deemed a voluntary dissolution,
liquidation or winding up of the Corporation for purposes of this Paragraph 6.
The merger or consolidation of the Corporation into or with any other
corporation or the merger or consolidation of any other corporation into or with
the Corporation, shall not be deemed to be a dissolution, liquidation or winding
up, voluntary or involuntary, for the purposes of this Paragraph 6; provided,
however, that the merger or consolidation of the Corporation into another
corporation shall be deemed to be a voluntary dissolution, liquidation or
winding up of the Corporation for the purposes of this Paragraph 6, unless
either (i) the holders of all shares of Series G Preferred Stock outstanding
upon the effectiveness of such merger or consolidation shall have the right,
upon such effectiveness, to receive for each share of Series G Preferred Stock
held by them upon such effectiveness, one share of preferred stock of the
resulting or surviving corporation, which share shall have, to the extent
practicable, dividend and voting rights and rights upon dissolution, liquidation
or winding up reasonably equivalent to those of such share of Series G Preferred
Stock, and shall have the right to convert such share of preferred stock into
the number of shares of stock or other securities or property receivable upon
such merger or consolidation, as the case may be, by a holder of the number of
shares of Common Stock into which such share of Series G Preferred Stock was
convertible immediately prior to such merger or consolidation, subject to
adjustment as provided in Paragraph 4 of this Certification of Designation, or
(ii) the merger or consolidation was approved by the holders of a majority of
the shares of Series G Preferred Stock then outstanding either at a meeting of
such stockholders or by a written consent in lieu of a meeting. The provisions
of this Paragraph 6(c) shall not be construed to limit the obligations of the
Corporation pursuant to Paragraph 4(h) of this Certification of Designation.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of Series G Preferred Stock upon
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Paragraph 6(a) of this Certification of
Designation, no such distribution shall be made on account of any shares of any
other class or series of capital stock of the Corporation ranking on a parity
with the shares of Series G Preferred Stock upon such dissolution, liquidation
or winding up unless proportionate distributive amounts shall be paid on account
of the shares of Series G Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
(e) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Series G Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders all amounts to which such holders are entitled
pursuant to Paragraph 6(a)(i) of this Certification of Designation before any
payment shall be made to the holders of any class of capital stock of the
Corporation ranking junior upon liquidation to Series G Preferred Stock.
7. Rank of Series. For purposes of this Certification of
Designation, any stock of any series or class of the Corporation shall be deemed
to rank:
(a) prior to the shares of Series G Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be, if
the holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the
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Corporation, as the case may be, in preference or priority to the holders of
shares of Series G Preferred Stock;
(b) on a parity with shares of Series G Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be,
whether or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if any, be different
from those of Series G Preferred Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such stock
and the holders of shares of Series G Preferred Stock;
(c) junior to shares of Series G Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, as the case may be, if
such class shall be Common Stock or if the holders of shares of Series G
Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or classes.
8. No Preemptive Rights. No holder of the Series G Preferred Stock
shall, as such holder, be entitled as of right to purchase or subscribe for any
shares of stock of the Corporation of any class or any series now or hereafter
authorized or any securities convertible into or exchangeable for any shares, or
any warrants, options, rights or other instruments evidencing rights to
subscribe for or purchase any such shares, whether such shares, securities,
warrants, options, rights or other instruments be unissued or issued and
thereafter acquired by the Corporation.
9. Transfer Agent and Registrar. The Corporation may appoint a
transfer agent and registrar for the issuance, transfer and conversion of the
Series G Preferred Stock and for the payment of dividends to the holders of the
Series G Preferred Stock.
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Exhibit 4.1
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 one million
(1,000,000) Units (the "Units"), each Unit consisting of one share of Series G
Convertible Redeemable Preferred Stock, par value $.01 per share, and one Series
E Redeemable Common Stock Purchase Warrant (the "Series E Warrants") pursuant to
an underwriting agreement (the "Underwriting Agreement") dated as of [ ] 1997,
between the Company and the several underwriters of which Patterson Travis, Inc.
(the "Representative" or "Patterson Travis") is the representative (Patterson
Travis and the several underwriters referred to collectively as the
"Underwriters"), the Company may issue up to one million one hundred fifty
thousand (1,150,000) Series E Warrants; and
WHEREAS, in connection with the issuance, pursuant to the Underwriting
Agreement, to Patterson Travis or its designees of a unit purchase option (the
"Unit Purchase Option"), the Company may issue up to one hundred thousand
(100,000) Series F Redeemable Common Stock Purchase Warrants (the "Series F
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.
<PAGE>
(b) "Effective Date" shall mean the date that the Registration
Statement is declared effective by the Securities and Exchange Commission (the
"Commission").
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the Purchase Price; provided, however, that, subject to Paragraph 4(a) of this
Agreement, if payment shall be made by personal or corporate check, the exercise
of the Warrant shall not be effective until the Warrant Agent shall be satisfied
that the check shall have cleared; provided, further, that if such payment is
made prior to the Warrant Expiration Date or the expiration of a period during
which a reduced Purchase Price is in effect pursuant to Paragraph 9(f) of this
Agreement and the check shall not have cleared until after the Warrant
Expiration Date or such other date, then the Warrant shall be deemed to have
been exercised immediately prior to 5:00 P.M. New York City time on the Warrant
Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share to
be paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be two and 50/100 dollars ($2.50) per share with respect to the
Series E Warrants and four and 125/1000 dollars ($4.125) per share with respect
to the Series F Warrants, subject, in each case, to adjustment from time to time
pursuant to the provisions of Paragraph 9 of this Agreement.
(e) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms of
this Agreement, which price shall be five cents ($.05) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form S-1, File No. 333-14289, 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.
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(i) "Warrant Certificate" shall mean the certificates
(attached hereto as Exhibit A with respect to the Series E Warrants and as
Exhibit B with respect to the Series F Warrants) representing the Warrants.
(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 Series E Warrants and the Series
F Warrants.
2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase one (1) share
of Common Stock upon the exercise thereof, in accordance with the terms of this
Agreement, subject to modification and adjustment as provided in Paragraph 9 of
this Agreement.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing the shares of Common Stock issuable upon
the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued hereunder
or otherwise issuable pursuant to the Underwriting Agreement, including those
issuable in exchange for certain outstanding warrants, (ii) those issued on or
after the date of this Agreement, upon the exercise of fewer than all Warrants
represented
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<PAGE>
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
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by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Paragraph 4 of this Agreement.
4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time during the three-year period commencing on the Effective
Date, but not after the Warrant Expiration Date, upon the terms and subject to
the conditions set forth herein and in the Warrant Certificate. A Warrant shall
be deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrant. Promptly
following, and in any event within five (5) days after the date of such notice
from the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause
to be issued and delivered by the Transfer Agent, to the person or persons
entitled to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a certificate for any remaining
unexercised Warrants of the Registered Holder) unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of the Representative or such other investment banks
and brokerage houses as the Company shall approve in writing to the Warrant
Agent, by the Representative or such other investment bank or brokerage house,
certificates shall immediately be issued without prior notice to the Company or
any delay. Upon the exercise of any Warrant and clearance of the funds received,
the Warrant Agent shall promptly remit the payment received for the Warrant (the
"Warrant Proceeds") to the Company or as the Company may direct in writing,
subject to the provisions of Paragraphs 4(b) and 4(c) of this Agreement.
(b) If, at the Exercise Date in respect of the exercise of any
Warrant after one year from the Effective Date, (i) the market price of the
Company's Common Stock is greater than the Purchase Price then in effect, (ii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant was not held
in a discretionary account, (iv) disclosure of compensation arrangements was
made both at the time of the original offering and at the time of exercise of
the Warrant was not in violation of Rule 10b-6 (as such rule or any successor
rule may be in effect as of
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such time of exercise) promulgated under the Securities Exchange Act of 1934,
then the Warrant Agent, simultaneously with the distribution of the Warrant
Proceeds to the Company shall, on behalf of the Company, pay from the Warrant
Proceeds, a fee of five percent (5%) (the "Underwriter's Fee") of the Purchase
Price to the Representative (a portion of which may be reallowed by the
Representative to the dealer who solicited the exercise, which may also be the
Representative). 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
four (4)%, payable by the Company to the Representative at the time the Company
pays the Underwriter's Fee. Within five (5) business days after exercise, the
Warrant Agent shall send to the Representative a copy of the reverse side of
each Warrant exercised. The Representative shall reimburse the Warrant Agent,
upon request, for its reasonable expenses relating to compliance with this
Paragraph 4(b). In addition, the Representative 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
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 Representative that
the required Underwriter's Fee has been received by the Representative.
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
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quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any Federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, 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
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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.
(d) A reasonable service charge may be imposed by the Warrant
Agent for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchanges, registration or transfer of Warrant Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Representative, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants, which are being publicly being offered in
Units with shares of Common Stock pursuant to the Underwriting Agreement, will
be immediately detachable from the Common Stock and transferable separately
therefrom.
(g) Notwithstanding any other provisions of this Agreement,
the Unit Purchase Options may not be sold, transferred, assigned or hypothecated
for a period of one year from the Effective Date except to the officers of the
Underwriters or to selling group members or officers or partners or members
thereof, all of whom shall be bound by such restriction. Until the expiration of
such one-year period, Warrant certificates and stock certificates issuable upon
exercise of the Unit Purchase Option 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
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absence of notice to the Company and/or Warrant Agent that the Warrant
Certificate has been acquired by a bona fide purchaser) countersign and deliver
to the Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Commencing one year from the Effective Date, or earlier
with the consent of the Representative, the Company shall have the right, on not
less than thirty (30) nor more than sixty (60) days notice given prior to the
Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Warrants at the Redemption Price of five cents ($.05) per Warrant,
provided the Market Price of the Common Stock shall equal or exceed the "Target
Price." The term "Target Price" shall mean for these purposes one hundred twenty
percent (120%) of the Purchase Price with respect to the Series E Warrants. The
term "Market Price" for purposes of this Paragraph 8 shall mean, if the Common
Stock is listed on the NASDAQ System or the New York or American Stock Exchange,
the average last reported sales price (or, if no sale is reported on any such
trading day, the closing bid price) on the principal market for the Common Stock
or, if the Common Stock is not so listed or traded, the average of the last
reported high bid and low asked prices of the Common Stock, during the twenty
(20) days ending within fifteen (15) days of the date the Warrants are called
for redemption. Notice of redemption shall be mailed by first class mail,
postage prepaid, not later than five (5) business days (or such longer period to
which the Representative may consent) after the date the Warrants are called for
redemption. All Warrants must be redeemed if any Warrants are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request Patterson Travis or the Warrant Agent to mail the
notice of redemption referred to in said Paragraph 8(a) to each of the
Registered Holders of the Warrants to be redeemed, first class, postage prepaid,
not earlier than the sixtieth (60th) day nor later than the thirtieth (30th) day
before the date fixed for redemption, at their last addresses as shall appear on
the records maintained pursuant to Paragraph 6(b) of this Agreement. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice. The
Warrant Agent agrees to mail such notice if requested by the Company or the
Representative.
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(c) The notice of redemption shall specify (i) the Redemption
Price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the Redemption Price shall be paid, and (iv)
that the right to exercise the Warrants shall terminate at 5:00 p.m. (New York
City time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (A) to whom notice was not mailed or (B) whose
notice was defective. An affidavit of the Warrant Agent or of the Secretary or
an Assistant Secretary of the Representative or the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Warrant, and any right of the
holders of the Unit Purchase Option to receive Warrants upon exercise of the
Unit Purchase Option, shall terminate at 5:00 p.m. (New York City time) on the
business day immediately preceding the Redemption Date. After such time, Holders
of the Warrants shall have no further rights except to receive, upon surrender
of the Warrant, the Redemption Price without interest, subject to the provisions
of applicable laws relating to the treatment of abandoned property. In the event
that the Warrants or the Warrant Shares shall not be subject to a current and
effective registration statement under the Securities Act of 1933, as amended,
at any time subsequent to the date the Warrants are called for redemption, the
notice of redemption shall not be effective and shall be deemed for all purposes
not to have been given. Nothing in the preceding sentence shall be construed to
prohibit or restrict the Company from thereafter calling the Warrants for
redemption in the manner provided for, and subject to the provisions of, this
Paragraph 8.
(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of redemption,
upon presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the Redemption Price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) Notwithstanding any other provision of this Agreement, the
Company shall not call the Warrants for redemption unless there is, at the time
the Warrants are called for redemption, a current and
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effective registration statement or a post-effective amendment to the
Registration Statement covering the issuance of the shares of Common Stock
issuable upon exercise of the Warrants.
(g) In the event that the Unit Purchase Option is exercised at
a time subsequent to the redemption of the Warrants but prior to the Warrant
Expiration Date, 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.
(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).
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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 Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and of which the denominator shall be
the total number of shares or Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(d) Whenever the Purchase Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this Agreement,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares issuable
upon exercise of each Warrant in effect on the date thereof by the Purchase
Price in effect on the date thereof and dividing the product so obtained by the
Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to Paragraphs
9(b) and (c) of this Agreement, the current market price per share of Common
Stock at any date shall be deemed to be the average of the daily closing prices
for thirty (30) consecutive business days commencing forty-five (45) business
days before such date. The closing price for each day shall be the reported last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported high bid and low asked prices regular way,
in either case on the principal national securities exchange on which the
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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.
(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
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<PAGE>
Warrant held of record and each Warrant issuable upon exercise of the Unit
Purchase Option prior to such adjustment of the number of Warrants shall become
that number of Warrants or an Unit Purchase Option to purchase that number of
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Warrants pursuant to this Paragraph 9, the Company shall, as
promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Paragraph 10 of this Agreement, the number of additional
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such Holder
shall be entitled after such adjustment. With respect to the Representative's
Option, the Company shall give the registered holders of the Representative's
Option 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
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<PAGE>
successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the Warrant
Agent, the obligation to deliver to the holder of each Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances. In the event that, as a result of any merger, consolidation or
similar transaction, all of the holders of Common Stock receive and are entitled
to receive no consideration other than cash in respect of their shares of Common
Stock, then, at the effective time of the transaction, the rights to purchase
Common Stock pursuant to the Warrants shall terminate, and the holders of the
Warrants shall, notwithstanding any other provisions of this Agreement or the
Warrants, receive in respect of each Warrant to purchase one (1) share of Common
Stock, upon presentation of the Warrant Certificate, the amount by which the
consideration per share of Common Stock payable to the holders of Common Stock
at such effective time exceeds the Purchase Price in effect on such effective
date, without giving effect to the transaction. In the event that, subsequent to
the effective time, additional cash or other consideration is payable to the
holders of Common Stock of record as of the effective time, the same
consideration shall be payable to the holders of the Warrants to the extent that
the total cash then received by the holders of Common Stock exceeds the Purchase
Price in effect at such effective date, without giving effect to the
transaction, with the same effect as if the Warrants had been exercised on and
as of such effective time. In the event of any merger, consolidation, sale or
lease of substantially all of the Company's assets or reorganization whereby the
Company is not the surviving corporation, in lieu of the foregoing provisions of
this Paragraph 9(j), the Company may provide in the agreement relating to the
transaction that each Warrant shall become, be converted into or be exchanged
for, such securities of the surviving or acquiring corporation or other entity
as has a value equal to the value of the Warrants, the value of the Warrants and
securities being issued in exchange therefor to be determined by the Company's
Board of Directors, such determination to be final, binding and conclusive on
the Company and the holders of the Warrants.
(k) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Paragraphs 2(e) and 9(i) of this Agreement, continue to express the
Purchase Price per share,
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<PAGE>
the number of shares purchasable thereunder and the Redemption Price therefor as
if the Purchase Price per share, and the number of shares purchasable and the
Redemption Price therefore were expressed in the Warrant Certificates when the
same were originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by the
Chairman, President, Vice President or Treasurer, of the Company setting forth:
(i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and (iii) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Warrant Agent and cause a
brief summary thereof to be sent by first class mail to the Representative and
to each registered holder of Warrants at his last address as it shall appear on
the registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, constitute prima facie evidence of the facts stated therein.
(m) As used in this Paragraph 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or, in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Paragraph 9(j) of this Agreement, the stock, securities or property provided
for in such section or, in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9, or
as to the amount of any such adjustment, if required,
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shall be binding upon the holders of the warrants and the Company if made in
good faith by the Board of Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. If the Company exercises such right
no adjustment which otherwise might be called for pursuant to said Paragraph
9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Paragraph 9 of this Agreement, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(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
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<PAGE>
upon exercise of such Warrants for any purpose whatsoever, nor shall anything
contained in this Agreement be construed to confer upon the holder of Warrants,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provide in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance of the Warrants, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly 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.
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<PAGE>
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company, and its duties shall be determined solely by the
provisions of this Agreement. The Warrant Agent shall not, by issuing and
delivering Warrant certificates or by any other act hereunder be deemed to make
any representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts contained
herein or for any action taken, suffered or omitted by it in reliance on any
Warrant Certificate or other document or instrument believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own negligence or wilful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, 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.
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<PAGE>
(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.
(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
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Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may,
by supplemental agreement, make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law; and provided, further, that Paragraphs 4(b)
and 4(c) may not be modified or amended without the consent of Patterson Travis.
17. Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and, unless otherwise expressly
provided in this Agreement, delivered personally or sent by overnight courier or
messenger against receipt thereof or sent by registered or certified mail (air
mail if overseas), return receipt requested, or by facsimile transmission or
similar means of communication. Notices sent by facsimile transmission or
similar means of communication shall be confirmed by acknowledged receipt or by
registered or certified mail, return receipt requested. Notices shall be deemed
to have been received on the date of personal delivery or telecopy or, if sent
by certified or registered mail, return receipt requested, shall be deemed to be
delivered on the third business day after the date of mailing. Notices shall be
sent to the Registered Holders at their respective addresses on the Warrant
Agent's warrant register, to the Company at 1770 Motor Parkway, Hauppage, New
York 11788 telecopier (516) 582-9052, Attention: Mr. Lewis S. Schiller, Chairman
of the Board, and to the Warrant Agent at its Corporate Office, telecopier (718)
236-2641. Any party may, by like notice, change the address, person or
telecopier number to which notice should be given.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
entered and to be performed wholly within such State.
- 21 -
<PAGE>
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
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
- 22 -
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. WA _____ Warrants
Void after , 2000 or earlier upon redemption.
TRANS GLOBAL SERVICES, INC
SERIES E REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED _________________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Series E Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one (1) fully paid and nonassessable share of Common
Stock, par value $.01 per share ("Common Stock"), of Trans Global Services,
Inc., a Delaware corporation (the "Company"), at any time during the three-year
period commencing on the Effective Date, as defined in the Warrant Agreement,
but not after the Expiration Date (as hereinafter defined), upon the
Subscription Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $2.50, subject to adjustment as
provided in the Warrant Agreement (as hereinafter defined) (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of ,
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.
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
- 23 -
<PAGE>
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 , 1998, or earlier as provided in the Warrant
Agreement, this Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time, provided the Market Price (as
defined in the Warrant Agreement) for the Common Stock issuable upon exercise of
such Warrant shall equal or exceed 120% of the Purchase Price. Notice of
redemption shall be given not later than the thirtieth (30th) day nor earlier
than the sixtieth (60th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.05 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant, is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
TRANS GLOBAL SERVICES, INC
Dated: By:___________________________
Lewis S. Schiller, Chairman
By:___________________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Warrant Agent
By:______________________
Authorized Officer
- 24 -
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $4.00 PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
__________________________________
__________________________________
__________________________________
__________________________________
[please print or type name and address]
and be delivered to
__________________________________
__________________________________
__________________________________
__________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Patterson Travis Inc.
- ------------------------------------
(Name of NASD Member if other than
Patterson Travis Inc.)
Dated:_______________ x___________________________
___________________________
___________________________
Address
______________________________
Taxpayer Identification Number
______________________________
- 25 -
<PAGE>
Signature Medallion Guaranteed:
_______________________________
- 26 -
<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.
- 27 -
<PAGE>
EXHIBIT B
[FORM OF FACE OF WARRANT CERTIFICATE]
No. WB _____ Warrants
Void after , 2000 or earlier upon redemption.
TRANS GLOBAL SERVICES, INC
SERIES F 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 F 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 three-year
period commencing on the Effective Date, as defined in the Warrant Agreement,
but not after the Expiration Date (as hereinafter defined), upon the
Subscription Form on the reverse hereof duly executed, at the corporate office
of American Stock Transfer & Trust Company, as Warrant Agent, or its successor
(the "Warrant Agent"), accompanied by payment of $4.125, subject to adjustment
as provided in the Warrant Agreement (as hereinafter defined) (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of ,
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.
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
- 28 -
<PAGE>
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 , 1998, or earlier as provided in the Warrant
Agreement, this Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at the time and in the manner provided in
the Warrant Agreement. Notice of redemption shall be given not later than the
thirtieth (30th) day nor earlier than the sixtieth (60th) day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
5:00 P.M. (New York City time) on the business day immediately preceding the
date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.05 per Warrant upon surrender of
this Certificate. This Warrant may only be called for redemption if, on the date
the Warrant is called for redemption, the issuance of the shares of Common Stock
upon exercise of this Warrant, is subject to a current and effective
registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
TRANS GLOBAL SERVICES, INC
Dated:____________ By:________________________
Lewis S. Schiller, Chairman
By:____________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
as Warrant Agent
By:___________________
Authorized Officer
- 29 -
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $4.00 PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________
_________________________________
_________________________________
_________________________________
[please print or type name and address]
and be delivered to
_________________________________
_________________________________
_________________________________
_________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
Unless otherwise indicated by listing the name of another NASD member firm, it
will be assumed that the exercise was solicited by Patterson Travis Inc.
- ------------------------------------
(Name of NASD Member if other than
Patterson Travis Inc.)
Dated:____________ x____________________________
____________________________
____________________________
Address
____________________________
Taxpayer Identification Number
____________________________
- 30 -
<PAGE>
Signature Medallion Guaranteed:
_______________________________
- 31 -
<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.
- 32 -
<PAGE>
Exhibit 11.1
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended Years ended
December 31, 1996 December 31,
Primary EPS Fully Diluted EPS 1 9 9 5 1 9 9 4
----------- ----------------- ------- -------
<S> <C> <C> <C> <C>
Net Loss - Historical $ (681,250) $ (681,250) $ (4,695,745) $ 410,622
=============== ==============
Adjustments Per Modified Treasury
Stock Method 448,289 440,238
--------------- ---------------
Adjusted Net Loss - Primary $ (232,961)
===============
Adjusted Net Loss - Fully Diluted $ (241,012)
===============
Loss Per Share:
Loss Per Share - Note 1 $ (0.01) $ (1.48) $ (0.68)
=============== ============== ==============
Loss Per Share - Assuming Full
Dilution - Note 2 $ (0.01) $ (0.49) $ (0.68)
=============== ============== ==============
</TABLE>
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 and
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.
(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.
<PAGE>
TRANS GLOBAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF EARNINGS PER SHARE [CONTINUED]
- --------------------------------------------------------------------------------
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 and
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>
SCHEDULE 1
PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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
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
7,371,128 @ 2.5% /2 92,139
<PAGE>
SCHEDULE 1
PRIMARY EARNINGS PER SHARE - DECEMBER 31, 1996
[continued]
- --------------------------------------------------------------------------------
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 -232,961/20,444,923 = -0.011394564802
($0.01)
Total reacquired
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
----------
12,762,169
<PAGE>
SCHEDULE 2
FULLY DILUTED EARNINGS PER SHARE - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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
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 1.750( 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
6,727,066 @ 2.5%/2 84,088
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 -241,012/20,444,923 ($0.0118)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND THE STATEMENT OF OPERATIONS FILED AS PART OF THE
REGISTRATION STATEMENT REPORT ON FORM S-1/A AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REGISTRATION STATEMENT ON FORM S-1/A.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 56,231
<SECURITIES> 0
<RECEIVABLES> 5,190,056
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,518,861
<PP&E> 461,146
<DEPRECIATION> 386,565
<TOTAL-ASSETS> 13,099,980
<CURRENT-LIABILITIES> 6,273,522
<BONDS> 0
<COMMON> 229,014
0
0
<OTHER-SE> 6,597,444
<TOTAL-LIABILITY-AND-EQUITY> 13,099,980
<SALES> 62,594,051
<TOTAL-REVENUES> 62,594,051
<CGS> 57,436,052
<TOTAL-COSTS> 57,436,052
<OTHER-EXPENSES> 5,126,960
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 712,289
<INCOME-PRETAX> (681,250)
<INCOME-TAX> 0
<INCOME-CONTINUING> (681,250)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (681,250)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.01)
</TABLE>
