AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996
REGISTRATION STATEMENT NO. 333-08657
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MANSUR INDUSTRIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 3599 65-0226813
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (Primary Standard Industrial (I.R.S. Employer
INCORPORATION OR ORGANIZATION) Classification Code Number) Identification No.)
PAUL I. MANSUR
CHIEF EXECUTIVE OFFICER
8425 S.W. 129TH TERRACE MANSUR INDUSTRIES, INC.
MIAMI, FLORIDA 33156 8425 S.W. 129TH TERRACE
(305) 232-6768 MIAMI, FLORIDA 33156
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (305) 232-6768
NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND
INCLUDING AREA CODE, OF REGISTRANT'S PRIN- TELEPHONE NUMBER,
CIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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WITH COPIES TO:
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GARY M. EPSTEIN, ESQ. LAWRENCE B. FISHER, ESQ.
GREENBERG, TRAURIG, HOFFMAN, ORRICK, HERRINGTON & SUTCLIFFE LLP
LIPOFF, ROSEN & QUENTEL, P.A. 666 FIFTH AVENUE
1221 BRICKELL AVENUE NEW YORK, NEW YORK 10103
MIAMI, FLORIDA 33131 (212) 506-5000
(305) 579-0500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
Common Stock, $.001 par value 977,500 shares(2) $8.00 per share $ 7,820,000 $ 2,696.55
Common Stock, $.001 par value 150,000 Shares(3) $8.00 per Share $ 1,200,000 $ 413.79
Representative's Warrants 85,000 Warrants(4) $.001 per Warrant $ 85 (5)
Common Stock, $.001 par value 85,000 Shares(6) $9.60 per Share $ 816,000 $ 281.38
Total Registration Fee $ 3,391.72(7)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) Includes 127,500 Shares subject to the Underwriters' over-allotment
option.
(3) Shares of Common Stock being registered for the account of certain
stockholders of the Registrant, which shares, as of the closing of this
offering, will be automatically issued upon conversion of $1,012,500 in
principal amount of Convertible Redeemable Notes due June 10, 1997.
(4) To be issued to the Representative, as set forth on the cover page of the
Prospectus comprising a portion of this Registration Statement.
(5) No fee due pursuant to Rule 457(g).
(6) Issuable upon exercise of the Underwriter's Warrants, together with such
indeterminate number of shares of Common Stock as may be issuable by reason
of the anti-dilution provisions contained therein.
(7) $3,327.07 of such amount was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
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<S> <C>
MANSUR INDUSTRIES INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Items of Form S-1.
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT Location in Prospectus
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1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover
of Prospectus Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Prospectus Summary; Use of Proceeds;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
5. Determination of Offering Price Outside Front Cover Page; Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security Holders Not Applicable
Outside Front Cover Page; Inside Front Cover
8. Plan of Distribution Page; Underwriting
9. Description of Securities to be Registered Prospectus Summary; Capitalization;
Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front and Inside
Front Cover Pages;
Prospectus Summary; Risk
Factors; Dividend
Policy; Capitalization;
Selected Financial Data;
Management's Discussion
and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Certain Transactions;
Principal Shareholders;
Description of Capital
Stock; Shares Eligible
for Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1996
PROSPECTUS
850,000 SHARES
[MANSUR INDUSTRIES LOGO]
Common Stock
The shares of Common Stock, $.001 par value ("Common Stock"), offered
hereby are offered by Mansur Industries Inc. (the "Company"). Prior to this
offering, there has been no public market for the Common Stock and there can
be no assurance that any such market will develop. It is anticipated that the
initial public offering price will be between $7.00 and $8.00 per share. For
information regarding the factors considered in determining the initial
public offering price of the Common Stock, see "Underwriting." The Company
has made an application to include the Common Stock on the Nasdaq Small Cap
Market under the symbol "MANS."
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SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO Underwriting Proceeds to
PUBLIC Discounts(1) Company(2)
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) Does not include compensation payable to the Representative in the form of a
nonaccountable expense allowance equal to 3% of the gross proceeds of this
offering. In addition, see "Underwriting" for information concerning
indemnification and contribution arrangements with and other compensation
payable to the Underwriters.
(2) Before deducting estimated expenses of $465,750 payable by the Company,
which includes the nonaccountable expense allowance payable to the
Representative.
(3) The Company has granted the Underwriters a 45-day option to purchase up
to 127,500 additional shares of Common Stock upon the same terms and
conditions as set forth above, solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
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The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify this offering and to reject any order in whole or in part.
It is expected that delivery of the shares of Common Stock offered hereby
will be made against payment on or about , 1996 at the offices of First Allied
Securities Inc., New York, New York.
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[FIRST ALLIED SECURITIES INC. LOGO]
, 1996
<PAGE>
[PHOTOS/ART]
The following text appears as a caption: MANSUR. The Company's line of
self-contained, recycling industrial parts washers incorporate innovative,
proprietary and patented waste minimization technologies and represent a
significant advance over currently available machinery and processes.
Artistic depictions of the following appear here: The Company's Series 500
SystemOne Washers, the Company's Multiprocess Jet and Immersion Washers and the
Company's Series 300 SystemOne Mini Washers.
THE FOLLOWING TEXT APPEARS AS A CAPTION: MANSUR VERSUS INDUSTRY
An artistic depiction of the Company's Series 500 SystemOne Washer appears
here.
An artistic depiction of a large recycling plant and the recycling process
employed by the Company's competitors appears here.
The following text appears in a caption: The Company's products allow the use
and re-use of the cleaning solvent by removing all the contaminants from the
solvent within the cleaning unit itself, minimizing the volume of waste
by-product and providing pure solvent to the customer on demand, without the
costly and dangerous storage and transportation of hazardous waste.
The following text appears as a caption: Under the most common current
practice, the cleaning solvent becomes contaminated (and less effective) with
repeated use and it must be stored until pick-up, when pure solvent is delivered
and the contaminated solvent is generally shipped to regional refining
facilities (typically on four to sixteen week cycles).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
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THE COMPANY WILL FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES (I) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION (THE
"OVER-ALLOTMENT OPTION") TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS
NOT BEEN EXERCISED, (II) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000
SHARES OF COMMON STOCK HAVE NOT BEEN EXERCISED, AND (III) THAT $1,012,500 IN
PRINCIPAL AMOUNT OF CONVERTIBLE NOTES (THE "CONVERTIBLE NOTES") ISSUED IN A
PRIVATE FINANCING COMPLETED BY THE COMPANY IN JUNE 1996 HAS BEEN CONVERTED INTO
150,000 SHARES OF COMMON STOCK SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING.
SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "UNDERWRITING."
THE COMPANY
Mansur Industries Inc. (the "Company") has developed and obtained patent
protection with respect to a full line of self-contained, recycling industrial
parts washers that incorporate innovative, proprietary waste minimization
technologies and represent a significant advance over currently available
machinery and processes. Focusing on waste minimization rather than its removal
and recovery, the Company believes that its equipment will have a major impact
on the industrial parts cleaning industry and will have a broad appeal to
customers, because its equipment, unlike the machines now in use, facilitates
efficient and economical compliance with environmental regulations, minimizes
waste disposal requirements, enhances cleaning solution utilization, and
increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company's products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness of
the Company's products in accomplishing the distillation of contaminated solvent
to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Engineering and Environmental
Services, Inc.
While the Company intends to exploit its current full line of industrial
washers, and to continue its research and development of new products, it has
initially focused its attention on its General Parts Washer, marketed as
SystemOne(Trademark) (the "SystemOne(Trademark) Washer"). The
SystemOne(Trademark) Washer consists of a washing sink mounted on top of a metal
cabinet in which the distillation and recovery apparatus is contained. The
equipment allows the solvent to be used, treated and re-used, on demand, without
3
<PAGE>
requiring off-site processing. The Company has concluded extensive testing by
independent laboratories and at various commercial sites and is currently
conducting test marketing in a local area within close proximity to its
facilities. Demonstrator models were placed in 38 selected automotive repair
facilities of national, fleet, industrial and commercial accounts.
Notwithstanding the absence of a formal marketing program during the test
period, the Company has, as of the date of this Prospectus, received firm
purchase orders from a number of facilities in which the machines were placed,
including Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company and
Pantropic Power Products, South Florida Caterpillar dealers (48 Units); United
States Postal Service (2 Units); Southern Sanitation, a subsidiary of Waste
Management, Inc. (5 Units); Broward County Mass Transit (25 Units); Greenwich
Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 Units). The Company finances its
SystemOne/trademark/ Washers through a third party leasing program with Oakmont
Financial Services. The Company commenced commercial sales and delivery of units
in July 1996 at an approximate price per unit of $2,700, and expects to deliver
substantially all units ordered to date prior to December 31, 1996. As of the
date of this Prospectus, the Company had delivered and recognized the sale of 44
units.
The initial market for the Company's industrial cleaning product line
includes automotive, aviation, marine and general industrial maintenance,
service and repair operations. The Company believes that domestic expenditures
in connection with industrial parts cleaning machines exceeds $1.0 billion
annually, and that the anticipated monthly cost to the customer for the
Company's products typically will not exceed, and is intended to be well below,
the monthly cost of the non-recycling machines now in use. Additional
competitive advantages provided by the Company's products include practical and
cost effective compliance with demanding regulations of the Environmental
Protection Agency; elimination of routine waste disposal costs; significant
improvements in cleaning productivity; minimized cleaning solution purchases;
and reduction of equipment down time for routine machine maintenance.
The Company has retained experienced executives to head and develop its sales
and marketing organization. In addition to its regional office in Miami, the
Company expects to open four additional service centers in Orlando, Tampa,
Jacksonville and West Palm Beach, Florida during 1996. The Company expects to
pursue a national expansion program, through internal growth utilizing a network
of regional distribution and service centers, as in Florida, through a strategic
alliance with a national distributor, if one is available on favorable terms, or
through a combination of the two. In August, the Company commenced a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne/trademark/ Washer. Under
the pilot program, First Recovery is the exclusive distributor of the
SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The
initial term of the program is one year. If the arrangement proves successful,
the Company expects to negotiate a broader agreement, possibly including a
national distribution program.
The Company has manufactured all its prototype and test models at its 10,000
square foot research and development ("R&D") facility. The Company's current
manufacturing capabilities include advanced Computer Aided Design/Computer Aided
Manufacturing technology and state of the art manufacturing machinery. Because
the Company's R&D facility can be utilized to manufacture up to 200 units of the
SystemOne(Trademark) Washer per month, all manufacturing operations, including
design, metal fabrication, robotic welding, painting and assembly, can be
performed in the Company's R&D facility during the Company's initial roll-out
phase. At present, the Company plans to continue to use its own facility for
existing and new product R&D activities and to use contract manufacturers when a
product achieves commercial sales levels. In order to accommodate increased
demand for the SystemOne(Trademark) Washer, the Company has entered into an
agreement with a contract manufacturer with respect to the manufacture of at
least 3,000 units during the first year thereof. In addition, the Company has
entered into negotiations with a major contract manufacturer with a 2 million
square foot facility and 75 years of experience to provide the manufacturing
capacity needed to meet anticipated future customer demand.
4
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THE OFFERING
<S> <C>
Common Stock Offered .............................850,000 shares
Common Stock Outstanding After Offering ..........4,351,309(1)
Use of Proceeds by the Company ...................The Company intends to apply the net proceeds of the offering for the:
development of manufacturing capacity; development of marketing, sales and
service centers and a fleet of service vehicles; development of corporate
headquarters and research and development facilities; purchase of raw materials
and inventory; and working capital and general corporate purposes. See "Use of
Proceeds."
Risk Factors ......................................This offering involves a high degree of risk and immediate substantial dilution.
See "Risk Factors" and "Dilution."
Proposed Nasdaq SmallCap Symbol ..................MANS
</TABLE>
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(1) Does not include an aggregate of 375,000 shares of Common Stock reserved
for issuance upon exercise of options available for future grant and
future restricted stock awards under the Company's Incentive Compensation
Plan. See "Underwriting" and "Management--Incentive Compensation Plan."
Mansur Industries Inc. was incorporated in Florida in 1990. The Company's
principal executive office is located at 8425 S.W. 129th Terrace, Miami,
Florida 33156, and its telephone number is (305) 232-6768.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
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<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
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STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .......... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses ......... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ............ -- (16,299) (16,360) (46,312)
Exchange (expense) on redeemable
preferred stock .................. -- -- -- --
Loss on disposition of property and
equipment ........................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ......................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable preferred
stock ............................ -- -- (8,328) (53,929)
Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 907,393 $ 418,079 $ 622,641
Research and development .......... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses ......... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ............ (17,878) (26,462) (13,094)
Exchange (expense) on redeemable
preferred stock .................. -- -- (344,631)
Loss on disposition of property and
equipment ........................ -- -- --
--------------- ------------- ---------------
Net (loss) ......................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock ............................ (222,067) (75,066) (147,000)
Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ................... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
----------------------------------------------------------- -------------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------------ ---------- ---------- ----------- ------------ ---------- --------------
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BALANCE SHEET DATA:
WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188) $ (216,966) $5,921,034
TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212
CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014
TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
</TABLE>
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(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) The information provided has been adjusted to reflect (i) the issuance of
150,000 shares of Common Stock as a result of the conversion of the
Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.50 per
share and the initial application of the estimated net proceeds therefrom.
See "Capitalization" and "Use of Proceeds." The information provided has not
been adjusted to reflect that the Company issued $500,000 in principal
amount of Short Term Notes as of September 9, 1996.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The Company was
formed in November 1990 and was a development stage company through June 30,
1996. Since its inception in November 1990, the Company has devoted
substantially all of its resources to research and development programs relating
to its full line of self contained, recycling industrial parts washers. As a
result of such efforts, from inception until June 30, 1996, the Company
accumulated a deficit of $3,577,015. It has only recently commenced the
marketing and sale of one of its product lines on a limited basis, and has a
limited operating history upon which an evaluation of the Company's performance
and prospects can be made. The Company's prospects must be considered in light
of the numerous risks, expenses, delays, problems and difficulties frequently
encountered in the establishment of a new business in an industry characterized
by vigorous competition and regulatory requirements. Since inception, the
Company has incurred significant losses, including losses of $492,872 and
$1,319,145, for the years ended December 31, 1994 and 1995, respectively, and a
loss of $1,345,801 for the six months ended June 30, 1996. Losses are continuing
through the date of this Prospectus. Inasmuch as the Company's operating
expenses have increased and can be expected to continue to increase
significantly in connection with the Company's proposed expansion, including the
development of manufacturing capabilities, the development and establishment of
regional sales, service and technological support centers and a service fleet,
the development of a larger corporate headquarters and research and development
facility, and the purchase of raw materials and inventory, the Company
anticipates that losses and negative operating cash flow will continue until
such time, if ever, as the Company is able to generate sufficient revenues to
offset its operating costs and the costs of continuing expansion. There can be
no assurance that the Company will generate significant revenues or ever achieve
profitable operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have been
marketed in limited geographic areas and for a limited period of time and, thus,
have achieved only limited market acceptance. As of the date of this Prospectus,
the Company has received firm purchase orders for 196 SystemOne/trademark/
Washers and anticipates delivering substantially all of the ordered units prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units. The Company is attempting to
market a new product which relies on a fundamental change in the way parts and
tools are cleaned and solvent utilized, an activity pattern which has been
relatively consistent within the target industries in the past. As is typically
the case with an emerging business concept, demand and market acceptance for
newly introduced products and services are subject to a high level of
uncertainty. The Company has limited marketing experience and limited financial,
marketing, personnel and other resources to undertake extensive marketing
activities. The Company's success will be largely dependent on the Company's
ability to position its products as a preferred method for cleaning parts. The
Company believes that substantially all its target customers currently utilize
competitive parts cleaning equipment. Potential customers may elect to utilize
devices or methods with which they are more familiar or which they believe to be
more efficient or have other advantages over the Company's system. Accordingly,
achieving market acceptance for the Company's products will require substantial
marketing efforts and expenditure of significant funds to educate automotive
dealership and repair facilities and other potential users of the products of
the distinctive characteristics and benefits of the Company's products as well
as their environmental and cost savings advantages. There can be no assurance
that the Company's efforts will result in significant initial or continued
market acceptance for the Company's products or that the Company will succeed in
positioning its products as a preferred method for cleaning parts. See
"Business--Marketing and Servicing Strategy."
INDUSTRY COMPETITION. The parts cleaning industry is characterized by
intense competition, and the industry is dominated by Safety-Kleen, Inc. A
number of other companies provide parts cleaning
7
<PAGE>
equipment and services. While the Company believes that none of its competitors
offer a product with the same features as the Company's products, many customers
may view the products as functionally equivalent, and there can be no assurance
that functionally equivalent products will not become available in the near
future. In addition, there are numerous companies involved in the waste
management industry, including waste hauling companies and companies engaged in
waste separation, recovery and recycling, which may have the expertise and
resources that would encourage them to attempt to develop and market products
which would compete with the Company's products or render them obsolete or less
marketable. Safety-Kleen, Inc., as well as most of the companies marketing such
waste disposal services or products or with the potential to do so, are well
established, have substantially greater financial and other resources than the
Company, and have established reputations relating to product design,
development, marketing and support. There can be no assurance that the Company's
financial performance and prospects will not be negatively affected if
Safety-Kleen, Inc. materially lowers the price to customers of its parts
washers, or that the Company will be able to compete successfully. See
"Business--Competition."
RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited
growth to date and has limited experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. Expansion of the
Company's operations will be dependent on, among other things, the Company's
ability to achieve significant market acceptance for its products, successfully
locate, establish and operate Service Centers, hire and retain skilled
management, marketing, technical and other personnel, secure adequate sources of
supply on a timely basis and on commercially reasonable terms, successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls), and maintain a third party leasing
program capable of financing the customer's acquisition of the Company's
products in a timely manner. To date, a substantial portion of the Company's
products have been installed on a test basis in automotive dealership and repair
facilities concentrated in limited geographic markets near the Company's
headquarters. The Company's growth prospects will be largely dependent upon its
ability to achieve greater penetration in these markets as well as significant
penetration in new geographic markets. The Company's prospects could be
adversely affected by declines in the automotive sales, maintenance or service
industries or the economy generally, which could result in reduction or deferral
of capital expenditures by prospective customers. The Company's future growth
will also be dependent upon the Company's ability to achieve a sufficient
installed base of its products. The Company may also seek to expand its
operations through the acquisition of existing companies with customer bases
that would appear to have needs for the Company's product line. There can be no
assurance that the Company will be able to successfully expand its operations.
See "Business--Marketing and Servicing Strategy."
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; POSSIBLE
NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have been and
will continue to be significant. The Company is dependent on and intends to use
a substantial portion of the proceeds of this offering to implement its proposed
expansion. The Company anticipates, based on currently proposed plans and
assumptions relating to its operations (including the anticipated costs
associated with, and timetable for, its proposed expansion), that the proceeds
of this offering, together with cash flow from operations, will be sufficient to
satisfy its contemplated cash requirements for at least 12 months following the
consummation of this offering. In the event that the Company's plans change, its
third party lease financing arrangement does not function as anticipated, its
assumptions change or prove to be inaccurate or if the proceeds of this offering
or cash flow otherwise prove to be insufficient to fund expansion (due to
unanticipated expenses, delays, problems, difficulties or otherwise), the
Company has plans to restructure its operations to minimize cash expenditures
and/or obtain additional financing in order to support its plan of operations.
The Company has no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. Although the
Company believes that available third party lease financing may help offset the
Company's cost structure for product rollout, a significant level of demand for
the Company's products will, in all likelihood, initially result in significant
up-front capital expenditures without corresponding cash flow. Any additional
equity financing may involve
8
<PAGE>
dilution to the interests of the Company's then existing shareholders. If
adequate funds are not available from additional sources of financing, the
Company's business may be materially adversely affected. See "Use of
Proceeds."
RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into a third
party lease financing arrangement (the "Product Financing Agreement") with
Oakmont Financial Services ("Oakmont"), pursuant to which Oakmont has agreed to
provide third party leasing services. If the Company breaches certain
warranties, Oakmont has the right to require the Company to repurchase the
leased unit from Oakmont. Specifically, the Company has agreed to make the
following warranties upon each sale to Oakmont, which warranties provide Oakmont
with a basis for recourse against the Company for certain customer failures: (i)
to the best of the Company's knowledge, the customer will use the
SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the
best of the Company's knowledge, the lease and related documents have been duly
executed and delivered; (iii) the lease incorporates all of the representations
and warranties made by the Company to the lessee; (iv) all dealings by the
Company with the lessee have been in accordance with all applicable laws and
regulations; (v) the conduct of the Company in developing a lease will not
subject Oakmont to suit or administrative proceeding; (vi) the lessee has no
defense, offset or counterclaims as to the enforcement of the lease arising out
of the conduct or failure to perform of the Company; (vii) the Company does not
know of any fact which indicates the uncollectibility of the lease; (viii) to
the best of the Company's knowledge the information provided by the lessee to
the Company and Oakmont is accurate and complete; (ix) except for funds which
Oakmont has agreed the Company is entitled to retain, the Company has not
retained any funds given to it by a lessee; and (x) title to the
SystemOne/trademark/ Washer has vested in Oakmont free and clear of any liens of
persons claiming by, through or under the Company. In the event the Company
breaches one of the foregoing warranties and fails to cure the breach, the
Product Financing Agreement requires the Company to purchase from Oakmont the
leased SystemOne/trademark/ Washer and Oakmont's rights under the lease
agreement with the customer for an amount equal to the sum of all lease payments
then due and owing under the lease, all lease payments payable from the date of
default to the end of the lease term and twenty percent of the equipment cost,
less any applicable deposit which may be retained by Oakmont. Where required by
applicable law, the foregoing amounts are required to be calculated using the
discounted present value of the subject lease payments. To the extent that the
Company is required to use a portion of the proceeds of this offering to
repurchase units from Oakmont, the Company will have less resources available to
it for other purposes. Oakmont has the right to review the creditworthiness of
proposed lessees and to withhold financing on the basis of its credit review.
While the Company may terminate its agreement with Oakmont if Oakmont
consistently refuses to approve the credit of the Company's proposed lessees,
any such termination, in the absence of alternative financing programs, could
have a material adverse effect on the Company. The Company is not likely to
utilize third party financing with respect to units leased under its pilot
marketing program with First Recovery and Valvoline Oil Company, but will,
instead, use a portion of the proceeds of this offering. See "Use of Proceeds",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing and Servicing Strategy."
DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government
authorities have adopted extensive regulations regulating the storage, handling,
shipment, recycling and/or disposal of hazardous waste, including contaminated
solvent used in industrial parts washers. The Company believes that continuing
initiatives of federal, state and local government authorities and increasing
storage and hauling costs and disposal fees will create incentives for customers
to use the Company's products. Failure by government authorities to continue to
implement such legislation or significant relaxation of such requirements or
enforcement thereof could have a material adverse effect on the Company's
business and prospects. Moreover, while the Company believes that the
utilization of its products as intended does not constitute the generation,
treatment or disposal of hazardous waste and that its products yield pure
solvent and a residue that is not classified as hazardous waste, but may,
rather, be disposed of or utilized as used motor oil, there can be no assurance
that environmental agencies will reach the same conclusion. If the utilization
of the Company's products constitutes the generation, treatment or disposal of
hazardous waste, if the residue is classified as hazardous waste, or if used
motor
9
<PAGE>
oil itself is classified as hazardous waste, the Company will lose a
significant competitive advantage. The Company believes that certain of its
competitors have attempted and are continuing their efforts to have used
motor oil classified as a hazardous waste. See "Business--Industry Overview"
and "Risk Factors--Potential Warranty Expense and Product Liability."
DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will be
dependent on a number of third parties for its components and for the
manufacture of a large portion of its finished units. Although the Company has
entered into a SystemOne/trademark/ Washer supply agreement with a contract
manufacturer and believes that several alternative manufacturing sources are
readily available, failure by its current manufacturer to continue to supply the
Company on commercially reasonable terms, or at all, in the absence of readily
available alternative sources, would have a material adverse effect on the
Company. The Company is substantially dependent on the ability of its 42
component and raw material suppliers and contract manufacturer, among other
things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for components and raw materials within scheduled
delivery times. See "Business--Manufacturing and Supply."
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four
United States patents and has four United States patents pending with respect to
the Company's products. Two of the four pending patents have been allowed by the
U.S. Patent Office and are awaiting issuance. Other parts washing machines which
may not be covered by the Company's patents are currently in commercial
distribution by the Company's competitors. The Company has applied for
international patents in Canada, Mexico, Europe and Japan and anticipates that
it will apply for additional patents as deemed appropriate. The Company believes
that patent protection is important to its business and that it could be
required to expend significant funds in connection with enforcing or defending
its patent rights. There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford the Company,
that any unissued patent applications will result in issued patents or that
patents will not be circumvented or invalidated. It is possible that the
Company's existing patent rights may not be valid although the Company believes
that neither its products nor processes now infringe or will infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event that the Company's products or processes infringe patents or proprietary
rights of others, the Company may be required to modify the design or obtain a
license. There can be no assurance that the Company will be able to do so in a
timely manner, upon acceptable terms and conditions or at all. Failure to do any
of the foregoing could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will have the financial or
other resources necessary to enforce or defend a patent infringement,
proprietary rights violation action or alleged infringement or violation action.
Moreover, if the Company's products or processes infringe patents or propriety
rights of others, the Company could, under certain circumstances, become the
subject of an immediate injunction and be liable for damages, which could have a
material adverse effect on the Company. See "Business--Patents, Trademarks and
Proprietary Technology."
The Company also relies on trade secrets and proprietary know-how and employs
various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such agreements will adequately protect
the Company's trade secrets. Since the Company believes that its proprietary
information is important to its business, failure to protect such information
could have a material adverse effect on the Company. See "Business--Patents,
Trademarks and Proprietary Information."
POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company unconditionally
warrants its products to be free of material defects for 60 months. In addition
the Company warrants to users that if, for any reason, the residue generated by
its System One/trademark/ Washer cannot be recycled and/or disposed of as used
oil, the Company will pay for any required recovery and disposal services.
Accordingly, the
10
<PAGE>
Company could incur significant warranty expenses as a result of defects in its
products or a change in federal or state regulations pertaining to the disposal
of cleaning residue. Since the Company only recently commenced its planned
principal operations, the reserve account it will establish for warranty expense
will be derived without the benefit of historical figures and actual warranty
expenses could exceed the amount which will be established as a reserve. The
Company may also be exposed to potential product liability claims by its
customers and users of its products. The Company maintains product liability
insurance coverage of $5,000,000 in the aggregate and $5,000,000 per occurrence.
The Company believes such insurance provides adequate coverage for the types of
products currently marketed by the Company. There can be no assurance, however,
that such insurance will be sufficient to cover potential claims or that an
adequate level of coverage will be available in the future at a reasonable cost.
A partially insured or completely uninsured successful claim against the Company
could have a material adverse effect on the Company. See "Business--Sales
Financing and Service Programs" and "--Product Liability and Insurance."
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Pierre Mansur, its Chairman of the Board
and President and the inventor of the Company's products, Paul Mansur, its Chief
Executive Officer, and other key personnel. Although the Company has entered
into employment agreements with Pierre Mansur and Paul Mansur which expire in
September 1997, the loss of the services of either of such individuals or
certain other key employees, could have a material adverse effect on the
Company's business and prospects. The Company has obtained and is the sole
beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in
the amount of $1,000,000. The success of the Company is also dependent upon its
ability to hire and retain additional qualified marketing, technical and other
personnel. There can be no assurance that the Company will be able to hire or
retain such personnel. See "Management."
CONTROL BY MANAGEMENT. After consummation of this offering, Pierre Mansur
will beneficially own approximately 46% of the Company's outstanding Common
Stock. Accordingly, Pierre Mansur will be in a position to effectively
control the Company, including the election of all of the directors of the
Company. See "Management" and "Principal Shareholders."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED
PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from this
offering has been allocated to working capital and general corporate purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. In addition, the Company may use a portion of the
net proceeds allocated to working capital to pay salaries and benefits of
executive officers over the 12 months following the consummation of this
offering to the extent cash flow is insufficient for such purpose.
See "Use of Proceeds."
DIVIDENDS. The Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash dividends in the foreseeable
future. See "Dividend Policy."
DILUTION. The assumed initial offering price of $7.50 is substantially
higher than the net tangible book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering will incur immediate and
substantial dilution of approximately $6.10 (81%) per share of Common Stock
from the assumed initial public offering price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker
dealer on March 29, 1994. The Representative was relatively inactive for a
period of time and was reactivated under its present ownership structure on
December 15, 1994. The Representative does not have extensive experience as an
underwriter of public offerings of securities, having acted as the managing
underwriter for three public offerings. The Representative is a relatively small
firm and no assurance can be given that the Representative will participate as a
market maker in the Common Stock. In the event the Representative does not
participate as a market maker the liquidity in the Company's Common Stock may be
adversely affected. See "Underwriting."
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to
this offering, there has been no public market for the Common Stock, and no
assurance can be given that an active trading market
11
<PAGE>
will develop or be sustained after this offering. Since there has been no
trading market, the initial public offering price of the Common Stock may not
bear any relationship to the actual value of the Common Stock. The initial
public offering price was established by negotiations between the Company and
the Representative, is not necessarily related to the Company's asset value, net
worth or other established criteria of value, and may not be indicative of
prices that will prevail in the trading market. The stock market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. The market price of the Common
Stock, similar to that of securities of other development stage companies, is
likely to be highly volatile. Factors such as the results of studies and trials
by the Company or its competitors, other evidence of the efficacy of products of
the Company or its competitors, announcements of technological innovations or
new products by the Company or its competitors, changes in governmental
regulation, developments in patent or other proprietary rights of the Company or
its competitors, including litigation, fluctuations in the Company's operating
results and changes in general market conditions could have a significant impact
on the future price of the Common Stock. See "Underwriting."
NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET;
DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been
no public trading market for the Common Stock. The Common Stock has been
approved for quotation on Nasdaq SmallCap Market; however, there can be no
assurance that a trading market will develop or, if developed, that it will be
maintained. In addition, there can be no assurance that the Company will in the
future meet the maintenance criteria for continued quotation of the securities
on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap
Market includes, among other things, $2,000,000 in total assets, $1,000,000 in
capital and surplus, a public float of 100,000 shares with a market value equal
to $200,000, two market makers and a minimum bid price of $1.00 per share of
common stock. If an issuer does not meet the $1.00 minimum bid price standard,
it may, however, remain on the Nasdaq SmallCap Market if the market value of its
public float is at least $1,000,000 and the issuer has at least $2,000,000 in
equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it
more difficult to dispose of, and to obtain accurate quotations as to the value
of such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell their securities in the secondary market.
There can be no assurance that the Common Stock will not be delisted or treated
as a penny stock.
EFFECT OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF ISSUANCE OF
PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The State of Florida
has enacted legislation that may deter or frustrate takeovers of Florida
corporations. The Florida Control Share Act generally provides that shares
acquired in excess of certain specified thresholds will not possess any voting
rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. Although the Company has elected not
to be subject to the provisions of the Florida Control
12
<PAGE>
Share Act, the Company may, by amending its by-laws, elect to become subject to
the provisions of the Florida Control Share Act in the future. The Florida
Affiliated Transactions Act generally requires supermajority approval by
disinterested directors or shareholders of certain specified transactions
between a public corporation and holders of more than 10% of the outstanding
voting shares of the corporation (or their affiliates). The Company's Articles
of Incorporation authorize the issuance of 1,500,000 shares of "blank check"
Preferred Stock ("Preferred Stock") with such designations, rights and
preferences as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without shareholder approval,
to issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights that could adversely affect the voting power or other rights of the
holders of the Common Stock. The issuance of any series of Preferred Stock
having rights superior to those of the Common Stock may result in a decrease in
the value or market price of the Common Stock. Holders of Preferred Stock to be
issued in the future may have the right to receive dividends and certain
preferences in liquidation and conversion rights. The issuance of such Preferred
Stock could make the possible takeover of the Company or the removal of
management of the Company more difficult, discourage hostile bids for control of
the Company in which shareholders may receive premiums for their Common Stock
and adversely affect the voting and other rights of the holders of the Common
Stock. The Company may in the future issue additional shares of its Preferred
Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the consummation
of this offering, the Company anticipates that it will have 4,351,309 shares of
Common Stock outstanding. Of such shares, 850,000 shares are freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company.
The remaining 3,501,309 shares of Common Stock are "restricted securities," as
that term is defined under Rule 144 promulgated under the Securities Act. Of
such remaining shares: (i) 2,656,729 shares are currently eligible for sale
under Rule 144; (ii) 150,000 shares are registered for resale pursuant to an
effective registration statement; and (iii) the remainder will become eligible
for sale under Rule 144 at various times prior to June 1998. No prediction can
be made as to the effect, if any, that sales or shares of Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Shares Eligible
for Future Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains
forward-looking statements, including statements regarding, among other items
(i) the Company's growth strategies, (ii) the impact of the Company's products
and anticipated trends in the Company's business, and (iii) the Company's
ability to enter into contracts with certain suppliers and strategic partners.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate.
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<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares of
Common Stock offered hereby are estimated to be approximately $5,271,750 based
on an assumed initial public offering price of $7.50 per share (approximately
$6,103,688 if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- ------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Development of manufacturing capacity(1) .............. $ 750,000 14%
Development of marketing, sales and service centers
and service fleet(2) ................................ 1,000,000 19
Development of corporate headquarters and research and
development facilities(3) ........................... 700,000 13
Purchase of raw materials and inventory(4) ............ 1,750,000 33
Working capital and general corporate purposes(5) .... 1,071,750 21
---------------- ----------------
Total ............................................... $5,271,750 100%
================ ================
</TABLE>
- --------
(1) Represents the estimated cost of developing the Company's manufacturing
capabilities, primarily for research and development, testing and initial
pre-commercial manufacturing operations, including certain property, plant
and equipment costs, set-up costs, hard and soft tooling costs and custom
mold development costs over the next 12 months. See "Business--Manufacturing
and Supply" and "--Research and Development."
(2) Represents the estimated cost of developing sales, service and
technological support centers and a fleet of service vehicles throughout
Florida and the eastern United States over the next 12 months. See
"Business--Marketing and Servicing Strategy."
(3) Represents the estimated cost of developing a larger corporate
headquarters and research and development facility, including the cost of
a client server computer system, over the next 12 months. See
"Business--Research and Development."
(4) Represents the estimated cost of raw materials and finished goods inventory
that may be held by the Company, as well as the cost of units provided under
its pilot marketing program with First Recovery and Valvoline Oil Company
for which the Company will not use third party financing.
(5) Such figure includes the cost of retiring the Short Term Notes. As of
September 9, 1996, the Company issued $500,000 in principal amount of Short
Term Notes in a private financing. The Short Term Notes bear interest at a
rate of 4% through September 1996 and 12% thereafter. The Short Term Notes
are due and payable on September 4, 1997, or, if earlier, upon the
consummation of this offering. The Company intends to utilize the proceeds
of the Short Term Notes for the same purposes as the proceeds of this
offering are to be applied, with the exception that none of the proceeds of
the Short Term Notes will be used to develop a corporate headquarters or a
research and development facility.
The foregoing represents the Company's best estimate of its allocation of the
net proceeds of this offering based upon the current status of its business
operations, its current plans, and current economic and industry conditions.
Future events, as well as changes in economic or competitive conditions or the
Company's business and the results of the Company's sales and marketing
activities may make shifts in the allocation of funds within or between each of
the items referred to above necessary or desirable.
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of approximately $832,000 which will be
added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this offering, together with
projected cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of this offering. In the event that the Company's plans change or its
assumptions change or prove to be inaccurate or if the proceeds of this offering
or cash flow prove to be insufficient (due to unanticipated expenses or
otherwise), the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. There can be no assurance that additional financing will be
available to the Company on commercially reasonable terms, or at all.
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<PAGE>
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock.
At June 30, 1996, the net tangible book value of the Company was $(37,170),
or $(.01) per share. After giving effect to the sale of 850,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $7.50 per
share and deducting underwriting discounts and commissions and estimated
expenses of the offering, and assuming the conversion of the Convertible Notes
into 150,000 shares of Common Stock, the pro forma net tangible book value of
the Company as of June 30, 1996 would have been $6,100,830, or $1.40 per share.
This represents an immediate increase in net tangible book value of $1.41 per
share to the existing shareholders and an immediate dilution of $6.10 (81%) per
share to new investors. The following table illustrates this dilution, on a per
share basis:
INITIAL PUBLIC OFFERING PRICE OF COMMON STOCK ... $7.50
Net tangible book value before offering ........ $(.01)
Increase attributable to new investors ......... 1.41
Pro forma net tangible book value after offering 1.40
--------
Total dilution to new investors .................. $6.10
========
If the Underwriters' over-allotment option is exercised in full, the pro forma
net tangible book value of the Company as of June 30, 1996 will be $6,932,768,
or $1.59 per share. This represents an immediate increase in net tangible book
value of $1.60 per share to the existing shareholders and an immediate dilution
of $5.90 (79%) per share to new investors.
The following table summarizes, as of June 30, 1996, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid (assuming an initial public offering price
of $7.50 per share and the conversion of the Convertible Notes) by the existing
shareholders and the new investors.
<TABLE>
<CAPTION>
PERCENT PERCENT AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
------------ ----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,501,309 80.5% $ 4,142,500 39.4% $1.18
New Investors ......... 850,000 19.5% 6,375,000 60.6% $7.50
------------ ----------- ---------------- ----------------
Total ................. 4,351,309 100.0% 10,517,500 100.0%
============ =========== ================ ================
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $7,331,250 for 977,500 shares of Common Stock,
representing 63.9% of the total consideration for 21.8% of the total number of
shares outstanding.
DIVIDEND POLICY
The Company intends to retain all future earnings for the operation and
expansion of its business and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. Any
15
<PAGE>
future determination as to the payment of cash dividends will depend on a number
of factors, including future earnings, results of operations, capital
requirements, the financial condition and prospects of the Company and any
restrictions under credit agreements existing from time to time, as well as such
other factors as the Board of Directors may deem relevant. No assurance can be
given that the Company will pay any dividends in the future.
CAPITALIZATION
Set forth below is the capitalization of the Company at June 30, 1996, and as
adjusted to reflect the Company's issuance of 850,000 shares of Common Stock in
this offering at an assumed initial public offering price of $7.50 per share and
the automatic conversion of the Convertible Notes. See Note 4(B) of Notes to
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------- --------------
<S> <C> <C>
DEBT:
Short-term debt .................................................... $1,012,500 $ 0(1)
Current installments of long-term debt ............................. 48,786 48,786
Long-term debt, excluding current installments ..................... 129,014 129,014
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $1 par value; 1,500,000 shares authorized;
no shares issued and outstanding ................................. 0 0
Common Stock, $.001 par value; 25,000,000 shares authorized;
3,351,309 and 4,351,309 shares issued and outstanding,
respectively ..................................................... 3,351 4,351
Additional paid in capital ......................................... 3,560,948 9,697,948
Deficit accumulated during the development stage ................... 3,577,015 3,577,015
------------- --------------
Total stockholders' equity (deficit) .............................. (12,716) 6,125,284
------------- --------------
Total capitalization ............................................... $1,177,584 $6,303,084
============= =============
</TABLE>
- -----------
(1) The information provided has not been adjusted to reflect that the
Company issued $500,000 in principal amount of Short Term Debt as of
September 9, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The financial statements as of and for the
period from November 13, 1990 (inception) through December 31, 1991 and for the
years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. In the opinion of
the Company, the financial information for each of the six month periods ended
June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of its financial position and results of operations for
these periods. The statement of operations data for the six month period ended
June 30, 1996 is not necessarily indicative of the results of operations that
may be expected for the full year. The selected financial data presented below
should be read in conjunction with the Company's financial statements, related
notes, and other financial information contained in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development ..... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses .... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ........ -- (16,299) (16,360) (46,312)
Exchange (expense) on
redeemable preferred stock ... -- -- -- --
Loss on disposition of property
and equipment ................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ..................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable
preferred stock .............. -- -- (8,328) (53,929)
------------- ------------ ------------- -------------
Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common
share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------- ------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 907,393 $ 418,079 $ 622,641
Research and development ..... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses .... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ........ (17,878) (26,462) (13,094)
Exchange (expense) on
redeemable preferred stock ... -- -- (344,631)
Loss on disposition of property
and equipment ................ -- -- --
--------------- ------------- ---------------
Net (loss) ..................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock .............. (222,067) (75,066) (147,000)
--------------- ------------- ---------------
Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common
share(2) ..................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ............... 2,335,140 2,000,000 2,799,071
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------------- ---------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
----------- --------- ---------- ----------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ................ $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188 $ (216,966) $5,921,034
Total assets ................... 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212
Current liabilities............. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
Long-term liabilities........... 0 0 0 700,011 154,165 129,014 129,014
Total liabilities .............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
Stockholders' equity (deficit):
Total stockholders' equity
(deficit) ................... (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
- -----------
</TABLE>
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) The information provided has been adjusted to reflect (i) the issuance of
150,000 shares of Common Stock as a result of the conversion of the
Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.50 per
share and the initial application of the estimated net proceeds therefrom.
See "Capitalization" and "Use of Proceeds." The information provided has not
been adjusted to reflect the issuance by the Company of $500,000 in
principal amount of Short Term Debt as of September 9, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements, including the notes thereto, contained elsewhere in this
Prospectus.
GENERAL
Since its inception in November 1990 the Company has devoted substantially
all of its resources to research and development programs relating to its full
line of self contained, recycling industrial parts washers. The Company was a
development stage company through June 30, 1996, and commenced its planned
principal operations in July 1996. The Company has been unprofitable since its
inception and expects that it will incur significant additional losses at least
through December 31, 1996. From the period from inception through June 30, 1996,
the Company incurred a cumulative net loss of $3,577,015. The Company
anticipates that it will incur losses until such time, if ever, as the Company
is able to generate sufficient revenues to offset its operating costs and the
costs of its continuing expansion. In light of the material uncertainties in
connection with the commencement of the Company's operations, the Company cannot
reasonably estimate the length of time before the Company may generate net
income, if ever.
The Company intends to make its SystemOne/trademark/ Washer and services
available to the public through a third party leasing program. The Company will
recognize the revenue from the sale of a machine at the time that the equipment
is delivered either to the third party lessor or directly by the Company to the
lessee. A portion of the revenue (currently estimated at 10% of the sale price
per machine) will be accounted for as deferred revenue, and recognized as
revenue in respect of the service portion of the agreement over the term of the
underlying lease. See "Business--Sales Financing and Servicing Programs" for a
description of the Product Financing Agreement the Company has entered into with
Oakmont Financial Services.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
The Company did not generate any revenues prior to June 30, 1996.
The Company's general and administrative expenses increased by $204,562 to
$622,641 for the six months ended June 30, 1996 from $418,079 during the
comparable period in 1995. The 49% increase is primarily attributable to the
Company's hiring of additional management, sales and marketing staff in
anticipation of the Company's commencement of its planned principal operations
and the Company's grant of an aggregate of 30,000 shares of Common Stock to
three directors of the Company in exchange for certain consulting services. The
Company anticipates that its monthly general and administrative expenses will
continue to increase over the next twelve months if the Company's operations
expand in accordance with its proposed business plan.
The Company's research and development expenses for the six months ended June
30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125% increase is
primarily a function of the Company's accelerated prototype development during
the latter period, as opposed to the basic and applied research conducted during
the prior period. During 1996, the Company manufactured and shipped a number of
SystemOne(Trademark) Washers to various facilities to test market receptivity.
Subject to the availability of financial and personnel resources, the Company
intends to spend approximately $400,000 and $500,000 in the years ended December
31, 1996 and 1997, respectively, to complete development and testing of various
of its products and to develop new products and concepts.
The Company's interest expenses for the six months ended June 30, 1995 and
1996 were $38,259 and $24,179, respectively. The Company's interest expense in
the six months ended June 30, 1996
18
<PAGE>
decreased by 36% relative to the six months ended June 30, 1995 due to a
relative decrease in the indebtedness of the Company. In the six months ended
June 30, 1995 and 1996, the Company earned interest income of $11,797 and
$11,085 on cash deposits.
In the six months ended June 30, 1996, the Company incurred an exchange
expense of $344,631 in connection with its efforts to induce all the holders of
the Company's Series A Preferred Stock to convert their Series A Preferred Stock
to Common Stock.
As a result of the foregoing, the Company incurred a net loss of $607,273 and
$1,345,801 in the six months ended June 30, 1995 and 1996, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
The Company's general and administrative expenses for the years ended
December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The
$638,979 (238%) increase in general and administrative expenses was a function
of the Company's hiring of additional management and sales staff, increased use
of management consulting, engineering, legal and accounting professionals,
purchase of more comprehensive insurance policies and increased executive
compensation.
For the years ended December 31, 1994 and 1995, the Company's research and
development expenses were $178,146 and $393,874, respectively. The $215,728
(121%) increase in research and development expenses was a reflection of the
Company's accelerated research and development efforts and an increased focus on
developing prototype products during the latter part of 1995.
The Company's interest expense was $46,312 and $63,528 for the years ended
December 31, 1994 and 1995, respectively. The Company's interest expense
increased by $17,216 as a result of additional interest expenses incurred with
respect to equipment financing secured in September 1994. In the year ended
December 31, 1995, the Company earned interest income of $45,650 on cash
deposits.
Due to the factors described above, the Company incurred net losses of
$492,872 and $1,319,145 in the years ended December 31, 1994 and 1995,
respectively. The Company expects that it will incur significant additional
losses at least through December 31, 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
The Company's general and administrative expenses were $81,886 in the year
ended December 31, 1993 and $268,414 in the year ended December 31, 1994.
General and administrative expenses increased by $186,528 primarily in response
to increases in the Company's staff and the Company's increased use of
management consulting, engineering, legal and accounting professionals.
For the years ended December 31, 1993 and 1994, research and development
expenses were $69,256 and $178,146, respectively. The Company's expenses for
research and development increased by $108,890 as the Company increased the
scope of its research and development efforts to a number of product lines.
Interest expense for the Company for the years ended December 31, 1993 and
1994 was $16,360 and $46,312, respectively. The Company's interest expense
increased by $29,952 primarily as a result of $10,346 of additional interest
expense with respect to equipment financing secured in September 1994 and
$11,278 of additional interest expense with respect to notes payable.
In the year ended December 31, 1993, the Company recognized a $18,000 loss on
the disposal of property and equipment.
As a result of the foregoing, the Company incurred net losses of $185,502 and
$492,872 in the years ended December 31, 1993 and 1994, respectively.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficiency of $(216,966)
and cash and cash equivalents of $640,592. The Company intends to use the
proceeds of this offering and the cash generated from operations, if any, to
finance its proposed plan of operations.
The capital requirements relating to implementation of the Company's business
plan will be significant. Based on the Company's current assumptions relating to
implementation of its business plan (including the timetable of and the cost
associated with development of manufacturing capabilities, a service fleet, a
corporate headquarters, and research and development facilities), the Company
will seek to develop at least four service centers during the 12 months
immediately following this offering. The Company believes that product sales
will commence in the third quarter of 1996 and that the proceeds from the
Convertible Notes are sufficient to fund working capital requirements until
sales of the Company's products reach levels sufficient to fund working capital
requirements. The Company believes that its ability to generate cash from
operations is dependent upon, among other things, demand for its products and
services and the Company's third party leasing arrangement with Oakmont. If the
Company's third party leasing arrangements with Oakmont proves to be
unsuccessful, and the Company is unable to locate another third party willing to
provide comparable third party leasing services, the Company believes that it
will be substantially dependent upon the proceeds of this offering to execute
its proposed plan of operations over the next 12 months. If the Company's plans
change, its assumptions prove to be inaccurate, the capital resources available
to the Company otherwise prove to be insufficient to implement its business plan
(as a result of unanticipated expenses, problems or difficulties, or otherwise)
or in the event this offering is not completed, the Company has plans to
restructure its operations to minimize cash expenditures and/or obtain
additional financing in order to support its plan of operations. In order to
reduce certain of the Company's up-front capital requirements associated with
service center and service fleet development, the Company intends to lease
service center sites and may seek to the extent possible, to lease rather than
purchase certain equipment and vehicles necessary for service center
development. There can be no assurance that the Company will have sufficient
capital resources to permit the Company to fully implement its business plan.
The Company has no current arrangements with respect to, or sources of,
additional financing. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If adequate
funds are not available from additional sources of financing, the Company's
business may be materially adversely affected. In addition, any implementation
of the Company's business plan subsequent to the 12 month period immediately
following this offering will require capital resources substantially greater
than the proceeds of this offering or otherwise currently available to the
Company.
Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the
Company's material commitments principally relate to its obligations to pay the
contract manufacturers of its SystemOne(Trademark) Washers (currently
approximately $745-$905 per SystemOne(Trademark) Washer), make lease payments
pursuant to certain real property and equipment leases (currently approximately
$7,940 per month), make installment payments pursuant to an equipment purchase
finance agreement (currently approximately $5,690 per month) and satisfy its
financial obligations under seven employment agreements (currently approximately
$38,835 per month). Upon consummation of this offering and the retirement of the
Short Term Notes from the proceeds thereof, the Company will not have any
outstanding indebtedness. The Company anticipates that its material commitments
will increase significantly upon the consummation of this offering as a result
of the Company's planned expansion. See "Business--Manufacturing and Supply" and
"--Properties" and "Executive Compensation." Additionally, after the expiration
or termination of the pilot marketing program with First Recovery and Valvoline
Oil Company, if the subject parties do not enter into another agreement for the
marketing of SystemOne(Trademark) Washers, the Company could, at First
Recovery's sole option, be required to acquire First Recovery's sublessor
interest in certain leases entered into by First Recovery under the pilot
marketing program. In such an event, the Company would be required to purchase
First Recovery's interest for the net present value of First Recovery's expected
profit over the remaining term of the equipment sublease assuming a 12% discount
rate. Because the Company does not intend to use third-party financing with
respect to units
20
<PAGE>
leased under the pilot marketing program with First Recovery and Valvoline
Oil Company, it will be required to use a portion of the proceeds of this
offering to finance those units. See "Business--Marketing and Servicing
Strategy."
In August 1994, the Company acquired a Trumpf Model 200 TC Computer Numerical
Controlled Punch Press (the "Punch Press"). The Company financed the acquisition
of the Punch Press pursuant to a finance and security agreement with The CIT
Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the finance
agreement and security agreement, the Company has agreed to pay CIT an aggregate
of $341,397 in equal monthly payments of $5,690 over five years. The Company's
obligations to CIT are secured by a security interest in the Punch Press.
As indicated in the accompanying financial statements, as of June 30, 1996,
the Company's accumulated deficit totalled $3,577,015. Since its inception, the
Company has financed its operations through a variety of stock and debt
issuances and conversions and the sale of property. In November 1990, the
Company obtained from Pierre Mansur, its Chairman and President, all rights to
certain ongoing research and development and related patents and patents
pending, as well as certain real estate and equipment, in exchange for 2,000,000
shares of Common Stock. In January 1991, the Company issued $300,000 in
principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise
additional capital and refinance a portion of the Promissory Notes, in September
1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred
Stock (the "First Series Preferred Stock") in exchange for $380,000 and the
satisfaction of $200,000 in principal amount of the Promissory Notes.
In April 1992, the Company sold the commercial property originally
contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase
money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994,
the Company assigned its rights to receive interest with respect to the PMM to
satisfy the Company's obligation to pay interest with respect to the remaining
outstanding Promissory Note. The principal amount of the PMM was paid to the
Company on April 24, 1995.
In November 1994, the Company borrowed $500,000 pursuant to a 12% Secured
Convertible Promissory Note (the "Secured Note") and in April 1995 the Company
issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the "Series
A Preferred Stock") in exchange for $1,950,000 in cash and the satisfaction of
the Secured Note.
To minimize the Company's dividend obligations, in May 1995 the Company
issued a notice of redemption with respect to the First Series Preferred Stock
and, subsequently, all of the outstanding shares of First Series Preferred Stock
and accrued interest thereon were converted into an aggregate 656,729 shares of
Common Stock.
In May 1996, the Company issued 20,000 shares of Common Stock in satisfaction
of the remaining outstanding $100,000 in principal amount of the Promissory
Notes.
In June 1996, the Company issued 628,180 shares of Common Stock in exchange
for all of the Series A Preferred Stock and accrued dividends thereon.
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
advanced the Company an aggregate of $150,000 (the "Debt") between June 1, 1990
and May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid
Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest
owed with respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur
$150,000 and $5,000 in satisfaction of the outstanding principal balance of and
the interest owed with respect to the Debt.
In June 1996, the Company issued (the "Private Financing") $1,012,500 in
principal amount of Convertible Notes, bearing interest at the rate of 4% per
annum through September 30, 1996 and thereafter until maturity at the rate of
12% per annum, and convertible into Common Stock at a
21
<PAGE>
conversion price of $6.75 per share. Pursuant to the provisions of the
Convertible Notes, the entire outstanding principal amount thereof will be
automatically converted into 150,000 shares of Common Stock upon the
consummation of this offering. Each of Environmental Technologies BVI, Limited,
a consulting firm of which Dr. Jan Hedberg, a director of the Company, is
Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias
F. Mansur, a director of the Company, acquired Convertible Notes in the
principal amount of $101,250, and, upon consummation of this offering, each of
them will receive 15,000 shares of the Company's Common Stock pursuant to the
automatic conversion thereof.
As of September 9, 1996, the Company issued $500,000 in principal amount of
Short Term Notes, bearing interest at the rate of 4% through September 1996 and
12% thereafter. The Short Term Notes are due and payable on September 4, 1997,
or, if earlier, upon the consummation and out of the proceeds of this offering.
22
<PAGE>
BUSINESS
GENERAL
The Company has developed and obtained patent protection with respect to a
full line of self-contained, recycling industrial parts washers that incorporate
innovative, proprietary waste minimization technologies and represent a
significant advance over currently available machinery and processes. Focusing
on waste minimization rather than its removal and recovery, the Company believes
that its equipment will have a major impact on the industrial parts cleaning
industry and will have a broad appeal to customers, because its equipment,
unlike the machines now in use, facilitates efficient and economical compliance
with environmental regulations, minimizes waste disposal requirements, enhances
cleaning solution utilization, and increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company's products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. The Company believes that substantially all of
the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil. The effectiveness of
the Company's products in accomplishing the distillation of contaminated solvent
to yield pure solvent and a by-product comparable to used oil has been
extensively tested by the laboratory of a division of Valvoline Oil Company and
the independent engineering concern of Law Engineering and Environmental
Services, Inc.
STRATEGY
The Company's strategy is to focus initially on the manufacture, marketing
and sale of its SystemOne(Trademark) Washer because of the anticipated size of
the market for the product. The Company anticipates that the product should be
able to achieve fairly rapid market penetration because of its technological,
economic and environmental advantages and its relatively low price point
compared to competitive equipment. Once the manufacturing and marketing programs
for the SystemOne(Trademark) Washer are fully implemented, it will commence
marketing its other products for which it has continued its research and
development. The Company hopes to rapidly penetrate the industrial parts
cleaning market by entering into large quantity contracts with target customers
which have already established a national or regional presence, and are able to
exploit more fully the economic and environmental benefits of the Company's
products.
The Company expects to pursue a national expansion program, through internal
growth utilizing a network of regional distribution and service centers, through
a strategic alliance with a national distributor, if one is available on
favorable terms, or through a combination of the two. The Company is carrying
out an internal growth program in Florida, where, in addition to its regional
service center in Miami, it plans to establish at least four additional centers
during the 12 months immediately following this offering, in Orlando, Tampa,
Jacksonville and West Palm Beach. In August, the Company will
23
<PAGE>
commence a test of a strategic marketing alliance by entering into a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under
the pilot program, First Recovery will be the exclusive distributor of the
SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The
initial term of the program is one year. If the arrangement proves successful,
the Company expects to negotiate a broader agreement, possibly including a
national distribution program.
The Company expects to continue its emphasis on research and development even
after its initial products are commercialized. The Company believes that its
technology and its emphasis on waste minimization should yield product advances
with broad market applications beyond the Company's current target market.
INDUSTRY OVERVIEW
The Company believes the chemical industrial parts cleaning industry has
grown primarily in response to the demand for means of removing lubrication oils
and other contaminants from tools and parts during automotive, aviation, marine
and general industrial maintenance, service and repair operations. Based on
financial and trade journal reports, the Company believes that in 1996
businesses in the United States incurred more than $1 billion in expenses to
clean industrial parts using chemical cleaning techniques. Industrial parts
cleaning machines are used by automotive, aviation and maritime service, repair
and rebuilding facilities, gas stations, transmission shops, parts
remanufacturers, machine shops, and general manufacturing operations of every
size and category requiring parts cleaning.
The Company believes that the level of demand for the different types of
industrial parts cleaning machines and services is and will continue to be a
function of, among other things: (1) the effectiveness of the technology; (2)
the cost of the machines and service; (3) the time and costs associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machine and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
PRODUCTS AND SERVICES
The Company product line includes a variety of self-contained recycling
industrial cleaning and washing equipment, all of which incorporate proprietary
waste minimization technology with respect to which the Company has obtained or
applied for patent protection. The Company expects that all the products listed
below will be available for commercial exploitation at various times prior to
December 31, 1998. All of the Company's products utilize technology that (i)
provides continuously recycled cleaning solution during the cleaning process,
(ii) eliminates the necessity for continual replacement and disposal of
contaminated cleaning solution and residues and (iii) facilitates practical and
cost effective compliance with environmental laws and regulations. The Company
anticipates that it will offer its various parts washing products to commercial
users at prices which range from $2,000 to $25,000 per unit.
SYSTEMONE(TRADEMARK) WASHER.
The first of the Company's products to be available in commercial quantities
is the SystemOne(Trademark) Washer. The SystemOne(Trademark) Washer line
provides users with pure mineral spirit solvent for parts and tools cleaning
purposes, utilizing a low-temperature vacuum distillation process to recycle the
used solvent within the SystemOne(Trademark) Washer, so that the solvent may be
reused, on demand, without any need for off-site processing. The
SystemOne(Trademark) Washer minimizes the volume of waste by-product and
eliminates the need for storage and disposal of the hazardous waste solvent
necessitated by the most widely-used current treatment method.
The Company's SystemOne(Trademark) Washer consists of one or two washing
sinks mounted at standing level on top of a metal cabinet; a hinged lid on top
of the washing sink to minimize evaporation of
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solvent; a five gallon primary solvent holding tank; a distillation unit which
contains a residue reservoir; and a 30-gallon secondary solvent holding tank.
The SystemOne(Trademark) Washer utilizes a manually operated hose and scrubber
which directs the flow of solvent to the part being cleaned.
The distillation unit separates the solvent from the contaminants that
accumulate in the solvent as a result of use by heating the solvent solution in
a vacuum to a temperature at which the solvent, but not the residue, vaporizes;
and then, cooling the solvent vapor so that the vapor condenses and is converted
back into a liquid. The distilled solvent is channeled to the secondary solvent
holding tank for future use. Accordingly, the solvent may be repeatedly used,
distilled and reused without need for off-site distillation or processing. The
residue is collected and held in the residue reservoir until final disposal.
With respect to SystemOne(Trademark) Washers which are used in accordance
with their intended purpose, the Company believes that the residue may be
legally recycled and/or disposed of in the same manner that used oil is recycled
and/or disposed of. See "--Government Regulations." The Company believes that
substantially all of its target customers currently have established systems for
the handling, transportation, recycling and disposal of used oil. In those
instances in which the residue may not be recycled as used oil, the residue, but
not the distilled solvent, shall be periodically picked up, recycled and/or
disposed of by a third party. The Company warrants to users that if, for any
reason, the residue generated by its SystemOne(Trademark) Washer cannot be
recycled and/or disposed of as used oil, the Company will pay for any required
recovery and disposal services. The Company does not intend to be in the
business of handling, transporting, recycling and/or disposal of residue. If it
is required under its warranty to pay for recovery and disposal, it intends to
retain a third party to provide the required services.
The Company has also developed and obtained patent protection with respect to
a general parts washer which utilizes an aqueous based cleaning solution. The
Company is in the process of evaluating when it will commence the commercial
production and marketing of its aqueous based parts cleaner.
The target market for SystemOne(Trademark) Washers are automotive, aviation
and maritime service, repair and rebuilding facilities, gas stations,
transmission shops, parts remanufacturers, machine shops, and general
manufacturing operations of every size and category requiring small parts
cleaning.
The Company anticipates that the SystemOne(Trademark) Washer will require
service approximately four times a year for replacement of solvent lost to
evaporation or spillage and general maintenance requirements. See "Marketing and
Services Strategy" for additional information regarding the servicing of the
SystemOne(Trademark) washers.
OTHER PRODUCTS.
MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed on a
limited basis, and integrates three processes in one self-contained machine; a
power spray wash process, a recycling/ reclamation process and a thermal
oxidation process. The Power Spray Washer is able to accommodate large and bulky
parts or units that are too large for the SystemOne(Trademark) Washer. The
target market for power spray washers are automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction in
late 1996. It incorporates the Company's recycling/reclamation capabilities for
paint thinner recovery. The target market for spray gun washers are automotive,
aviation and maritime paint shops and all general manufacturing operations that
utilize paint. The Company anticipates that the auto paint industry will
represent a substantial market. The MultiProcess Spray Gun Washer facilitates
compliance with rigorous environmental disposal regulations for the paint
industry.
MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction in
1997. It integrates an immersion wash process, a recycling/reclamation process
and a thermal oxidation process in one self-contained machine. The MultiProcess
Immersion Washer is designed for cleaning of complex parts
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containing substantial integral and highly inaccessible passages requiring a
total immersion washing. The primary target market for immersion washers are
radiator rebuilding shops as well as automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MINIDISPOSER is scheduled for commercial introduction in 1998. It is a
compact and portable mini-thermal oxidizer developed as a practical and
efficient means for the disposal of contaminants by thermal oxidation within a
unit measuring only one cubic foot. The MiniDisposer will be marketed both as
optional equipment with the SystemOne(Trademark) Washer and as a stand alone
mini-thermal oxidizer. The Company believes that the size and scope of the
market for the MiniDisposer is substantial and diversified and includes
industrial, commercial and consumer applications that generate small contaminant
waste by-products. The Company continues to explore potential markets in
medical, restaurant and other commercial and consumer applications.
COMPETITION
The industrial parts cleaning industry is highly competitive and dominated by
a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has substantially
greater financial and other resources than the Company. Safety-Kleen services
the parts cleaning industry through a "closed-loop" recycling system in which
contaminated solvent is removed for recycling and fresh solvent is delivered on
a periodic basis. There can be no assurance that Safety-Kleen will not develop
or acquire technology similar to or different from the Company's that would
allow it to provide an on-site recycling service. To the best of the Company's
knowledge, no other company is currently commercially marketing a recycling
parts washer with comparable characteristics. There can be no assurance that
Safety-Kleen or other competitors will not acquire or develop patent rights with
respect to a recycling parts washer which are competitively superior to the
Company's patent rights. See "--Patents, Trademarks and Proprietary Technology."
The Company believes that certain of its target customers have attempted to
enhance the capabilities of their existing industrial parts washers by acquiring
machines capable of distilling solvent used in and removed from the parts
washers. Although there are a wide variety and types of such machinery currently
available to the public, the Company believes its SystemOne(Trademark) Washers
provide superior service at a lower cost.
The Company believes that Safety-Kleen services a significant portion of the
parts washing machines currently in use. The Company believes that no other
competitor accounts for more than 2% of the industrial parts washer market in
the State of Florida or the United States.
According to Safety-Kleen's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the
world's largest provider of parts washing services and one of the world's
largest collectors and re-refiners of used oil. According to the Safety-Kleen
Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of
approximately $433.0 million and, in the year ended December 31, 1995,
Safety-Kleen had aggregate revenues of approximately $859.0 million, including
revenues of approximately $240.0 million from its automotive/ retail parts
cleaning service and $119 million from its industrial parts cleaning service,
and served its customers in North America and Europe through a network of 235
branch facilities. At December 31, 1995, Safety-Kleen was providing services for
approximately 493,000 parts washers for customers in the United States, of which
approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its
customers.
The Company believes that its SystemOne(Trademark) Washer will compete
favorably with its competitors on the basis of, among other things, (1) the
effectiveness of the technology; (2) cost; (3) the time and cost associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machines and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
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GOVERNMENT REGULATION
The Company believes that federal and state laws and regulations have been
instrumental in shaping the industrial parts washing industry. Federal and state
regulations dictate and restrict to varying degrees what types of cleaning
solvents may be utilized, how a solvent may be stored and utilized, and the
manner in which contaminated solvents may be generated, handled, transported,
recycled and disposed of.
Although the federal and state laws and regulations discussed below regulate
the behavior of the Company's customers, and not the Company, the Company
believes that customer demand for its SystemOne(Trademark) Washer is partially a
function of the legal environment in which the Company's customers conduct
business. The Company's SystemOne(Trademark) Washer was designed to help
minimize the cost of complying with existing federal and state environmental
laws and regulations. Any changes, relaxation or repeal of the federal or state
laws and regulations which have shaped the industrial parts washing industry may
significantly affect demand for the Company's products and the Company's
competitive position.
REGULATION OF SOLVENT TYPES. Federal and state regulations have restricted
the types of solvents that may be utilized in industrial parts cleaning
machines. Prior to December 1995, methyl chloroform was a widely used cleaning
solvent. The Clean Air Act of 1990 mandated the elimination of methyl chloroform
by December 1995.
REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more commonly
known as mineral spirits and solvent naphtha, are the cleaning solvents
typically used in the industrial parts washers of the Company's closest
competitors. The Company intends to use mineral spirits with a minimum of 140
degrees fahrenheit ignitable limits in its SystemOne(Trademark) Washer. Such
mineral spirits do not exhibit the ignitability characteristic for liquid
hazardous wastes as defined in the Resource Conservation and Recovery Act of
1976, as amended, and the implementing regulations of that statute adopted by
the United States Environmental Protection Agency (the "EPA") (collectively,
"RCRA"). Certain machines of the Company's competitors use mineral spirits with
lower ignitable limits, which may, after use, render such mineral spirits
subject to regulation as a hazardous waste. The Company believes that the
ability to recycle the mineral spirits used in its SystemOne(Trademark) Washer
provides an economic benefit to the Company's customers by allowing them to
avoid the expenses and potential liability associated with the disposal of such
solvent as a hazardous waste. See "Government Regulation--Regulation of
Generation, Handling, Transportation and Disposal of Contaminated Solvents."
Federal, state and many local governments have adopted regulations governing
the handling, transportation and disposal of such solvents. On the federal
level, under the Hazardous Materials Transportation Act (HMTA), the United
States Department of Transportation has promulgated requirements for the
packaging, labeling and transportation of mineral spirits in excess of specified
quantities. The Company does not intend to transport mineral spirits in
quantities that would trigger the HMTA requirements.
Relative to the handling and disposal of mineral spirits, many states and
local governments have established programs requiring the assessment and
remediation of hazardous materials that have been improperly discharged into the
environment. Liability under such programs is possible for unauthorized release
of mineral spirits in violation of applicable standards. Civil penalties and
administrative costs may also be imposed for such violations.
REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF
CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and
disposal of contaminated solvents is regulated by the federal and state
governments.
At the federal level, the Resource Conservation and Recovery Act authorized
the EPA to develop specific rules and regulations governing the generation,
transportation, treatment, storage and disposal
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of hazardous wastes as defined by the EPA. The EPA's definition of hazardous
waste appears under Chapter 40 CFR Part 261. The Company believes that none of
the residue by-products, the used solvent before distillation or the solvent
recycled in a SystemOne(Trademark) Washer used in accordance with its intended
purpose and instructions is subject to regulation as a "hazardous waste." In
contrast, the Company believes that the mixture of solvent and contaminants
which is periodically recovered from the machines of many of its competitors is
subject to regulation as "hazardous waste."
The Company believes that the ability to recycle and dispose of its residue
by-product as used oil rather than as a hazardous waste is economically
attractive to the Company's customers for a number of reasons. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and/or disposal
of used oil. Accordingly, the classification of the residue as used oil would
enable the Company's customers to: (1) dispose of or recycle the residue at no
significant additional cost; and (2) avoid certain costs associated with
establishing and disposing of wastes in compliance with a hazardous waste
disposal system.
Even if the residue by-product was required to be handled, transported,
recycled and/or disposed of as a hazardous waste, the fact that the
SystemOne(Trademark) Washer effects a substantial reduction in the volume of
waste product requiring disposal would still serve to minimize disposal costs.
The Company believes that solvent which has been used and is being held in a
SystemOne(Trademark) Washer prior to distillation is not a "waste" and is not
subject to regulation as a hazardous waste.
RCRA establishes the basic framework for federal regulation of hazardous
waste. RCRA governs the generation, transportation, treatment, storage, and
disposal of hazardous waste. In contrast to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), which is discussed
below, RCRA is designed to anticipate and prevent harm to human health and the
environment, rather than to respond to the release of hazardous wastes.
RCRA requires that facilities that generate, treat, store or dispose of
hazardous wastes comply with certain operating and permitting standards. RCRA
provides standards for permitting, maintenance and operation of facilities
handling hazardous wastes, including requirements for testing and maintenance of
equipment, contingency plans and emergency procedures, secondary containment,
recordkeeping and reporting to government agencies. The recordkeeping and
reporting requirements of RCRA are significant. Before transportation and
disposal of hazardous wastes off-site, generators of such waste must package and
label their shipments consistent with detailed regulations and prepare a
manifest to be filed with the appropriate governmental agency identifying the
material and stating its destination. The transporter must deliver the hazardous
waste in accordance with the manifest and to a facility with an appropriate RCRA
permit (a "TSD Facility"). Failure to comply with the manifesting requirements
may result in the imposition of civil and/or criminal penalties. Many states and
local governments have adopted regulatory programs which parallel the RCRA
regulatory system, many of which programs are in certain ways more restrictive
and burdensome than the RCRA system.
With regard to regulation of "used oil", the EPA ruled in 1992 that used oil
is not a hazardous waste under RCRA. Like the RCRA regulations pertaining to
hazardous wastes, the EPA's used oil regulations provide standards for
permitting, the maintenance and operation of used oil facilities, including
requirements for testing and maintenance of equipment, contingency plans and
emergency procedures, secondary containment, recordkeeping and reporting.
However, there are some material differences between RCRA's regulation of
hazardous waste and used oil. In contrast to hazardous wastes, used oil need not
be processed solely at sites with treatment, storage and disposal permits. In
addition, the generators of used oil are not required to file a shipping
manifest with government agencies with respect to each shipment of used oil.
Many state and local governments have adopted regulatory programs which parallel
the EPA's program for regulating used oil, many of which programs are in certain
ways more restrictive or burdensome than the EPA's program. For instance,
certain state and local governments continue to regulate used oil as a hazardous
waste.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), sets forth national policy and procedures for containing and
removing releases of hazardous
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substances, and identifying and remediating sites contaminated with hazardous
substances. CERCLA created an $8.5 billion fund (the "Superfund"), financed from
taxes on petroleum and various chemicals, to be administered by the EPA to fund
cleanup of hazardous waste sites. SARA significantly expanded the scope of
hazardous waste cleanup and imposed more stringent cleanup requirements. The
Superfund's most notable objective, however, is to provide criteria and
financial assistance for site cleanups and to impose liability on parties
responsible for such contamination--namely, owners and operators of vessels or
facilities from which such releases occur, and persons who generated,
transported, or arranged for the transportation of hazardous substances to a
facility from which a release or threatened release occurs.
Most states, including Florida, have created programs similar to Superfund.
These state programs are principally designed to help finance the state's share
of remediation costs of sites under the federal Superfund and to finance
cleanups at state sites that are not considered a priority for remediation under
the federal program.
The CERCLA definition of hazardous substances provides a major exception for
petroleum, including used oil if recycled. However, liability under CERCLA is
possible if petroleum products are released that contain hazardous substances as
additives or that are tainted with hazardous substances during their use and
disposal.
The Company believes that the demand for its SystemOne(Trademark) Washer is
enhanced as a result of certain federal and state environmental laws and
regulations. Although the demand for industrial parts cleaning machines and
services may be substantial in certain international markets, the level of
demand for the Company's SystemOne(Trademark) Washer may not be substantial in
certain countries as a result of permissive regulatory systems which allow the
use of less environmentally stringent cleaning and waste disposal methods.
MANUFACTURING AND SUPPLY
The Company manufactures certain of its SystemOne(Trademark) Washers at its
10,000 square foot manufacturing facility located in Miami, Florida, at which
all manufacturing operations, including design, metal cutting, bending and
welding, painting and assembly can be performed. The Company has acquired all of
the machinery necessary to manufacture SystemOne(Trademark) Washers. The Company
believes that it can produce up to 200 SystemOne(Trademark) Washers a month at
its manufacturing facility. The Company has secured third parties capable of
manufacturing the balance of the SystemOne(Trademark) Washers needed to meet
anticipated customer demand for the next 12 months. The Company intends to
secure additional manufacturing capacity as the need arises.
On May 7, 1996, the Company entered into an agreement (the "Supply
Agreement") with a supplier (the "Supplier") pursuant to which the Supplier
agreed to supply to the Company, at the Company's election, between 3,000 and
5,000 SystemOne(Trademark) Washers at established prices and in accordance with
a delivery schedule. The Supply Agreement delivery schedule provides for the
monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(Trademark)
Washers in the quarters commencing August 1996, November 1996, February 1997 and
May 1997, respectively, and for the monthly delivery of a maximum of 500
SystemOne(Trademark) Washers after December 1996. The Supply Agreement provides
for adjustments in the established pricing schedule based upon certain
reductions in the cost of production and/or increases in the cost of sheet
metal.
The Company has ordered a prototype SystemOne(Trademark) Washer manufactured
by the Supplier and has paid the first of three $50,000 payments toward a
$150,000 advance (the "Advance"), which amount will be credited against future
purchases under the Supply Agreement at a rate of $50 per SystemOne(Trademark)
Washer. The Supply Agreement provides that the Supplier will, based upon the
Company's specifications and drawings, manufacture the SystemOne(Trademark)
Washers in its factory and manufacture such items exclusively for the Company.
According to the Supply Agreement, the Supplier is expressly responsible for all
sheet metal fabrication, painting, assembling and quality assurance testing
associated with the manufacture of SystemOne(Trademark) Washers.
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The Supply Agreement requires the Company to provide the Supplier with all of
the components and raw materials, except for sheet metal, necessary to
manufacture SystemOne(Trademark) Washers. In addition, the Supply Agreement
requires the Company to acquire and provide to the Supplier for use all of the
hard tooling required to manufacture the SystemOne(Trademark) Washers.
The Supply Agreement provides that the Company may unilaterally terminate the
contract in whole or in part for cause or for convenience. In the event the
Supply Agreement is terminated by the Company for convenience, the Supplier will
be entitled to reimbursement of the costs it has incurred through the date of
termination and, if such termination occurs prior to the delivery of 3,000
SystemOne(Trademark) Washers, the Supplier will be entitled to payment for
SystemOne(Trademark) Washers produced through the date of termination and retain
any unapplied amount of the Advance.
The Company has retained the right to secure other contract manufacturers of
SystemOne(Trademark) Washers. Although, at present, the Company seeks to avoid
the transaction and opportunity costs associated with identifying, securing and
training another SystemOne(Trademark) Washer manufacturer, the Company does not
believe that it is dependent upon the Supplier to manufacture
SystemOne(Trademark) Washers and that other manufacturers are readily available.
The Company has entered into negotiations with a major contract manufacturer
with a 2 million square foot facility and 75 years of experience to provide the
manufacturing capacity needed to meet anticipated future customer demand. No
assurances can be given that the Company and the major contract manufacturers
will ever enter into a binding contract.
The SystemOne(Trademark) Washer is an assembly of raw materials and
components all of which the Company believes are readily obtainable in the
United States of America. The Company does not believe that it nor the Supplier
is dependent upon any of their respective current suppliers to obtain the raw
materials and components necessary to assemble and manufacture
SystemOne(Trademark) Washers. As of the date of this Prospectus, the Company was
procuring raw materials and components for its SystemOne(Trademark) Washers from
42 sources.
The Company is capable of manufacturing its other products in the amounts
required for testing and test marketing in its own manufacturing facility.
MARKETING AND SERVICING STRATEGY
In order to create awareness of its products and test the demand for them,
commencing in December 1995, the Company placed an aggregate of 47
SystemOne(Trademark) Washers in 38 automotive dealerships, municipal and private
fleet maintenance facilities, repair facilities and other users of parts
cleaning equipment in South Florida. The demonstrator units were provided at no
charge. The test program was conducted primarily to enable the Company to gauge
the demand for its products. Notwithstanding the absence of a formal marketing
program during the test period, the Company has, to date, received firm purchase
orders from a number of facilities in which the machines were placed, including
Florida Detroit Diesel MTU (46 units); Kelly Tractor Company (23 units) and
Pantropic Power Products (25 units), the South Florida Caterpillar dealers;
United States Postal Service (2 units); Southern Sanitation, a subsidiary of
Waste Management, Inc. (5 units); Broward County Mass Transit (25 units);
Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 units). The Company commenced commercial sales
and delivery of units in July 1996 at an approximate price per unit of $2,700,
and anticipates delivering substantially all of the ordered units to date prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units.
In a parallel marketing strategy, to test the viability of the strategic
marketing alliance concept for its products, in August 1996 the Company will
commence a pilot program with First Recovery and Valvoline Oil Company, two
affiliates of Ashland Oil, pursuant to which First Recovery will serve as the
exclusive distributor for the SystemOne(Trademark) Washer in the Dallas/Ft.
Worth and Houston markets. The program, whose initial term is one year, but is
cancelable by either party on 60 days notice, sets forth a schedule for the
purchase of 1,000 units by First Recovery during the first year. First Recovery
is
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obligated to provide routine service to customers. Upon termination of the
program, First Recovery will have the option to require the Company to assume
the leases it has entered into with its customers and to pay First Recovery, on
a discounted basis, the profit it would have realized under such leases. If
First Recovery does not exercise that option, it will have the additional
option, for one year after termination of the program, to lease up to four times
the number of units it leased under the program, but only to its existing
customers. Subject to its assessment of First Recovery's performance, the
Company will consider entering into a more extensive distribution agreement.
The Company also intends to expand the geographic scope of its operations
through its internal marketing operations, initially focusing on Florida and
then expanding to other regions. In addition to its sales and service operations
in Miami, the Company intends to establish sales, service and technical support
service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida
during 1996 to support its proposed operations in Florida. The Company will
market and service the SystemOne(Trademark) Washers it places with customers
with its own marketing, service and technical support personnel. The Company
believes it will retain at least 15 marketing, service and technical support
personnel to support its proposed operations in Florida over the next 12 months.
The Company intends to continue to generate consumer awareness of its
SystemOne(Trademark) Washer through the efforts of its sales force, general
advertisements in trade publications, and participation in trade conventions.
SALES FINANCING AND SERVICING PROGRAMS
Initially, the Company intends to make its SystemOne(Trademark) Washers
available to the public through a third party leasing program. The Company
entered into an agreement (the "Product Financing Agreement") with Oakmont
Financial Services ("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed
to provide third party leasing services. Pursuant to the Product Financing
Agreement, the Company is to provide Oakmont certain information with respect to
each proposed customer for which a third party lease is sought, including credit
information with respect to each proposed lessee. Oakmont may reject a lease
application if, in its sole discretion, the proposed transaction does not comply
with Oakmont's then applicable criteria. If Oakmont elects to provide lease
financing, Oakmont will purchase the SystemOne(Trademark) Washer in the manner
and for an amount agreed to by the Company and Oakmont from time to time, upon
Oakmont's receipt of required documentation.
The Product Financing Agreement provides that, upon the customer's
satisfaction of all of its lease payment obligations to Oakmont, the Company
may, at its option, repurchase the subject equipment from Oakmont at a cash
purchase price equal to the fair market value of the subject equipment plus
applicable sales tax. The Product Financing Agreement states that the fair
market value of a SystemOne(Trademark) Washer shall be determined by the mutual
agreement of the Company and Oakmont or, if such an agreement is not reached, by
an appraiser selected by mutual agreement of the Company and Oakmont.
Under the Product Financing Agreement, the Company has agreed, for a fee, to
utilize a reasonable and non-discriminatory approach to assist Oakmont in
reselling any SystemOne(Trademark) Washers with respect to which a customer has
failed to discharge its payment obligations to Oakmont. The Product Financing
Agreement states that Oakmont does not have recourse against the Company for
customer failures to discharge their obligations to Oakmont unless the Company
has breached and failed to cure certain warranties. Specifically, the Company
has agreed to make the following warranties upon each sale to Oakmont, which
warranties provide Oakmont with a basis for recourse against the Company for
certain customer failures: (i) to the best of the Company's knowledge, the
customer will use the SystemOne/trademark/ Washer principally for commercial
purposes; (ii) to the best of the Company's knowledge, the lease and related
documents have been duly executed and delivered; (iii) the lease incorporates
all of the representations and warranties made by the Company to the lessee;
(iv) all dealings by the Company with the lessee have been in accordance with
all applicable laws and regulations; (v) the conduct of the Company in
developing a lease will not subject Oakmont to suit or
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administrative proceeding; (vi) the lessee has no defense, offset or
counterclaims as to the enforcement of the lease arising out of the conduct or
failure to perform of the Company; (vii) the Company does not know of any fact
which indicates the uncollectibility of the lease; (viii) to the best of the
Company's knowledge, the information provided by the lessee to the Company and
Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed
the Company is entitled to retain, the Company has not retained any funds given
to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested
in Oakmont free and clear of any liens of persons claiming by, through or under
the Company. In the event the Company breaches one of the foregoing warranties
and fails to cure the breach, the Product Financing Agreement requires the
Company to purchase from Oakmont the leased SystemOne/trademark/ Washer and
Oakmont's rights under the lease agreements with the customer for an amount
equal to the sum of all lease payments then due and owing under the lease, all
lease payments payable from the date of default to the end of the lease term and
twenty percent of the equipment cost, less any applicable deposit which may be
retained by Oakmont. Where required by applicable law, the foregoing amounts are
required to be calculated using the discounted present value of the subject
lease payments.
The Product Financing Agreement provides for a term of one year, which
automatically renews for successive one-year terms. Under the Product Financing
Agreement, either the Company or Oakmont may terminate the agreement with or
without cause upon 60 days notice, without affecting the rights and obligations
of either party with respect to previous sales. In addition, if Oakmont declines
any five lease applications within a 30-day period, which lease applications are
accepted and funded by a third party on terms declined by Oakmont, the Company
may, upon 10 days notice, terminate the Product Financing Agreement.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company holds United States patents relating to its SystemOne/trademark/
Washer, Power Spray Washer, Spray Gun Washer and Immersion Washer and
anticipates that it will apply for additional patents it deems appropriate. The
Company has applied for international patents in Canada, Japan, Europe and
Mexico.
The Company's patent with respect to its SystemOne/trademark/ Washer was
issued on September 27, 1994 and will expire on September 26, 2011. The Company
has three patents pending with respect to its SystemOne(Trademark) Washer, one
of which was allowed by the U.S. Patent Office on April 2, 1996 and is awaiting
issuance. The Company's patent with respect to its Power Spray Washer was issued
on January 11, 1994, and expires on January 10, 2011. The Company's patent with
respect to its Spray Gun Washer was issued on February 14, 1995, and expires on
February 13, 2012. The Company's patent with respect to its Immersion Washer was
issued on May 21, 1996 and expires on May 20, 2013. The Company's patent with
respect to its MiniDisposer was allowed by the U.S. Patent Office on June 26,
1996 and is awaiting issuance.
The Company believes that patent protection is important to its business.
There can be no assurance as to the breadth or degree of protection which
existing or future patents, if any, may afford the Company, that any patent
applications will result in issued patents, that patents will not be
circumvented or invalidated or that the Company's competitors will not commence
marketing self-contained washers with similar technology. It is possible that
the Company's existing patent rights may not be valid although the Company
believes that its patents and products do not and will not infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event the Company's products or processes infringe patents or proprietary rights
of others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation actions. Moreover, if the Company's
product or processes
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infringes patents or proprietary rights of others, the Company could, under
certain circumstances, become the subject of an immediate injunction and be
liable for damages, which could have a material adverse effect on the Company.
The Company has applied for a federal trademark with respect to the mark
"SystemOne" and design.
The Company also relies on trade secrets and proprietary know-how and employs
various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets. Since the Company believes that its
proprietary information is important to its business, failure to protect such
information could have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, the Company expended $178,146, $393,874 and $365,435,
respectively, on research and development of its various products.
The Company plans to continue to focus significant resources on research and
development of existing and future product lines. Although the Company intends
to continue to seek means of refining and improving its SystemOne(Trademark)
Washer, the Company believes, based on market response, that the
SystemOne(Trademark) Washer is at a stage where commercial exploitation is
appropriate. The Company recognizes that the industrial parts cleaning industry
may be entering a phase of rapid technological change and progress and the
Company will seek to retain what the Company perceives as its technological
superiority over its competitors' products. In order to keep pace with the rate
of technological change, the Company intends to devote considerable resources in
time, personnel and funds on continued research and development for its
products. The Company recognizes that many of its competitors have far greater
financial and personnel resources than the Company which may be devoted to
research and development and can provide no assurance that it will maintain a
technological advantage.
Subject to the availability of financial and personnel resources, the Company
intends to spend approximately $400,000 and $500,000 in the years ended December
31, 1996 and 1997, respectively, to finalize development and testing of its
various products and to develop new products and concepts. Although there can be
no assurance that the Company will ever develop any new products capable of
commercialization, the Company intends to continue its programs to develop new
products, some of which may utilize the Company's patented products and
processes.
PRODUCT LIABILITY AND INSURANCE
The Company is subject to potential product liability risks which are
inherent in the design and use of industrial parts cleaning machines. The
Company has implemented strict quality control measures and currently maintains
product liability insurance of $5,000,000 in the aggregate and $5,000,000 per
occurrence.
PROPERTIES
The Company maintains its corporate headquarters, research and development
laboratory and manufacturing facilities in a 10,000 square foot and an adjacent
5,500 square foot building located in Miami, Florida. The lease for the
10,000 square foot building (the "Primary Lease") commenced on January 1, 1995
and expires December 31, 1996. The Primary Lease provides for two renewal terms
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of two years. The Company's annual lease payments under the Primary Lease are
approximately $61,000, which amount does not include the Company's obligation to
pay all utility and service charges. The lease for the 5,500 square foot
building (the "Secondary Lease") commenced on September 1, 1996 and expires
August 30, 1998. The Company's annual lease payments under the Secondary Lease
are approximately $32,208, which amount does not include the Company's
obligation to pay all utility and service charges. The Company has the right to
cancel the Secondary Lease upon four months written notice. In addition, the
Company maintains a sales, distribution and light manufacturing center in a
1,692 square foot facility located in Pinellas Park, Florida (the "Sales
Lease"). The Sales Lease commenced on September 15, 1996 and expires on October
1, 1998. The Company's annual lease payments under the Sales Lease are
approximately $6,491.25, which amount does not include the Company's obligation
to pay all utility and service charges. The Company intends to seek additional
space, either at its current location or elsewhere, to house expanded corporate
headquarters and research and development facilities. The Company anticipates no
significant difficulty in locating such space on reasonable terms. The Company
does not anticipate that it will experience difficulty in locating and equipping
its regional sales and service centers, which are expected to contain a small
office space/ showroom area and enough space for two or three delivery and
maintenance vehicles.
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
EMPLOYEES
As of the date of this Prospectus, the Company employed 16 employees, of whom
five were in corporate management, three were in research and development, two
were in sales and marketing, four were in manufacturing, and two were in
administration. The Company intends to hire additional employees after this
offering, commensurate with the Company's requirements and available funds,
primarily to expand manufacturing and marketing operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------------------------------------------------
<S> <C> <C>
Pierre G. Mansur ........ 44 Chairman of the Board and President
Paul I. Mansur .......... 45 Director and Chief Executive Officer
Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial
Officer
Charles W. Profilet .... 59 Vice President-Business Development
Elias F. Mansur ......... 53 Director
Dr. Jan Hedberg ......... 49 Director
Joseph E. Jack .......... 68 Director
</TABLE>
PIERRE G. MANSUR founded the Company and has served as its Chairman and
President since its inception in November 1990. From June 1973 to August
1990, Mr. Pierre Mansur served as President of Mansur Industries Inc., a
privately held New York corporation that operated a professional race engine
machine shop. Mr. Pierre Mansur has over twenty years of advanced automotive
and machinery operations experience including developing innovative
automotive machine shop applications; designing, manufacturing, customizing,
modifying and retooling high performance engines and component parts;
developing state of the art automotive and powerboat race engines which have
consistently achieved world championship status; and providing consulting
services and publishing articles with respect to automotive technical
research data. Mr. Pierre Mansur has conducted extensive research and
development projects for several companies, including testing and evaluating
engine parts and equipment for Direct Connection, a high performance racing
division of the Chrysler Corporation; researching and developing specialized
engine piston rings and codings for Seal Power Corporation; researching
high-tech plastic polymers for internal combustion engines for ICI Americas;
and designing and developing specialized high performance engine oil pan
applications. Mr. Pierre Mansur is the brother of Paul I. Mansur and a cousin
of Elias F. Mansur. Mr. Pierre Mansur is a graduate of the City University of
New York.
PAUL I. MANSUR has been Chief Executive Officer, Chief Financial Officer
and a Director since September 1993. From September 1986 to July 1993, Mr.
Paul Mansur served as Chief Executive Officer of Atlantic Entertainment Inc.,
a privately held regional retail chain of video superstores. From March 1981
to September 1986, Mr. Paul Mansur served as the Chief Executive Officer and
President of Ameritrade Corporation, a privately held international
distributor of factory direct duty free products. From June 1972 to March
1981, Mr. Paul Mansur held various finance and operation positions, including
Assistant Vice President Finance and Operations for Mott's USA, Inc., a
division of American Brands. Mr. Paul Mansur is the brother of Pierre G.
Mansur and a cousin of Elias F. Mansur. Mr. Paul Mansur is a graduate of the
City University of New York.
CHARLES W. PROFILET has been the Vice President--Business Development of the
Company since November 1995. From July 1992 to September 1995, Mr. Profilet
served as Vice President--Florida Operations for Rust Environment and
Infrastructure, Inc., a privately held environmental remediation company that is
controlled by WMX Technologies, a publicly traded waste collection and recycling
company traded on the New York Stock Exchange. From March 1991 to July 1992, Mr.
Profilet served as Vice President-Marketing at Metcalf and Eddy, a full-service
engineering and environmental consulting firm specializing in the treatment of
waste water, air quality assurance, emissions control and remedial design. From
July 1987 to February 1990, Mr. Profilet served as Executive Vice President and
Chief Operating Officer at Craig A. Smith and Associates, a privately-held civil
engineering firm. From August 1979 to September 1985, Mr. Profilet served as
Vice President-Business Development at Reynolds Smith and Hills, a
privately-held architectural and engineering planning firm. Mr. Profilet is a
graduate of the U.S. Military Academy at West Point and holds a Master of
Engineering degree from the University of Oklahoma.
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<PAGE>
RICHARD P. SMITH has been the Chief Financial Officer of the Company since
September 1, 1996. From April 1987 to August 1996, Mr. Smith held various
positions, including Vice President, Chief Financial Officer, Treasurer,
Secretary, Director of Business Planning, and Controller of European Operations
of Telematics International, Inc., a manufacturer and supplier of intelligent
networking technologies and products. From August 1983 to April 1987, Mr. Smith
served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a
worldwide manufacturer of a diverse line of electronic equipment and components,
including communications systems, semiconductors, electronic controls and
computer systems. Motorola, Inc.'s securities are listed on the New York Stock
Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for
Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan
University and holds a Masters of Business Administration degree from the
University of Illinois and a Masters of Finance degree from Cambridge
University.
ELIAS F. MANSUR has been a Director of the Company since August 1995. From
September 1968 to present, Mr. Elias Mansur served as Managing Director of
the Mansur Trading Company and its subsidiaries, an international,
diversified group of companies involved in banking, international trade,
manufacturing, real estate and hotel operations. From June 1975 to March
1981, Mr. Elias Mansur served as Chairman of the Board of the Central Bank of
the Netherlands Antilles. From September 1984 to December 1985, Mr. Elias
Mansur served as Minister of Economic Affairs of the Netherlands Antilles.
From October 1977 to September 1984, Mr. Elias Mansur served as the Chief
Economic Advisor, Minister of Economic Affairs and Chairman of the Council of
Economic Advisors to the government of Aruba. Mr. Elias Mansur is a cousin of
Mr. Pierre Mansur and Mr. Paul I. Mansur.
DR. JAN HEDBERG has been a Director of the Company since August 1995. From
October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief Executive
Officer of Enprotec International Group, N.V., a company he co-founded and in
the business of researching and developing of advanced waste oil recycling
technologies. Since March 1993, Dr. Hedberg has been the Chairman of the Board
and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned subsidiary of
Enprotec International Group, N.V., which manufactures, designs and assembles
oil re-refining plants. Dr. Hedberg was the co-recipient of the 1991
International Technology Award for Enterprising Innovation and Creativity for
the development of the Vaxon Re-refining Process, which is a proprietary process
that transforms used oil into useable oil products. Dr. Hedberg has over 15
years of experience in oil related and environmental companies and 12 years of
research and teaching experience, including executive management and advisory
positions, with several multinational organizations. Dr. Hedberg received his
Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1977.
JOSEPH E. JACK has been a Director of the Company since August 1995. From May
1989 to June 1991, Mr. Jack served as Vice President of Waste Management Europe,
a waste collection and recycling company that is a publicly traded company on
the London Stock Exchange and a controlled subsidiary of WMX Technologies, a
publicly traded New York Stock Exchange company. From April 1984 to December
1987, Mr. Jack was President of Waste Management Inc. of Florida, a waste
collection and recycling company that is an affiliate of Waste Management, Inc..
From July 1983 to March 1984, Mr. Jack served as Vice President of Waste
Management Partners, a division of Waste Management, Inc. From February 1982 to
July 1983, Mr. Jack served as Vice President of Waste Management International,
a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr.
Jack was Vice President of Waste Management International (Middle East), a
subsidiary of Waste Management, Inc., and from May 1978 to April 1980, Mr. Jack
was the Resident Manager of Waste Management Saudi Arabia, a joint venture
involving an affiliate of Waste Management, Inc. Under Mr. Jack's leadership,
Waste Management experienced unprecedented growth in several markets worldwide
including Waste Management Europe's growth of revenues from $10 million to $700
million in a three year period. Mr. Jack's significant accomplishments in the
waste management field were acknowledged when he was inducted by the National
Waste Management Association into the United States Waste Industry's "Hall of
Fame". Mr. Jack has been an active investor in companies since he retired in
June 1991.
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The Company has agreed that, for five years after the effective date of this
Prospectus, the Representative will have the right to designate one individual
to be elected to the Company's Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or payable in respect of the
three years ended December 31, 1995 to the Company's Chief Executive Officer and
its other executive officer whose combined salaries and bonuses equalled or
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------------------
OTHER ANNUAL ALL OTHER
YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- --------------------------- ------- ---------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0
------- ---------- -------------- ---------------- ---------------
Chairman and President 1994 $66,000 $0 $550(2) $0
------- ---------- -------------- ---------------- ---------------
1993 $22,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0
------- ---------- -------------- ---------------- ---------------
Chief Executive Officer 1994 $48,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
1993 $5,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of
which has been paid and the remainder of which has been accrued.
(2) Automobile allowance paid by the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In September 1993, the Company entered into a two year employment agreement
with Mr. Pierre Mansur, which provides for an annual base salary of $66,000 and
discretionary bonuses, based on Mr. Pierre Mansur's performance, as determined
by the Compensation Committee of the Board of Directors. Pursuant to the terms
of his employment contract, Mr. Mansur's employment was renewed in September
1995 by the Company for an additional two years. Pursuant to the employment
agreement, during the term of Mr. Pierre Mansur's employment and for a period of
three years following his termination of employment, Mr. Pierre Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Pierre Mansur is prohibited from, directly or indirectly,
engaging in any business in substantial competition with the Company or its
affiliates. The employment agreement also provides that Mr. Pierre Mansur is
prohibited from becoming an officer, director or employee of any corporation,
partnership or any other business in substantial competition with the Company or
its affiliates during the term of his employment and for three years thereafter.
In September 1995, the Company entered into a two year employment agreement
with Mr. Paul Mansur, which provides for an annual base salary of $48,000 and
discretionary bonuses, based on Mr. Paul Mansur's performance, as determined by
the Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, during the term of Mr. Paul Mansur's employment and for a period of
three years following his termination of employment, Mr. Paul Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Paul Mansur is prohibited from, directly or indirectly,
engaging in any business in
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<PAGE>
substantial competition with the Company or its affiliates. The employment
agreement also provides that Mr. Paul Mansur is prohibited from becoming an
officer, director or employee of any corporation, partnership or any other
business in substantial competition with the Company or its affiliates during
the term of his employment and for three years thereafter.
In July 1996, the Company entered into a one year employment agreement with
Mr. Richard Smith, which provides for an annual base salary of $110,000, a car
allowance of $400 a month, and a mobile telephone allowance of $150 a month. The
employment agreement provides that Mr. Smith is entitled to receive a minimum of
10,000 common stock purchase options comprised of: 5,000 options to be issued
upon the consummation of this offering and exercisable at the initial public
offering price, and 5,000 options to be issued on December 31, 1996 exercisable
at the then current market price of the common stock. Pursuant to the employment
agreement, if Mr. Smith is terminated for cause, defined as an act of
dishonesty, malfeasance, or other impropriety, he is not entitled to receive any
severance payment. If Mr. Smith is terminated without cause, he is entitled to
receive his current salary for four months or until he secures new employment,
whichever occurs first. In addition to the employment agreement, the Company and
Mr. Smith entered into a Non-Circumvention and Non-Disclosure Agreement.
In November 1995, the Company entered into a one year employment agreement
with Charles W. Profilet. Under the employment agreement, Mr. Profilet is
entitled to an annual base salary of $80,000, a car allowance of $400 a month
and monthly commissions, ranging from $5 per unit for parts washers to $25 per
unit for jet washers, with respect to each new washer sold by the Company in the
United States. The commissions earned by Mr. Profilet may be converted, at his
option, into Common Stock at a discount on the then current trading price of the
Common Stock. The conversion discount was 10% as of the date of this Prospectus,
but, may be adjusted at the election of the Board of Directors of the Company.
As of the date of this Prospectus, Mr. Profilet had earned an aggregate of
$12,250 of commissions. The employment agreement provides that Mr. Profilet is
eligible to participate in the Company's discretionary executive profit sharing
awards and executive stock award or stock option awards. Pursuant to the
employment agreement, if Mr. Profilet is terminated for cause, defined as an act
of dishonesty, malfeasance, or other impropriety, he is not entitled to receive
any severance payment. If Mr. Profilet is terminated without cause within his
first year of employment, he is entitled to receive his current salary for six
months or until he secures new employment, whichever occurs first. In addition
to the employment agreement, the Company and Mr. Profilet entered into a
Non-Circumvention and Non-Disclosure Agreement.
INCENTIVE COMPENSATION PLAN
The Company's 1996 Executive Incentive Compensation Plan (the "Incentive
Plan") provides for grants of stock options, stock appreciation rights ("SARS"),
restricted stock, deferred stock, other stock related awards and performance or
annual incentive awards that may be settled in cash, stock or other property
(collectively, "Awards"). The total number of shares of Common Stock that may be
subject to the granting of Awards under the Incentive Plan at any time during
the term of the Plan shall be 375,000. The Employee Plan is designed to serve as
an incentive for retaining qualified and competent employees, directors,
consultants and independent contractors of the Company.
The persons eligible to receive Awards under the Incentive Plan are the
officers, directors, employees and independent contractors of the Company, if
any, and its subsidiaries. No director of the Company who is not an employee of
the Company or any subsidiary (a "non-employee director") will be eligible to
receive any Awards under the Incentive Plan other than automatic formula grants
of stock options and restricted stock as described below, and no independent
contractor will be eligible to receive any Awards other than stock options.
The Incentive Plan is required to be administered by a committee designated
by the Board of Directors consisting of not less than two directors (the
"Committee"), each member of which must be a "disinterested person" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as
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<PAGE>
amended, and an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Compensation
Committee of the Board has been appointed as the Committee for the Incentive
Plan. Subject to the terms of the Incentive Plan, the Committee is authorized to
select eligible persons to receive Awards, determine the type and number of
Awards to be granted and the number of shares of Common Stock to which Awards
will relate, specify times at which Awards will be exercisable or settleable
(including performance conditions that may be required as a condition thereof),
set other terms and conditions of Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the Incentive Plan, and
make an other determinations that may be necessary or advisable for the
administration of the Incentive Plan.
In addition, the Incentive Plan imposes individual limitations on the amount
of certain Awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARS, restricted
shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in
lieu of other Company obligations, and other stock-based Awards granted to any
one participant may not exceed 250,000 for each type of such Award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
a final annual incentive Award or other cash Award in any fiscal year to any one
participant is $1,000,000, and the maximum amount that may be earned as a final
performance Award or other cash Award in respect of a performance period by any
one participant is $5,000,000.
The Incentive Plan provides that each non-employee director shall
automatically receive (i) on the date of his or her appointment as a director of
the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each
year, on the day the Company issues its earnings release for the prior fiscal
year, an option to purchase 2,500 shares of Common Stock. Such options will have
a term of 10 years and become exercisable at the rate of 33-1/3% per year
commencing on the first anniversary of the date of grant; provided, however,
that the options will become fully exercisable in the event that, while serving
as a director of the Company, the non-employee director dies, or suffers a
"disability," or "retires" (within the meaning of such terms as defined in the
Incentive Plan). The per share exercise price of all options granted to
non-employee directors will be equal to the fair market value of a share of
Common Stock on the date such option is granted.
The Company will agree with the Representative that for a 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part, the Company will not, without the consent of the
Representative, adopt or propose to adopt any plan or arrangement permitting the
grant, issue or sale of any shares of its Common Stock or issue, sell or offer
for sale any of its Common Stock, or grant any option for its Common Stock which
shall: (x) have an exercise price per share of Common Stock less than (a) the
initial public offering price of the Common Stock offered in this Prospectus or
(b) the fair market value of the Common Stock on the date of grant; or (y) be
granted to any direct or indirect beneficial holder of more than 10% of the
issued and outstanding Common Stock of the Company. No option or other right to
acquire Common Stock granted, issued or sold during the 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part shall permit (a) the payment with any form of
consideration other than cash, (b) the payment of less than the full purchase or
exercise price for such shares of Common Stock or other securities of the
Company on or before the date of issuance, or (c) the existence of stock
appreciation rights, phantom options or similar arrangements.
The Company has not granted any Award under the Incentive Plan.
COMPENSATION OF DIRECTORS
After this offering, the Company will pay each director who is not an
employee an annual retainer of $10,000. The Company will reimburse all
directors for all travel-related expenses incurred in connection with their
attendance at meetings of the Board of Directors. Directors will also be
entitled to receive options under the Incentive Plan. See "Incentive
Compensation Plan."
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
The Board of Directors currently administers and determines compensation,
including salary and bonus for the executive officers, directors and other
employees. The Company intends to establish an Audit Committee and a
Compensation Committee shortly after the closing of this offering. The
Compensation Committee will be responsible for setting and administering
policies that govern annual compensation of the Company's executive officers and
administering the 1996 Executive Incentive Compensation Plan. The duties and
responsibilities of the Audit Committee will include (i) recommending to the
full Board the appointment of the Company's auditors and any termination of
their appointment, (ii) reviewing the plan and scope of audits, (iii) reviewing
the Company's significant accounting policies and internal controls, (iv)
administering the Company's compliance programs, and (v) general responsibility
for all related auditing matters.
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CERTAIN TRANSACTIONS
COMMON STOCK OWNERSHIP
In connection with the organization of the Company in November 1990, the
Company issued 2,000,000 shares of Common Stock, par value $0.001 per share, to
Mr. Pierre Mansur in exchange for the assignment to the Company of (i) certain
ongoing research and development and rights to any related patents and patents
pending, and (ii) real estate and equipment valued at $52,000.
CONSULTING AGREEMENT AND SERVICES
In November 1994, the Company entered into a two-year consulting agreement
(the "Consulting Agreement") with Environmental Technologies BVI Limited (the
"Consultant"). Pursuant to the Consulting Agreement, the Consultant agreed to
advise, consult with, introduce to third parties and generally assist the
Company in its efforts to explore new manufacturing and marketing arrangements.
In exchange for such services, the Consulting Agreement provided that the
Consultant was entitled to receive certain fees in connection with the sale of
certain equipment, services, license rights, royalty rights, manufacturing
rights, marketing rights or the Company's entrance into a partnership or joint
venture arrangement or consummation of a merger. The Consultant did not receive
any commissions pursuant to the Consulting Agreement. In December 1995, the
Company issued the Consultant 10,000 shares of Common Stock in exchange for the
services rendered by the Consultant and to secure the Consultant's agreement to
terminate the Consulting Agreement and any and all associated rights of the
Consultant. Dr. Jan Hedberg, a director of the Company, owns 50 percent and
serves as the managing director of the Consultant.
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack have, from time to
time, rendered consulting services to the Company in connection with
financing, marketing and technical matters. In April 1996, they were each
granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share,
in exchange for such previously rendered consulting services.
NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
made a series of advances ranging from $5,000 to $30,000, totaling an aggregate
of $150,000 (the "Debt"), to the Company between June 1, 1990 and May 31, 1996.
Under the terms of the line of credit, interest accrued at a rate of 6% in 1994,
1995 and the five month period ended May 31, 1996. On December 31, 1994 and
December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000,
respectively, in satisfaction of interest owed with respect to the Debt. The
note evidencing the Debt had a maturity date of December 31, 1995, which
maturity date was extended to December 31, 1996. On May 31, 1996, the Company
paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding
principal balance of and the interest owed with respect to the Debt.
CONVERTIBLE NOTES
In connection with its issuance of an aggregate of $1,012,500 in principal
amount of Convertible Notes in June 1996, the Company issued promissory notes in
the principal amount of $101,250 to each of Environmental Technologies BVI
Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company,
is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr.
Elias F. Mansur, a director of the Company. Upon consummation of this offering,
each of the Convertible Notes will be automatically converted into 15,000 shares
of the Company's Common Stock. Mr. Mansur, Mr. Jack and Environmental
Technologies BVI Limited acquired the Convertible Notes on the same terms as
other unaffiliated investors.
FUTURE TRANSACTIONS
Each of the transactions between the Company and each officer and shareholder
of the Company was made on terms no less favorable to the Company than those
that were available from unaffiliated
41
<PAGE>
third parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated third parties.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock immediately prior to this offering, and as
adjusted to reflect the issuance of shares upon the conversion of the
Convertible Notes and the sale of shares offered by this Prospectus, by: (i)
each person known by the Company to be the beneficial owner of more than 5% of
the Common Stock, (ii) each Director or nominee for Director of the Company,
(iii) each of the Named Executive Officers and (iv) all Directors and Executive
Officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THIS OFFERING AFTER THIS OFFERING
---------------------------- ---------------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ------------------------------------- --------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Mr. Pierre G. Mansur ................ 2,000,000 59.7% 2,000,000 46.0%
Mr. Paul I. Mansur .................. 0 * 0 *
Mr. Elias F. Mansur ................. 26,025 * 41,025(2) *
Dr. Jan Hedberg ..................... 20,000(1) * 35,000(1)(3) *
Mr. Joseph E. Jack .................. 22,820 * 37,820(2) *
Mr. Charles W. Profilet ............. 0 * 0 *
Mr. Richard P. Smith ................ 10,000(4) * 10,000(4) *
All Directors and Executive Officers
as a Group (6 persons) ............ 2,078,845(5) 61.9% 2,123,845(5) 48.8%
</TABLE>
- ------------------
* Less than 1%
(1) Includes 10,000 shares of Common Stock held by Environmental Technologies
BVI Limited, of which Dr. Hedberg owns 50 percent and serves as the Managing
Director.
(2) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $101,250, which conversion shall
occur simultaneously with the consummation of this offering.
(3) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note held by Environmental Technologies BVI Limited in the
principal amount of $101,250, which conversion shall occur simultaneously
with the consummation of this offering.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options.
(5) See Notes (1) -(4).
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred
Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309
shares of Common Stock and 0 shares of Preferred Stock are outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders. Subject to the restrictions
summarized below, dividends may be paid to the holders of Common Stock when
and if declared by the Board of Directors out of funds legally available for
dividends. See "Dividend Policy."
Holders of Common Stock have no conversion, redemption, or preemptive
rights. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, the holders of Common Stock will be entitled to
share ratably in its assets remaining after provision for payment of
creditors and holders of Preferred Stock. See "Dividend Policy."
42
<PAGE>
PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the value or market price of
the Common Stock and voting power or other rights of the holders of Common
Stock. In the event of issuance, the Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds, beginning at 20% of
the Company's outstanding voting shares, will not possess any voting rights
unless such voting rights are approved by a majority vote of a corporation's
disinterested shareholders. Although the Company has elected not to be subject
to the provisions of the Florida Control Share Act, the Company may, by amending
its by-laws, elect to become subject to the provisions of the Florida Control
Share Act in the future. The Affiliated Transactions Act generally requires
majority approval by disinterested directors or supermajority approval of
disinterested shareholders of certain specified transactions (such as a merger,
consolidation, sale of assets, issuance of transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder.
Mr. Pierre Mansur's initial acquisition of Common Stock was not subject to
the provisions of the Florida Control Share Act or the Florida Affiliated
Transactions Act. Future acquisitions of the Common Stock by Mr. Mansur will not
trigger the provisions of the Florida Control Share Act unless the Company has
elected to become subject to the provisions of the Florida Control Share Act.
Future acquisitions of the Common Stock by Mr. Mansur will also not trigger the
provisions of the Florida Affiliated Transactions Act provided any such
acquisition has been approved by a majority of the "disinterested directors" on
the Company's board of directors. Mr. Mansur is the Company's Chairman of the
Board and President.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the Florida Business Corporation Act
("FBCA"). These provisions provide that in discharging his or her duties and
determining what is in the best interests of the Company, a director may
consider such factors as the director deems relevant, including the long-term
prospects and interests of the Company and its shareholders and the social,
economic, legal or other effects of any proposed action on the employees,
suppliers or customers of the Company, the community in which the Company
operates and the economy in general. Consequently, in connection with any
proposed action, the Board of Directors is empowered to consider interests of
other constituencies in addition to the Company's shareholders, and directors
who take into account these other factors may make decisions which are less
beneficial to some, or a majority, of the shareholders than if the law did not
permit consideration of such other factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
43
<PAGE>
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to fact unless (i) the director breached or failed to perform his duties
as a director and (ii) a director's beach of, or failure to perform, those
duties constitutes (1) a violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful, (2) a transaction from which the director
derived an improper personal benefit, either directly or indirectly, (3) a
circumstance under which an unlawful distribution is made, (4) in a proceeding
by or in the right of the corporation or procure a judgment in its favor or by
or in the right of a shareholder, conscious disregard for the best interest of
the corporation or willful misconduct, or (5) in a proceeding by or in the right
of someone other than the corporation or a shareholder, recklessness or an act
or omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property. A corporation may purchase and maintain insurance on behalf of any
director or officer against any liability asserted against him and incurred by
him in his capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to the
fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company anticipates that it will
have 4,351,309 shares of Common Stock outstanding. The 850,000 shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (in general, a person who has a control relationship
with the Company) which will be subject to the limitations of Rule 144 adopted
under the Securities Act. All of the remaining 3,501,309 shares are deemed to be
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act, in that such shares were issued and sold by the
Company in private transactions not involving a public offering. Of such
remaining shares: (i) 2,656,729 shares will become eligible for sale under Rule
144 90 days from the date of this Prospectus; (ii) 150,000 shares are registered
for resale pursuant to an effective registration statement; and (iii) the
remainder will become eligible for such sale at various times prior to June
1998.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the
44
<PAGE>
Company for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
All of the Company's officers, directors and shareholders have agreed not to
sell or otherwise dispose of any of their shares of Common Stock for a period of
13 months from the date of this Prospectus without the prior written consent of
the Representative.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities" for information concerning
outstanding warrants and convertible securities.
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom First Allied
Securities Inc. is acting as Representative, have severally agreed, subject to
the terms and conditions of the Underwriting Agreement (the "Underwriting
Agreement"), to purchase from the Company and the Company has agreed to sell to
the Underwriters on a firm commitment basis the respective number of shares of
Common Stock set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------- --------------
<S> <C>
First Allied Securities Inc. ....
--------------
Total .......................... 850,000
==============
</TABLE>
The Underwriters are committed to purchase all shares of Common Stock offered
hereby if any of such shares are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose to initially offer the Common Stock to the public at the public offering
prices set forth on the cover page of this Prospectus and to certain dealers at
such prices less concessions of not in excess of $ per share of Common Stock.
Such dealers may reallow a concession not in excess of $ per share of Common
Stock to other dealers. After the commencement of this offering, the public
offering prices, concessions and reallowances may be changed by the
Representative.
The Representative has advised the Company that it does not anticipate sales
to discretionary accounts by the Underwriters to exceed five percent of the
total number of shares of Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative an expense allowance on a
45
<PAGE>
nonaccountable basis equal to three percent (3%) of the gross proceeds derived
from the sale of the Common Stock underwritten, of which $50,000 has been paid
to date.
The Underwriters have been granted an option by the Company, exercisable
within forty-five (45) days after the date of this Prospectus, to purchase up to
an additional 127,500 shares of Common Stock at the initial public offering
price per share of Common Stock offered hereby, less underwriting discounts and
the expense allowance. Such option may be exercised only for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.
All of the Company's officers and directors and all of the holders of the
Common Stock have agreed not to, directly or indirectly, sell, transfer,
hypothecate or otherwise encumber any of their shares for thirteen (13) months
following the date of this Prospectus without the prior written consent of the
Representative.
The Company has agreed that, for five (5) years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of Directors. Such individual
may be a director, officer, employee or affiliate of the Representative. In the
event the Representative elects not to designate a person to serve on the
Company's Board of Directors, the Representative may designate an observer to
attend meetings of the Board of Directors.
In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants to
purchase from the Company 85,000 shares of Common Stock. The Representative's
Warrants are initially exercisable for shares of Common Stock at a price of $
[120% of the initial public offering price per share of Common Stock] per share
of Common Stock for a period of four (4) years commencing one (1) year from the
date of this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve (12) months from the date hereof, except to
officers and principals of the Representative. The Representative's Warrants
also provide for adjustment in the number of shares of Common Stock issuable
upon the exercise thereof as a result of certain subdivisions and combinations
of the Common Stock. The Representative's Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of the
Representative's Warrants.
In connection with the Private Financing, the Representative is entitled to
receive a commission of $101,250 and a non-accountable expense allowance of
$30,375.
The Representative was registered as a broker dealer on March 29, 1994. The
Representative was relatively inactive for a period of time and was reactivated
under its present ownership structure on December 15, 1994. The Representative
does not have extensive experience as an underwriter of public offerings of
securities. The Representative has acted as the managing underwriter for three
public offerings. The Representative is a relatively small firm and no assurance
can be given that the Representative will participate as a market maker in the
Common Stock.
Prior to this offering, there has been no public market for the Common Stock.
Consequently, the initial public offering prices of the Common Stock has been
determined by negotiations between the Company and the Representative and is not
necessarily related to the Company's asset value, net worth or other established
criteria of value. The factors considered in such negotiations included the
history of and prospects for the industry in which the Company competes, an
assessment of the Company's management, the prospects of the Company, its
capital structure and certain other factors as were deemed relevant.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement filed as an Exhibit to the Registration Statement of
which this Prospectus forms a part.
46
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami,
Florida. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as
counsel for the Underwriters in connection with the offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for the period from November 13, 1990 (inception) to December 31, 1991, and each
of the years in the four year period ended December 31, 1995 have been included
in this Prospectus and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere in this Prospectus, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all the information set forth in the Registration Statement and in the exhibits
and schedules thereto. For further information about the Company and the Common
Stock, reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference. Copies of each such document may
be obtained from the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C., upon payment of the charges prescribed by the
Commission. Copies of each document may also be obtained through the
Commission's internet address at http://www.sec.gov.
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants ........................................................... F-2
Financial Statements
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unaudited) ................ F-3
Statements of Operations for the period from November 13, 1990 (inception) to December 31,
1991, and each of the years in the four year period ended December 31, 1995 and for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-4
Statements of Stockholders' Deficit for the period from November 13, 1990 (inception) to
December 31, 1991, and each of the years in the four year period ended December 31, 1995
and for the six months ended June 30, 1996 (unaudited) ................................... F-5
Statements of Cash Flows for the period from November 13, 1990 (inception) to December 31,
1991, and each of the years in the four year period ended December 31, 1995 and for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-6
Notes to Financial Statements .............................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mansur Industries Inc.:
We have audited the accompanying balance sheets of Mansur Industries Inc. (a
development stage company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders'(deficit) and cash flows for the period
from November 13, 1990 (inception) to December 31, 1991 and each of the years in
the four-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 Mansur Industries Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the period from November 13, 1990 (inception) to December 31, 1991 and each
of the years in the four-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .................................................. $ 20,766 $ 916,383 $ 640,592
Inventory ............................................. 0 193,838 412,431
Other assets .......................................... 85,810 18,290 176,425
--------------- --------------- --------------
Total current assets ................................. 106,576 1,128,511 1,229,448
--------------- --------------- --------------
Mortgage note receivable ............................... 200,000 0 0
--------------- --------------- --------------
Property and equipment, net ............................ 351,773 324,431 308,810
Other assets ........................................... 98,593 0 0
Intangible assets, net ................................. 0 0 24,454
--------------- --------------- --------------
650,366 324,431 333,264
--------------- --------------- --------------
Total Assets ......................................... $ 756,942 1,452,942 1,562,712
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878
Due to officers/shareholders .......................... 250,000 250,000 0
Convertible notes payable ............................. 0 0 1,012,500
Interest payable ...................................... 45,684 0 2,250
Current installments of long-term debt ................ 43,637 45,846 48,786
--------------- --------------- --------------
Total current liabilities ............................ 345,328 515,323 1,446,414
--------------- --------------- --------------
Long-term debt, excluding current installments ........ 700,011 154,165 129,014
--------------- --------------- --------------
Total liabilities .................................... 1,045,339 669,488 1,575,428
--------------- --------------- --------------
Convertible redeemable preferred stock, $1 par value.
Authorized 1,500,000 shares, issued and outstanding
580,000 and 490,000 in 1994 and 1995 respectively. ... 633,929 2,573,863 0
--------------- --------------- --------------
Stockholders' (deficit):
Common stock, $0.001 par value. Authorized 25,000,000 shares, issued and
outstanding 2,000,000; 2,673,129 and 3,351,309 shares for 1994, 1995 and 1996
respectively ........................................ 2,000 2,673 3,351
Additional paid-in capital ............................ (12,257) 438,132 3,560,948
Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015)
--------------- --------------- --------------
Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716)
--------------- --------------- --------------
Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1991 1992 1993 1994
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative .$ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .. 128,439 31,924 69,256 178,146
--------------- ------------ ------------- -------------
Total operating expenses . 136,941 40,895 151,142 446,560
--------------- ------------ ------------- -------------
Loss from operations ..... (136,941) (40,895) (151,142) (446,560)
--------------- ------------ ------------- -------------
Interest expense ............ -- (16,299) (16,360) (46,312)
Exchange expense
on redeemable
preferred stock ........... -- -- -- --
Interest Income ............. -- -- -- --
Loss on disposal of property
and equipment ............. -- (39,560) (18,000) --
--------------- ------------ ------------- -------------
Net loss .................. (136,941) (96,754) (185,502) (492,872)
--------------- ------------ ------------- -------------
Dividends on redeemable
preferred stock ......... -- -- (8,328) (53,929)
--------------- ------------ ------------- -------------
Net loss to common
shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801)
=============== ============ ============= =============
Net loss per common
share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
=============== ============ ============= =============
Weighted average shares
outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000
=============== ============ ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
----------------- JUNE 30,
1995 1995 1996 1996
---------- -------- -------- ------------
(UNAUDITED)(UNAUDITED)(UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $907,393 $418,079 $622,641 $1,897,807
Research and development 393,874 162,732 365,435 1,167,074
--------------- ---------- -------- ----------
Total operating expenses . 1,301,267 580,811 988,076 3,064,881
--------------- ----------- -------- ---------
Loss from operations ..... (1,301,267) (580,811) 988,076) 3,064,881)
--------------- ----------- -------- ----------
Interest expense ............ (63,528) (38,259) (24,179) (166,678)
F-4
<PAGE>
Exchange expense
on redeemable
preferred stock ........ -- -- (344,631) (344,631)
Interest income ............. 45,650 11,797 11,085 56,735
Loss on disposal of property
and equipment ............. -- -- -- (57,560)
--------------- ----------- -------- ----------
Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015)
--------------- ----------- -------- ----------
Dividends on redeemable
preferred stock ......... (222,067) (75,066) (147,000) (431,324)
--------------- ----------- -------- ----------
Net loss to common
shares .................. $(1,541,212) $ (682,339)$(1,492,801) $(4,008,339)
=============== =========== =========== ===========
Net loss per common
share ................... $ (0.66) $ (0.34)$ (0.53)
=============== =========== =========== ===========
Weighted average shares
outstanding ............. 2,335,140 2,000,000 2,799,071
=============== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
---------------------------- ------------------------
SHARES AMOUNT SHARES PAR
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at November 13, 1990 (inception) -- $ -- -- $ --
Issuance of common stock to an officer
in exchange for machinery and real
estate valued at market and rights to
ongoing research and development
patents and patents pending .......... -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1991 ............ -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1992 ............ -- -- 2,000,000 2,000
Issuance of preferred stock in exchange
for cash ............................. 380,000 380,000 -- --
Issuance of preferred stock in
satisfaction of notes payable ........ 200,000 200,000 -- --
Accrued dividends on preferred stock ..
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000
Accrued dividends on preferred stock .. 53,929
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ 490,000 2,374,596 -- --
Accrued dividends on preferred stock .. 22,800
Conversion of preferred stock and
accrued dividends to common stock .... (580,000) (656,729) 656,729 657
Accrued dividends on preferred stock .. 199,267
Issuance of common stock in exchange
for services rendered ................ -- -- 16,400 16
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673
Issuance of common stock in exchange
for services rendered (unaudited) .... -- -- 30,000 30
Conversion of note payable into common
stock (unaudited) .................... -- -- 20,000 20
Accrued dividends on preferred stock
(unaudited) .......................... 147,000
Exchange of preferred stock and accrued
dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628
Net loss (unaudited) ................... -- -- -- --
------------ -------------- ------------ ----------
Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
---------- ---------------- -------------
<S> <C> <C> <C>
Balance at November 13, 1990 (inception) $ -- $ -- $ --
Issuance of common stock to an officer
in exchange for machinery and real
estate valued at market and rights to
ongoing research and development
patents and patents pending .......... 50,000 -- 52,000
Net loss ............................... -- (136,941) (136,941)
--------- ---------- ----------
Balance at December 31, 1991 ............ 50,000 (136,941) (84,941)
Net loss ............................... -- (96,754) (96,754)
-------- ---------- ----------
Balance at December 31, 1992 ............ 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash ............................. -- -- --
Issuance of preferred stock in
satisfaction of notes payable ........ -- -- --
Accrued dividends on preferred stock .. (8,328) (8,328)
Net loss ............................... -- (185,502) (185,502)
-------- --------- ----------
Balance at December 31, 1993 ............ 41,672 (419,197) (375,525)
Accrued dividends on preferred stock .. (53,929) (53,929)
Net loss ............................... -- (492,872) (492,872)
-------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
---------- ---------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1994 ............ (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ -- -- --
Accrued dividends on preferred stock .. (22,800) (22,800)
Conversion of preferred stock and
accrued dividends to common stock .... 656,072 -- 656,729
Accrued dividends on preferred stock .. (199,267) (199,267)
Issuance of common stock in exchange
for services rendered ................ 16,384 -- 16,400
Net loss ............................... -- (1,319,145) (1,319,145)
------------- --------------- ----------------
Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange
for services rendered (unaudited) .... 104,970 -- 105,000
Conversion of note payable into common
stock (unaudited) .................... 99,980 -- 100,000
Accrued dividends on preferred stock
(unaudited) .......................... (147,000) (147,000)
Exchange of preferred stock and accrued
dividends to common stock (unaudited) 3,064,866 -- 3,065,494
Net loss (unaudited) ................... -- (1,345,801) (1,345,801)
------------- --------------- ----------------
Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716)
============= =============== ================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION) YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------
DECEMBER 31,
1991 1992 1993 1994
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872)
Adjustments to reconcile net loss to cash
used in operating activities:
Loss on sale of property ............. -- 31,680 -- --
Write-off of equipment and patent ...... 69,965 7,880 -- --
Depreciation ............................ -- -- -- 18,056
Common Stock issued for services ....... -- -- -- --
Changes in operating assets
and liabilities: ......................
Inventory .............................. (5,095) (23,205) (29,838) (68,755)
Other assets ........................... (1,318) (1,174) (7,067) (76,251)
Intangible assets ...................... -- -- -- --
Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415
Advances from customer ................. 11,500 16,800 -- --
---------- -------- --------- ---------
Net cash used in
operating activities ................ (60,099) (66,439) (213,946) (607,407)
---------- -------- --------- ---------
Investing activities:
Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227)
Proceeds from mortgage note receivable .. -- -- -- --
Net proceeds from sale of property ...... -- 68,320 -- --
---------- -------- --------- ---------
Net cash provided (used) by investing
activities .......................... (6,207) 64,112 (43,157) (48,227)
Financing activities:
Proceeds from notes payable and
line of credit ......................... 68,911 52,627 24,860 500,000
Repayment of notes payable ............... -- (15,000) -- (9,262)
Exchange expense on preferred stock
exchanged for common stock ............. -- -- -- --
Proceeds from issuance of
preferred stock ........................ -- -- 380,000 --
---------- -------- ---------- ---------
Net cash provided by
financing activities ................ 68,911 37,627 404,860 490,738
---------- -------- ---------- ---------
Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896)
Cash, beginning of period ................. -- 2,605 37,905 185,662
---------- -------- ---------- ---------
Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766
========== ======== ========= =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION) YEAR ENDED DECEMBER 31,
THROUGH ---------------------------------
DECEMBER 31,
1991 1992 1993 1994
-------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss $(1,319,145) $(607,273) $(1,345,801) $(3,577,015)
Adjustments to reconcile net loss to cash
used in operating activities:
loss on sale of property ............. -- -- -- 31,680
Write-off of equipment and patent ...... -- -- -- 77,845
Depreciation ............................ 42,404 20,934 22,396 82,856
Common Stock issued for services ....... 16,400 6,400 105,000 121,400
Changes in operating assets
and liabilities: ......................
Inventory .............................. (95,245) (85,366) (218,593) (440,731)
Other assets ........................... (7,884) (1,231) (158,135) (251,829)
Intangible assets ...................... -- -- (24,454) (24,454)
Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436
Advances from customer ................. -- -- -- 28,300
------------- ----------- ------------- ---------------
Net cash used in
operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512)
------------- ----------- ------------- ---------------
Investing activities:
Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000
Net proceeds from sale of property ...... -- -- -- 68,320
------------- ----------- ------------- ---------------
Net cash provided (used) by investing
activities .......................... 184,938 192,172 (6,775) 144,684
Financing activities:
Proceeds from notes payable and
line of credit ......................... -- -- 1,012,500 1,658,898
Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109)
Exchange expense on preferred stock
exchanged for common stock ............. -- 344,631 344,631
Proceeds from issuance of
preferred stock ........................ 1,950,000 1,950,000 0 2,330,000
------------- ----------- ------------- ---------------
Net cash provided by
financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420
------------- ----------- ------------- ---------------
Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592
Cash, beginning of period ................. 20,766 20,766 916,383 --
------------- ----------- ------------- ---------------
Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592
============= =========== ============= ===============
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
As discussed in note 7(d), in November, 1990, the Company issued 2,000,000
shares of common stock for real estate and equipment having an aggregate
market value of $52,000. In addition, the officer assigned to the Company
ongoing research and development and rights to patents and patents pending.
Atinception, the Company assumed certain assets and liabilities, including a
$200,000 note payable.
During April 1992, the Company sold real property for $120,000 in cash and a
$200,000 mortgage note receivable, as discussed in note 2.
In December 1993, the Company issued preferred stock in exchange for $200,000
of notes payable.
In July 1994, the Company purchased equipment, issuing a note payable to the
seller in the amount of $252,910 (see note 5).
During 1995, convertible preferred stock in the amount of $580,000 and related
accrued dividends in the amount of $76,729 were converted to common stock
(see note 7).
During 1996, the Company exchanged 628,180 shares of common stock for 490,000
shares of preferred stock in the amount of $2,374,596 plus related accrued
dividends of $346,260. In connection with this transaction, the Company
recorded an exchange expense of 12% in the amount of $344,631 (note 7).
See accompanying notes to financial statements.
F-6
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND DECEMBER 31, 1995
AND JUNE 30, 1996 (UNAUDITED)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in research and
development, marketing, and initial production of industrial parts cleaning
equipment for use in automotive, marine, airline and general manufacturing
industries. The Company's focus is on the design, development and manufacture of
industrial cleaning equipment which incorporate continuous recycling and
recovery technologies for solvents and solutions, thereby reducing the need to
replace and dispose of contaminated solvents and solutions. The Company is in
the development stage.
(A) OPERATIONS AND LIQUIDITY
The Company has been primarily engaged in research, development, marketing,
and initial production of its products. The Company's ultimate success is
dependent upon future events, including the successful commercialization of the
Company's products, establishing sources for manufacturing, marketing, and
distribution channels, the outcomes of which are currently indeterminable, and
is also dependent upon obtaining sufficient financing. As of June 30, 1996, the
Company has realized no sales of its products.
As indicated in the accompanying financial statements as of June 30, 1996,
the Company's accumulated deficit totaled $3,577,015 (unaudited). The Company
has financed this deficiency primarily through private placements of debt and
equity securities. Management expects that product sales will commence during
the second half of 1996 and that proceeds from the notes payable are sufficient
to fund working capital requirements until sales of the Company's products reach
levels sufficient to fund working capital requirements.
In July 1996, the Company expects to file a registration statement with the
Securities and Exchange Commission (the "SEC") in connection with a proposed
initial public offering ("IPO") of shares of its common stock. In the event that
the IPO is not completed, the Company has plans to restructure operations to
minimize cash expenditures, and/or obtain additional financing in order to
continue support of its activities. If adequate funds are not available from
additional sources of financing, the Company's business may be materially
adversely affected.
(B) INVENTORY
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory consists of the following.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ....................... $0 55,738 233,456
Work in progress and finished goods 0 138,100 178,975
--------------- --------------- ------------
$0 193,838 412,431
=============== =============== ============
</TABLE>
(C) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the shorter of
the lease term or the estimated useful lives of the respective assets.
F-7
<PAGE>
(D) INTANGIBLES
Patents, patent applications and rights are stated at acquisition cost.
Amortization of patents is recorded using the straight-line method over the
legal lives of the patents, generally for periods ranging up to 17 years. The
carrying value of intangible assets is periodically reviewed by the Company and
impairments are recognized when the expected future cash flows from operations
derived from such intangible assets is less than their carrying value.
(E) OTHER ASSETS
Included in other assets at December 31, 1994, were $75,404 in stock offering
costs incurred in connection with the Series A preferred stock private placement
(note 7). On June 30, 1996, other assets consist primarily of costs relating to
the initial public offering of $94,251 and deposits with material suppliers
(note 8). (unaudited)
Included in non-current other assets at December 31, 1994 was $98,593 of
inventory relating to products not to be marketed until other products in the
product line were fully developed.
(F) FINANCIAL INSTRUMENTS (unaudited)
In assessing the fair value of financial instruments at June 30, 1996 the
Company has used a variety of methods and assumptions, which were based on
estimates of market conditions and risks existing at that time. The carrying
amount of long-term debt approximates fair value at June 30, 1996. For certain
instruments, including accounts payable and accrued expenses, and short-term
debt, the carrying amount approximates fair value due to their short maturity.
(G) RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs incurred in
connection with engineering activities related to the development of industrial
parts cleaning machinery and are expensed as incurred.
(H) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) EARNINGS PER SHARE DATA
The computation of loss per share in each year is based on the weighted
average number of common shares outstanding. When dilutive, convertible
preferred stock and convertible notes are
F-8
<PAGE>
included as common share equivalents using the if converted method. As these
instruments have an anti-dilutive effect for the years presented, they are not
included in the weighted average calculation. Primary and fully diluted earnings
per share are the same for each of the years presented.
(J) USE OF 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, if any, 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.
(K) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), which becomes effective for financial statements for fiscal
years beginning after December 15, 1995. The statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangible assets to be disposed
of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no
material impact to the financial position or results of operations of the
Company.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes
effective for financial statements for fiscal years beginning after December 31,
1995. SFAS No. 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company is currently accounting for
stock-based compensation under APB 25 and has opted to continue accounting for
stock-based compensation under this method.
(2) MORTGAGE NOTE RECEIVABLE
During April 1992, the Company sold real property for $120,000 in cash and a
$200,000 mortgage note receivable. The note bore interest at a rate of 12
percent per annum payable monthly with the principal due at maturity, being
April 27, 1997. The interest received on the mortgage note receivable
F-9
<PAGE>
was assigned by the Company to repay interest due on an unsecured note payable
and dividends on certain of the preferred stock. In April 1995, the balance of
the note was received in full.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
--------------- --------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment ...... $ 7,289 20,433 23,709 5 Years
Machinery and equipment ...... 351,688 353,606 357,105 10 Years
Leasehold improvements ........ 10,852 10,852 10,852
--------------- --------------- ------------
369,829 384,891 391,666
Less accumulated depreciation 18,056 60,460 82,856
--------------- --------------- ------------
$351,773 324,431 308,810
=============== =============== ============
</TABLE>
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
12% UNSECURED NOTE PAYABLE ............. $100,000
Note payable to chief executive officer 150,000
-----------
$250,000
===========
</TABLE>
The 12% unsecured notes payable required interest payments monthly, with
principal due at maturity. The note matured on December 31, 1995 and was renewed
for one year. Pursuant to an amendment to the note signed in January 1996, the
note was converted into common stock at a price of $5 per share (note 7).
Advances made by the chief executive officer are pursuant to a $200,000 line
of credit agreement signed in 1990. Under the terms of the agreement, interest
is accrued at a variable rate not to exceed 10 percent per annum nor fall below
6 percent per annum negotiated annually. The rate for 1994 and 1995 was 6
percent. The note had a maturity date of December 31, 1995 and was renewed for
one year to mature on December 31, 1996. The note payable to the chief executive
officer was paid in full during May of 1996 (unaudited).
(B) CONVERTIBLE NOTES PAYABLE (UNAUDITED)
In June 1996, the Company issued cumulative convertible redeemable notes
payable in the amount of $1,012,500, of which $303,750 was due to certain
directors of the Company. The notes bear interest of 4% per annum until
September 1996 and 12% thereafter. The notes will be automatically converted
into common stock simultaneously with the initial public offering of the Company
at a price of $6.75 per share. The Company may redeem these notes in full at any
time at a price equal to the outstanding
F-10
<PAGE>
principal amount plus interest accrued thereon. Upon the conversion of the notes
into common stock resulting from an IPO, a commission equalling 10% of the
converted principal balance and a nonaccountable expense allowance equalling 3%
of the converted principal balance is payable.
(5) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt consists of the following:
12% unsecured convertible promissory note, due May
10, 1996, converted into Series A preferred stock in
1995 (note 7). ..................................... $500,000 -- --
12.5% note payable in monthly installments of $5,690,
including interest due August 4, 1999, secured by
equipment with a depreciated cost of $230,277 on
June 30, 1996 (unaudited) .......................... 243,648 200,011 177,800
Less current installments ............................ 43,637 45,846 48,786
----------- ---------- ------------
Long-term debt, excluding current installments ...... $700,011 154,165 129,014
=========== ========== ============
</TABLE>
The 12 percent unsecured convertible promissory note was converted into
100,000 shares of Series A preferred stock during 1995 and subsequently
converted to common stock in June 1996 (unaudited) (note 7).
The aggregate maturities of long-term debt for each of the four years
subsequent to June 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------- ----------
<S> <C>
1996 .......... $ 23,635
1997 .......... 51,916
1998 .......... 58,791
1999 .......... 43,458
----------
$177,800
==========
</TABLE>
(6) INCOME TAXES
For the period from November 13, 1990 (inception) to June 30, 1996, the
operations of the Company generated net operating losses of approximately
$3,577,015 (unaudited) for financial reporting purposes. Because the Company is
in the development stage, all costs through 1995 have been capitalized for tax
purposes. The only loss reported for tax has been a $14,280 capital loss on the
sale of real property in 1992. This capital loss may be carried forward by the
Company for up to five years and will expire at the end of 1997. Capital losses
carried forward may only be used to offset future capital gains. The gross
amount of the deferred tax asset as of June 30, 1996 was approximately
$1,288,000 (unaudited), which consists primarily of capital loss carryforwards,
start-up costs, and research and experimental costs capitalized for tax
purposes. Since realization of these tax benefits are not assured, a
F-11
<PAGE>
valuation allowance has been recorded against the entire deferred tax asset
balance. In addition, pursuant to the Tax Reform Act of 1986, if certain
substantial changes in ownership should occur there would be an annual
limitation on the amount of tax attribute carryforwards which can be utilized in
the future.
(7) REDEEMABLE PREFERRED STOCK
(A) SERIES A PREFERRED STOCK
In April 1995, the Company issued 490,000 shares of 12 percent cumulative
convertible redeemable preferred stock (the "Series A") as part of a second
private placement at an offering price of $5 per share. The issuance raised
$1,950,000 in cash and converted the $500,000 unsecured convertible promissory
note (see note 5) into Series A shares.
The Series A were convertible into common stock, one for one, at any time
during the first 18 months following the issuance of the stock at the option of
the stockholder. All then outstanding shares of Series A were to be redeemed no
later than June 30, 1996. Dividends were payable at the time of conversion or
redemption. The balance of the Series A plus accrued dividends was $2,573,863 at
December 31, 1995.
On April 27, 1996, the board of directors of the Company approved an offer to
exchange all of the Series A plus the aggregate amount of dividends accrued
through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares
of common stock. In June 1996, 100% of the Series A shareholders accepted the
Company's offer to exchange all of their preferred shares together with their
dividends. In connection with this exchange the Company recognized an expense in
the amount of $344,631 (unaudited).
(B) FIRST SERIES PREFERRED STOCK
In the fourth quarter of 1993, the Company issued 580,000 shares of 12
percent cumulative convertible redeemable preferred stock (the "First Series" )
in a private placement. The stock was convertible into common stock, one for
one, at any time during the first 18 months following the issuance of the stock
at the option of the stockholder. Dividends were payable at the time of
conversion or redemption. The balance of the First Series preferred stock plus
accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994
respectively.
On May 30, 1995, the board of directors of the Company approved the
redemption of all of the First Series outstanding at the redemption price of $1
per share plus dividends accrued through June 30, 1995, subject to the preferred
shareholders' prior right to convert such preferred stock into common stock of
the Company. In June 1995, 100% of the First Series with cumulative dividends
thereon was converted into common stock, on a one for one basis.
(8) STOCKHOLDERS' DEFICIT
(A) CONVERTIBLE NOTE PAYABLE (UNAUDITED)
In May 1996, the Company converted a $100,000 note payable into common stock
at a price of $5 per share pursuant to an amendment to the note signed in
January of 1996.
F-12
<PAGE>
(B) COMMON STOCK
In November 1990, the Company issued 2,000,000 shares of common stock with a
par value of $0.001 per share to the President of the Company for the
President's assignment to the Company of all ongoing research and development
and the rights to any related patents and patents pending, in addition to real
estate and equipment with an aggregate fair value of $52,000 as part of the
formation of the Company.
(9) COMMITMENTS
(A) LEASES
The Company leases operating facilities under fixed rent operating leases.
The facilities had a 24 month lease expiring December 31, 1994 with a rent of
$4,631 per month. The lease was renewed under cancelable terms in October 1994
for an additional two-year period at a monthly rent of $5,094. During 1994, the
Company leased equipment under an operating lease which expired in September
1995.
Total rent expense was as follows:
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED) ...................................... $30,564
For the year ended December 31:
1995 ............................................. $61,128
1994 ............................................. 55,572
1993 ............................................. 39,740
1992 ............................................. 24,835
From November 13 1990 (inception) to December 31,
1991 ........................................... 14,540
(B) DUE TO OFFICER
In 1995, the Board of Directors of the Company declared an incentive bonus
payable to the President, Pierre G. Mansur in the amount of $267,460. Payment of
bonuses are subject to the determination by the Board of Directors that the
Company is able to effectuate such payment without impeding the Company's
operations or development. As a result, $88,110 has been paid and an amount of
$179,350 has been accrued at December 31, 1995 and June 30, 1996 (unaudited).
(C) SUPPLY AGREEMENT (unaudited)
On May 7, 1996, the Company entered into an agreement (the "Supply Agreement"
) with a supplier (the "Supplier") pursuant to which the Supplier agreed to
supply to the Company, at the Company's election, between 3,000 and 5,000
machine units per year at established prices and in accordance with a delivery
schedule. The Company has agreed to pay $150,000 (the "Advance"), $50,000 of
which has been advanced through June 30, 1996. The total Advance may be credited
against future purchases under the Supply Agreement at the rate of $50 per unit.
The Supply Agreement provides that the Company may unilaterally terminate the
contract in whole or in part for cause or for convenience. In the event the
Supply Agreement is terminated by the
F-13
<PAGE>
Company for convenience, the Supplier will be entitled to reimbursement of the
costs it has incurred through the date of termination and, if such termination
occurs prior to the delivery of 3,000 units, the Supplier will be entitled to
payment for units produced through the date of termination and retain any
unapplied amount of the Advance.
(10) PRODUCT FINANCING AGREEMENT (unaudited)
In May 1996, the Company entered into an agreement (the "Product Financing
Agreement") with a leasing company which agrees to purchase machines produced by
the Company and subsequently lease these machines to customers on 60 month
terms. The Company will market the machines and provide the leasing company with
credit information on potential customers which they may either accept or
reject. The Product Financing Agreement states that the leasing company does not
have recourse against the Company for customer failures to discharge their
obligations to the leasing company unless the Company has breached and failed to
cure certain warranties.
Under the Product Financing Agreement, the Company has agreed to provide
periodic service for the machines and replace solvent used in the machines. In
addition, upon the leasing company's request, the Company agrees to assist the
leasing company in remarketing any repossessed or surrendered equipment for a
fee. At the end of each customer lease, the Company has the option to purchase
the machine from the leasing company at its fair market value.
F-14
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ................. 3
Summary Financial Data ............. 6
Risk Factors ....................... 7
Use of Proceeds .................... 14
Dilution ........................... 15
Dividend Policy .................... 15
Capitalization ..................... 16
Selected Financial Data ............ 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .......... 18
Business ........................... 23
Management ......................... 35
Executive Compensation ............. 37
Certain Transactions ............... 41
Principal Shareholders ............. 42
Description of Capital Stock ...... 42
Shares Eligible for Future Sale ... 44
Underwriting ....................... 45
Legal Matters ...................... 47
Experts ............................ 47
Additional Information ............. 47
Index to Financial Statements ..... F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
850,000 SHARES
[MANSUR INDUSTRIES LOGO]
Common Stock
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
[FIRST ALLIED SECURITIES INC. LOGO]
, 1996
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MANSUR INDUSTRIES INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Information
Required by Items of Form S-1.
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT Location in Prospectus
- -----------------------------------------------------------------------------------------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover
of Prospectus Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges Prospectus Summary; Risk Factors
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Outside Front Cover Page;
Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Principal and Selling Shareholders;
Management
8. Plan of Distribution Outside Front Cover Page; Inside Front Cover
Page; Plan of Distribution Underwriting
9. Description of Securities to be Registered Prospectus Summary; Capitalization;
Dividend Policy; Description of Capital
Stock; Shares Eligible for Future Sale
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Outside Front and Inside
Front Cover Pages;
Prospectus Summary; Risk
Factors; Dividend
Policy; Capitalization;
Selected Financial Data;
Management's Discussion
and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Certain Transactions;
Principal and Selling
Shareholders;
Description of Capital
Stock; Shares Eligible
for Future Sale;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1996
PROSPECTUS
150,000 SHARES
[MANSUR INDUSTRIES LOGO]
COMMON STOCK
The 150,000 shares (the "Shares") of Common Stock, $.001 par value ("Common
Stock"), offered hereby are being offered directly by certain shareholders (the
"Selling Shareholders") of Mansur Industries Inc. (the "Company"). See
"Principal and Selling Shareholders." The Company will receive none of the
proceeds of the sale of the Shares. The Shares are issuable by the Company upon
conversion of $1,012,500 in principal amount of its convertible notes due 1997
(the "Convertible Notes"), at a conversion price of $6.75 per share.
Concurrently herewith, the Company is offering 850,000 shares of the Common
Stock at an initial offering price of $ in an underwritten initial public
offering (the "Concurrent Offering"). On the date of this Prospectus, a
registration statement with respect to the shares offered in the Concurrent
Offering was declared effective. Prior to the Concurrent Offering there was no
public market for the Common Stock and there can be no assurance that any such
market will develop or be sustained. The Common Stock will be included in the
Nasdaq Small Cap Market (the "NASDAQ") under the symbol "MANS."
The Company has registered the Shares under the Securities Act for sale by
the Selling Shareholders. See "Selling Shareholders." The Selling
Shareholders have advised the Company that they may from time to time sell
all or a portion of the Shares offered hereby in one or more transactions in
the over-the-counter market on the NASDAQ SmallCap Markeet, on any exchange
on which the Common Stock may then be listed, in negotiated transactions or
otherwise, or a combination of such methods of sale, at market prices
prevailing at the time of sale or prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Shareholders and/or
purchasers of the Shares for whom they may act as agent (which compensation
may be in excess of customary commissions). The Selling Shareholders and any
participating broker-dealers may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amend (the "Securities Act"). Neither the
Company nor the Selling Shareholders can presently estimate the amount of
commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time. The
shares are subject to an agreement between the holders thereof and the
Representative of the Underwriters in the Concurrent Offering (the
"Representative") restricting the sale thereof within the 13 months from the
date of this Prospectus without the prior written consent of the
Representative. The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including certain liabilities under the
Securities Act. The Company has also agreed to bear certain expenses (other
than underwriting discounts and commissions and brokerage commissions and
fees) in connection with the registration and sale of the Shares. See
"Concurrent Offering," "Description of Securities," and "Plan of
Distribution."
- -----------------------------------------------------------------------------
SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
September , 1996
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS
PROSPECTUS ASSUMES (I) THAT THE CONCURRENT OFFERING HAS BEEN CONSUMMATED AT AN
ASSUMED INITIAL OFFERING PRICE OF $7.50 PER SHARE (II) THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IN THE CONCURRENT OFFERING (THE "OVER-ALLOTMENT OPTION")
TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS NOT BEEN EXERCISED, AND
(III) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000 SHARES OF COMMON
STOCK HAVE NOT BEEN EXERCISED.
THE COMPANY
Mansur Industries Inc. (the "Company") has developed and obtained patent
protection with respect to a full line of self-contained, recycling industrial
parts washers that incorporate innovative, proprietary waste minimization
technologies and represent a significant advance over currently available
machinery and processes. Focusing on waste minimization rather than its removal
and recovery, the Company believes that its equipment will have a major impact
on the industrial parts cleaning industry and will have a broad appeal to
customers, because its equipment, unlike the machines now in use, facilitates
efficient and economical compliance with environmental regulations, minimizes
waste disposal requirements, enhances cleaning solution utilization, and
increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company's products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. The Company's products produce by-products that
have been extensively tested by the laboratory of a division of Valvoline Oil
Company and the independent engineering concern of Law Engineering and
Environmental Services, Inc. The Company's products have proven effective in
accomplishing the distillation of contaminated solvent to yield pure solvent and
a by-product comparable to used oil. The Company believes that substantially all
of the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil.
While the Company intends to exploit its current full line of industrial
washers, and to continue its research and development of new products, it has
initially focused its attention on its General Parts Washer, marketed as
SystemOne(Trademark) (the "SystemOne(Trademark) Washer"). The
SystemOne(Trademark) Washer consists of a washing sink mounted on top of a metal
cabinet in which the distillation and recovery apparatus is contained. The
equipment allows the solvent to be used, treated and re-used, on demand, without
requiring off-site processing. The Company has concluded extensive testing by
independent laboratories and at various commercial sites and is currently
conducting test marketing in a local area within close
3
<PAGE>
proximity to its facilities. Demonstrator models were placed in 38 selected
automotive repair facilities of national, fleet, industrial and commercial
accounts. Notwithstanding the absence of a formal marketing program during the
test period, the Company has, as of the date of this Prospectus, received firm
purchase orders from a number of facilities in which the machines were placed,
including Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company and
Pantropic Power Products, South Florida Caterpillar dealers (48 Units); United
States Postal Service (2 Units); Southern Sanitation, a subsidiary of Waste
Management, Inc. (5 Units); Broward County Mass Transit (25 Units); Greenwich
Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 Units). The Company finances its
SystemOne(Trademark) Washers through a third party leasing program with Oakmount
Financial Services. The Company commenced commercial sales and delivery of units
in July 1996 at an approximate price per unit of $2,700, and expects to deliver
substantially all units ordered to date prior to December 31, 1996. As of the
date of this Prospectus, the Company had delivered and recognized the sale of 44
units.
The initial market for the Company's industrial cleaning product line
includes automotive, aviation, marine and general industrial maintenance,
service and repair operations. The Company believes that domestic expenditures
in connection with industrial parts cleaning machines exceeds $1.0 billion
annually, and that the anticipated monthly cost to the customer for the
Company's products typically will not exceed, and is intended to be well below,
the monthly cost of the non-recycling machines now in use. Additional
competitive advantages provided by the Company's products include practical and
cost effective compliance with demanding regulations of the Environmental
Protection Agency; elimination of routine waste disposal costs; significant
improvements in cleaning productivity; minimized cleaning solution purchases;
and reduction of equipment down time for routine machine maintenance.
The Company has retained experienced executives to head and develop its sales
and marketing organization. In addition to its regional office in Miami, the
Company expects to open four additional service centers in Orlando, Tampa,
Jacksonville and West Palm Beach, Florida during 1996. The Company expects to
pursue a national expansion program, through internal growth utilizing a network
of regional distribution and service centers, as in Florida, through a strategic
alliance with a national distributor, if one is available on favorable terms, or
through a combination of the two. In August, the Company commenced a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under
the pilot program, First Recovery is the exclusive distributor of the
SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The
initial term of the program is one year. If the arrangement proves successful,
the Company expects to negotiate a broader agreement, possibly including a
national distribution program.
The Company has manufactured all its prototype and test models at its 10,000
square foot research and development ("R&D") facility. The Company's current
manufacturing capabilities include advanced Computer Aided Design/Computer Aided
Manufacturing technology and state of the art manufacturing machinery. Because
the Company's R&D facility can be utilized to manufacture up to 200 units of the
SystemOne(Trademark) Washer per month, all manufacturing operations, including
design, metal fabrication, robotic welding, painting and assembly, can be
performed in the Company's R&D facility during the Company's initial roll-out
phase. At present, the Company plans to continue to use its own facility for
existing and new product R&D activities and to use contract manufacturers when a
product achieves commercial sales levels. In order to accommodate increased
demand for the SystemOne(Trademark) Washer, the Company has entered into an
agreement with a contract manufacturer with respect to the manufacture of at
least 3,000 units during the first year thereof. In addition, the Company has
entered into negotiations with a major contract manufacturer with a 2 million
square foot facility and 75 years of experience to provide the manufacturing
capacity needed to meet anticipated future customer demand.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered ...................150,000 shares
Common Stock Outstanding After Offering...4,351,309(1)
Use of Proceeds by the Company ..........The Company utilized the proceeds of the private financing pursuant to which the
Convertible Notes were issued to finance the Concurrent Offering and for general
corporate purposes. The Company will not receive any of the proceeds from the sale by
the holders thereof of the shares of Common Stock issued pursuant to this Prospectus.
Risk Factors .............................This offering involves a high degree of risk and immediate substantial dilution. See
"Risk Factors" and "Dilution."
Nasdaq SmallCap Symbol ..................MANS
</TABLE>
- --------------------------
(1) Does not include an aggregate of 375,000 shares of Common Stock reserved
for issuance upon exercise of options available for future grant and
future restricted stock awards under the Company's Incentive Compensation
Plan. See "Underwriting" and "Management--Incentive Compensation Plans."
The Company will furnish its shareholders with annual reports containing audited
financial statements certified by an independent auditing firm.
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to a concurrent underwritten public offering by the
Company of 850,000 shares of Common Stock, and up to 127,500 additional shares
of Common Stock to cover over-allotments, if any, was declared effective by the
Securities and Exchange Commission (the "Concurrent Offering"). The Company
received net proceeds of approximately $ from the sale of those shares, and will
receive approximately $ __________ in additional net proceeds if the
over-allotment option is exercised in full, after payment of underwriting
discounts and commissions and estimated expenses of the Concurrent Offering.
Mansur Industries Inc. was incorporated in Florida in 1990. The Company's
principal executive office is located at 8425 S.W. 129th Terrace, Miami,
Florida 33156, and its telephone number is (305) 232-6768.
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with financial statements appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .......... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses ......... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ............ -- (16,299) (16,360) (46,312)
Exchange (expense) on redeemable
preferred stock .................. -- -- -- --
Loss on disposition of property and
equipment ........................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ......................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable preferred
stock ............................ -- -- (8,328) (53,929)
Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------- --------------------------
1995 1995 1996
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ....... $ 907,393 $ 418,079 $ 622,641
Research and development .......... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses ......... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ............ (17,878) (26,462) (13,094)
Exchange (expense) on redeemable
preferred stock .................. -- -- (344,631)
Loss on disposition of property and
equipment ........................ -- -- --
--------------- ------------- ---------------
Net (loss) ......................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable preferred
stock ............................ (222,067) (75,066) (147,000)
Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ................... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------------- -------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- -------- ---------- --------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188) $ (216,966) $5,921,034
TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212
CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014
TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
</TABLE>
- ----------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) The information provided has been adjusted to reflect (i) the issuance of
150,000 shares of Common Stock as a result of the conversion of the
Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.50 per
share and the initial application of the estimated net proceeds therefrom.
See "Capitalization" and "Use of Proceeds." The information provided has not
been adjusted to reflect that the Company issued $500,000 in principal
amount of Short Term Notes as of September 9, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK
FACTORS BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The Company was
formed in November 1990 and was a development stage company through June 30,
1996. Since its inception in November 1990, the Company has devoted
substantially all of its resources to research and development programs relating
to its full line of self contained, recycling industrial parts washers. As a
result of such efforts, from inception until June 30, 1996, the Company
accumulated a deficit of $3,577,015. It has only recently commenced the
marketing and sale of one of its product lines on a limited basis, and has a
limited operating history upon which an evaluation of the Company's performance
and prospects can be made. The Company's prospects must be considered in light
of the numerous risks, expenses, delays, problems and difficulties frequently
encountered in the establishment of a new business in an industry characterized
by vigorous competition and regulatory requirements. Since inception, the
Company has incurred significant losses, including losses of $492,872 and
$1,319,145, for the years ended December 31, 1994 and 1995, respectively, and a
loss of $1,345,801 for the six months ended June 30, 1996. Losses are continuing
through the date of this Prospectus. Inasmuch as the Company's operating
expenses have increased and can be expected to continue to increase
significantly in connection with the Company's proposed expansion, including the
development of manufacturing capabilities, the development and establishment of
regional sales, service and technological support centers and a service fleet,
the development of a larger corporate headquarters and research and development
facility, and the purchase of raw materials and inventory, the Company
anticipates that losses and negative operating cash flow will continue until
such time, if ever, as the Company is able to generate sufficient revenues to
offset its operating costs and the costs of continuing expansion. There can be
no assurance that the Company will generate significant revenues or ever achieve
profitable operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have been
marketed in limited geographic areas and for a limited period of time and, thus,
have achieved only limited market acceptance. As of the date of this Prospectus,
the Company has received firm purchase orders for 196 SystemOne/trademark/
Washers and anticipates delivering substantially all of the ordered units prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units. The Company is attempting to
market a new product which relies on a fundamental change in the way parts and
tools are cleaned and solvent utilized, an activity pattern which has been
relatively consistent within the target industries in the past. As is typically
the case with an emerging business concept, demand and market acceptance for
newly introduced products and services are subject to a high level of
uncertainty. The Company has limited marketing experience and limited financial,
marketing, personnel and other resources to undertake extensive marketing
activities. The Company's success will be largely dependent on the Company's
ability to position its products as a preferred method for cleaning parts. The
Company believes that substantially all its target customers currently utilize
competitive parts cleaning equipment. Potential customers may elect to utilize
devices or methods with which they are more familiar or which they believe to be
more efficient or have other advantages over the Company's system. Accordingly,
achieving market acceptance for the Company's products will require substantial
marketing efforts and expenditure of significant funds to educate automotive
dealership and repair facilities and other potential users of the products of
the distinctive characteristics and benefits of the Company's products as well
as their environmental and cost savings advantages. There can be no assurance
that the Company's efforts will result in significant initial or continued
market acceptance for the Company's products or that the Company will succeed in
positioning its products as a preferred method for cleaning parts. See
"Business--Marketing and Servicing Strategy."
INDUSTRY COMPETITION. The parts cleaning industry is characterized by
intense competition, and the industry is dominated by Safety-Kleen, Inc. A
number of other companies provide parts cleaning
7
<PAGE>
equipment and services. While the Company believes that none of its competitors
offer a product with the same features as the Company's products, many customers
may view the products as functionally equivalent, and there can be no assurance
that functionally equivalent products will not become available in the near
future. In addition, there are numerous companies involved in the waste
management industry, including waste hauling companies and companies engaged in
waste separation, recovery and recycling, which may have the expertise and
resources that would encourage them to attempt to develop and market products
which would compete with the Company's products or render them obsolete or less
marketable. Safety-Kleen, Inc., as well as most of the companies marketing such
waste disposal services or products or with the potential to do so, are well
established, have substantially greater financial and other resources than the
Company, and have established reputations relating to product design,
development, marketing and support. There can be no assurance that the Company's
financial performance and prospects will not be negatively affected if
Safety-Kleen, Inc. materially lowers the price to customers of its parts
washers, or that the Company will be able to compete successfully. See
"Business--Competition."
RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited
growth to date and has limited experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. Expansion of the
Company's operations will be dependent on, among other things, the Company's
ability to achieve significant market acceptance for its products, successfully
locate, establish and operate Service Centers, hire and retain skilled
management, marketing, technical and other personnel, secure adequate sources of
supply on a timely basis and on commercially reasonable terms, successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality controls), and maintain a third party leasing
program capable of financing the customer's acquisition of the Company's
products in a timely manner. To date, a substantial portion of the Company's
products have been installed on a test basis in automotive dealership and repair
facilities concentrated in limited geographic markets near the Company's
headquarters. The Company's growth prospects will be largely dependent upon its
ability to achieve greater penetration in these markets as well as significant
penetration in new geographic markets. The Company's prospects could be
adversely affected by declines in the automotive sales, maintenance or service
industries or the economy generally, which could result in reduction or deferral
of capital expenditures by prospective customers. The Company's future growth
will also be dependent upon the Company's ability to achieve a sufficient
installed base of its products. The Company may also seek to expand its
operations through the acquisition of existing companies with customer bases
that would appear to have needs for the Company's product line. There can be no
assurance that the Company will be able to successfully expand its operations.
See "Business--Marketing and Servicing Strategy."
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; POSSIBLE
NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have been and
will continue to be significant. The Company is dependent on and intends to use
a substantial portion of the proceeds of the Concurrent Offering to implement
its proposed expansion. The Company anticipates, based on currently proposed
plans and assumptions relating to its operations (including the anticipated
costs associated with, and timetable for, its proposed expansion), that the
proceeds of this offering, together with cash flow from operations, will be
sufficient to satisfy its contemplated cash requirements for at least 12 months
following the consummation of this offering. In the event that the Company's
plans change, its third party lease financing arrangement does not function as
anticipated, its assumptions change or prove to be inaccurate or if the proceeds
of this offering or cash flow otherwise prove to be insufficient to fund
expansion (due to unanticipated expenses, delays, problems, difficulties or
otherwise), the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. The Company has no current arrangements with respect to, or sources
of, additional financing and there can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all.
Although the Company believes that available third party lease financing may
help offset the Company's cost structure for product rollout, a significant
level of demand for the Company's products will, in all likelihood, initially
result in significant up-front capital expenditures without corresponding cash
flow. Any additional equity financing may involve
8
<PAGE>
dilution to the interests of the Company's then existing shareholders. If
adequate funds are not available from additional sources of financing, the
Company's business may be materially adversely affected. See "Use of
Proceeds."
RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into a third
party lease financing arrangement (the "Product Financing Agreement") with
Oakmont Financial Services ("Oakmont"), pursuant to which Oakmont has agreed to
provide third party leasing services. If the Company breaches certain
warranties, Oakmont has the right to require the Company to repurchase the
leased unit from Oakmont. Specifically, the Company has agreed to make the
following warranties upon each sale to Oakmont, which warranties provide Oakmont
with a basis for recourse against the Company for certain customer failures: (i)
to the best of the Company's knowledge, the customer will use the
SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the
best of the Company's knowledge, the lease and related documents have been duly
executed and delivered; (iii) the lease incorporates all of the representations
and warranties made by the Company to the lessee; (iv) all dealings by the
Company with the lessee have been in accordance with all applicable laws and
regulations; (v) the conduct of the Company in developing a lease will not
subject Oakmont to suit or administrative proceeding; (vi) the lessee has no
defense, offset or counterclaims as to the enforcement of the lease arising out
of the conduct or failure to perform of the Company; (vii) to the best of the
Company's knowledge, the Company does not know of any fact which indicates the
uncollectibility of the lease; (viii) to the best of the Company's knowledge,
the information provided by the lessee to the Company and Oakmont is accurate
and complete; (ix) except for funds which Oakmont has agreed the Company is
entitled to retain, the Company has not retained any funds given to it by a
lessee; and (x) title to the SystemOne Washer/trademark/ has vested in Oakmont
free and clear of any liens of persons claiming by, through or under the
Company. In the event the Company breaches one of the foregoing warranties and
fails to cure the breach, the Product Financing Agreement requires the Company
to purchase from Oakmont the leased SystemOne Washer and Oakmont's rights under
the lease agreement with the customer for an amount equal to the sum of all
lease payments then due and owing under the lease, all lease payments payable
from the date of default to the end of the lease term and twenty percent of the
equipment cost, less any applicable deposit which may be retained by Oakmont.
Where required by applicable law, the foregoing amounts are required to be
calculated using the discounted present value of the subject lease payments. To
the extent that the Company is required to use a portion of the proceeds of the
Concurrent Offering to repurchase units from Oakmont, the Company will have less
resources available to it for other purposes. Oakmont has the right to review
the creditworthiness of proposed lessees and to withhold financing on the basis
of its credit review. While the Company may terminate its agreement with Oakmont
if Oakmont consistently refuses to approve the credit of the Company's proposed
lessees, any such termination, in the absence of alternative financing programs,
could have a material adverse effect on the Company. The Company is not likely
to utilize third party financing with respect to units leased under its pilot
marketing program with First Recovery and Valvoline Oil Company, but will,
instead, use a portion of the proceeds of the Concurrent Offering. See "Use of
Proceeds of Concurrent Offering", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Sales Financing
and Servicing Programs."
DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government
authorities have adopted extensive regulations regulating the storage, handling,
shipment, recycling and/or disposal of hazardous waste, including contaminated
solvent used in industrial parts washers. The Company believes that continuing
initiatives of federal, state and local government authorities and increasing
storage and hauling costs and disposal fees will create incentives for customers
to use the Company's products. Failure by government authorities to continue to
implement such legislation or significant relaxation of such requirements or
enforcement thereof could have a material adverse effect on the Company's
business and prospects. Moreover, while the Company believes that the
utilization of its products as intended does not constitute the generation,
treatment or disposal of hazardous waste and that its products yield pure
solvent and a residue that is not classified as hazardous waste, but may,
rather, be disposed of or utilized as used motor oil, there can be no assurance
that environmental agencies will reach the same conclusion. If the utilization
of the Company's products constitutes the generation,
9
<PAGE>
treatment or disposal of hazardous waste, if the residue is classified as
hazardous waste, or if used motor oil itself is classified as hazardous waste,
the Company will lose a significant competitive advantage. The Company believes
that certain of its competitors have attempted and are continuing their efforts
to have used motor oil classified as a hazardous waste. See "Business--Industry
Overview" and "Risk Factors--Potential Warranty Expense and Product Liability."
DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will be
dependent on a number of third parties for its components and for the
manufacture of a large portion of its finished units. Although the Company has
entered into a SystemOne/trademark/ Washer supply agreement with a contract
manufacturer and believes that several alternative manufacturing sources are
readily available, failure by its current manufacturer to continue to supply the
Company on commercially reasonable terms, or at all, in the absence of readily
available alternative sources, would have a material adverse effect on the
Company. The Company is substantially dependent on the ability of its 42
component and raw material suppliers and contract manufacturer, among other
things, to satisfy performance and quality specifications and dedicate
sufficient production capacity for components and raw materials within scheduled
delivery times. See "Business--Manufacturing and Supply."
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four
United States patents and has four United States patents pending with respect to
the Company's products. Two of the five pending patents have been allowed by the
U.S. Patent Office and are awaiting issuance. Other parts washing machines which
may not be covered by the Company's patents are currently in commercial
distribution by the Company's competitors. The Company has applied for
international patents in Canada, Mexico, Europe and Japan and anticipates that
it will apply for additional patents as deemed appropriate. The Company believes
that patent protection is important to its business and that it could be
required to expend significant funds in connection with enforcing or defending
its patent rights. There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford the Company,
that any unissued patent applications will result in issued patents or that
patents will not be circumvented or invalidated. It is possible that the
Company's existing patent rights may not be valid although the Company believes
that neither its products nor processes now infringe or will infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event that the Company's products or processes infringe patents or proprietary
rights of others, the Company may be required to modify the design or obtain a
license. There can be no assurance that the Company will be able to do so in a
timely manner, upon acceptable terms and conditions or at all. Failure to do any
of the foregoing could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will have the financial or
other resources necessary to enforce or defend a patent infringement,
proprietary rights violation action or alleged infringement or violation action.
Moreover, if the Company's products or processes infringe patents or propriety
rights of others, the Company could, under certain circumstances, become the
subject of an immediate injunction and be liable for damages, which could have a
material adverse effect on the Company. See "Business--Patents, Trademarks and
Proprietary Technology."
The Company also relies on trade secrets and proprietary know-how and employs
various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such agreements will adequately protect
the Company's trade secrets. Since the Company believes that its proprietary
information is important to its business, failure to protect such information
could have a material adverse effect on the Company. See "Business--Patents,
Trademarks and Proprietary Information."
POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company unconditionally
warrants its products to be free of material defects for 60 months. In addition
the Company warrants to users that if, for any reason, the residue generated by
its System One/trademark/ Washer cannot be recycled and/or disposed
10
<PAGE>
of as used oil, the Company will pay for any required recovery and disposal
services. Accordingly, the Company could incur significant warranty expenses as
a result of defects in its products or a change in federal or state regulations
pertaining to the disposal of cleaning residue. Since the Company only recently
commenced its planned principal operations, the reserve account it will
establish for warranty expense will be derived without the benefit of historical
figures and actual warranty expenses could exceed the amount which will be
established as a reserve. The Company may also be exposed to potential product
liability claims by its customers and users of its products. The Company
maintains product liability insurance coverage of $5,000,000 in the aggregate
and $5,000,000 per occurrence. The Company believes such insurance provides
adequate coverage for the types of products currently marketed by the Company.
There can be no assurance, however, that such insurance will be sufficient to
cover potential claims or that an adequate level of coverage will be available
in the future at a reasonable cost. A partially insured or completely uninsured
successful claim against the Company could have a material adverse effect on the
Company. See "Business--Sales Financing and Service Programs" and "--Product
Liability and Insurance."
DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely
dependent on the personal efforts of Pierre Mansur, its Chairman of the Board
and President and the inventor of the Company's products, Paul Mansur, its Chief
Executive Officer, and other key personnel. Although the Company has entered
into employment agreements with Pierre Mansur and Paul Mansur which expire in
September 1997, the loss of the services of either of such individuals or
certain other key employees, could have a material adverse effect on the
Company's business and prospects. The Company has obtained and is the sole
beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in
the amount of $1,000,000. The success of the Company is also dependent upon its
ability to hire and retain additional qualified marketing, technical and other
personnel. There can be no assurance that the Company will be able to hire or
retain such personnel. See "Management."
CONTROL BY MANAGEMENT. After consummation of this offering and the
Concurrent Offering, Pierre Mansur will beneficially own approximately 46% of
the Company's outstanding Common Stock. Accordingly, Pierre Mansur will be in
a position to effectively control the Company, including the election of all
of the directors of the Company. See "Management" and "Principal
Shareholders."
BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED
PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from the
Concurrent Offering has been allocated to working capital and general corporate
purposes. Accordingly, the Company's management will have broad discretion as to
the application of such proceeds. In addition, the Company may use a portion of
the net proceeds allocated to working capital to pay salaries and benefits of
executive officers over the 12 months following the consummation of this
offering to the extent cash flow is insufficient for such purpose. See "Use of
Proceeds of Concurrent Offering."
DIVIDENDS. The Company has not paid any cash dividends on its Common Stock
and does not expect to declare or pay any cash dividends in the foreseeable
future. See "Dividend Policy."
DILUTION. The assumed initial offering price of $7.50 is substantially
higher than the net tangible book value per share of Common Stock. Investors
purchasing shares of Common Stock in this offering will incur immediate and
substantial dilution of approximately $6.10 (81%) per share of Common Stock
from the assumed initial public offering price. See "Dilution."
INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker
dealer on March 29, 1994. The Representative was relatively inactive for a
period of time and was reactivated under its present ownership structure on
December 15, 1994. The Representative does not have extensive experience as an
underwriter of public offerings of securities, having acted as the managing
underwriter for three public offerings. The Representative is a relatively small
firm and no assurance can be given that the Representative will participate as a
market maker in the Common Stock. In the event the Representative does not
participate as a market maker the liquidity in the Company's Common Stock may be
adversely affected. See "Underwriting."
11
<PAGE>
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to the
Concurrent Offering, there has been no public market for the Common Stock, and
no assurance can be given that an active trading market will develop or be
sustained after this offering. Since there has been no trading market, the
initial public offering price of the Common Stock and the conversion price of
the Convertible Notes may not bear any relationship to the actual value of the
Common Stock. The initial public offering price was established by negotiations
between the Company and the Representative, is not necessarily related to the
Company's asset value, net worth or other established criteria of value, and may
not be indicative of prices that will prevail in the trading market. The stock
market has experienced significant price and volume fluctuations that are often
unrelated to the operating performance of particular companies. The market price
of the Common Stock, similar to that of securities of other development stage
companies, is likely to be highly volatile. Factors such as the results of
studies and trials by the Company or its competitors, other evidence of the
efficacy of products of the Company or its competitors, announcements of
technological innovations or new products by the Company or its competitors,
changes in governmental regulation, developments in patent or other proprietary
rights of the Company or its competitors, including litigation, fluctuations in
the Company's operating results and changes in general market conditions could
have a significant impact on the future price of the Common Stock. See
"Underwriting."
NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET;
DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been
no public trading market for the Common Stock. The Common Stock has been
approved for quotation on Nasdaq SmallCap Market; however, there can be no
assurance that a trading market will develop or, if developed, that it will be
maintained. In addition, there can be no assurance that the Company will in the
future meet the maintenance criteria for continued quotation of the securities
on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap
Market includes, among other things, $2,000,000 in total assets, $1,000,000 in
capital and surplus, a public float of 100,000 shares with a market value equal
to $200,000, two market makers and a minimum bid price of $1.00 per share of
common stock. If an issuer does not meet the $1.00 minimum bid price standard,
it may, however, remain on the Nasdaq SmallCap Market if the market value of its
public float is at least $1,000,000 and the issuer has at least $2,000,000 in
equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Common Stock would thereafter have to be conducted in the
over-the-counter market in the so-called "pink sheets" or, if then available,
the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it
more difficult to dispose of, and to obtain accurate quotations as to the value
of such securities.
In addition, if the Common Stock is delisted from trading on the Nasdaq
SmallCap Market and the trading price of the Common Stock is less than $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under such rule, broker/dealers who recommend such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price of less than
$5.00 per share, subject to certain exceptions), including the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. Such requirements could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell their securities in the secondary market.
There can be no assurance that the Common Stock will not be delisted or treated
as a penny stock.
EFFECT OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF ISSUANCE OF
PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The State of Florida
has enacted legislation that may deter or frustrate takeovers of Florida
corporations. The Florida Control Share Act generally provides that shares
acquired in excess of certain specified thresholds will not possess any voting
rights unless such
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<PAGE>
voting rights are approved by a majority vote of a corporation's disinterested
shareholders. The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested directors or shareholders of certain
specified transactions between a public corporation and holders of more than 10%
of the outstanding voting shares of the corporation (or their affiliates). Mr.
Pierre Mansur's initial acquisition of Common Stock was not subject to the
provisions of the Control Share Act. Future acquisitions of the Common Stock of
the Company by Mr. Mansur will not trigger the provisions of the Control Share
Act provided any such acquisition has been approved by the Company's board of
directors. The Company's Articles of Incorporation authorize the issuance of
1,500,000 shares of "blank check" Preferred Stock ("Preferred Stock") with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. The issuance of
any series of Preferred Stock having rights superior to those of the Common
Stock may result in a decrease in the value or market price of the Common Stock.
Holders of Preferred Stock to be issued in the future may have the right to
receive dividends and certain preferences in liquidation and conversion rights.
The issuance of such Preferred Stock could make the possible takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which shareholders may receive
premiums for their Common Stock and adversely affect the voting and other rights
of the holders of the Common Stock. The Company may in the future issue
additional shares of its Preferred Stock. See "Description of Securities."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the consummation
of the Concurrent Offering, the Company anticipates that it will have 4,351,309
shares of Common Stock issued and outstanding. Of such shares, the 1,000,000
shares offered hereby or pursuant to the Concurrent Offering are freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless held by an "affiliate" of the
Company. The remaining 3,351,309 shares of Common Stock are "restricted
securities," as that term is defined under Rule 144 promulgated under the
Securities Act. Of such remaining shares; (i) 2,656,729 shares are currently
eligible for sale under Rule 144; and (ii) the remainder will become eligible
for sale under Rule 144 at various times prior to June 1998. No prediction can
be made as to the effect, if any, that sales or shares of Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the sale of its equity securities. See "Shares Eligible
for Future Sale."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains
forward-looking statements, including statements regarding, among other items
(i) the Company's growth strategies, (ii) the impact of the Company's products
and anticipated trends in the Company's business, and (iii) the Company's
ability to enter into contracts with certain suppliers and strategic partners.
These forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described herein,
including, among others, regulatory or economic influences. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Prospectus will in fact transpire or prove to be
accurate.
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement filed under the
Securities Act with respect to a concurrent underwritten public offering by the
Company of 850,000 shares of Common Stock, and up to 127,500 additional shares
of Common Stock to cover over-allotments, if any, was declared effective by the
Securities and Exchange Commission (the "Concurrent Offering"). The Company
received net proceeds of approximately $ from the sale of those shares, and will
receive approximately $ __________ in additional net proceeds if the
over-allotment option is exercised in full, after payment of underwriting
discounts and commissions and estimated expenses of the Concurrent Offering.
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<PAGE>
USE OF PROCEEDS OF CONCURRENT OFFERING
The Company will receive no proceeds from the offering of shares under the
Prospectus. However, the conversion of the Convertible Notes will result in the
extinguishment of $1,012,500 of indebtedness. The net proceeds to be received by
the Company from the sale of the shares of Common Stock offered pursuant to the
Concurrent Offering are estimated to be approximately $5,271,750 based on an
assumed initial public offering price of $7.50 per share (approximately
$6,103,688 if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company.
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS
- --------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Development of manufacturing capacity(1) ...................... $ 750,000 14%
Development of marketing, sales and service centers and
service fleet(2) ............................................ 1,000,000 19
Development of corporate headquarters and research and
development facilities(3) ................................... 700,000 13
Purchase of raw materials and inventory(4) .................... 1,750,000 33
Working capital and general corporate purposes(5) ............ 1,071,750 21
---------------- ----------------
Total ....................................................... $5,271,750 100%
================ ================
</TABLE>
- --------
(1) Represents the estimated cost of developing the Company's manufacturing
capabilities, primarily for research and development, testing and initial
pre-commercial manufacturing operations, including certain property, plant
and equipment costs, set-up costs, hard and soft tooling costs and custom
mold development costs over the next 12 months. See "Business--Manufacturing
and Supply" and "--Research and Development."
(2) Represents the estimated cost of developing sales, service and
technological support centers and a fleet of service vehicles throughout
Florida and the eastern United States over the next 12 months. See
"Business--Marketing and Servicing Strategy."
(3) Represents the estimated cost of developing a larger corporate
headquarters and research and development facility, including the cost of
a client server computer system, over the next 12 months. See
"Business--Research and Development."
(4) Represents the estimated cost of raw materials and finished goods inventory
that may be held by the Company, as well as the cost of units provided under
its pilot marketing program with First Recovery and Valvoline Oil Company
for which the Company will not use third party financing.
(5) Such figure includes the cost of retiring the Short Term Notes. As of
September 9, 1996, the Company issued $500,000 in principal amount of Short
Term Notes in a private financing. The Short Term Notes bear interest at a
rate of 4% through September 1996 and 12% thereafter. The Short Term Notes
are due and payable on September 4, 1997, or, if earlier, upon the
consummation of the Concurrent Offering. The Company intends to utilize the
proceeds of the Short Term Notes for the same purposes as the proceeds of
the Concurrent Offering are to be applied, with the exception that none of
the proceeds of the Short Term Notes will be used to develop a corporate
headquarters or a research and development facililty.
The foregoing represents the Company's best estimate of its allocation of the
net proceeds of the Concurrent Offering based upon the current status of its
business operations, its current plans, and current economic and industry
conditions. Future events, as well as changes in economic or competitive
conditions or the Company's business and the results of the Company's sales and
marketing activities may make shifts in the allocation of funds within or
between each of the items referred to above necessary or desirable.
If the Underwriters exercise the over-allotment option in full, the Company
will realize additional net proceeds of approximately $832,000 which will be
added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of the Concurrent Offering,
together with projected cash flow from operations, will be sufficient to satisfy
its contemplated cash requirements for at least 12 months following the
consummation of this offering. In the event that the Company's plans change or
its assumptions change or prove to be inaccurate or if the proceeds of this
offering or cash flow prove to be insufficient (due to unanticipated expenses or
otherwise), the Company may be required to seek additional financing in order to
support its plan of operations. There can be no assurance that additional
financing will be available to the Company on commercially reasonable terms, or
at all.
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<PAGE>
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-bearing
investments.
DILUTION
The difference between the conversion price per share of Common Stock and the
pro forma net tangible book value per share after this offering constitutes the
dilution to holders of the Convertible Notes and recipients of shares of Common
Stock pursuant to this offering. Net tangible book value per share is determined
by dividing the net tangible book value of the Company (total tangible assets
less total liabilities) by the number of outstanding shares of Common Stock.
At June 30, 1996, the net tangible book value of the Company was $(37,170),
or $(.01) per share. After giving effect to the conversion of the Convertible
Notes into 150,000 shares of Common Stock, and assuming the sale of 850,000
shares of Common Stock offered in the Concurrent Offering at an assumed initial
public offering price of $7.50 per share and deducting underwriting discounts
and commissions and estimated expenses of that offering, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been
$6,100,830, or $1.40 per share. This represents an immediate increase in net
tangible book value of $1.41 per share to the existing shareholders and an
immediate dilution of $5.35 per share to the holders of Convertible Notes. The
following table illustrates this dilution, on a per share basis:
CONVERSION PRICE OF COMMON STOCK ................. $6.75
Net tangible book value before offering ........ $(.01)
Increase attributable to new investors ......... 1.41
Pro forma net tangible book value after offering 1.40
--------
Total dilution to holders of Convertible Notes .. $5.35
========
If the Underwriters' over-allotment option is exercised in full, the pro forma
net tangible book value of the Company as of June 30, 1996 will be $6,932,768,
or $1.59 per share. This represents an immediate increase in net tangible book
value of $1.60 per share to the existing shareholders and an immediate dilution
of $5.15 per share to new investors.
The following table summarizes, as of June 30, 1996, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid (assuming an initial public offering price
of $7.50 per share) by the existing shareholders and the new investors.
<TABLE>
<CAPTION>
PERCENT PERCENT AVERAGE
SHARES OF TOTAL AGGREGATE OF TOTAL PRICE
PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE
------------ ----------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 3,501,309 80.5% $ 4,142,500 39.4% $1.18
New Investors ......... 850,000 19.5% 6,375,000 60.6% $7.50
------------ ----------- ---------------- ----------------
Total ................. 4,351,309 100.0% 10,517,500 100.0%
============ =========== ================ ================
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the new
investors will have paid $7,331,250 for 977,500 shares of Common Stock,
representing 63.9% of the total consideration for 21.8% of the total number of
shares outstanding.
15
<PAGE>
CAPITALIZATION
Set forth below is the capitalization of the Company at June 30, 1996, and as
adjusted to reflect the Company's issuance of 850,000 shares of Common Stock in
this offering at an assumed initial public offering price of $7.50 per share and
the automatic conversion of the Convertible Notes. See Note 4(B) of Notes to
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------- --------------
<S> <C> <C>
DEBT:
Short-term debt .................................................... $1,012,500 $ 0(1)
Current installments of long-term debt ............................. 48,786 48,786
Long-term debt, excluding current installments ..................... 129,014 129,014
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $1 par value; 1,500,000 shares authorized;
no shares issued and outstanding ................................. 0 0
Common Stock, $.001 par value; 25,000,000 shares authorized;
3,351,309 and 4,351,309 shares issued and outstanding,
respectively ..................................................... 3,351 4,351
Additional paid in capital ......................................... 3,560,948 9,697,948
Deficit accumulated during the development stage ................... 3,577,015 3,577,015
------------- --------------
Total stockholders' equity (deficit) .............................. (12,716) 6,125,284
------------- --------------
Total capitalization ............................................... $1,177,584 $6,303,084
============= ==============
</TABLE>
- -------------------
(1) The information provided has not been adjusted to reflect that the
Company issued $500,000 in principal amount of Short Term Notes as of
September 9, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below has been derived from the
financial statements of the Company. The financial statements as of and for the
period from November 13, 1990 (inception) through December 31, 1991 and for the
years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. In the opinion of
the Company, the financial information for each of the six month periods ended
June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting
only of normal recurring adjustments, which the Company considers necessary for
a fair presentation of its financial position and results of operations for
these periods. The statement of operations data for the six month period ended
June 30, 1996 is not necessarily indicative of the results of operations that
may be expected for the full year. The selected financial data presented below
should be read in conjunction with the Company's financial statements, related
notes, and other financial information contained in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1991(1) 1992 1993 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development ..... 128,439 31,924 69,256 178,146
------------- ------------ ------------- -------------
Total operating expenses .... 136,941 40,895 151,142 446,560
------------- ------------ ------------- -------------
Interest (expense), net ........ -- (16,299) (16,360) (46,312)
Exchange (expense) on
redeemable preferred stock ... -- -- -- --
Loss on disposition of property
and equipment ................ -- (39,560) (18,000) --
------------- ------------ ------------- -------------
Net (loss) ..................... (136,941) (96,754) (185,502) (492,872)
Dividends on redeemable
preferred stock .............. -- -- (8,328) (53,929)
------------- ------------ ------------- -------------
Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801)
============= ============ ============= =============
Net (loss) per common
share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
============= ============ ============= =============
Weighted average shares
outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1995 1995 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
General and administrative ... $ 907,393 $ 418,079 $ 622,641
Research and development ..... 393,874 162,732 365,435
--------------- ------------- ---------------
Total operating expenses .... 1,301,267 580,811 988,076
--------------- ------------- ---------------
Interest (expense), net ........ (17,878) (26,462) (13,094)
Exchange (expense) on
redeemable preferred stock ... -- -- (344,631)
Loss on disposition of property
and equipment ................ -- -- --
--------------- ------------- ---------------
Net (loss) ..................... (1,319,145) (607,273) (1,345,801)
Dividends on redeemable
preferred stock .............. (222,067) (75,066) (147,000)
--------------- ------------- ---------------
Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801)
=============== ============= ===============
Net (loss) per common
share(2) ..................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding(2) ............... 2,335,140 2,000,000 2,799,071
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
------------------------------------------------------------------ ----------------------------
1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- ---- ---- ---- ---- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............... $(414,148) $(407,230) $(94,055) $ (238,752) $ 613,188 $ (216,966) $5,921,034
Total assets .................. 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212
Current liabilities............ 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914
Long-term liabilities.......... 0 0 0 700,011 154,165 129,014 129,014
Total liabilities ............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928
Stockholders' equity
(deficit):
Total stockholders' equity
(deficit) .................. (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
</TABLE>
- ----------------
(1) Information provided for the period from November 13, 1990 (inception) to
December 31, 1991.
(2) See Note 1 to Notes to Financial Statements for information concerning the
computation of net loss per share.
(3) The information provided has been adjusted to reflect (i) the issuance of
150,000 shares of Common Stock as a result of the conversion of the
Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $7.50 per
share and the initial application of the estimated net proceeds therefrom.
See "Capitalization" and "Use of Proceeds." The information provided has not
been adjusted to reflect the issuance by the Company of $500,000 in
principal amount of Short Term Notes as of September 9, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements, including the notes thereto, contained elsewhere in this
Prospectus.
GENERAL
Since its inception in November 1990 the Company has devoted substantially
all of its resources to research and development programs relating to its full
line of self contained, recycling industrial parts washers. The Company was a
development stage company through June 30, 1996, and commenced its planned
principal operations in July 1996. The Company has been unprofitable since its
inception and expects that it will incur significant additional losses at least
through December 31, 1996. From the period from inception through June 30, 1996,
the Company incurred a cumulative net loss of $3,577,015. The Company
anticipates that it will incur losses until such time, if ever, as the Company
is able to generate sufficient revenues to offset its operating costs and the
costs of its continuing expansion. In light of the material uncertainties in
connection with the commencement of the Company's operations, the Company cannot
reasonably estimate the length of time before the Company may generate net
income, if ever.
The Company intends to make its SystemOne(Trademark) Washer and services
available to the public through a third party leasing program. The Company will
recognize the revenue from the sale of a machine at the time that the equipment
is delivered either to the third party lessor or directly by the Company to the
lessee. A portion of the revenue (currently estimated at 10% of the sale price
per machine) will be accounted for as deferred revenue, and recognized as
revenue in respect of the service portion of the agreement over the term of the
underlying lease. See "Business--Sales Financing and Servicing Programs" for a
description of the Product Financing Agreement the Company has entered into with
Oakmont Financial Services.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
The Company did not generate any revenues prior to June 30, 1996.
The Company's general and administrative expenses increased by $204,562 to
$622,641 for the six months ended June 30, 1996 from $418,079 during the
comparable period in 1995. The 49% increase is primarily attributable to the
Company's hiring of additional management, sales and marketing staff in
anticipation of the Company's commencement of its planned principal operations
and the Company's grant of an aggregate of 30,000 shares of Common Stock to
three directors of the Company in exchange for certain consulting services. The
Company anticipates that its monthly general and administrative expenses will
continue to increase over the next twelve months if the Company's operations
expand in accordance with its proposed business plan.
The Company's research and development expenses for the six months ended June
30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125% increase is
primarily a function of the Company's accelerated prototype development during
the latter period, as opposed to the basic and applied research conducted during
the prior period. During 1996, the Company manufactured and shipped a number of
SystemOne(Trademark) Washers to various facilities to test market receptivity.
Subject to the availability of financial and personnel resources, the Company
intends to spend approximately $400,000 and $500,000 in the years ended December
31, 1996 and 1997, respectively, to complete development and testing of various
of its products and to develop new products and concepts.
The Company's interest expenses for the six months ended June 30, 1995 and
1996 were $38,259 and $24,179, respectively. The Company's interest expense in
the six months ended June 30, 1996
18
<PAGE>
decreased by 36% relative to the six months ended June 30, 1995 due to a
relative decrease in the indebtedness of the Company. In the six months ended
June 30, 1995 and 1996, the Company earned interest income of $11,797 and
$11,085 on cash deposits.
In the six months ended June 30, 1996, the Company incurred an exchange
expense of $344,631 in connection with its efforts to induce all the holders of
the Company's Series A Preferred Stock to convert their Series A Preferred Stock
to Common Stock.
As a result of the foregoing, the Company incurred a net loss of $607,273 and
$1,345,801 in the six months ended June 30, 1995 and 1996, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
The Company's general and administrative expenses for the years ended
December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The
$638,979 (238%) increase in general and administrative expenses was a function
of the Company's hiring of additional management and sales staff, increased use
of management consulting, engineering, legal and accounting professionals,
purchase of more comprehensive insurance policies and increased executive
compensation.
For the years ended December 31, 1994 and 1995, the Company's research and
development expenses were $178,146 and $393,874, respectively. The $215,728
(121%) increase in research and development expenses was a reflection of the
Company's accelerated research and development efforts and an increased focus on
developing prototype products during the latter part of 1995.
The Company's interest expense was $46,312 and $63,528 for the years ended
December 31, 1994 and 1995, respectively. The Company's interest expense
increased by $17,216 as a result of additional interest expenses incurred with
respect to equipment financing secured in September 1994. In the year ended
December 31, 1995, the Company earned interest income of $45,650 on cash
deposits.
Due to the factors described above, the Company incurred net losses of
$492,872 and $1,319,145 in the years ended December 31, 1994 and 1995,
respectively. The Company expects that it will incur significant additional
losses at least through December 31, 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
The Company's general and administrative expenses were $81,886 in the year
ended December 31, 1993 and $268,414 in the year ended December 31, 1994.
General and administrative expenses increased by $186,528 primarily in response
to increases in the Company's staff and the Company's increased use of
management consulting, engineering, legal and accounting professionals.
For the years ended December 31, 1993 and 1994, research and development
expenses were $69,256 and $178,146, respectively. The Company's expenses for
research and development increased by $108,890 as the Company increased the
scope of its research and development efforts to a number of product lines.
Interest expense for the Company for the years ended December 31, 1993 and
1994 was $16,360 and $46,312, respectively. The Company's interest expense
increased by $29,952 primarily as a result of $10,346 of additional interest
expense with respect to equipment financing secured in September 1994 and
$11,278 of additional interest expense with respect to notes payable.
In the year ended December 31, 1993, the Company recognized a $18,000 loss on
the disposal of property and equipment.
As a result of the foregoing, the Company incurred net losses of $185,502 and
$492,872 in the years ended December 31, 1993 and 1994, respectively.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficiency of $(216,966)
and cash and cash equivalents of $640,592. The Company intends to use the
proceeds of this offering and the cash generated from operations, if any, to
finance its proposed plan of operations.
The capital requirements relating to implementation of the Company's business
plan will be significant. Based on the Company's current assumptions relating to
implementation of its business plan (including the timetable of and the cost
associated with development of manufacturing capabilities, a service fleet, a
corporate headquarters, and research and development facilities), the Company
will seek to develop at least four service centers during the 12 months
immediately following this offering. The Company believes that product sales
will commence in the third quarter of 1996 and that the proceeds from the
Convertible Notes are sufficient to fund working capital requirements until
sales of the Company's products reach levels sufficient to fund working capital
requirements. The Company believes that its ability to generate cash from
operations is dependent upon, among other things, demand for its products and
services and the Company's third party leasing arrangement with Oakmont. If the
Company's third party leasing arrangements with Oakmont proves to be
unsuccessful, and the Company is unable to locate another third party willing to
provide comparable third party leasing services, the Company believes that it
will be substantially dependent upon the proceeds of the Concurrent Offering to
execute its proposed plan of operations over the next 12 months. If the
Company's plans change, its assumptions prove to be inaccurate, the capital
resources available to the Company otherwise prove to be insufficient to
implement its business plan (as a result of unanticipated expenses, problems or
difficulties, or otherwise) or in the event the Concurrent Offering is not
completed, the Company has plans to restructure its operations to minimize cash
expenditures and/or obtain additional financing in order to support its plan of
operations. In order to reduce certain of the Company's up-front capital
requirements associated with service center and service fleet development, the
Company intends to lease service center sites and may seek to the extent
possible, to lease rather than purchase certain equipment and vehicles necessary
for service center development. There can be no assurance that the Company will
have sufficient capital resources to permit the Company to fully implement its
business plan. The Company has no current arrangements with respect to, or
sources of, additional financing. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all. If
adequate funds are not available from additional sources of financing, the
Company's business may be materially adversely affected. In addition, any
implementation of the Company's business plan subsequent to the 12 month period
immediately following this offering will require capital resources substantially
greater than the proceeds of the Concurrent Offering or otherwise currently
available to the Company.
Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the
Company's material commitments principally relate to its obligations to pay the
contract manufacturers of its SystemOne(Trademark) Washers (currently
approximately $745-$905 per SystemOne/trademark/ Washer), make lease payments
pursuant to certain real property and equipment leases (currently approximately
$7,940 per month), makes installment payments pursuant to an equipment purchase
finance agreement (currently approximately $5,690 per month) and satisfy its
financial obligations under seven employment agreements (currently approximately
$38,835 per month). Upon consummation of this offering and the retirement of the
Short Term Notes from the proceeds thereof, the Company will not have any
outstanding indebtedness. The Company anticipates that its material commitments
will increase significantly upon the consummation of this offering as a result
of the Company's planned expansion. See "Business--Manufacturing and Supply" and
"--Properties" and "Executive Compensation." Additionally, after the expiration
or termination of the pilot marketing program with First Recovery and Valvoline
Oil Company, if the subject parties do not enter into another agreement for the
marketing of SystemOne/trademark/ Washers the Company could, at First Recovery's
sole option, be required to acquire the sublessor's interest of First Recovery
in certain leases entered into by First Recovery under a the pilot marketing
program. In such an event, the Company would be required to purchase First
Recovery's sublessor's interest for the net present value of First Recovery's
expected profit over the remaining term of the equipment sublease assuming a 12%
discount rate. Because the Company does not intend to use third-party financing
with
20
<PAGE>
respect to units leased under the pilot marketing program with First Recovery
and Valvoline Oil Company, it will be required to use a portion of the
proceeds of the Concurrent Offering to finance those units. See
"Business--Marketing and Servicing Strategy."
In August 1994, the Company acquired a Trumpf Model 200 TC Computer Numerical
Controlled Punch Press (the "Punch Press"). The Company financed the acquisition
of the Punch Press pursuant to a finance and security agreement with The CIT
Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the finance
agreement and security agreement, the Company has agreed to pay CIT an aggregate
of $341,397 in equal monthly payments of $5,690 over five years. The Company's
obligations to CIT are secured by a security interest in the Punch Press.
As indicated in the accompanying financial statements, as of June 30, 1996,
the Company's accumulated deficit totalled $3,577,015. Since its inception, the
Company has financed its operations through a variety of stock and debt
issuances and conversions and the sale of property. In November 1990, the
Company obtained from Pierre Mansur, its Chairman and President, all rights to
certain ongoing research and development and related patents and patents
pending, as well as certain real estate and equipment, in exchange for 2,000,000
shares of Common Stock. In January 1991, the Company issued $300,000 in
principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise
additional capital and refinance a portion of the Promissory Notes, in September
1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred
Stock (the "First Series Preferred Stock") in exchange for $380,000 and the
satisfaction of $200,000 in principal amount of the Promissory Notes.
In April 1992, the Company sold the commercial property originally
contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase
money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994,
the Company assigned its rights to receive interest with respect to the PMM to
satisfy the Company's obligation to pay interest with respect to the remaining
outstanding Promissory Note. The principal amount of the PMM was paid to the
Company on April 24, 1995.
In November 1994, the Company borrowed $500,000 pursuant to a 12% Secured
Convertible Promissory Note (the "Secured Note") and in April 1995 the Company
issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the "Series
A Preferred Stock") in exchange for $1,950,000 in cash and the satisfaction of
the Secured Note.
To minimize the Company's dividend obligations, in May 1995 the Company
issued a notice of redemption with respect to the First Series Preferred Stock
and, subsequently, all of the outstanding shares of First Series Preferred Stock
and accrued interest thereon were converted into an aggregate 656,729 shares of
Common Stock.
In May 1996, the Company issued 20,000 shares of Common Stock in satisfaction
of the remaining outstanding $100,000 in principal amount of the Promissory
Notes.
In June 1996, the Company issued 628,180 shares of Common Stock in exchange
for all of the Series A Preferred Stock and accrued dividends thereon.
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
advanced the Company an aggregate of $150,000 (the "Debt") between June 1, 1990
and May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid
Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest
owed with respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur
$150,000 and $5,000 in satisfaction of the outstanding principal balance of and
the interest owed with respect to the Debt.
In June 1996, the Company issued (the "Private Financing") $1,012,500 in
principal amount of Convertible Notes, bearing interest at the rate of 4% per
annum through September 30, 1996 and thereafter until maturity at the rate of
12% per annum, and convertible into Common Stock at a
21
<PAGE>
conversion price of $6.75 per share. Pursuant to the provisions of the
Convertible Notes, the entire outstanding principal amount thereof will be
automatically converted into 150,000 shares of Common Stock upon the
consummation of this offering. Each of Environmental Technologies BVI, Limited,
a consulting firm of which Dr. Jan Hedberg, a director of the Company, is
Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias
F. Mansur, a director of the Company, acquired Convertible Notes in the
principal amount of $101,250, and, upon consummation of this offering, each of
them will receive 15,000 shares of the Company's Common Stock pursuant to the
automatic conversion thereof.
As of September 9, 1996, the Company issued $500,000 in principal amount of
Short Term Notes, bearing interest at the rate of 4% through September 1996 and
12% thereafter. The Short Term Notes are due and payable on September 4, 1997,
or, if earlier, upon the consummation and out of the proceeds of this offering.
22
<PAGE>
BUSINESS
GENERAL
The Company has developed and obtained patent protection with respect to a
full line of self-contained, recycling industrial parts washers that incorporate
innovative, proprietary waste minimization technologies and represent a
significant advance over currently available machinery and processes. Focusing
on waste minimization rather than its removal and recovery, the Company believes
that its equipment will have a major impact on the industrial parts cleaning
industry and will have a broad appeal to customers, because its equipment,
unlike the machines now in use, facilitates efficient and economical compliance
with environmental regulations, minimizes waste disposal requirements, enhances
cleaning solution utilization, and increases worker safety and productivity.
Most machinery and equipment require oil lubrication to function properly.
Removal of lubrication oils from tools and parts during automotive, aviation,
marine and general industrial maintenance, service and repair operations is
typically effected through the use of mineral spirit solvents which become
contaminated in the cleaning process. Under the most common current practice,
the solvent becomes more contaminated (and less effective) with repeated use,
and, when it is saturated with oil, sludge and other contaminants as a result of
the cleaning process (and frequently classified as a hazardous waste under
federal and state regulations), it must be stored on site until pick-up, when
pure solvent is delivered and the contaminated solvent is, generally, shipped to
regional refining facilities. This off-site recycling program is typically
scheduled on four to sixteen week cycles and involves both the utilization of
progressively more contaminated solvent for cleaning operations until the
solvent is too contaminated for use, and thereafter, the on-site storage of the
hazardous solution until the periodic waste recovery service. By contrast, the
Company's products allow the use and re-use of the solvent by removing all the
contaminants from the solvent within the cleaning unit itself, minimizing the
volume of waste by-product and providing pure solvent to the customer on demand,
without the costly and dangerous storage and transportation of hazardous waste.
Moreover, the small amount of waste by-product yielded in the distillation
process utilized by the Company if products can typically be recycled and/or
disposed of together with the customer's used motor oil, which is generally not
classified as a hazardous waste. The Company's products produce by-products that
have been extensively tested by the laboratory of a division of Valvoline Oil
Company and the independent engineering concern of Law Engineering and
Environmental Services, Inc. The Company's products have proven effective in
accomplishing the distillation of contaminated solvent to yield pure solvent and
a by-product comparable to used oil. The Company believes that substantially all
of the Company's target customers have established systems for the handling,
transportation, recycling and disposal of used motor oil.
STRATEGY
The Company's strategy is to focus initially on the manufacture, marketing
and sale of its SystemOne(Trademark) Washer because of the anticipated size of
the market for the product. The Company anticipates that the product should be
able to achieve fairly rapid market penetration because of its technological,
economic and environmental advantages and its relatively low price point
compared to competitive equipment. Once the manufacturing and marketing programs
for the SystemOne(Trademark) Washer are fully implemented, it will commence
marketing its other products for which it has continued its research and
development. The Company hopes to rapidly penetrate the industrial parts
cleaning market by entering into large quantity contracts with target customers
which have already established a national or regional presence, and are able to
exploit more fully the economic and environmental benefits of the Company's
products.
The Company expects to pursue a national expansion program, through internal
growth utilizing a network of regional distribution and service centers, through
a strategic alliance with a national distributor, if one is available on
favorable terms, or through a combination of the two. The Company is carrying
out an internal growth program in Florida, where, in addition to its regional
service center in Miami, it plans to establish at least four additional centers
during the 12 months immediately following this offering, in Orlando, Tampa,
Jacksonville and West Palm Beach. In August, the Company will
23
<PAGE>
commence a test of a strategic marketing alliance by entering into a pilot
program with First Recovery and Valvoline Oil Company, two affiliates of Ashland
Inc., a multinational oil refiner and distributor of automotive related
products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of
mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under
the pilot program, First Recovery will be the exclusive distributor of the
SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The
initial term of the program is one year. If the arrangement proves successful,
the Company expects to negotiate a broader agreement, possibly including a
national distribution program.
The Company expects to continue its emphasis on research and development even
after its initial products are commercialized. The Company believes that its
technology and its emphasis on waste minimization should yield product advances
with broad market applications beyond the Company's current target market.
INDUSTRY OVERVIEW
The Company believes the chemical industrial parts cleaning industry has
grown primarily in response to the demand for means of removing lubrication oils
and other contaminants from tools and parts during automotive, aviation, marine
and general industrial maintenance, service and repair operations. Based on
financial and trade journal reports, the Company believes that in 1996
businesses in the United States incurred more than $1 billion in expenses to
clean industrial parts using chemical cleaning techniques. Industrial parts
cleaning machines are used by automotive, aviation and maritime service, repair
and rebuilding facilities, gas stations, transmission shops, parts
remanufacturers, machine shops, and general manufacturing operations of every
size and category requiring parts cleaning.
The Company believes that the level of demand for the different types of
industrial parts cleaning machines and services is and will continue to be a
function of, among other things: (1) the effectiveness of the technology; (2)
the cost of the machines and service; (3) the time and costs associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machine and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
PRODUCTS AND SERVICES
The Company product line includes a variety of self-contained recycling
industrial cleaning and washing equipment, all of which incorporate proprietary
waste minimization technology with respect to which the Company has obtained or
applied for patent protection. The Company expects that all the products listed
below will be available for commercial exploitation at various times prior to
December 31, 1998. All of the Company's products utilize technology that (i)
provides continuously recycled cleaning solution during the cleaning process,
(ii) eliminates the necessity for continual replacement and disposal of
contaminated cleaning solution and residues and (iii) facilitates practical and
cost effective compliance with environmental laws and regulations. The Company
anticipates that it will offer its various parts washing products to commercial
users at prices which range from $2,000 to $25,000 per unit.
SYSTEMONE(TRADEMARK) WASHER.
The first of the Company's products to be available in commercial quantities
is the SystemOne(Trademark) Washer. The SystemOne(Trademark) Washer line
provides users with pure mineral spirit solvent for parts and tools cleaning
purposes, utilizing a low-temperature vacuum distillation process to recycle the
used solvent within the SystemOne(Trademark) Washer, so that the solvent may be
reused, on demand, without any need for off-site processing. The
SystemOne(Trademark) Washer minimizes the volume of waste by-product and
eliminates the need for storage and disposal of the hazardous waste solvent
necessitated by the most widely-used current treatment method.
The Company's SystemOne(Trademark) Washer consists of one or two washing
sinks mounted at standing level on top of a metal cabinet; a hinged lid on top
of the washing sink to minimize evaporation of
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solvent; a five gallon primary solvent holding tank; a distillation unit which
contains a residue reservoir; and a 30-gallon secondary solvent holding tank.
The SystemOne(Trademark) Washer utilizes a manually operated hose and scrubber
which directs the flow of solvent to the part being cleaned.
The distillation unit separates the solvent from the contaminants that
accumulate in the solvent as a result of use by heating the solvent solution in
a vacuum to a temperature at which the solvent, but not the residue, vaporizes;
and then, cooling the solvent vapor so that the vapor condenses and is converted
back into a liquid. The distilled solvent is channeled to the secondary solvent
holding tank for future use. Accordingly, the solvent may be repeatedly used,
distilled and reused without need for off-site distillation or processing. The
residue is collected and held in the residue reservoir until final disposal.
With respect to SystemOne(Trademark) Washers which are used in accordance
with their intended purpose, the Company believes that the residue may be
legally recycled and/or disposed of in the same manner that used oil is recycled
and/or disposed of. See "--Government Regulations." The Company believes that
substantially all of its target customers currently have established systems for
the handling, transportation, recycling and disposal of used oil. In those
instances in which the residue may not be recycled as used oil, the residue, but
not the distilled solvent, shall be periodically picked up, recycled and/or
disposed of by a third party. The Company warrants to users that if, for any
reason, the residue generated by its SystemOne(Trademark) Washer cannot be
recycled and/or disposed of as used oil, the Company will pay for any required
recovery and disposal services. The Company does not intend to be in the
business of handling, transporting, recycling and/or disposal of residue. If it
is required under its warranty to pay for recovery and disposal, it intends to
retain a third party to provide the required services.
The Company has also developed and obtained patent protection with respect to
a general parts washer which utilizes an aqueous based cleaning solution. The
Company is in the process of evaluating when it will commence the commercial
production and marketing of its aqueous based parts cleaner.
The target market for SystemOne(Trademark) Washers are automotive, aviation
and maritime service, repair and rebuilding facilities, gas stations,
transmission shops, parts remanufacturers, machine shops, and general
manufacturing operations of every size and category requiring small parts
cleaning.
The Company anticipates that the SystemOne(Trademark) Washer will require
service approximately four times a year for replacement of solvent lost to
evaporation or spillage and general maintenance requirements. See "Marketing and
Services Strategy" for additional information regarding the servicing of the
SystemOne(Trademark) washers.
OTHER PRODUCTS.
MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed on a
limited basis, and integrates three processes in one self-contained machine; a
power spray wash process, a recycling/ reclamation process and a thermal
oxidation process. The Power Spray Washer is able to accommodate large and bulky
parts or units that are too large for the SystemOne(Trademark) Washer. The
target market for power spray washers are automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction in
late 1996. It incorporates the Company's recycling/reclamation capabilities for
paint thinner recovery. The target market for spray gun washers are automotive,
aviation and maritime paint shops and all general manufacturing operations that
utilize paint. The Company anticipates that the auto paint industry will
represent a substantial market. The MultiProcess Spray Gun Washer facilitates
compliance with rigorous environmental disposal regulations for the paint
industry.
MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction in
1997. It integrates an immersion wash process, a recycling/reclamation process
and a thermal oxidation process in one self-contained machine. The MultiProcess
Immersion Washer is designed for cleaning of complex parts
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containing substantial integral and highly inaccessible passages requiring a
total immersion washing. The primary target market for immersion washers are
radiator rebuilding shops as well as automotive, aviation and maritime
maintenance, repair and rebuilding facilities, parts remanufactures, machine
shops, transmission shops, and all facets of general manufacturing requiring
maintenance and repair of mechanical equipment.
MINIDISPOSER is scheduled for commercial introduction in 1998. It is a
compact and portable mini-thermal oxidizer developed as a practical and
efficient means for the disposal of contaminants by thermal oxidation within a
unit measuring only one cubic foot. The MiniDisposer will be marketed both as
optional equipment with the SystemOne(Trademark) Washer and as a stand alone
mini-thermal oxidizer. The Company believes that the size and scope of the
market for the MiniDisposer is substantial and diversified and includes
industrial, commercial and consumer applications that generate small contaminant
waste by-products. The Company continues to explore potential markets in
medical, restaurant and other commercial and consumer applications.
COMPETITION
The industrial parts cleaning industry is highly competitive and dominated by
a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has substantially
greater financial and other resources than the Company. Safety-Kleen services
the parts cleaning industry through a "closed-loop" recycling system in which
contaminated solvent is removed for recycling and fresh solvent is delivered on
a periodic basis. There can be no assurance that Safety-Kleen will not develop
or acquire technology similar to or different from the Company's that would
allow it to provide an on-site recycling service. To the best of the Company's
knowledge, no other company is currently commercially marketing a recycling
parts washer with comparable characteristics. There can be no assurance that
Safety-Kleen or other competitors will not acquire or develop patent rights with
respect to a recycling parts washer which are competitively superior to the
Company's patent rights. See "--Patents, Trademarks and Proprietary Technology."
The Company believes that certain of its target customers have attempted to
enhance the capabilities of their existing industrial parts washers by acquiring
machines capable of distilling solvent used in and removed from the parts
washers. Although there are a wide variety and types of such machinery currently
available to the public, the Company believes its SystemOne(Trademark) Washers
provide superior service at a lower cost.
The Company believes that Safety-Kleen services a significant portion of the
parts washing machines currently in use. The Company believes that no other
competitor accounts for more than 2% of the industrial parts washer market in
the State of Florida or the United States.
According to Safety-Kleen's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the
world's largest provider of parts washing services and one of the world's
largest collectors and re-refiners of used oil. According to the Safety-Kleen
Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of
approximately $433.0 million and, in the year ended December 31, 1995,
Safety-Kleen had aggregate revenues of approximately $859.0 million, including
revenues of approximately $240.0 million from its automotive/ retail parts
cleaning service and $119 million from its industrial parts cleaning service,
and served its customers in North America and Europe through a network of 235
branch facilities. At December 31, 1995, Safety-Kleen was providing services for
approximately 493,000 parts washers for customers in the United States, of which
approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its
customers.
The Company believes that its SystemOne(Trademark) Washer will compete
favorably with its competitors on the basis of, among other things, (1) the
effectiveness of the technology; (2) cost; (3) the time and cost associated with
documenting compliance with applicable environmental and other laws; (4) the
safety and environmental risks associated with the machines and service; (5)
customer service; and (6) the difficulty in handling the regulated substances
used and/or generated by competitive machines.
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GOVERNMENT REGULATION
The Company believes that federal and state laws and regulations have been
instrumental in shaping the industrial parts washing industry. Federal and state
regulations dictate and restrict to varying degrees what types of cleaning
solvents may be utilized, how a solvent may be stored and utilized, and the
manner in which contaminated solvents may be generated, handled, transported,
recycled and disposed of.
Although the federal and state laws and regulations discussed below regulate
the behavior of the Company's customers, and not the Company, the Company
believes that customer demand for its SystemOne(Trademark) Washer is partially a
function of the legal environment in which the Company's customers conduct
business. The Company's SystemOne(Trademark) Washer was designed to help
minimize the cost of complying with existing federal and state environmental
laws and regulations. Any changes, relaxation or repeal of the federal or state
laws and regulations which have shaped the industrial parts washing industry may
significantly affect demand for the Company's products and the Company's
competitive position.
REGULATION OF SOLVENT TYPES. Federal and state regulations have restricted
the types of solvents that may be utilized in industrial parts cleaning
machines. Prior to December 1995, methyl chloroform was a widely used cleaning
solvent. The Clean Air Act of 1990 mandated the elimination of methyl chloroform
by December 1995.
REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more commonly
known as mineral spirits and solvent naphtha, are the cleaning solvents
typically used in the industrial parts washers of the Company's closest
competitors. The Company intends to use mineral spirits with a minimum of 140
degrees fahrenheit ignitable limits in its SystemOne(Trademark) Washer. Such
mineral spirits do not exhibit the ignitability characteristic for liquid
hazardous wastes as defined in the Resource Conservation and Recovery Act of
1976, as amended, and the implementing regulations of that statute adopted by
the United States Environmental Protection Agency (the "EPA") (collectively,
"RCRA"). Certain machines of the Company's competitors use mineral spirits with
lower ignitable limits, which may, after use, render such mineral spirits
subject to regulation as a hazardous waste. The Company believes that the
ability to recycle the mineral spirits used in its SystemOne(Trademark) Washer
provides an economic benefit to the Company's customers by allowing them to
avoid the expenses and potential liability associated with the disposal of such
solvent as a hazardous waste. See "Government Regulation--Regulation of
Generation, Handling, Transportation and Disposal of Contaminated Solvents."
Federal, state and many local governments have adopted regulations governing
the handling, transportation and disposal of such solvents. On the federal
level, under the Hazardous Materials Transportation Act (HMTA), the United
States Department of Transportation has promulgated requirements for the
packaging, labeling and transportation of mineral spirits in excess of specified
quantities. The Company does not intend to transport mineral spirits in
quantities that would trigger the HMTA requirements.
Relative to the handling and disposal of mineral spirits, many states and
local governments have established programs requiring the assessment and
remediation of hazardous materials that have been improperly discharged into the
environment. Liability under such programs is possible for unauthorized release
of mineral spirits in violation of applicable standards. Civil penalties and
administrative costs may also be imposed for such violations.
REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF
CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and
disposal of contaminated solvents is regulated by the federal and state
governments.
At the federal level, the Resource Conservation and Recovery Act authorized
the EPA to develop specific rules and regulations governing the generation,
transportation, treatment, storage and disposal
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of hazardous wastes as defined by the EPA. The EPA's definition of hazardous
waste appears under Chapter 40 CFR Part 261. The Company believes that none of
the residue by-products, the used solvent before distillation or the solvent
recycled in a SystemOne(Trademark) Washer used in accordance with its intended
purpose and instructions is subject to regulation as a "hazardous waste." In
contrast, the Company believes that the mixture of solvent and contaminants
which is periodically recovered from the machines of many of its competitors is
subject to regulation as "hazardous waste."
The Company believes that the ability to recycle and dispose of its residue
by-product as used oil rather than as a hazardous waste is economically
attractive to the Company's customers for a number of reasons. The Company
believes that substantially all of its target customers currently have
established systems for the handling, transportation, recycling and/or disposal
of used oil. Accordingly, the classification of the residue as used oil would
enable the Company's customers to: (1) dispose of or recycle the residue at no
significant additional cost; and (2) avoid certain costs associated with
establishing and disposing of wastes in compliance with a hazardous waste
disposal system.
Even if the residue by-product was required to be handled, transported,
recycled and/or disposed of as a hazardous waste, the fact that the
SystemOne(Trademark) Washer effects a substantial reduction in the volume of
waste product requiring disposal would still serve to minimize disposal costs.
The Company believes that solvent which has been used and is being held in a
SystemOne(Trademark) Washer prior to distillation is not a "waste" and is not
subject to regulation as a hazardous waste.
RCRA establishes the basic framework for federal regulation of hazardous
waste. RCRA governs the generation, transportation, treatment, storage, and
disposal of hazardous waste. In contrast to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), which is discussed
below, RCRA is designed to anticipate and prevent harm to human health and the
environment, rather than to respond to the release of hazardous wastes.
RCRA requires that facilities that generate, treat, store or dispose of
hazardous wastes comply with certain operating and permitting standards. RCRA
provides standards for permitting, maintenance and operation of facilities
handling hazardous wastes, including requirements for testing and maintenance of
equipment, contingency plans and emergency procedures, secondary containment,
recordkeeping and reporting to government agencies. The recordkeeping and
reporting requirements of RCRA are significant. Before transportation and
disposal of hazardous wastes off-site, generators of such waste must package and
label their shipments consistent with detailed regulations and prepare a
manifest to be filed with the appropriate governmental agency identifying the
material and stating its destination. The transporter must deliver the hazardous
waste in accordance with the manifest and to a facility with an appropriate RCRA
permit (a "TSD Facility"). Failure to comply with the manifesting requirements
may result in the imposition of civil and/or criminal penalties. Many states and
local governments have adopted regulatory programs which parallel the RCRA
regulatory system, many of which programs are in certain ways more restrictive
and burdensome than the RCRA system.
With regard to regulation of "used oil", the EPA ruled in 1992 that used oil
is not a hazardous waste under RCRA. Like the RCRA regulations pertaining to
hazardous wastes, the EPA's used oil regulations provide standards for
permitting, the maintenance and operation of used oil facilities, including
requirements for testing and maintenance of equipment, contingency plans and
emergency procedures, secondary containment, recordkeeping and reporting.
However, there are some material differences between RCRA's regulation of
hazardous waste and used oil. In contrast to hazardous wastes, used oil need not
be processed solely at sites with treatment, storage and disposal permits. In
addition, the generators of used oil are not required to file a shipping
manifest with government agencies with respect to each shipment of used oil.
Many state and local governments have adopted regulatory programs which parallel
the EPA's program for regulating used oil, many of which programs are in certain
ways more restrictive or burdensome than the EPA's program. For instance,
certain state and local governments continue to regulate used oil as a hazardous
waste.
CERCLA, as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), sets forth national policy and procedures for containing and
removing releases of hazardous
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substances, and identifying and remediating sites contaminated with hazardous
substances. CERCLA created an $8.5 billion fund (the "Superfund"), financed from
taxes on petroleum and various chemicals, to be administered by the EPA to fund
cleanup of hazardous waste sites. SARA significantly expanded the scope of
hazardous waste cleanup and imposed more stringent cleanup requirements. The
Superfund's most notable objective, however, is to provide criteria and
financial assistance for site cleanups and to impose liability on parties
responsible for such contamination--namely, owners and operators of vessels or
facilities from which such releases occur, and persons who generated,
transported, or arranged for the transportation of hazardous substances to a
facility from which a release or threatened release occurs.
Most states, including Florida, have created programs similar to Superfund.
These state programs are principally designed to help finance the state's share
of remediation costs of sites under the federal Superfund and to finance
cleanups at state sites that are not considered a priority for remediation under
the federal program.
The CERCLA definition of hazardous substances provides a major exception for
petroleum, including used oil if recycled. However, liability under CERCLA is
possible if petroleum products are released that contain hazardous substances as
additives or that are tainted with hazardous substances during their use and
disposal.
The Company believes that the demand for its SystemOne(Trademark) Washer is
enhanced as a result of certain federal and state environmental laws and
regulations. Although the demand for industrial parts cleaning machines and
services may be substantial in certain international markets, the level of
demand for the Company's SystemOne(Trademark) Washer may not be substantial in
certain countries as a result of permissive regulatory systems which allow the
use of less environmentally stringent cleaning and waste disposal methods.
MANUFACTURING AND SUPPLY
The Company manufactures certain of its SystemOne(Trademark) Washers at its
10,000 square foot manufacturing facility located in Miami, Florida, at which
all manufacturing operations, including design, metal cutting, bending and
welding, painting and assembly can be performed. The Company has acquired all of
the machinery necessary to manufacture SystemOne(Trademark) Washers. The Company
believes that it can produce up to 200 SystemOne(Trademark) Washers a month at
its manufacturing facility. The Company has secured third parties capable of
manufacturing the balance of the SystemOne(Trademark) Washers needed to meet
anticipated customer demand for the next 12 months. The Company intends to
secure additional manufacturing capacity as the need arises.
On May 7, 1996, the Company entered into an agreement (the "Supply
Agreement") with a supplier (the "Supplier") pursuant to which the Supplier
agreed to supply to the Company, at the Company's election, between 3,000 and
5,000 SystemOne(Trademark) Washers at established prices and in accordance with
a delivery schedule. The Supply Agreement delivery schedule provides for the
monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(Trademark)
Washers in the quarters commencing August 1996, November 1996, February 1997 and
May 1997, respectively, and for the monthly delivery of a maximum of 500
SystemOne(Trademark) Washers after December 1996. The Supply Agreement provides
for adjustments in the established pricing schedule based upon certain
reductions in the cost of production and/or increases in the cost of sheet
metal.
The Company has ordered a prototype SystemOne(Trademark) Washer manufactured
by the Supplier and has paid the first of three $50,000 payments toward a
$150,000 advance (the "Advance"), which amount will be credited against future
purchases under the Supply Agreement at a rate of $50 per SystemOne(Trademark)
Washer. The Supply Agreement provides that the Supplier will, based upon the
Company's specifications and drawings, manufacture the SystemOne(Trademark)
Washers in its factory and manufacture such items exclusively for the Company.
According to the Supply Agreement, the Supplier is expressly responsible for all
sheet metal fabrication, painting, assembling and quality assurance testing
associated with the manufacture of SystemOne(Trademark) Washers.
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The Supply Agreement requires the Company to provide the Supplier with all of
the components and raw materials, except for sheet metal, necessary to
manufacture SystemOne(Trademark) Washers. In addition, the Supply Agreement
requires the Company to acquire and provide to the Supplier for use all of the
hard tooling required to manufacture the SystemOne(Trademark) Washers.
The Supply Agreement provides that the Company may unilaterally terminate the
contract in whole or in part for cause or for convenience. In the event the
Supply Agreement is terminated by the Company for convenience, the Supplier will
be entitled to reimbursement of the costs it has incurred through the date of
termination and, if such termination occurs prior to the delivery of 3,000
SystemOne(Trademark) Washers, the Supplier will be entitled to payment for
SystemOne(Trademark) Washers produced through the date of termination and retain
any unapplied amount of the Advance.
The Company has retained the right to secure other contract manufacturers of
SystemOne(Trademark) Washers. Although, at present, the Company seeks to avoid
the transaction and opportunity costs associated with identifying, securing and
training another SystemOne(Trademark) Washer manufacturer, the Company does not
believe that it is dependent upon the Supplier to manufacture
SystemOne(Trademark) Washers and that other manufacturers are readily available.
The Company has entered into negotiations with a major contract manufacturer
with a 2 million square foot facility and 75 years of experience to provide the
manufacturing capacity needed to meet anticipated future customer demand. No
assurances can be given that the Company and the major contract manufacturers
will ever enter into a binding contract.
The SystemOne(Trademark) Washer is an assembly of raw materials and
components all of which the Company believes are readily obtainable in the
United States of America. The Company does not believe that it nor the Supplier
is dependent upon any of their respective current suppliers to obtain the raw
materials and components necessary to assemble and manufacture
SystemOne(Trademark) Washers. As of the date of this Prospectus, the Company was
procuring raw materials and components for its SystemOne/trademark/ Washers from
42 sources.
The Company is capable of manufacturing its other products in the amounts
required for testing and test marketing in its own manufacturing facility.
MARKETING AND SERVICING STRATEGY
In order to create awareness of its products and test the demand for them,
commencing in December 1995, the Company placed an aggregate of 47
SystemOne(Trademark) Washers in 38 automotive dealerships, municipal and private
fleet maintenance facilities, repair facilities and other users of parts
cleaning equipment in South Florida. The demonstrator units were provided at no
charge. The test program was conducted primarily to enable the Company to gauge
the demand for its products. Notwithstanding the absence of a formal marketing
program during the test period, the Company has, to date, received firm purchase
orders from a number of facilities in which the machines were placed, including
Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company (23 units) and
Pantropic Power Products (25 units), the South Florida Caterpillar dealers;
United States Postal Service (2 units); Southern Sanitation, a subsidiary of
Waste Management, Inc. (5 units); Broward County Mass Transit (25 units);
Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile
dealerships (an aggregate of 60 units). The Company commenced commercial sales
and delivery of units in July 1996 at an approximate price per unit of $2,700,
and anticipates delivering substantially all of the ordered units to date prior
to December 31, 1996. As of the date of this Prospectus, the Company had
delivered and recognized the sale of 44 units.
In a parallel marketing strategy, to test the viability of the strategic
marketing alliance concept for its products, in August 1996 the Company will
commence a pilot program with First Recovery and Valvoline Oil Company, two
affiliates of Ashland Oil, pursuant to which First Recovery will serve as the
exclusive distributor for the SystemOne(Trademark) Washer in the Dallas/Ft.
Worth and Houston markets. The program, whose initial term is one year, but is
cancelable by either party on 60 days notice, sets forth a schedule for the
purchase of 1,000 units by First Recovery during the first year. First Recovery
is
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obligated to provide routine service to customers. Upon termination of the
program, First Recovery will have the option to require the Company to assume
the leases it has entered into with its customers and to pay First Recovery, on
a discounted basis, the profit it would have realized under such leases. If
First Recovery does not exercise that option, it will have the additional
option, for one year after termination of the program, to lease up to four times
the number of units it leased under the program, but only to its existing
customers. Subject to its assessment of First Recovery's performance, the
Company will consider entering into a more extensive distribution agreement.
The Company also intends to expand the geographic scope of its operations
through its internal marketing operations, initially focusing on Florida and
then expanding to other regions. In addition to its sales and service operations
in Miami, the Company intends to establish sales, service and technical support
service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida
during 1996 to support its proposed operations in Florida. The Company will
market and service the SystemOne(Trademark) Washers it places with customers
with its own marketing, service and technical support personnel. The Company
believes it will retain at least 15 marketing, service and technical support
personnel to support its proposed operations in Florida over the next 12 months.
The Company intends to continue to generate consumer awareness of its
SystemOne(Trademark) Washer through the efforts of its sales force, general
advertisements in trade publications, and participation in trade conventions.
SALES FINANCING AND SERVICING PROGRAMS
Initially, the Company intends to make its SystemOne(Trademark) Washers
available to the public through a third party leasing program. The Company
entered into an agreement (the "Product Financing Agreement") with Oakmont
Financial Services ("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed
to provide third party leasing services. Pursuant to the Product Financing
Agreement, the Company is to provide Oakmont certain information with respect to
each proposed customer for which a third party lease is sought, including credit
information with respect to each proposed lessee. Oakmont may reject a lease
application if, in its sole discretion, the proposed transaction does not comply
with Oakmont's then applicable criteria. If Oakmont elects to provide lease
financing, Oakmont will purchase the SystemOne(Trademark) Washer in the manner
and for an amount agreed to by the Company and Oakmont from time to time, upon
Oakmont's receipt of required documentation.
The Product Financing Agreement provides that, upon the customer's
satisfaction of all of its lease payment obligations to Oakmont, the Company
may, at its option, repurchase the subject equipment from Oakmont at a cash
purchase price equal to the fair market value of the subject equipment plus
applicable sales tax. The Product Financing Agreement states that the fair
market value of a SystemOne(Trademark) Washer shall be determined by the mutual
agreement of the Company and Oakmont or, if such an agreement is not reached, by
an appraiser selected by mutual agreement of the Company and Oakmont.
Under the Product Financing Agreement, the Company has agreed, for a fee, to
utilize a reasonable and non-discriminatory approach to assist Oakmont in
reselling any SystemOne(Trademark) Washers with respect to which a customer has
failed to discharge its payment obligations to Oakmont. The Product Financing
Agreement states that Oakmont does not have recourse against the Company for
customer failures to discharge their obligations to Oakmont unless the Company
has breached and failed to cure certain warranties. Specifically, the Company
has agreed to make the following warranties upon each sale to Oakmont, which
warranties provide Oakmont with a basis for recourse against the Company for
certain customer failures: (i) to the best of the Company's knowledge, the
customer will use the SystemOne/trademark/ Washer principally for commercial
purposes; (ii) to the best of the Company's knowledge, the lease and related
documents have been duly executed and delivered; (iii) the lease incorporates
all of the representations and warranties made by the Company to the lessee;
(iv) all dealings by the Company with the lessee have been in accordance with
all applicable laws and regulations; (v) the conduct of the Company in
developing a lease will not subject Oakmont to suit or
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administrative proceeding; (vi) the lessee has no defense, offset or
counterclaims as to the enforcement of the lease arising out of the conduct or
failure to perform of the Company; (vii) the Company does not know of any fact
which indicates the uncollectibility of the lease; (viii) to the best of the
Company's knowledge, the information provided by the lessee to the Company and
Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed
the Company is entitled to retain, the Company has not retained any funds given
to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested
in Oakmont free and clear of any liens of persons claiming by, through or under
the Company. In the event the Company breaches one of the foregoing warranties
and fails to cure the breach, the Product Financing Agreement requires the
Company to purchase from Oakmont the leased SystemOne(Trademark) Washer and
Oakmont's rights under the lease agreements with the customer for an amount
equal to the sum of all lease payments then due and owing under the lease, all
lease payments payable from the date of default to the end of the lease term and
twenty percent of the equipment cost, less any applicable deposit which may be
retained by Oakmont. Where required by applicable law, the foregoing amounts are
required to be calculated using the discounted present value of the subject
lease payments.
The Product Financing Agreement provides for a term of one year, which
automatically renews for successive one-year terms. Under the Product Financing
Agreement, either the Company or Oakmont may terminate the agreement with or
without cause upon 60 days notice, without affecting the rights and obligations
of either party with respect to previous sales. In addition, if Oakmont declines
any five lease applications within a 30-day period, which lease applications are
accepted and funded by a third party on terms declined by Oakmont, the Company
may, upon 10 days notice, terminate the Product Financing Agreement.
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
The Company holds United States patents relating to its SystemOne(Trademark)
Washer, Power Spray Washer, Spray Gun Washer and Immersion Washer and
anticipates that it will apply for additional patents it deems appropriate. The
Company has applied for international patents in Canada, Japan, Europe and
Mexico.
The Company's patent with respect to its SystemOne(Trademark) Washer was
issued on September 27, 1994 and will expire on September 26, 2011. The Company
has three patents pending with respect to its SystemOne(Trademark) Washer, one
of which was allowed by the U.S. Patent Office on April 2, 1996 and is awaiting
issuance. The Company's patent with respect to its Power Spray Washer was issued
on January 11, 1994, and expires on January 10, 2011. The Company's patent with
respect to its Spray Gun Washer was issued on February 14, 1995, and expires on
February 13, 2012. The Company's patent with respect to its Immersion Washer was
issued on May 21, 1996 and expires on May 20, 2013. The Company's patent with
respect to its MiniDisposer was allowed by the U.S. Patent Office on June 26,
1996 and is awaiting issuance.
The Company believes that patent protection is important to its business.
There can be no assurance as to the breadth or degree of protection which
existing or future patents, if any, may afford the Company, that any patent
applications will result in issued patents, that patents will not be
circumvented or invalidated or that the Company's competitors will not commence
marketing self-contained washers with similar technology. It is possible that
the Company's existing patent rights may not be valid although the Company
believes that its patents and products do not and will not infringe patents or
violate proprietary rights of others. It is possible that infringement of
existing or future patents or proprietary rights of others may occur. In the
event the Company's products or processes infringe patents or proprietary rights
of others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation actions. Moreover, if the Company's
product or processes
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infringes patents or proprietary rights of others, the Company could, under
certain circumstances, become the subject of an immediate injunction and be
liable for damages, which could have a material adverse effect on the Company.
The Company has applied for a federal trademark with respect to the mark
"SystemOne" and design.
The Company also relies on trade secrets and proprietary know-how and employs
various methods to protect the concepts, ideas and documentation of its
proprietary information. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such know-how or obtain access to the Company's know-how, concepts,
ideas and documentation. Although the Company has and expects to have
confidentiality agreements with its employees, suppliers and appropriate
vendors, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets. Since the Company believes that its
proprietary information is important to its business, failure to protect such
information could have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, the Company expended $178,146, $393,874 and $365,435,
respectively, on research and development of its various products.
The Company plans to continue to focus significant resources on research and
development of existing and future product lines. Although the Company intends
to continue to seek means of refining and improving its SystemOne(Trademark)
Washer, the Company believes, based on market response, that the
SystemOne(Trademark) Washer is at a stage where commercial exploitation is
appropriate. The Company recognizes that the industrial parts cleaning industry
may be entering a phase of rapid technological change and progress and the
Company will seek to retain what the Company perceives as its technological
superiority over its competitors' products. In order to keep pace with the rate
of technological change, the Company intends to devote considerable resources in
time, personnel and funds on continued research and development for its
products. The Company recognizes that many of its competitors have far greater
financial and personnel resources than the Company which may be devoted to
research and development and can provide no assurance that it will maintain a
technological advantage.
Subject to the availability of financial and personnel resources, the Company
intends to spend approximately $400,000 and $500,000 in the years ended December
31, 1996 and 1997, respectively, to finalize development and testing of its
various products and to develop new products and concepts. Although there can be
no assurance that the Company will ever develop any new products capable of
commercialization, the Company intends to continue its programs to develop new
products, some of which may utilize the Company's patented products and
processes.
PRODUCT LIABILITY AND INSURANCE
The Company is subject to potential product liability risks which are
inherent in the design and use of industrial parts cleaning machines. The
Company has implemented strict quality control measures and currently maintains
product liability insurance of $5,000,000 in the aggregate and $5,000,000 per
occurrence.
PROPERTIES
The Company maintains its corporate headquarters, research and development
laboratory and manufacturing facilities in a 10,000 square foot and an adjacent
5,500 square foot building located in Miami, Florida. The lease for the
10,000 square foot building (the "Primary Lease") commenced on January 1, 1995
and expires December 31, 1996. The Primary Lease provides for two renewal terms
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of two years. The Company's annual lease payments under the Primary Lease are
approximately $61,000, which amount does not include the Company's obligation to
pay all utility and service charges. The lease for the 5,500 square foot
building (the "Secondary Lease") commenced on September 1, 1996 and expires
August 30, 1998. The Company's annual lease payments under the Secondary Lease
are approximately $32,208, which amount does not include the Company's
obligation to pay all utility and service charges. The Company has the right to
cancel the Secondary Lease upon four months written notice. In addition, the
Company maintains a sales, distribution and light manufacturing center in a
1,692 square foot facility located in Pinellas Park, Florida (the "Sales
Lease"). The Sales Lease commenced on September 15, 1996 and expires on
October 1, 1998. Annual rental obligations under the Sales Lease are
approximately $6,491.25, which amount does not include the Company's obligation
to pay all utility and service charges. The Company intends to seek additional
space, either at its current location or elsewhere, to house expanded corporate
headquarters and research and development facilities. The Company anticipates no
significant difficulty in locating such space on reasonable terms. The Company
does not anticipate that it will experience difficulty in locating and equipping
its regional sales and service centers, which are expected to contain a small
office space/showroom area and enough space for two or three delivery and
maintenance vehicles.
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
EMPLOYEES
As of the date of this Prospectus, the Company employed 16 employees, of whom
five were in corporate management, three were in research and development, two
were in sales and marketing, four were in manufacturing, and two were in
administration. The Company intends to hire additional employees after this
offering, commensurate with the Company's requirements and available funds,
primarily to expand manufacturing and marketing operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------------------------------------------------
<S> <C> <C>
Pierre G. Mansur ........ 44 Chairman of the Board and President
Paul I. Mansur .......... 45 Director and Chief Executive Officer
Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial
Officer
Charles W. Profilet .... 59 Vice President-Business Development
Elias F. Mansur ......... 53 Director
Dr. Jan Hedberg ......... 49 Director
Joseph E. Jack .......... 68 Director
</TABLE>
PIERRE G. MANSUR founded the Company and has served as its Chairman and
President since its inception in November 1990. From June 1973 to August
1990, Mr. Pierre Mansur served as President of Mansur Industries Inc., a
privately held New York corporation that operated a professional race engine
machine shop. Mr. Pierre Mansur has over twenty years of advanced automotive
and machinery operations experience including developing innovative
automotive machine shop applications; designing, manufacturing, customizing,
modifying and retooling high performance engines and component parts;
developing state of the art automotive and powerboat race engines which have
consistently achieved world championship status; and providing consulting
services and publishing articles with respect to automotive technical
research data. Mr. Pierre Mansur has conducted extensive research and
development projects for several companies, including testing and evaluating
engine parts and equipment for Direct Connection, a high performance racing
division of the Chrysler Corporation; researching and developing specialized
engine piston rings and codings for Seal Power Corporation; researching
high-tech plastic polymers for internal combustion engines for ICI Americas;
and designing and developing specialized high performance engine oil pan
applications. Mr. Pierre Mansur is the brother of Paul I. Mansur and a cousin
of Elias F. Mansur. Mr. Pierre Mansur is a graduate of the City University of
New York.
PAUL I. MANSUR has been Chief Executive Officer, Chief Financial Officer
and a Director since September 1993. From September 1986 to July 1993, Mr.
Paul Mansur served as Chief Executive Officer of Atlantic Entertainment Inc.,
a privately held regional retail chain of video superstores. From March 1981
to September 1986, Mr. Paul Mansur served as the Chief Executive Officer and
President of Ameritrade Corporation, a privately held international
distributor of factory direct duty free products. From June 1972 to March
1981, Mr. Paul Mansur held various finance and operation positions, including
Assistant Vice President Finance and Operations for Mott's USA, Inc., a
division of American Brands. Mr. Paul Mansur is the brother of Pierre G.
Mansur and a cousin of Elias F. Mansur. Mr. Paul Mansur is a graduate of the
City University of New York.
CHARLES W. PROFILET has been the Vice President--Business Development of the
Company since November 1995. From July 1992 to September 1995, Mr. Profilet
served as Vice President--Florida Operations for Rust Environment and
Infrastructure, Inc., a privately held environmental remediation company that is
controlled by WMX Technologies, a publicly traded waste collection and recycling
company traded on the New York Stock Exchange. From March 1991 to July 1992, Mr.
Profilet served as Vice President-Marketing at Metcalf and Eddy, a full-service
engineering and environmental consulting firm specializing in the treatment of
waste water, air quality assurance, emissions control and remedial design. From
July 1987 to February 1990, Mr. Profilet served as Executive Vice President and
Chief Operating Officer at Craig A. Smith and Associates, a privately-held civil
engineering firm. From August 1979 to September 1985, Mr. Profilet served as
Vice President-Business Development at Reynolds Smith and Hills, a
privately-held architectural and engineering planning firm. Mr. Profilet is a
graduate of the U.S. Military Academy at West Point and holds a Master of
Engineering degree from the University of Oklahoma.
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RICHARD P. SMITH has been the Chief Financial Officer of the Company since
September 1, 1996. From April 1987 to August 1996, Mr. Smith held various
positions, including Vice President, Chief Financial Officer, Treasurer,
Secretary, Director of Business Planning, and Controller of European Operations
of Telematics International, Inc., a manufacturer and supplier of intelligent
networking technologies and products. From August 1983 to April 1987, Mr. Smith
served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a
worldwide manufacturer of a diverse line of electronic equipment and components,
including communications systems, semiconductors, electronic controls and
computer systems. Motorola, Inc.'s securities are listed on the New York Stock
Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for
Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan
University and holds a Masters of Business Administration degree from the
University of Illinois and a Masters of Finance degree from Cambridge
University.
ELIAS F. MANSUR has been a Director of the Company since August 1995. From
September 1968 to present, Mr. Elias Mansur served as Managing Director of
the Mansur Trading Company and its subsidiaries, an international,
diversified group of companies involved in banking, international trade,
manufacturing, real estate and hotel operations. From June 1975 to March
1981, Mr. Elias Mansur served as Chairman of the Board of the Central Bank of
the Netherlands Antilles. From September 1984 to December 1985, Mr. Elias
Mansur served as Minister of Economic Affairs of the Netherlands Antilles.
From October 1977 to September 1984, Mr. Elias Mansur served as the Chief
Economic Advisor, Minister of Economic Affairs and Chairman of the Council of
Economic Advisors to the government of Aruba. Mr. Elias Mansur is a cousin of
Mr. Pierre Mansur and Mr. Paul I. Mansur.
DR. JAN HEDBERG has been a Director of the Company since August 1995. From
October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief Executive
Officer of Enprotec International Group, N.V., a company he co-founded and in
the business of researching and developing of advanced waste oil recycling
technologies. Since March 1993, Dr. Hedberg has been the Chairman of the Board
and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned subsidiary of
Enprotec International Group, N.V., which manufactures, designs and assembles
oil re-refining plants. Dr. Hedberg was the co-recipient of the 1991
International Technology Award for Enterprising Innovation and Creativity for
the development of the Vaxon Re-refining Process, which is a proprietary process
that transforms used oil into useable oil products. Dr. Hedberg has over 15
years of experience in oil related and environmental companies and 12 years of
research and teaching experience, including executive management and advisory
positions, with several multinational organizations. Dr. Hedberg received his
Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts
Institute of Technology, Cambridge, Massachusetts in 1977.
JOSEPH E. JACK has been a Director of the Company since August 1995. From May
1989 to June 1991, Mr. Jack served as Vice President of Waste Management Europe,
a waste collection and recycling company that is a publicly traded company on
the London Stock Exchange and a controlled subsidiary of WMX Technologies, a
publicly traded New York Stock Exchange company. From April 1984 to December
1987, Mr. Jack was President of Waste Management Inc. of Florida, a waste
collection and recycling company that is an affiliate of Waste Management, Inc..
From July 1983 to March 1984, Mr. Jack served as Vice President of Waste
Management Partners, a division of Waste Management, Inc. From February 1982 to
July 1983, Mr. Jack served as Vice President of Waste Management International,
a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr.
Jack was Vice President of Waste Management International (Middle East), a
subsidiary of Waste Management, Inc., and from May 1978 to April 1980, Mr. Jack
was the Resident Manager of Waste Management Saudi Arabia, a joint venture
involving an affiliate of Waste Management, Inc. Under Mr. Jack's leadership,
Waste Management experienced unprecedented growth in several markets worldwide
including Waste Management Europe's growth of revenues from $10 million to $700
million in a three year period. Mr. Jack's significant accomplishments in the
waste management field were acknowledged when he was inducted by the National
Waste Management Association into the United States Waste Industry's "Hall of
Fame". Mr. Jack has been an active investor in companies since he retired in
June 1991.
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The Company has agreed that, for five years after the effective date of this
Prospectus, the Representative will have the right to designate one individual
to be elected to the Company's Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or payable in respect of the
three years ended December 31, 1995 to the Company's Chief Executive Officer and
its other executive officer whose combined salaries and bonuses equalled or
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------- --------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION
- --------------------------- ------- ---------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0
------- ---------- -------------- ---------------- ---------------
Chairman and President 1994 $66,000 $0 $550(2) $0
------- ---------- -------------- ---------------- ---------------
1993 $22,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0
------- ---------- -------------- ---------------- ---------------
Chief Executive Officer 1994 $48,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
1993 $5,000 $0 $0 $0
------- ---------- -------------- ---------------- ---------------
</TABLE>
- ----------
(1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of
which has been paid and the remainder of which has been accrued.
(2) Automobile allowance paid by the Company.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In September 1993, the Company entered into a two year employment agreement
with Mr. Pierre Mansur, which provides for an annual base salary of $66,000 and
discretionary bonuses, based on Mr. Pierre Mansur's performance, as determined
by the Compensation Committee of the Board of Directors. Pursuant to the terms
of his employment contract, Mr. Mansur's employment was renewed in September
1995 by the Company for an additional two years. Pursuant to the employment
agreement, during the term of Mr. Pierre Mansur's employment and for a period of
three years following his termination of employment, Mr. Pierre Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Pierre Mansur is prohibited from, directly or indirectly,
engaging in any business in substantial competition with the Company or its
affiliates. The employment agreement also provides that Mr. Pierre Mansur is
prohibited from becoming an officer, director or employee of any corporation,
partnership or any other business in substantial competition with the Company or
its affiliates during the term of his employment and for three years thereafter.
In September 1995, the Company entered into a two year employment agreement
with Mr. Paul Mansur, which provides for an annual base salary of $48,000 and
discretionary bonuses, based on Mr. Paul Mansur's performance, as determined by
the Compensation Committee of the Board of Directors. Pursuant to the employment
agreement, during the term of Mr. Paul Mansur's employment and for a period of
three years following his termination of employment, Mr. Paul Mansur is
prohibited from disclosing any confidential information, including without
limitation, information regarding the Company's patents, research and
development, manufacturing process or knowledge or information with respect to
confidential trade secrets of the Company. In addition, the employment agreement
provides that Mr. Paul Mansur is prohibited from, directly or indirectly,
engaging in any business in
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<PAGE>
substantial competition with the Company or its affiliates. The employment
agreement also provides that Mr. Paul Mansur is prohibited from becoming an
officer, director or employee of any corporation, partnership or any other
business in substantial competition with the Company or its affiliates during
the term of his employment and for three years thereafter.
In July 1996, the Company entered into a one year employment agreement with
Mr. Richard Smith, which provides for an annual base salary of $110,000, a car
allowance of $400 a month, and a mobile telephone allowance of $150 a month. The
employment agreement provides that Mr. Smith is entitled to receive a minimum of
10,000 common stock purchase options comprised of: 5,000 options to be issued
upon the consummation of the Concurrent Offering exercisable at the initial
public offering price, and 5,000 options to be issued on December 31, 1996
exercisable at the then current market price of the common stock. Pursuant to
the employment agreement, if Mr. Smith is terminated for cause, defined as an
act of dishonesty, malfeasance, or other impropriety, he is not entitled to
receive any severance payment. If Mr. Smith is terminated without cause, he is
entitled to receive his current salary for four months or until he secures new
employment, whichever occurs first. In addition to the employment agreement, the
Company and Mr. Smith entered into a Non-Circumvention and Non-Disclosure
Agreement.
In November 1995, the Company entered into a one year employment agreement
with Charles W. Profilet. Under the employment agreement, Mr. Profilet is
entitled to an annual base salary of $80,000, a car allowance of $400 a month
and monthly commissions, ranging from $5 per unit for parts washers to $25 per
unit for jet washers, with respect to each new washer sold by the Company in the
United States. The commissions earned by Mr. Profilet may be converted, at his
option, into Common Stock at a discount on the then current trading price of the
Common Stock. The conversion discount was 10% as of the date of this Prospectus,
but, may be adjusted at the election of the Board of Directors of the Company.
As of the date of this Prospectus, Mr. Profilet had earned an aggregate of
$12,250 of commissions. The employment agreement provides that Mr. Profilet is
eligible to participate in the Company's discretionary executive profit sharing
awards and executive stock award or stock option awards. Pursuant to the
employment agreement, if Mr. Profilet is terminated for cause, defined as an act
of dishonesty, malfeasance, or other impropriety, he is not entitled to receive
any severance payment. If Mr. Profilet is terminated without cause within his
first year of employment, he is entitled to receive his current salary for six
months or until he secures new employment, whichever occurs first. In addition
to the employment agreement, the Company and Mr. Profilet entered into a
Non-Circumvention and Non-Disclosure Agreement.
INCENTIVE COMPENSATION PLAN
The Company's 1996 Executive Incentive Compensation Plan (the "Incentive
Plan") provides for grants of stock options, stock appreciation rights ("SARS"),
restricted stock, deferred stock, other stock related awards and performance or
annual incentive awards that may be settled in cash, stock or other property
(collectively, "Awards"). The total number of shares of Common Stock that may be
subject to the granting of Awards under the Incentive Plan at any time during
the term of the Plan shall be 375,000. The Employee Plan is designed to serve as
an incentive for retaining qualified and competent employees, directors,
consultants and independent contractors of the Company.
The persons eligible to receive Awards under the Incentive Plan are the
officers, directors, employees and independent contractors of the Company, if
any, and its subsidiaries. No director of the Company who is not an employee of
the Company or any subsidiary (a "non-employee director") will be eligible to
receive any Awards under the Incentive Plan other than automatic formula grants
of stock options and restricted stock as described below, and no independent
contractor will be eligible to receive any Awards other than stock options.
The Incentive Plan is required to be administered by a committee designated
by the Board of Directors consisting of not less than two directors (the
"Committee"), each member of which must be a "disinterested person" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934, as
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amended, and an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Compensation
Committee of the Board has been appointed as the Committee for the Incentive
Plan. Subject to the terms of the Incentive Plan, the Committee is authorized to
select eligible persons to receive Awards, determine the type and number of
Awards to be granted and the number of shares of Common Stock to which Awards
will relate, specify times at which Awards will be exercisable or settleable
(including performance conditions that may be required as a condition thereof),
set other terms and conditions of Awards, prescribe forms of Award agreements,
interpret and specify rules and regulations relating to the Incentive Plan, and
make any other determinations that may be necessary or advisable for the
administration of the Incentive Plan.
In addition, the Incentive Plan imposes individual limitations on the amount
of certain Awards in part to comply with Code Section 162(m). Under these
limitations, during any fiscal year the number of options, SARS, restricted
shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in
lieu of other Company obligations, and other stock-based Awards granted to any
one participant may not exceed 250,000 for each type of such Award, subject to
adjustment in certain circumstances. The maximum amount that may be paid out as
a final annual incentive Award or other cash Award in any fiscal year to any one
participant is $1,000,000, and the maximum amount that may be earned as a final
performance Award or other cash Award in respect of a performance period by any
one participant is $5,000,000.
The Incentive Plan provides that each non-employee director shall
automatically receive (i) on the date of his or her appointment as a director of
the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each
year, on the day the Company issues its earnings release for the prior fiscal
year, an option to purchase 2,500 shares of Common Stock. Such options will have
a term of 10 years and become exercisable at the rate of 33-1/3% per year
commencing on the first anniversary of the date of grant; provided, however,
that the options will become fully exercisable in the event that, while serving
as a director of the Company, the non-employee director dies, or suffers a
"disability," or "retires" (within the meaning of such terms as defined in the
Incentive Plan). The per share exercise price of all options granted to
non-employee directors will be equal to the fair market value of a share of
Common Stock on the date such option is granted.
The Company will agree with the Representative that for a 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part, the Company will not, without the consent of the
Representative, adopt or propose to adopt any plan or arrangement permitting the
grant, issue or sale of any shares of its Common Stock or issue, sell or offer
for sale any of its Common Stock, or grant any option for its Common Stock which
shall: (x) have an exercise price per share of Common Stock less than (a) the
initial public offering price of the Common Stock offered in this Prospectus or
(b) the fair market value of the Common Stock on the date of grant; or (y) be
granted to any direct or indirect beneficial holder of more than 10% of the
issued and outstanding Common Stock of the Company. No option or other right to
acquire Common Stock granted, issued or sold during the 13-month period
immediately following the effective date of the Registration Statement of which
this Prospectus forms a part shall permit (a) the payment with any form of
consideration other than cash, (b) the payment of less than the full purchase or
exercise price for such shares of Common Stock or other securities of the
Company on or before the date of issuance, or (c) the existence of stock
appreciation rights, phantom options or similar arrangements.
The Company has not granted any Award under the Incentive Plan.
COMPENSATION OF DIRECTORS
After this offering, the Company will pay each director who is not an
employee an annual retainer of $10,000. The Company will reimburse all
directors for all travel-related expenses incurred in connection with their
attendance at meetings of the Board of Directors. Directors will also be
entitled to receive options under the Incentive Plan. See "Incentive
Compensation Plan."
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted
10,000 shares of the Company's Common Stock in April 1996 in exchange for
previously rendered consulting services.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE
The Board of Directors currently administers and determines compensation,
including salary and bonus for the executive officers, directors and other
employees. The Company intends to establish an Audit Committee and a
Compensation Committee shortly after the closing of this offering. The
Compensation Committee will be responsible for setting and administering
policies that govern annual compensation of the Company's executive officers and
administering the 1996 Executive Incentive Compensation Plan. The duties and
responsibilities of the Audit Committee will include (i) recommending to the
full Board the appointment of the Company's auditors and any termination of
their appointment, (ii) reviewing the plan and scope of audits, (iii) reviewing
the Company's significant accounting policies and internal controls, (iv)
administering the Company's compliance programs, and (v) general responsibility
for all related auditing matters.
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CERTAIN TRANSACTIONS
COMMON STOCK OWNERSHIP
In connection with the organization of the Company in November 1990, the
Company issued 2,000,000 shares of Common Stock, par value $0.001 per share, to
Mr. Pierre Mansur in exchange for the assignment to the Company of certain
ongoing research and development and rights to any related patents and patents
pending and real estate and equipment valued at $52,000.
CONSULTING AGREEMENT AND SERVICES
In November 1994, the Company entered into a two-year consulting agreement
(the "Consulting Agreement") with Environmental Technologies BVI Limited (the
"Consultant"). Pursuant to the Consulting Agreement, the Consultant agreed to
advise, consult with, introduce to third parties and generally assist the
Company in its efforts to explore new manufacturing and marketing arrangements.
In exchange for such services, the Consulting Agreement provided that the
Consultant was entitled to receive certain fees in connection with the sale of
certain equipment, services, license rights, royalty rights, manufacturing
rights, marketing rights or the Company's entrance into a partnership or joint
venture arrangement or consummation of a merger. The Consultant did not receive
any commissions pursuant to the Consulting Agreement. In December 1995, the
Company issued the Consultant 10,000 shares of Common Stock in exchange for the
services rendered by the Consultant and to secure the Consultant's agreement to
terminate the Consulting Agreement and any and all associated rights of the
Consultant. Dr. Jan Hedberg, a director of the Company, owns 50 percent and
serves as the managing director of the Consultant.
Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack have, from time to
time, rendered consulting services to the Company in connection with
financing, marketing and technical matters. In April 1996 they were each
granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share,
in exchange for such previously rendered consulting services.
NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER
Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur
made a series of advances ranging from $5,000 to $30,000, totaling an aggregate
of $150,000 (the "Debt"), to the Company between June 1, 1990 and May 31, 1996.
Under the terms of the line of credit, interest accrued at a rate of 6% in 1994,
1995 and the five month period ended May 31, 1996. On December 31, 1994 and
December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000,
respectively, in satisfaction of interest owed with respect to the Debt. The
note evidencing the Debt had a maturity date of December 31, 1995, which
maturity date was extended to December 31, 1996. On May 31, 1996, the Company
paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding
principal balance of and the interest owed with respect to the Debt.
CONVERTIBLE NOTES
In connection with its issuance of an aggregate of $1,012,500 in principal
amount of Convertible Notes in June 1996, the Company issued promissory notes in
the principal amount of $101,250 to each of Environmental Technologies BVI
Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company,
is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr.
Elias F. Mansur, a director of the Company. Upon consummation of this offering,
each of the Convertible Notes will be automatically converted into 15,000 shares
of the Company's Common Stock. Mr. Mansur, Mr. Jack and Environmental
Technologies BVI Limited acquired the Convertible Notes on the same terms as
other unaffiliated investors.
FUTURE TRANSACTIONS
Each of the transactions between the Company and each officer and shareholder
of the Company was made on terms no less favorable to the Company than those
that were available from unaffiliated
41
<PAGE>
third parties. All future transactions, including loans, between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated third parties.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the Common Stock immediately prior to this offering and the
concurrent offering, and as adjusted to reflect the sale of shares offered
hereby and in the Concurrent Offering, by: (i) each person known by the Company
to be the beneficial owner of more than 5% of the Common Stock, (ii) each
Director or nominee for Director of the Company, (iii) each of the Named
Executive Officers, (iv) each Selling Shareholder and (v) all Directors and
Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THIS OFFERING NUMBER OF THIS OFFERING
----------------------- SHARES ---------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- -------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Pierre G. Mansur/dagger/ .. 2,000,000 59.7% 0 2,000,000 46.0%
Mr. Paul I. Mansur/dagger/ .... 0 * 0 0 *
Dr. Jan Hedberg/dagger/ ........ 35,000(1) 1.0% 15,000 20,000(1) *
Mr. Elias F. Mansur/dagger/ ... 41,025(2) 1.2% 15,000 26,025 *
Mr. Joseph E. Jack/dagger/ .... 37,820(2) 1.1% 15,000 22,820 *
First Malro, Inc. .............. 157,690(3) 3% 100,000 57,690 1.3%
Environmental Technologies BVI
Limited ...................... 25,000(2) * 15,000 10,000 *
Said Mouawad ................... 17,820(4) * 5,000 12,820 *
Mr. Charles W. Profilet/dagger/ 0 * 0 0 *
Mr. Richard P. Smith/dagger/ .. 10,000(5) * 0 10,000(5) *
All Directors and
Executive Officers
as a Group (6 persons) ....... 2,123,845(6) 63.4% 45,000 2,078,845(6) 47.8%
</TABLE>
- ---------------
* Less than 1%
/dagger/ The address of the beneficial owner is 8425 S.W. 129th Terr.,
Miami, Florida 33156.
(1) Includes 25,000 shares of Common Stock beneficially held by Environmental
Technologies BVI Limited, of which Dr. Hedberg owns 50 percent and serves
as the Managing Director. See Note 2.
(2) Includes 15,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $101,250, which conversion shall
occur upon the consummation of the Concurrent Offering.
(3) Includes 100,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of $675,000, which conversion shall
occur upon the consummation of the Concurrent Offering.
(4) Includes 5,000 shares of Common Stock issuable upon the conversion of a
Convertible Note in the principal amount of 33,750, which conversion shall
occur upon the consummation of the Concurrent Offering.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise of stock
options.
(6) See Notes (1), (2) and (5).
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred
Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309
shares of Common Stock and 0 shares of Preferred Stock are outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of shareholders. Subject to the restrictions
summarized below, dividends may be paid to the holders of Common Stock when
and if declared by the Board of Directors out of funds legally available for
dividends. See "Dividend Policy."
42
<PAGE>
Holders of Common Stock have no conversion, redemption, or preemptive
rights. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding up of
the affairs of the Company, the holders of Common Stock will be entitled to
share ratably in its assets remaining after provision for payment of
creditors and holders of Preferred Stock. See "Dividend Policy."
PREFERRED STOCK
The Company is authorized to issue Preferred Stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the value or market price of
the Common Stock and voting power or other rights of the holders of Common
Stock. In the event of issuance, the Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The "Control Share Acquisitions" section of the Florida
Business Corporation Act ("FBCA") generally provides that shares acquired in
excess of certain specified thresholds, beginning at 20% of the Company's
outstanding voting shares, will not possess any voting rights unless such voting
rights are approved by a majority vote of a corporation's disinterested
shareholders. The "Affiliated Transactions" section of the FBCA generally
requires majority approval by disinterested directors or supermajority approval
of disinterested shareholders of certain specified transactions (such as a
merger, consolidation, sale of assets, issuance of transfer of shares or
reclassifications of securities) between a corporation and a holder of more than
10% of the outstanding voting shares of the corporation, or any affiliate of
such shareholder.
The directors of the Company are subject to the "general standards for
directors" provisions set forth in the FBCA. These provisions provide that in
discharging his or her duties and determining what is in the best interests of
the Company, a director may consider such factors as the director deems
relevant, including the long-term prospects and interests of the Company and its
shareholders and the social, economic, legal or other effects of any proposed
action on the employees, suppliers or customers of the Company, the community in
which the Company operates and the economy in general. Consequently, in
connection with any proposed action, the Board of Directors is empowered to
consider interests of other constituencies in addition to the Company's
shareholders, and directors who take into account these other factors may make
decisions which are less beneficial to some, or a majority, of the shareholders
than if the law did not permit consideration of such other factors.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
LIMITED LIABILITY AND INDEMNIFICATION
Under the FBCA, a director is not personally liable for monetary damages to
the corporation or any other person for any statement, vote, decision, or
failure to fact unless (i) the director breached or
43
<PAGE>
failed to perform his duties as a director and (ii) a director's beach of, or
failure to perform, those duties constitutes (1) a violation of the criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful, (2) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly, (3) a circumstance under which an unlawful distribution
is made, (4) in a proceeding by or in the right of the corporation or procure a
judgment in its favor or by or in the right of a shareholder, conscious
disregard for the best interest of the corporation or willful misconduct, or (5)
in a proceeding by or in the right of someone other than the corporation or a
shareholder, recklessness or an act or omission which was committed in bad faith
or with malicious purpose or in a manner exhibiting wanton and willful disregard
of human rights, safety, or property. A corporation may purchase and maintain
insurance on behalf of any director or officer against any liability asserted
against him and incurred by him in his capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the FBCA.
The Articles and Bylaws of the Company provide that the Company shall, to the
fullest extent permitted by applicable law, as amended from time to time,
indemnify all directors of the Company, as well as any officers or employees of
the Company to whom the Company has agreed to grant indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company anticipates that it will
have 4,351,309 shares of Common Stock outstanding. The 1,000,000 shares of
Common Stock offered hereby or pursuant to the Concurrent Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the Company
(in general, a person who has a control relationship with the Company) which
will be subject to the limitations of Rule 144 adopted under the Securities Act.
All of the remaining 3,351,309 shares are deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities Act, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering. Of such remaining shares; (i) 2,656,729 shares will
become eligible for sale under Rule 144 90 days from the date of this
Prospectus; and (ii) the remainder will become eligible for such sale at various
times prior to June 1998.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
44
<PAGE>
All of the Company's officers, directors and shareholders have agreed not to
sell or otherwise dispose of any of their shares of Common Stock for a period of
13 months from the date of this Prospectus without the prior written consent of
the Representative.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Description of Securities" for information concerning
outstanding warrants and convertible securities.
PLAN OF DISTRIBUTION
The Selling Shareholders have advised the Company that they may from time to
time sell all or a portion of the Shares offered hereby in one or more
transactions in the over-the-counter market, on the NASDAQ SmallCap Market, on
any exchange on which the Common Stock may then be listed, in negotiated
transactions or otherwise, or a combination of such methods of sale, at market,
prices prevailing at the time of sale or prices related to such prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or purchasers of
the Shares for whom they may act as agent (which compensation may be in excess
of customary commissions). In connection with such sales, the Selling
Shareholders and any broker-dealers or agents participating in such sales may be
deemed to be underwriters as that term is defined under the Securities Act.
Neither the Company nor the Selling Shareholders can presently estimate the
amount of commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time. The
Shares are subject to an agreement between the holders thereof and the
Representative restricting the sale thereof within the 13 months from the date
of this Prospectus without the prior written consent of the Representative.
Under the securities laws of certain states, the Shares may be sold in such
states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, in certain states the
Shares may not be sold therein unless the Shares have been registered or
qualified for sale in such state or an exemption from such requirement is
available and satisfied.
The Company will pay certain expenses in connection with this offering,
estimated to be approximately $ but will not pay for any underwriting
commissions and discounts, if any, or counsel fees or expenses of the Selling
Shareholders. The Company will pay the Representative a commission of $127,250
and a non-accountable expense allowance of $30,375 in connection with the
services provided with respect to the Convertible Notes. The Company has agreed
to indemnify the Selling Shareholders, their directors, officers, agents and
representatives, and any underwriters, against certain liabilities, including
certain liabilities under the Securities Act. The Selling Shareholders have also
agreed to indemnify the Company, its directors, officers, agents and
representatives against certain liabilities, including certain liabilities under
the Securities Act.
The Selling Shareholders and other persons participating in the distribution
of the Shares offered hereby are subject to the applicable requirements of Rule
10b-6 promulgated under the Exchange Act in connection with sales of the Shares.
45
<PAGE>
UNDERWRITING OF THE CONCURRENT OFFERING
In connection with the Concurrent Offering, the Underwriters named below (the
"Underwriters"), for whom First Allied Securities Inc. is acting as
Representative, have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis the respective number of shares of Common Stock set forth
opposite their names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ---------------------------------- --------------
<S> <C>
First Allied Securities Inc. ....
--------------
Total .......................... 850,000
==============
</TABLE>
The Underwriters are committed to purchase all shares of Common Stock offered
in the Concurrent Offering if any of such shares are purchased. The Underwriting
Agreement provides that the obligations of the several Underwriters are subject
to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose to initially offer the Common Stock to the public for $ and to certain
dealers at such prices less concessions of not in excess of $ per share of
Common Stock. Such dealers may reallow a concession not in excess of $ per share
of Common Stock to other dealers. After the commencement of the Concurrent
Offering, the public offering prices, concessions and reallowances may be
changed by the Representative.
The Representative has advised the Company that it does not anticipate sales
to discretionary accounts by the Underwriters to exceed five percent of the
total number of shares of Common Stock offered in the Concurrent Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative an expense allowance on a
nonaccountable basis equal to three percent (3%) of the gross proceeds derived
from the sale of the Common Stock underwritten, of which $50,000 has been paid
to date.
The Underwriters have been granted an option by the Company, exercisable
within forty-five (45) days after the date of this Prospectus, to purchase up to
an additional 127,500 shares of Common Stock at the initial public offering
price per share of Common Stock offered in the Concurrent Offering, less
underwriting discounts and the expense allowance. Such option may be exercised
only for the purpose of covering over-allotments, if any, incurred in the sale
of the shares offered in the Concurrent Offering. To the extent such option is
exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of the additional shares
of Common Stock proportionate to its initial commitment.
All of the Company's officers and directors and all of the holders of the
Common Stock have agreed not to, directly or indirectly, sell, transfer,
hypothecate or otherwise encumber any of their shares for thirteen (13) months
following the date of this Prospectus without the prior written consent of the
Representative.
The Company has agreed that, for five (5) years after the effective date of
this Prospectus, the Representative will have the right to designate one
individual to be elected to the Company's Board of
46
<PAGE>
Directors. Such individual may be a director, officer, employee or affiliate of
the Representative. In the event the Representative elects not to designate a
person to serve on the Company's Board of Directors, the Representative may
designate an observer to attend meetings of the Board of Directors.
In connection with the Concurrent Offering, the Company has agreed to sell to
the Representative, for nominal consideration, the Representative's Warrants to
purchase from the Company 85,000 shares of Common Stock. The Representative's
Warrants are initially exercisable for shares of Common Stock at a price of $
[120% of the initial public offering price per share of Common Stock] per share
of Common Stock for a period of four (4) years commencing one (1) year from the
date of this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve (12) months from the date hereof, except to
officers and principals of the Representative. The Representative's Warrants
also provide for adjustment in the number of shares of Common Stock issuable
upon the exercise thereof as a result of certain subdivisions and combinations
of the Common Stock. The Representative's Warrants grant to the holders thereof
certain rights of registration for the securities issuable upon exercise of the
Representative's Warrants.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make.
In connection with the Private Financing, the Representative is entitled to
receive a commission of $101,250 and a non-accountable expense allowance of
$30,375.
The Representative was registered as a broker dealer on March 29, 1994. The
Representative was relatively inactive for a period of time and was reactivated
under its present ownership structure on December 15, 1994. The Representative
does not have extensive experience as an underwriter of public offerings of
securities. The Representative has acted as the managing underwriter for three
public offerings. The Representative is a relatively small firm and no assurance
can be given that the Representative will participate as a market maker in the
Common Stock.
Prior to the Concurrent Offering, there has been no public market for the
Common Stock. Consequently, the initial public offering prices of the Common
Stock has been determined by negotiations between the Company and the
Representative and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. The factors considered in such
negotiations included the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, its capital structure and certain other factors as were deemed
relevant.
The foregoing is a summary of the principal terms of the Underwriting
Agreement and does not purport to be complete. Reference is made to the copy of
the Underwriting Agreement filed as an Exhibit to the Registration Statement of
which this Prospectus forms a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami,
Florida. Orrick, Herrington & Sutcliffe, New York, New York, has acted as
counsel for the Underwriters in connection with the offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for the period from November 13, 1990 (inception) to December 31, 1991, and each
of the years in the four year
47
<PAGE>
period ended December 31, 1995 have been included in this Prospectus and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere in this
Prospectus, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus does not contain
all the information set forth in the Registration Statement and in the exhibits
and schedules thereto. For further information about the Company and the Common
Stock, reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements made in this Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference. Copies of each such document may
be obtained from the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C., upon payment of the charges prescribed by the
Commission. Copies of each document may also be obtained through the
Commission's internet address at http://www.sec.gov.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants ........................................................... F-2
Financial Statements
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unaudited) ................ F-3
Statements of Operations for the period from November 13, 1990 (inception) to December 31,
1991, and each of the years in the four year period ended December 31, 1995 and for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-4
Statements of Stockholders' Deficit for the period from November 13, 1990 (inception) to
December 31, 1991, and each of the years in the four year period ended December 31, 1995
and for the six months ended June 30, 1996 (unaudited) ................................... F-5
Statements of Cash Flows for the period from November 13, 1990 (inception) to December 31,
1991, and each of the years in the four year period ended December 31, 1995 and for the
six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-6
Notes to Financial Statements .............................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mansur Industries Inc.:
We have audited the accompanying balance sheets of Mansur Industries Inc. (a
development stage company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' (deficit) and cash flows for the period
from November 13, 1990 (inception) to December 31, 1991 and each of the years in
the four-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 Mansur Industries Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the period from November 13, 1990 (inception) to December 31, 1991 and each
of the years in the four-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Miami, Florida
January 19, 1996
F-2
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .................................................. $ 20,766 $ 916,383 $ 640,592
Inventory ............................................. 0 193,838 412,431
Other assets .......................................... 85,810 18,290 176,425
--------------- --------------- --------------
Total current assets ................................. 106,576 1,128,511 1,229,448
--------------- --------------- --------------
Mortgage note receivable ............................... 200,000 0 0
--------------- --------------- --------------
Property and equipment, net ............................ 351,773 324,431 308,810
Other assets ........................................... 98,593 0 0
Intangible assets, net ................................. 0 0 24,454
--------------- --------------- --------------
650,366 324,431 333,264
--------------- --------------- --------------
Total Assets ......................................... $ 756,942 1,452,942 1,562,712
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878
Due to officers/shareholders .......................... 250,000 250,000 0
Convertible notes payable ............................. 0 0 1,012,500
Interest payable ...................................... 45,684 0 2,250
Current installments of long-term debt ................ 43,637 45,846 48,786
--------------- --------------- --------------
Total current liabilities ............................ 345,328 515,323 1,446,414
--------------- --------------- --------------
Long-term debt, excluding current installments ........ 700,011 154,165 129,014
--------------- --------------- --------------
Total liabilities .................................... 1,045,339 669,488 1,575,428
--------------- --------------- --------------
Convertible redeemable preferred stock, $1 par value.
Authorized 1,500,000 shares, issued and outstanding
580,000 and 490,000 in 1994 and 1995 respectively. ... 633,929 2,573,863 0
--------------- --------------- --------------
Stockholders' (deficit):
Common stock, $0.001 par value. Authorized 25,000,000
shares, issued and outstanding 2,000,000; 2,673,129
and 3,351,309 shares for 1994, 1995 and 1996
respectively ........................................ 2,000 2,673 3,351
Additional paid-in capital ............................ (12,257) 438,132 3,560,948
Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015)
--------------- --------------- --------------
Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716)
--------------- --------------- --------------
Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------
1991 1992 1993 1994
------------- --------- ------- --------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $ 8,502 $ 8,971 $ 81,886 $ 268,414
Research and development .. 128,439 31,924 69,256 178,146
--------------- ------------ ------------- -------------
Total operating expenses . 136,941 40,895 151,142 446,560
--------------- ------------ ------------- -------------
Loss from operations ..... (136,941) (40,895) (151,142) (446,560)
--------------- ------------ ------------- -------------
Interest expense ............ -- (16,299) (16,360) (46,312)
Exchange expense
on redeemable
preferred stock ........... -- -- -- --
Interest Income ............. -- -- -- --
Loss on disposal of property
and equipment ............. -- (39,560) (18,000) --
--------------- ------------ ------------- -------------
Net loss .................. (136,941) (96,754) (185,502) (492,872)
--------------- ------------ ------------- -------------
Dividends on redeemable
preferred stock ......... -- -- (8,328) (53,929)
--------------- ------------ ------------- -------------
Net loss to common
shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801)
=============== ============ ============= =============
Net loss per common
share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27)
=============== ============ ============= =============
Weighted average shares
outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000
=============== ============ ============= =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
---------------- JUNE 30,
1995 1995 1996 1996
---- ---- ---- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative $907,393 $418,079 $622,641 $1,897,807
research and development 393,874 162,732 365,435 1,167,074
--------------- ------------- --------------- ---------------
Total operating expenses . 1,301,267 580,811 988,076 3,064,881
--------------- ------------- --------------- ---------------
Loss from operations ..... (1,301,267) (580,811) (988,076) (3,064,881)
--------------- ------------- --------------- ---------------
Interest expense ............ (63,528) (38,259) (24,179) (166,678)
Exchange expense
on redeemable
preferred stock ........ -- -- (344,631) (344,631)
Interest income ............. 45,650 11,797 11,085 56,735
Loss on disposal of property
and equipment ............. -- -- -- (57,560)
--------------- ------------- --------------- ---------------
Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015)
--------------- ------------- --------------- ---------------
Dividends on redeemable
preferred stock ......... (222,067) (75,066) (147,000) (431,324)
--------------- ------------- --------------- ---------------
Net loss to common
shares .................. $(1,541,212) $ (682,339) $(1,492,801) $(4,008,339)
=============== ============= =============== ===============
Net loss per common
share ................... $ (0.66) $ (0.34) $ (0.53)
=============== ============= ===============
Weighted average shares
outstanding ............. 2,335,140 2,000,000 2,799,071
=============== ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' (DEFICIT)
FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFFERED STOCK COMMON STOCK
---------------------------- ------------------------
SHARES AMOUNT SHARES PAR
------------ -------------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at November 13, 1990 (inception) -- $ -- -- $ --
Issuance of common stock to an officer
in exchange for machinery and real
estate valued at market and rights to
ongoing research and development
patents and patents pending .......... -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1991 ............ -- -- 2,000,000 2,000
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1992 ............ -- -- 2,000,000 2,000
Issuance of preferred stock in exchange
for cash ............................. 380,000 380,000 -- --
Issuance of preferred stock in
satisfaction of notes payable ........ 200,000 200,000 -- --
Accrued dividends on preferred stock ..
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000
Accrued dividends on preferred stock .. 53,929
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ 490,000 2,374,596 -- --
Accrued dividends on preferred stock .. 22,800
Conversion of preferred stock and
accrued dividends to common stock .... (580,000) (656,729) 656,729 657
Accrued dividends on preferred stock .. 199,267
Issuance of common stock in exchange
for services rendered ................ -- -- 16,400 16
Net loss ............................... -- -- -- --
------------ -------------- ------------ ----------
Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673
Issuance of common stock in exchange
for services rendered (unaudited) .... -- -- 30,000 30
Conversion of note payable into common
stock (unaudited) .................... -- -- 20,000 20
Accrued dividends on preferred stock
(unaudited) .......................... 147,000
Exchange of preferred stock and accrued
dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628
Net loss (unaudited) ................... -- -- -- --
------------ -------------- ------------ ----------
Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351
============ ============== ============ ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (DEFICIT)
------------- --------------- ----------------
<S> <C> <C> <C>
Balance at November 13, 1990 (inception) $ -- $ -- $ --
Issuance of common stock to an officer in
exchange for machinery and real estate
valued at market and rights to ongoing
research and development patents and
patents pending .......... 50,000 -- 52,000
Net loss ............................... -- (136,941) (136,941)
------------- --------------- ----------------
Balance at December 31, 1991 ............ 50,000 (136,941) (84,941)
Net loss ............................... -- (96,754) (96,754)
------------- --------------- ----------------
Balance at December 31, 1992 ............ 50,000 (233,695) (181,695)
Issuance of preferred stock in exchange
for cash ............................. -- -- --
Issuance of preferred stock in
satisfaction of notes payable ........ -- -- --
Accrued dividends on preferred stock .. (8,328) (8,328)
Net loss ............................... -- (185,502) (185,502)
------------- --------------- ----------------
Balance at December 31, 1993 ............ 41,672 (419,197) (375,525)
Accrued dividends on preferred stock .. (53,929) (53,929)
Net loss ............................... -- (492,872) (492,872)
Balance at December 31, 1994 ............ (12,257) (912,069) (922,326)
Issuance of preferred stock in exchange
for cash and note payable, net of
costs ................................ -- -- --
Accrued dividends on preferred stock .. (22,800) (22,800)
Conversion of preferred stock and
accrued dividends to common stock .... 656,072 -- 656,729
Accrued dividends on preferred stock .. (199,267) (199,267)
Issuance of common stock in exchange
for services rendered ................ 16,384 -- 16,400
Net loss ............................... -- (1,319,145) (1,319,145)
------------- --------------- ----------------
Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409)
Issuance of common stock in exchange
for services rendered (unaudited) .... 104,970 -- 105,000
Conversion of note payable into common
stock (unaudited) .................... 99,980 -- 100,000
Accrued dividends on preferred stock
(unaudited) .......................... (147,000) (147,000)
Exchange of preferred stock and accrued
dividends to common stock (unaudited) 3,064,866 -- 3,065,494
Net loss (unaudited) ................... -- (1,345,801) (1,345,801)
------------- --------------- ----------------
Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716)
============= =============== ================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------
1991 1992 1993 1994
-------------- ----- ----- -----
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872)
Adjustments to reconcile net loss to cash
used in operating activities:
Loss on sale of property ............. -- 31,680 -- --
Write-off of equipment and patent ...... 69,965 7,880 -- --
Depreciation ............................ -- -- -- 18,056
Common Stock issued for services ....... -- -- -- --
Changes in operating assets
and liabilities: ......................
Inventory .............................. (5,095) (23,205) (29,838) (68,755)
Other assets ........................... (1,318) (1,174) (7,067) (76,251)
Intangible assets ...................... -- -- -- --
Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415
Advances from customer ................. 11,500 16,800 -- --
--------------- ---------- ----------- -----------
Net cash used in
operating activities ................ (60,099) (66,439) (213,946) (607,407)
--------------- ---------- ----------- -----------
Investing activities:
Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227)
Proceeds from mortgage note receivable .. -- -- -- --
Net proceeds from sale of property ...... -- 68,320 -- --
--------------- ---------- ----------- -----------
Net cash provided (used) by investing
activities .......................... (6,207) 64,112 (43,157) (48,227)
Financing activities:
Proceeds from notes payable and
line of credit ......................... 68,911 52,627 24,860 500,000
Repayment of notes payable ............... -- (15,000) -- (9,262)
Exchange expense on preferred stock
exchanged for common stock ............. -- -- -- --
Proceeds from issuance of
preferred stock ........................ -- -- 380,000 --
--------------- ---------- ----------- -----------
Net cash provided by
financing activities ................ 68,911 37,627 404,860 490,738
--------------- ---------- ----------- -----------
Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896)
Cash, beginning of period ................. -- 2,605 37,905 185,662
--------------- ---------- ----------- -----------
Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766
=============== ========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOVEMBER 13,
1990
SIX MONTHS ENDED (INCEPTION)
JUNE 30, THROUGH
---------------------- JUNE 30,
1995 1995 1996 1996
------ ---- ---- ------------
<S> <C> <C> <C> <C>
Cash used in operating activities:
Net loss $(1,319,145) $(607,273) $(1,345,801) $(3,577,015)
Adjustments to reconcile net loss to cash
used in operating activities:
Loss on sale of property ............. -- -- -- 31,680
Write-off of equipment and patent ...... -- -- -- 77,845
Depreciation ............................ 42,404 20,934 22,396 82,856
Common Stock issued for services ....... 16,400 6,400 105,000 121,400
Changes in operating assets
and liabilities: ......................
Inventory .......................... (95,245) (85,366) (218,593) (440,731)
Other assets ........................... (7,884) (1,231) (158,135) (251,829)
Intangible assets ...................... -- -- (24,454) (24,454)
Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436
Advances from customer ................. -- -- -- 28,300
------------- ----------- ------------- ---------------
Net cash used in
operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512)
------------- ----------- ------------- ---------------
Investing activities:
Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636)
Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000
Net proceeds from sale of property ...... -- -- -- 68,320
------------- ----------- ------------- ---------------
Net cash provided (used) by investing
activities .......................... 184,938 192,172 (6,775) 144,684
Financing activities:
Proceeds from notes payable and
line of credit ......................... -- -- 1,012,500 1,658,898
Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109)
Exchange expense on preferred stock
exchanged for common stock ............. -- 344,631 344,631
Proceeds from issuance of
preferred stock ........................ 1,950,000 1,950,000 0 2,330,000
------------- ----------- ------------- ---------------
Net cash provided by
financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420
------------- ----------- ------------- ---------------
Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592
Cash, beginning of period ................. 20,766 20,766 916,383 --
------------- ----------- ------------- ---------------
Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592
============= =========== ============= ===============
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
As discussed in note 7(d), in November, 1990, the Company issued 2,000,000
shares of common stock for real estate and equipment having an aggregate
market value of $52,000. In addition, the officer assigned to the Company
ongoing research and development and rights to patents and patents pending.
At inception, the Company assumed certain assets and liabilities, including a
$200,000 note payable.
During April 1992, the Company sold real property for $120,000 in cash and a
$200,000 mortgage note receivable, as discussed in note 2.
In December 1993, the Company issued preferred stock in exchange for $200,000
of notes payable.
In July 1994, the Company purchased equipment, issuing a note payable to the
seller in the amount of $252,910 (see note 5).
During 1995, convertible preferred stock in the amount of $580,000 and related
accrued dividends in the amount of $76,729 were converted to common stock
(see note 7).
During 1996, the Company exchanged 628,180 shares of common stock for 490,000
shares of preferred stock in the amount of $2,374,596 plus related accrued
dividends of $346,260. In connection with this transaction, the Company
recorded an exchange expense of 12% in the amount of $344,631 (note 7).
See accompanying notes to financial statements.
F6
<PAGE>
MANSUR INDUSTRIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED)
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mansur Industries Inc. (the "Company") is primarily engaged in research and
development, marketing, and initial production of industrial parts cleaning
equipment for use in automotive, marine, airline and general manufacturing
industries. The Company's focus is on the design, development and manufacture of
industrial cleaning equipment which incorporate continuous recycling and
recovery technologies for solvents and solutions, thereby reducing the need to
replace and dispose of contaminated solvents and solutions. The Company is in
the development stage.
(A) OPERATIONS AND LIQUIDITY
The Company has been primarily engaged in research, development, marketing,
and initial production of its products. The Company's ultimate success is
dependent upon future events, including the successful commercialization of the
Company's products, establishing sources for manufacturing, marketing, and
distribution channels, the outcomes of which are currently indeterminable, and
is also dependent upon obtaining sufficient financing. As of June 30, 1996, the
Company has realized no sales of its products.
As indicated in the accompanying financial statements as of June 30, 1996,
the Company's accumulated deficit totaled $3,577,015 (unaudited). The Company
has financed this deficiency primarily through private placements of debt and
equity securities. Management expects that product sales will commence during
the second half of 1996 and that proceeds from the notes payable are sufficient
to fund working capital requirements until sales of the Company's products reach
levels sufficient to fund working capital requirements.
In July 1996, the Company expects to file a registration statement with the
Securities and Exchange Commission (the "SEC") in connection with a proposed
initial public offering ("IPO") of shares of its common stock. In the event that
the IPO is not completed, the Company has plans to restructure operations to
minimize cash expenditures, and/or obtain additional financing in order to
continue support of its activities. If adequate funds are not available from
additional sources of financing, the Company's business may be materially
adversely affected.
(B) INVENTORY
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Inventory consists of the following.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ....................... $0 55,738 233,456
Work in progress and finished goods 0 138,100 178,975
--------------- --------------- ------------
$0 193,838 412,431
=============== =============== ============
</TABLE>
(C) PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the shorter of
the lease term or the estimated useful lives of the respective assets.
F-7
<PAGE>
(D) INTANGIBLES
Patents, patent applications and rights are stated at acquisition cost.
Amortization of patents is recorded using the straight-line method over the
legal lives of the patents, generally for periods ranging up to 17 years. The
carrying value of intangible assets is periodically reviewed by the Company and
impairments are recognized when the expected future cash flows from operations
derived from such intangible assets is less than their carrying value.
(E) OTHER ASSETS
Included in other assets at December 31, 1994, were $75,404 in stock offering
costs incurred in connection with the Series A preferred stock private placement
(note 7). On June 30, 1996, other assets consist primarily of costs relating to
the initial public offering of $94,251 and deposits with material suppliers
(note 8). (unaudited)
Included in non-current other assets at December 31, 1994 was $98,593 of
inventory relating to products not to be marketed until other products in the
product line were fully developed.
(F) FINANCIAL INSTRUMENTS (unaudited)
In assessing the fair value of financial instruments at June 30, 1996 the
Company has used a variety of methods and assumptions, which were based on
estimates of market conditions and risks existing at that time. The carrying
amount of long-term debt approximates fair value at June 30, 1996. For certain
instruments, including accounts payable and accrued expenses, and short-term
debt, the carrying amount approximates fair value due to their short maturity.
(G) RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs incurred in
connection with engineering activities related to the development of industrial
parts cleaning machinery and are expensed as incurred.
(H) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(I) EARNINGS PER SHARE DATA
The computation of loss per share in each year is based on the weighted
average number of common shares outstanding. When dilutive, convertible
preferred stock and convertible notes are
F-8
<PAGE>
included as common share equivalents using the if converted method. As these
instruments have an anti-dilutive effect for the years presented, they are not
included in the weighted average calculation. Primary and fully diluted earnings
per share are the same for each of the years presented.
(J) USE OF 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, if any, 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.
(K) NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS No. 121), which becomes effective for financial statements for fiscal
years beginning after December 15, 1995. The statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used, and
for long-lived assets and certain identifiable intangible assets to be disposed
of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no
material impact to the financial position or results of operations of the
Company.
In October 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes
effective for financial statements for fiscal years beginning after December 31,
1995. SFAS No. 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25). The Company is currently accounting for
stock-based compensation under APB 25 and has opted to continue accounting for
stock-based compensation under this method.
(2) MORTGAGE NOTE RECEIVABLE
During April 1992, the Company sold real property for $120,000 in cash and a
$200,000 mortgage note receivable. The note bore interest at a rate of 12
percent per annum payable monthly with the principal due at maturity, being
April 27, 1997. The interest received on the mortgage note receivable
F-9
<PAGE>
was assigned by the Company to repay interest due on an unsecured note payable
and dividends on certain of the preferred stock. In April 1995, the balance of
the note was received in full.
(3) PROPERTY AND EQUIPMENT, NET
Property and equipment was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 USEFUL LIFE
--------------- --------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment ...... $ 7,289 20,433 23,709 5 Years
Machinery and equipment ...... 351,688 353,606 357,105 10 Years
Leasehold improvements ........ 10,852 10,852 10,852
--------------- --------------- ------------
369,829 384,891 391,666
Less accumulated depreciation 18,056 60,460 82,856
--------------- --------------- ------------
$351,773 324,431 308,810
=============== =============== ============
</TABLE>
(4) DUE TO OFFICERS/SHAREHOLDERS
(A) NOTES PAYABLE
Notes payable at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
12% UNSECURED NOTE PAYABLE ............. $100,000
<S> <C>
Note payable to chief executive officer 150,000
-----------
$250,000
===========
</TABLE>
The 12% unsecured notes payable required interest payments monthly, with
principal due at maturity. The note matured on December 31, 1995 and was renewed
for one year. Pursuant to an amendment to the note signed in January 1996, the
note was converted into common stock at a price of $5 per share (note 7).
Advances made by the chief executive officer are pursuant to a $200,000 line
of credit agreement signed in 1990. Under the terms of the agreement, interest
is accrued at a variable rate not to exceed 10 percent per annum nor fall below
6 percent per annum negotiated annually. The rate for 1994 and 1995 was 6
percent. The note had a maturity date of December 31, 1995 and was renewed for
one year to mature on December 31, 1996. The note payable to the chief executive
officer was paid in full during May of 1996 (unaudited).
(B) CONVERTIBLE NOTES PAYABLE (UNAUDITED)
In June 1996, the Company issued cumulative convertible redeemable notes
payable in the amount of $1,012,500, of which $303,750 was due to certain
directors of the Company. The notes bear interest of 4% per annum until
September 1996 and 12% thereafter. The notes will be automatically converted
into common stock simultaneously with the initial public offering of the Company
at a price of $6.75 per share. The Company may redeem these notes in full at any
time at a price equal to the outstanding
F-10
<PAGE>
principal amount plus interest accrued thereon. Upon the conversion of the notes
into common stock resulting from an IPO, a commission equalling 10% of the
converted principal balance and a nonaccountable expense allowance equalling 3%
of the converted principal balance is payable.
(5) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Long-term debt consists of the following:
12% unsecured convertible promissory note, due May
10, 1996, converted into Series A preferred stock in
1995 (note 7). ..................................... $500,000 -- --
12.5% note payable in monthly installments of $5,690,
including interest due August 4, 1999, secured by
equipment with a depreciated cost of $230,277 on
June 30, 1996 (unaudited) .......................... 243,648 200,011 177,800
Less current installments ............................ 43,637 45,846 48,786
----------- ---------- ------------
Long-term debt, excluding current installments ...... $700,011 154,165 129,014
=========== ========== ============
</TABLE>
The 12 percent unsecured convertible promissory note was converted into
100,000 shares of Series A preferred stock during 1995 and subsequently
converted to common stock in June 1996 (unaudited) (note 7).
The aggregate maturities of long-term debt for each of the four years
subsequent to June 30, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- --------------- ----------
<S> <C>
1996 .......... $ 23,635
1997 .......... 51,916
1998 .......... 58,791
1999 .......... 43,458
----------
$177,800
==========
</TABLE>
(6) INCOME TAXES
For the period from November 13, 1990 (inception) to June 30, 1996, the
operations of the Company generated net operating losses of approximately
$3,577,015 (unaudited) for financial reporting purposes. Because the Company is
in the development stage, all costs through 1995 have been capitalized for tax
purposes. The only loss reported for tax has been a $14,280 capital loss on the
sale of real property in 1992. This capital loss may be carried forward by the
Company for up to five years and will expire at the end of 1997. Capital losses
carried forward may only be used to offset future capital gains. The gross
amount of the deferred tax asset as of June 30, 1996 was approximately
$1,288,000 (unaudited), which consists primarily of capital loss carryforwards,
start-up costs, and research and experimental costs capitalized for tax
purposes. Since realization of these tax benefits are not assured, a
F-11
<PAGE>
valuation allowance has been recorded against the entire deferred tax asset
balance. In addition, pursuant to the Tax Reform Act of 1986, if certain
substantial changes in ownership should occur there would be an annual
limitation on the amount of tax attribute carryforwards which can be utilized in
the future.
(7) REDEEMABLE PREFERRED STOCK
(A) SERIES A PREFERRED STOCK
In April 1995, the Company issued 490,000 shares of 12 percent cumulative
convertible redeemable preferred stock (the "Series A") as part of a second
private placement at an offering price of $5 per share. The issuance raised
$1,950,000 in cash and converted the $500,000 unsecured convertible promissory
note (see note 5) into Series A shares.
The Series A were convertible into common stock, one for one, at any time
during the first 18 months following the issuance of the stock at the option of
the stockholder. All then outstanding shares of Series A were to be redeemed no
later than June 30, 1996. Dividends were payable at the time of conversion or
redemption. The balance of the Series A plus accrued dividends was $2,573,863 at
December 31, 1995.
On April 27, 1996, the board of directors of the Company approved an offer to
exchange all of the Series A plus the aggregate amount of dividends accrued
through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares
of common stock. In June 1996, 100% of the Series A shareholders accepted the
Company's offer to exchange all of their preferred shares together with their
dividends. In connection with this exchange the Company recognized an expense in
the amount of $344,631 (unaudited).
(B) FIRST SERIES PREFERRED STOCK
In the fourth quarter of 1993, the Company issued 580,000 shares of 12
percent cumulative convertible redeemable preferred stock (the "First Series" )
in a private placement. The stock was convertible into common stock, one for
one, at any time during the first 18 months following the issuance of the stock
at the option of the stockholder. Dividends were payable at the time of
conversion or redemption. The balance of the First Series preferred stock plus
accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994
respectively.
On May 30, 1995, the board of directors of the Company approved the
redemption of all of the First Series preferred stock outstanding at the
redemption price of $1 per share plus dividends accrued through June 30, 1995,
subject to the preferred shareholders' prior right to convert such preferred
stock into common stock of the Company. In June 1995, 100% of the First Series
with cumulative dividends thereon was converted into common stock, on a one for
one basis.
(8) STOCKHOLDERS' DEFICIT
(A) CONVERTIBLE NOTE PAYABLE (UNAUDITED)
In May 1996, the Company converted a $100,000 note payable into common stock
at a price of $5 per share pursuant to an amendment to the note signed in
January of 1996.
F-12
<PAGE>
(B) COMMON STOCK
In November 1990, the Company issued 2,000,000 shares of common stock with a
par value of $0.001 per share to the President of the Company for the
President's assignment to the Company of all ongoing research and development
and the rights to any related patents and patents pending, in addition to real
estate and equipment with an aggregate fair value of $52,000 as part of the
formation of the Company.
(9) COMMITMENTS
(A) LEASES
The Company leases operating facilities under fixed rent operating leases.
The facilities had a 24 month lease expiring December 31, 1994 with a rent of
$4,631 per month. The lease was renewed under cancelable terms in October 1994
for an additional two-year period at a monthly rent of $5,094. During 1994, the
Company leased equipment under an operating lease which expired in September
1995.
Total rent expense was as follows:
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED) ...................................... $30,564
For the year ended December 31:
1995 ............................................. $61,128
1994 ............................................. 55,572
1993 ............................................. 39,740
1992 ............................................. 24,835
From November 13 1990 (inception) to December 31,
1991 ........................................... 14,540
(B) DUE TO OFFICER
In 1995, the Board of Directors of the Company declared an incentive bonus
payable to the President, Pierre G. Mansur in the amount of $267,460. Payment of
bonuses are subject to the determination by the Board of Directors that the
Company is able to effectuate such payment without impeding the Company's
operations or development. As a result, $88,110 has been paid and an amount of
$179,350 has been accrued at December 31, 1995 and June 30, 1996 (unaudited).
(C) SUPPLY AGREEMENT (unaudited)
On May 7, 1996, the Company entered into an agreement (the "Supply Agreement"
) with a supplier (the "Supplier") pursuant to which the Supplier agreed to
supply to the Company, at the Company's election, between 3,000 and 5,000
machine units per year at established prices and in accordance with a delivery
schedule. The Company has agreed to pay $150,000 (the "Advance"), $50,000 of
which has been advanced through June 30, 1996. The total Advance may be credited
against future purchases under the Supply Agreement at the rate of $50 per unit.
The Supply Agreement provides that the Company may unilaterally terminate the
contract in whole or in part for cause or for convenience. In the event the
Supply Agreement is terminated by the
F-13
<PAGE>
Company for convenience, the Supplier will be entitled to reimbursement of the
costs it has incurred through the date of termination and, if such termination
occurs prior to the delivery of 3,000 units, the Supplier will be entitled to
payment for units produced through the date of termination and retain any
unapplied amount of the Advance.
(10) PRODUCT FINANCING AGREEMENT (unaudited)
In May 1996, the Company entered into an agreement (the "Product Financing
Agreement") with a leasing company which agrees to purchase machines produced by
the Company and subsequently lease these machines to customers on 60 month
terms. The Company will market the machines and provide the leasing company with
credit information on potential customers which they may either accept or
reject. The Product Financing Agreement states that the leasing company does not
have recourse against the Company for customer failures to discharge their
obligations to the leasing company unless the Company has breached and failed to
cure certain warranties.
Under the Product Financing Agreement, the Company has agreed to provide
periodic service for the machines and replace solvent used in the machines. In
addition, upon the leasing company's request, the Company agrees to assist the
leasing company in remarketing any repossessed or surrendered equipment for a
fee. At the end of each customer lease, the Company has the option to purchase
the machine from the leasing company at its fair market value.
F-14
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Concurrent Offering ........................ 13
Use of Proceeds of Concurrent Offering .... 14
Dilution ................................... 15
Dividend Policy ............................
Capitalization ............................. 16
Selected Financial Data .................... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................. 18
Business ................................... 23
Management ................................. 35
Executive Compensation ..................... 37
Certain Transactions ....................... 41
Principal and Selling Shareholders ........ 42
Description of Capital Stock ............... 42
Shares Eligible for Future Sale ............ 44
Plan of Distribution ....................... 45
Underwriting of the Concurrent Offering ... 46
Legal Matters .............................. 47
Experts .................................... 47
Additional Information ..................... 48
Index to Financial Statements .............. F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
150,000 SHARES
[MANSUR INDUSTRIES LOGO]
COMMON STOCK
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement, excluding the Underwriter's
non-accountable expense allowance, will be as follows:
<TABLE>
<CAPTION>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE .................................... $ 6,000
NASD filing fee ........................................................................ 1,465
Printing and engraving expenses ........................................................ 50,000
Accounting fees and expenses ........................................................... 35,000
Legal fees and expenses ................................................................ 125,000
NASDAQ National market listing fees .................................................... 6,500
Fees and expenses (including legal fees) for qualifications under state securities laws 30,000
Registrar and Transfer Agent's fees and expenses ....................................... 5,000
Miscellaneous .......................................................................... 15,535
----------
Total .................................................................................. $274,500
==========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Articles of Incorporation provide that the
Registrant shall indemnify and may insure its officers and directors to the
fullest extent not prohibited by law. The Registrant has also entered into an
agreement (the form of which is filed as Exhibit 10.3 hereto) with each of its
directors and executive officers wherein it has agreed to indemnify each of them
to the fullest extent permitted by law. In general, Florida law permits a
Florida corporation to indemnify its directors, officers, employees and agents,
and persons serving at the corporation's request in such capacities for another
enterprise, against liabilities arising from conduct that such persons
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriter has agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the offering, including
certain liabilities under the Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below are the dates, number of shares and purchase prices per share
of all shares of capital stock sold by the Company during the past three years:
ISSUANCE OF FIRST SERIES PREFERRED STOCK
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES PRICE
- --------------- ----------------- --------
<S> <C> <C>
October 1993 . 245,000(1) $1
November 1993 115,000(2) $1
December 1993 20,000(3) $1
</TABLE>
- ---------------
(1) Such figure represents shares issued to a group of accredited investors
comprised of Weymouth Investments, Mark J. Bryn, Timothy P. Gilbert,
Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks and Jack Milazzo.
II-1
<PAGE>
(2) Such figure represents shares issued to a group of accredited investors
comprised of Crestwell Corporation and George V. Hindy.
(3) Such figure represents shares issued to a group of accredited investors
comprised of Robert M. & Angela M. Downey and Richard T. & John T.
Downey.
EXCHANGE OF PROMISSORY NOTES FOR COMMON STOCK
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES PRICE
- ---------------- ----------------- --------
<S> <C> <C>
December 1993 . 200,000(1) $1
May 1996 ....... 20,000(2) $5
</TABLE>
- -----------------------------------------------------------------------------
(1) Such figure represents 100,000 shares of the Company's Common Stock issued
in exchange for a $100,000 Promissory Note issued in favor of Frank Sanci;
and 100,000 shares of the Company's Common Stock issued in exchange for
$100,000 of a $200,000 Promissory Note issued in favor of Philip Salvatore.
(2) Such figure represents 20,000 shares of the Company's Common Stock issued in
exchange for the remaining $100,000 principal amount of a $200,000
Promissory Note issued in favor of Philip Salvatore.
ISSUANCE OF SERIES A PREFERRED STOCK
DATE NUMBER OF SHARES PRICE
- -------------- ----------------- --------
APRIL 1995 .. 390,000(1) $5
- -----------------------------------------------------------------------------
(1) Such figure represents shares issued to a group of accredited investors
comprised of Landmark Services, Mark J. Bryn, First Malro, Timothy P.
Gilbert, Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks, Jack
Milazzo, George V. Hindy, Joseph E. Jack, C. Steven Duncker, Antonin &
Adele Tutter, Said H. Mouawad, Artur Sella, Patrick Buhse, Maria G.
Jackson, Stanley Krueger, Paul H. Davis, Julian & Sydonia Nacron, Gerald
Michelak, James J. & Paul E. Downey, Vincent Pacella, Peter H. Burger,
Derek Lee, Peter L. Polito, Jonathan Savitz, Caballo Grande Investments,
Howard J. Gilbert and William S. Gilbert.
EXCHANGE OF PROMISSORY NOTES FOR SERIES A PREFERRED STOCK
DATE NUMBER OF SHARES PRICE
- -------------- ----------------- --------
APRIL 1995 .. 100,000(1) $5
- -----------------------------------------------------------------------------
(1) Such figure represents 100,000 shares of Series A Preferred Stock issued in
exchange for a $500,000 12% Secured Convertible Promissory Note, dated as of
November 1994, issued in favor of Imperial Trust.
CONVERSION OF FIRST SERIES PREFERRED STOCK INTO COMMON STOCK
DATE NUMBER OF SHARES PRICE
- -------------- ----------------- --------
APRIL 1995 .. 456,729 $1
- -----------------------------------------------------------------------------
(1) Such figure includes (i) 380,000 shares of Common Stock issued upon
conversion of 380,000 shares of First Series Preferred Stock and (ii) 76,729
shares of Common Stock issued in satisfaction of dividends with respect to
the First Series Preferred Stock, which accrued at a rate of 12 percent from
the date of issuance until the date of conversion.
ISSUANCE OF COMMON STOCK
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES PRICE
- --------------- ----------------- --------
<S> <C> <C>
June 1995 ..... 6,400(1) $ 5
December 1995 10,000(2) $ 1
April 1996 .... 30,000(3) $3.50
</TABLE>
- -----------------------------------------------------------------------------
(1) Such figure represents shares of the Company's Common Stock issued to
William R. Burdette and Edward A. Calt, as Placement Agents in connection
with the Series A Preferred Stock offering.
(2) Such figure represents shares of the Company's Common Stock issued to
Environmental Technologies BVI Limited for cancellation of any and all
rights of that certain Consulting Agreement, dated as of November 10, 1994.
(3) Such figure represents share of the Company's Common Stock issued to
Elias F. Mansur, Jan Hedberg and Joseph E. Jack, non-employee directors
of the Company, for previously rendered consulting services.
II-2
<PAGE>
EXCHANGE OF SERIES A PREFERRED STOCK FOR COMMON STOCK
DATE NUMBER OF SHARES PRICE
- ------------- ----------------- --------
JUNE 1996 .. 628,180 $5
- -----------------------------------------------------------------------------
(1) Such figure includes (i) 490,000 shares of Common Stock issued upon exchange
of 490,000 shares of Series A Preferred Stock; (ii) 69,254 shares of Common
Stock issued in satisfaction of dividends with respect to the Series A
Preferred Stock, which accrued at a rate of 12 percent from the date of
issuance, through the maturity date of June 30, 1996; and (iii) 68,926
shares of Common Stock issued as an exchange expense to induce all of the
holders of the Series A Preferred Stock to exchange the Series A Preferred
Stock into shares of Common Stock as of June 30, 1996.
ISSUANCE OF SHORT-TERM NOTES
DATE NUMBER OF SHARES PRICE
- ------------- ----------------- --------
SEPTEMBER 1996 *(1) *(1)
- -----------------------------------------------------------------------------
(1) As of September 9, 1996, the Company issued $500,000 in principal amount of
Short Term Notes, bearing interest at the rate of 4% through September 1996
and 12% thereafter. The Short Term Notes are due and payable on September
4, 1997, or, if earlier, upon the consummation and out of the proceeds of
this offering.
The aforementioned issuances and sales were made in reliance upon the exemption
from the registration provisions of the 1933 Act afforded by Sections 4(2)
and/or 4(6) thereof and/or Regulation D promulgated thereunder, as transactions
by an issuer not involving a public offering. The Purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the shares may not be offered, sold or transferred
other than pursuant to an effective registration statement under the 1933 Act,
or an exemption from such registration requirements. The Company will place stop
transfer instructions with its transfer agent with respect to all such
securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Proposed form of Underwriting Agreement between the Registrant and First Allied Securities Inc. (the
"Underwriter")
3.1 Restated Articles of Incorporation of Registrant(1)
3.2 Bylaws of Registrant, as amended
4.1 Certificate for Shares of Common Stock, par value $.001
4.3 Proposed form of Representatives' Warrant Agreement between the Registrant and the Underwriter with
form of warrant attached(1)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the Common
Stock being registered
10.1 Registrant's Executive Incentive Plan(1)
10.2 Master Lease and Distribution Agreement, effective August 1, 1996, among the Registrant, The Valvoline
Company and First Recovery(1)
10.3 Form of Indemnification Agreement between the Registrant and each of its directors and executive
officers(1)
10.4 Employment Agreement between Pierre G. Mansur and the Registrant dated September 1, 1995(1)
10.5 Employment Agreement between Paul I. Mansur and the Registrant dated September 1, 1995(1)
10.6 Employment Agreement between the Company and Charles W. Profilet, dated as of November 27, 1995(1)
10.7 Vendor Lease Plan Agreement between the Registrant and Oakmont Financial Services, dated as of May
28, 1996(1)
10.8 A Manufacture Agreement between the Registrant and EMJAC Industries, Inc., dated as of May 7, 1996(1)
10.9 Lease Agreement, dated October 29, 1994, between Registrant and Marvin L. Duncan(1)
10.10 Security Agreement between the Registrant and The CIT Group/ Equipment Financing, Inc. for one (1)
TRUMPF TC 200 CNC Punching Machine, Serial No. 070080 with tooling package, dated as of October 25,
1995(1)
10.11 Term Life Insurance Policy for Pierce G. Mansur with the Equitable Life Assurance Society of the
United States, dated as of November 9, 1994(1)
II-3
<PAGE>
EXHIBIT DESCRIPTION
- ------------------------------------------------------------------------------------------------------------
10.12 Term Life Insurance Policy for Paul I. Mansur with the Equitable Life Assurance Society of the United
States, dated as of May 24, 1996(1)
10.13 United States Patent No. 5,277,208 for Multi-Process Power Spray Washer Apparatus dated January 11,
1994(1)
10.14 United States Patent No. 5,349,974 for SystemOne(Trademark) Washer dated September 27, 1994(1)
10.15 United States Patent Application No. 08/394,290 for Improved SystemOne(Trademark) Washer allowed
April 2, 1996(1)
10.16 United States Patent No. 5,388,601 for Spray Gun Washer dated February 14, 1995(1)
10.17 United States Patent No. 5,518,013 for Immersion Washer dated May 21, 1996(1)
10.18 United States Patent Applications No. 08/364,785 for apparatus for disposal of refuse by thermal
oxidation allowed June 26, 1996(1)
10.19 Short Term Note, dated as of September 9, 1996, between Maria G. Jackson and the Registrant in the
principal amount of $100,000(1)
10.20 Short Term Note, dated as of September 9, 1996, between First Malro and the Registrant in the principal
amount of $250,000(1)
10.21 Short Term Note, dated as of September 9, 1996, between Paul L. Samy, Johanna M. Samy, Lysiane M. Samy,
Claudia J. Samy, Marlon E. Samy and the Registrant in the principal amount of $50,000(1)
10.22 Short Term Note, dated as of September 9, 1996, between Crestwell
Corporation and the Registrant in the principal amount of $100,000(1)
10.23 Employment Agreement, dated as of July 31, 1996, between Richard P. Smith and the Registrant(1)
10.24 Lease, dated as of September 1, 1996 between Y.F.G., Inc. and the Registrant
10.25 Lease, dated as of September 15, 1996 between Business Enterprise of Pinellas Limited and the Registrant
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its opinion
to be filed as Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of Attorney
contained herein.
27.1 Financial Data Schedule(1)
</TABLE>
- -----------------------------------------------------------------------------
* To be filed by amendment
(1) Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Miami, State of Florida, on September 24, 1996.
MANSUR INDUSTRIES INC.
By: /s/ Paul I. Mansur
------------------
Paul I. Mansur
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Pierre G. Mansur and Paul I.
Mansur, respectively, his true and lawful attorney-in-fact, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to this registration statement has been signed by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Pierre G. Mansur Chairman of the Board and President September 24, 1996
- -------------------------
Pierre G. Mansur
/s/ Paul I. Mansur Director and Chief Executive Officer September 24, 1996
- ------------------------- (Principal Executive Officer)
Paul I. Mansur
/s/ Richard P. Smith Vice President of Finance September 24, 1996
- ------------------------- and Chief Financial Officer
Richard P. Smith (Principal Financial and
Accounting Officer)
/s/ Elias F. Mansur* Director September 24, 1996
- -------------------------
Elias F. Mansur
/s/ Dr. Jan Hedberg* Director September 24, 1996
- -------------------------
Dr. Jan Jedberg
/s/ Joseph E. Jack* Director September 24, 1996
- -------------------------
Joseph E. Jack
- -----------------------------------------------------------------------------
*BY: /S/ PAUL I. MANSUR
-------------------
Paul I. Mansur
Attorney-in-fact
</TABLE>
II-6
EXHIBIT 1.1
OH&S DRAFT
[Form of Underwriting Agreement - Subject to Additional Review]
850,000 SHARES OF COMMON STOCK
MANSUR INDUSTRIES INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
FIRST ALLIED SECURITIES, INC.
As Representative of the
Several Underwriters listed on Schedule A hereto
c/o First Allied Securities, Inc.
200 Park Avenue
24th Floor
New York, New York 10166
Ladies and Gentlemen:
Mansur Industries Inc., a Florida corporation (the "Company")
confirms its agreement with First Allied Securities, Inc. ("First Allied") and
each of the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in SECTION 11), for whom First Allied is acting as
representative (in such capacity, First Allied shall hereinafter be referred to
as "you" or the "Representative"), with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of the Company's common stock, $.001 par value per
share ("Common Stock") set forth in Schedule A hereto. Such shares of Common
Stock are hereinafter referred to as the "Firm Shares."
Upon your request, as provided in Section 2(b) of this
Agreement, the Company shall also sell to the Underwriters, acting severally and
not jointly, up to an additional 127,500 shares of Common Stock for the purpose
of covering over-allotments, if any (the "Option Shares"). The Firm Shares and
the Option Shares are sometimes hereinafter referred to as the "Shares." The
Company also proposes to issue and sell to you warrants (the "Representative's
<PAGE>
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional 85,000
shares of Common Stock. The shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Shares." The Firm Shares, the Option Shares, the Representative's Warrants and
the Representative's Shares (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, each of the Underwriters as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the
Securities and Exchange Commission (the "Commission") a registration statement,
and an amendment or amendments thereto, on Form S-1 (No. 333-_____), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Firm Shares and the Option Shares under the Securities Act
of 1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations (the "Regulations") of the Commission
under the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters and
will not, file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations)), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus, the Registration Statement or the Prospectus or any part
of any thereof and no proceedings for a stop order suspending the effectiveness
of the Registration Statement or any of the Company's securities have been
instituted or are pending or to the Company's knowledge, threatened. Each of the
Preliminary Prospectus, Registration Statement and Prospectus at the time of
filing thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, Registration Statement or
Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does
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not apply to statements made in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriters by or on
behalf of the Underwriters expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective
and at all times subsequent thereto up to the Closing Date and each Option
Closing Date, if any, and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will conform to the requirements of the Act
and the Rules and Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will 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, in light of the
circumstances under which they were made, not misleading, PROVIDED, HOWEVER,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation. The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing. The
Company has all requisite corporate power and authority, and the Company has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state and local
laws, rules and regulations; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, position, prospects, value, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, under
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
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not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's Warrant Agreement
and as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable and the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of being
such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The Securities are not and will not
be subject to any preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof, will be validly issued, fully paid and non-assessable and will
conform to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters or the Representative, as the case may be,
will acquire good and marketable title to such Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(f) The financial statements, including the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity, and the results
of operations of the Company at the respective dates and for the respective
periods to which they apply [and the pro forma financial information included in
the Registration Statement and Prospectus presents fairly on a basis consistent
with that of the audited financial statements included therein, what the
Company's pro forma capitalization would have been for the respective periods
and as of the respective dates to which they apply after giving effect to the
adjustments described therein.] Such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. There has
been no adverse change or development involving a material prospective change in
the condition, financial or otherwise, or in the earnings, position, prospects,
value, operation, properties, business, or results of operations of the Company
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. Financial
information set forth in the Prospectus under the headings "Summary Financial
Data," "Selected Financial Data," "Capitalization," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," fairly present,
on the basis stated in the Prospectus, the information set forth therein, have
been derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
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<PAGE>
(g) The Company (i) has paid all federal, state, local,
and foreign taxes for which it is liable, including, but not limited to,
withholding taxes and amounts payable under Chapters 21 through 24 of the
Internal Revenue Code of 1986 (the "Code"), and has furnished all information
returns it is required to furnish pursuant to the Code, (ii) has established
adequate reserves for such taxes which are not due and payable, and (iii) does
not have any tax deficiency or claims outstanding, proposed or assessed against
it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriters of the
Securities from the Company and the purchase by the Representative of the
Representative's Warrants from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement or the Representative's
Warrant Agreement, or (iv) resales of the Shares in connection with the
distribution contemplated hereby.
(i) The Company maintains insurance policies,
including, but not limited to, general liability and property insurance, which
insures the Company and its employees, against such losses and risks generally
insured against by comparable businesses. The Company (A) has not failed to give
notice or present any insurance claim with respect to any matter, including but
not limited to the Company's business, property or employees, under the
insurance policy or surety bond in a due and timely manner, (B) does not have
any disputes or claims against any underwriter of such insurance policies or
surety bonds or has not failed to pay any premiums due and payable thereunder,
or (C) has not failed to comply with all conditions contained in such insurance
policies and surety bonds. There are no facts or circumstances under any such
insurance policy or surety bond which would relieve any insurer of its
obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of, the
Company which (i) questions the validity of the capital stock of the Company,
this Agreement or the Representative's Warrant Agreement or of any action taken
or to be taken by the Company pursuant to or in connection with this Agreement
or the Representative's Warrant Agreement, (ii) is required to be disclosed in
the Registration Statement which is not so disclosed (and such proceedings as
are summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
(k) The Company has full legal right, power and
authority to authorize, issue, deliver and sell the Securities, enter into this
Agreement and the Representative's Warrant Agreement and to consummate the
transactions provided for in such agreements; and this Agreement and the
Representative's Warrant Agreement have each been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement and the
Representative's Warrant Agreement constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except (i) as such
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enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provisions may be limited under applicable laws or the public
policies underlying such laws and (iii) that the remedies of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings may be brought. None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, the conversion of $1,012,500
in principal amount of convertible notes of the Company issued in June 1996 (the
"Convertible Notes") into an aggregate of 150,000 shares of Common Stock or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of the
terms or provisions of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of, (i) the certificate of incorporation or by-laws of the
Company, (ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company is a party or by which it is
or may be bound or to which any of its properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) Except as described in the Prospectus, no consent,
approval, authorization or order of, and no filing with, any court, regulatory
body, government agency or other body, domestic or foreign, is required for the
issuance of the Shares pursuant to the Prospectus and the Registration
Statement, the issuance of the Representative's Warrants, the performance of
this Agreement and the Representative's Warrant Agreement and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Shares, or the Representative's Warrants,
except such as have been or may be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the Underwriters'
purchase and distribution of the Shares, and the Representative's Warrants to be
sold by the Company hereunder.
(m) All executed agreements, contracts or other
documents or copies of executed agreements, contracts or other documents filed
as exhibits to the Registration Statement to which the Company is a party or by
which it may be bound or to which any of its assets, properties or business may
be subject have been duly and validly authorized, executed and delivered by the
Company, and constitute the legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms. The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with
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<PAGE>
respect thereto by Form S-1, and there are no contracts or other documents which
are required by the Act to be described in the Registration Statement or filed
as exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are in all material respects
complete and correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein, the
Company has not (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock of any class, and there has not been any change in the capital stock, or
any material change in the debt (long or short term) or liabilities or material
adverse change in or affecting the general affairs, management, financial
operations, stockholders' equity or results of operations of the Company.
(o) No default exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. There are no pending investigations involving the Company by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists, or is imminent.
(q) Except as described in the Prospectus, the Company
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited
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<PAGE>
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code, which could subject the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is in
compliance with all reporting, disclosure and other requirements of the Code and
ERISA as they relate to any such ERISA Plan. Determination letters have been
received from the Internal Revenue Service with respect to each ERISA Plan which
is intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees,
directors, stockholders, partners, or affiliates (within the meaning of the
Rules and Regulations) of any of the foregoing has taken or will take, directly
or indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus,
none of the patents, patent applications, trademarks, service marks, service
names, trade names and copyrights, and none of the licenses and rights to the
foregoing presently owned or held by the Company are in dispute or are in any
conflict with the right of any other person or entity. The Company (i) owns or
has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all patents, patent applications, trademarks,
service marks, service names, trade names and copyrights, technology and
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted or proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, patent application, trademark, service mark, service
names, trade name, copyright, know-how, technology or other intangible asset,
with respect to the use thereof or in connection with the conduct of its
business or otherwise. There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company which challenges the exclusive rights of the
Company with respect to any trademarks, trade names, service marks, service
names, copyrights, patents, patent applications or licenses or rights to the
foregoing used in the conduct of its business, or which challenge the right of
the Company to use any technology presently used or contemplated to be used in
the conduct of its business.
(t) The Company owns and has the unrestricted right to
use all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
inventions, technology, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "intellectual
property") that are material to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by the Company, free
and clear of and without violating any right, lien, or claim of others,
including without limitation, former
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<PAGE>
employers of its employees; provided, however, that the possibility exists that
other persons or entities, completely independently of the Company, or its
employees or agents, could have developed trade secrets or items of technical
information similar or identical to those of the Company. The Company is not
aware of any such development of similar or identical trade secrets or technical
information by others.
(u) The Company has good and marketable title to, or
valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus, to be owned or leased by it free and clear of
all liens, charges, claims, encumbrances, pledges, security interests, defects,
or other restrictions or equities of any kind whatsoever, other than those
referred to in the Prospectus and liens for taxes not yet due and payable.
(v) KPMG Peat Marwick, L.L.P., whose report is filed
with the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
(w) The Company has caused to be duly executed legally
binding and enforceable agreements pursuant to which all of the holders of the
Common Stock and holders of securities exchangeable or exercisable for or
convertible into shares of Common Stock have agreed not to, directly or
indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein for a period of not
less than 13 months following the effective date of the Registration Statement
without the prior written consent of the Representative. The Company will cause
the Transfer Agent, as defined below, to mark an appropriate legend on the face
of stock certificates representing all of such securities and to place "stop
transfer" orders on the Company's stock ledgers.
(x) Except as described in the Prospectus under
"Underwriting," there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(y) The Common Stock has been approved for quotation on
the Nasdaq National Market ("NNM").
(z) Neither the Company nor any of its officers,
employees, agents, or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for
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office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company and any officer, director, or Principal Stockholder (as such
term is defined in the Prospectus) of the Company or any partner, affiliate or
associate of any of the foregoing persons or entities.
(bb) Any certificate signed by any officer of the
Company, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein) shall be deemed a representation and warranty by the Company to
the Underwriters as to the matters covered thereby.
(cc) The minute books of the Company have been made
available to the Underwriters and contains a complete summary of all meetings
and actions of the directors, stockholders, audit committee, compensation
committee and any other committee of the Board of Directors of the Company,
respectively, since the time of its incorporation, and reflects all transactions
referred to in such minutes accurately in all material respects.
(dd) Except and to the extent described in the
Prospectus, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) The Company has as of the effective date of the
Registration Statement (i) entered into an employment agreement with each of
Paul I. Mansur and Pierre G. Mansur, in the form filed as Exhibits ____ and
____, respectively, to the Registration Statement and (ii)
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purchased term key-man insurance on the lives of Paul I. Mansur and Pierre G.
Mansur in the amount of $1,000,000 each, which policies name the Company as the
sole beneficiary thereof.
(ff) The conversion of $1,012,500 in principal amount
of the Convertible Notes into an aggregate of 150,000 shares of Common Stock as
set forth in the Prospectus has been duly authorized by the Company, the holders
of the Convertible Notes and the shareholders of the Company, if applicable, in
accordance with all agreements, documents, understandings and instruments
affecting the rights, duties, responsibilities, obligations and/or privileges of
holders of the Convertible Notes or to which the Company is bound, including
without limitation, the Convertible Notes, the Company's certificate of
incorporation and the Company's by-laws; and upon the consummation of the
Offering, without any further action of the Company, any holder of a Convertible
Note(s) or any shareholder of the Company, the aggregate outstanding principal
amount of the Convertible Notes will simultaneously convert into 150,000 validly
issued, fully paid and nonassessable shares of Common Stock.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND
REPRESENTATIVE'S WARRANTS.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each Underwriter, and
each Underwriter, severally and not jointly, agrees to purchase from the Company
at a price of $_______ [90% of the initial public offering price] per share of
Common Stock, that number of Firm Shares of set forth in Schedule A opposite the
name of such Underwriter, plus any additional number of Firm Shares which such
Underwriter may become obligated to purchase pursuant to the provisions of
SECTION 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 127,500 shares of Common Stock at a price of $____ [90% of the
initial public offering price] per share of Common Stock. The option granted
hereby will expire 45 days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representative to the Company
setting forth the number of Option Shares as to which the several Underwriters
are then exercising the option and the time and date of payment and delivery for
any such Option Shares. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Representative, but shall not be later than
seven full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon
by the Representative and the Company. Nothing herein contained shall obligate
the Underwriters to make any over-allotments. No Option Shares shall be
delivered unless the Firm Shares shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
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<PAGE>
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Shares shall be made at the offices of First Allied
Securities, Inc. at 200 Park Avenue, 24th Floor, New York, New York 10166, or at
such other place as shall be agreed upon by the Representative and the Company.
Such delivery and payment shall be made at 10:00 a.m. (New York City time) on
_________________ , 1996 or at such other time and date as shall be agreed upon
by the Representative and the Company, but not less than three (3) nor more than
seven (7) full business days after the effective date of the Registration
Statement (such time and date of payment and delivery being herein called
"Closing Date"). In addition, in the event that any or all of the Option Shares
are purchased by the Underwriters, payment of the purchase price for, and
delivery of certificates for, such Option Shares shall be made at the above
mentioned office of the Representative or at such other place as shall be agreed
upon by the Representative and the Company on each Option Closing Date as
specified in the notice from the Representative to the Company. Delivery of the
certificates for the Firm Shares and the Option Shares, if any, shall be made to
the Underwriters against payment by the Underwriters, severally and not jointly,
of the purchase price for the Firm Shares and the Option Shares, if any, to the
order of the Company for the Firm Shares and the Option Shares, if any, by New
York Clearing House funds. In the event such option is exercised, each of the
Underwriters, acting severally and not jointly, shall purchase that proportion
of the total number of Option Shares then being purchased which the number of
Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter
bears to the total number of Firm Shares, subject in each case to such
adjustments as the Representative in their discretion shall make to eliminate
any sales or purchases of fractional shares. Certificates for the Firm Shares
and the Option Shares, if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least two
(2) business days prior to the Closing Date or the relevant Option Closing Date,
as the case may be. The certificates for the Firm Shares and the Option Shares,
if any, shall be made available to the Representative at such office or such
other place as the Representative may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and
sell to the Representative Representative's Warrants at a purchase price of
$.001 per warrant, which warrants shall entitle the holders thereof to purchase
an aggregate of 85,000 shares of Common Stock. The Representative's Warrants
shall be exercisable for a period of four years commencing one year from the
effective date of the Registration Statement at a price equaling one hundred
twenty percent (120%) of the initial public offering price of the shares of
Common Stock. The Representative's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as Exhibit [4.3] to the
Registration Statement. Payment for the Representative's Warrants shall be made
on the Closing Date.
3. PUBLIC OFFERING OF THE SHARES. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the Shares (other than to
residents of or in any jurisdiction in which qualification of the Shares is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Representative may from time to time increase or
decrease the public offering price after distribution of the Shares has been
completed to such extent as the
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Representative, in their discretion deems advisable. The Underwriters may enter
into one of more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
covenants and agrees with each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
(b) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Representative and confirm the
notice in writing, (i) when the Registration Statement, as amended, becomes
effective, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A and when any post-effective amendment to the Registration Statement becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding, suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose, (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose, (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will make every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of this Agreement and (ii) the fifteenth business day after the effective date
of the Registration Statement.
(d) The Company will give the Representative notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the
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offering of the Securities which differs from the corresponding prospectus on
file at the Commission at the time the Registration Statement becomes effective,
whether or not such revised prospectus is required to be filed pursuant to Rule
424(b) of the Rules and Regulations), and will furnish the Representative with
copies of any such amendment or supplement a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file any such
prospectus to which the Representative or Orrick, Herrington & Sutcliffe
("Underwriters' Counsel"), shall object.
(e) The Company shall endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective, to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as the Representative may
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; PROVIDED, HOWEVER, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities or the Representative's Shares is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as
then amended or supplemented, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriters' Counsel, and the Company will
furnish to the Underwriters copies of such amendment or supplement as soon as
available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Representative, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act
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<PAGE>
and Rule 158(a) of the Rules and Regulations, which statement need not be
audited unless required by the Act, covering a period of at least 12 consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven years after the date
hereof, the Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
i) concurrently with furnishing such quarterly reports
to its stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, stockholders' equity, and cash flows of the
Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public
accountants;
iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company, or its affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiary) or its
businesses which the Representative may request.
During such seven-year period, if the Company has an active
subsidiary, the foregoing financial statements will be on a consolidated basis
to the extent that the accounts of the Company and its subsidiary are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(i) The Company will maintain a Transfer Agent and, if
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(j) The Company will furnish to the Representative or
on the Representative's order, without charge, at such place as the
Representative may designate, copies
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of each Preliminary Prospectus, the Registration Statement and any pre-effective
or post-effective amendments thereto (two of which copies will be signed and
will include all financial statements and exhibits), the Prospectus, and all
amendments and supplements thereto, including any prospectus prepared after the
effective date of the Registration Statement, in each case as soon as available
and in such quantities as the Representative may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Representative with true copies of duly
executed, legally binding and enforceable agreements pursuant to which for a
period of 13 months from the effective date of the Registration Statement, the
holders of all shares of Common Stock and holders of securities exchangeable or
exercisable for or convertible into shares of Common Stock, agree that it or he
or she will not directly or indirectly, issue, offer to sell, sell, grant an
option for the sale of, assign, transfer, pledge, hypothecate, distribute or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without the prior written consent of the Representative
(collectively, the "Lock-up Agreements"). During the 13 month period commencing
with the effective date of the Registration Statement, the Company shall not,
without the prior written consent of the Representative, sell, contract or offer
to sell, issue, transfer, assign, pledge, hypothecate, distribute, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options,
rights or warrants with respect to any shares of Common Stock, except as set
forth in clause (s) of SECTION 4 hereof. On or before the Closing Date, the
Company shall deliver instructions to the Transfer Agent authorizing it to place
appropriate legends on the certificates representing the securities subject to
the Lock-up Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
(l) Neither the Company, nor any of its officers,
directors, stockholders, nor any of their respective affiliates (within the
meaning of the Rules and Regulations) will take, directly or indirectly, any
action designed to, or which might in the future reasonably be expected to cause
or result in, stabilization or manipulation of the price of any securities of
the Company.
(m) The Company shall apply the net proceeds from the
sale of the Securities in the manner, and subject to the conditions, set forth
under "Use of Proceeds" in the Prospectus. Except as described in the
Prospectus, no portion of the net proceeds will be used, directly or indirectly,
to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports,
forms or other documents as may be required (including, but not limited to, a
Form SR as may be required pursuant to Rule 463 under the Act) from time to
time, under the Act, the Exchange Act, and the Rules and Regulations, and all
such reports, forms and documents filed will comply as to form and substance
with the applicable requirements under the Act, the Exchange Act, and the Rules
and Regulations.
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<PAGE>
(o) The Company shall furnish to the Representative as
early as practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date of the Registration Statement) which have been read by
the Company's independent public accountants, as stated in its letter to be
furnished pursuant to SECTION 6(i) hereof.
(p) The Company shall cause the Common Stock to be
quoted on NNM and for a period of seven (7) years from the date hereof, use its
best efforts to maintain the NNM quotation of the Common Stock to the extent
outstanding.
(q) For a period of five (5) years from the Closing
Date, the Company shall furnish to the Representative at the Representative's
request and at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Common Stock (ii) the list of holders of all of the
Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales
of the Company's securities prepared by counsel to the Company.
(r) As soon as practicable, (i) but in no event more
than 5 business days before the effective date of the Registration Statement,
file a Form 8-A with the Commission providing for the registration under the
Exchange Act of the Securities and (ii) but in no event more than 30 days from
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and Moody's OTC Manual and to continue such inclusion for a period
of not less than seven (7) years.
(s) The Company hereby agrees that it will not for a
period of thirteen (13) months from the effective date of the Registration
Statement, adopt, propose to adopt or otherwise permit to exist any employee,
officer, director, consultant or compensation plan or arrangement permitting the
grant, issue or sale of any shares of Common Stock or other securities of the
Company (i) in an amount greater than an aggregate of 375,000 shares, (ii) at an
exercise or sale price per share less than the greater of (a) the initial public
offering price of the Shares set forth herein and (b) the fair market value of
the Common Stock on the date of grant or sale, (iii) to any direct or indirect
beneficial holder on the date hereof of more than 10% of the issued and
outstanding shares of Common Stock, (iv) with the payment for such securities
with any form of consideration other than cash, (v) upon payment of less than
the full purchase or exercise price for such shares of Common Stock or other
securities of the Company on the date of grant or issuance, or (vi) permitting
the existence of stock appreciation rights, phantom options or similar
arrangements. The Company further agrees that it will not issue any stock
options to Pierre G. Mansur for a period of thirteen (13) months from the
effective date of the Registration Statement.
(t) Until the completion of the distribution of the
Shares, the Company shall not without the prior written consent of the
Representative and Underwriters' Counsel, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby,
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<PAGE>
other than trade releases issued in the ordinary course of the Company's
business consistent with past practices with respect to the Company's
operations.
(u) For a period equal to the lesser of (i) seven (7)
years from the date hereof, and (ii) the sale to the public of the
Representative's Shares, the Company will not take any action or actions which
may prevent or disqualify the Company's use of Form S-1 (or other appropriate
form) for the registration under the Act of the Representative's Shares.
(v) For a period of five (5) years after the effective
date of the Registration Statement, the Representative shall have the right to
designate for election one (1) individual to the Company's Board of Directors
(the "Board"). In the event the Representative elects not to exercise such
right, then it may designate one (1) individual to attend meetings of the
Company's Board. The Company shall notify the Representative of each meeting of
the Board and the Company shall send to such individual all notices and other
correspondence and communications sent by the Company to members of the Board.
Such individual shall be reimbursed for all out-of-pocket expenses incurred in
connection with his attendance of meetings of the Board.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on each of the
Closing Date and the Option Closing Date (to the extent not paid at the Closing
Date) all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement and the Representative's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage
with respect thereto) and delivery of this Agreement, the Agreement Among
Underwriters, the Selected Dealer Agreements, and related documents, including
the cost of all copies thereof and of the Preliminary Prospectuses and of the
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriters and such dealers as the Underwriters may request, in quantities as
hereinabove stated, (iii) the printing, engraving, issuance and delivery of the
Securities including, but not limited to, (x) the purchase by the Underwriters
of the Shares and the purchase by the Representative of the Representative's
Warrants from the Company, (y) the consummation by the Company of any of its
obligations under this Agreement and the Representative's Warrant Agreement, and
(z) resale of the Shares by the Underwriters in connection with the distribution
contemplated hereby, (iv) the qualification of the Securities under state or
foreign securities or "Blue Sky" laws and determination of the status of such
securities under legal investment laws, including the costs of printing and
mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and disbursements and fees
of counsel in connection therewith (such fees not to exceed $40,000), (v) costs
and expenses in connection with due diligence investigations, including but not
limited to the fees of any independent counsel or consultant retained, (vi) fees
and expenses of the transfer agent and registrar, (vii) applications for
assignments of a rating of the Securities by qualified rating agencies,
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<PAGE>
(viii) the fees payable to the Commission and the NASD, and (ix) the fees and
expenses incurred in connection with the quotation of the Securities on NNM and
any other exchange.
(b) If this Agreement is terminated by the Underwriters
in accordance with the provisions of SECTION 6 or SECTION 12, the Company shall
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriters' Counsel, less
any amounts already paid pursuant to SECTION 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this SECTION 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check or,
at the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Shares, $50,000 of which has been paid to date. In the event the
Representative elect to exercise the over-allotment option described in SECTION
2(b) hereof, the Company agrees to pay to the Representative on the Option
Closing Date (by certified or bank cashier's check or, at the Representative's
election, by deduction from the proceeds of the Option Shares) a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received by
the Company from the sale of the Option Shares.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any,
with respect to the Company as if it had been made on and as of the Closing Date
or each Option Closing Date, as the case may be; the accuracy on and as of the
Closing Date or Option Closing Date, if any, of the statements of the officers
of the Company made pursuant to the provisions hereof; and the performance by
the Company on and as of the Closing Date and each Option Closing Date, if any,
of its covenants and obligations hereunder and to the following further
conditions:
(a) The Registration Statement shall have become
effective not later than 12:00 Noon, New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representative, and, at Closing Date and each Option Closing Date, if any, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Underwriters' Counsel. If the Company has elected
to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and
any price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Representative of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
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<PAGE>
(b) The Representative shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Representative's opinion, is material, or
omits to state a fact which, in the Representative's opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Representative
shall have received from Underwriters' Counsel, such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Representative's Warrants, the Registration Statement, the Prospectus and other
related matters as the Representative may request and Underwriters' Counsel
shall have received such papers and information as they request to enable them
to pass upon such matters.
(d) At Closing Date, the Underwriters shall have
received the favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., counsel to the Company, dated the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel, to
the effect that:
i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction, (B) is duly qualified and licensed
and in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such
qualification or licensing, and (C) has all requisite
corporate power and authority; and the Company has obtained
any and all necessary authorizations, approvals, orders,
licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in the
Prospectus; the Company is and has been doing business in
material compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all
federal, state and local laws, rules and regulations; the
Company has not received any notice of proceedings relating to
the revocation or modification of any such authorization,
approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially
adversely affect the business, operations, condition,
financial or otherwise, or the earnings, business affairs,
position, prospects, value, operation, properties, business or
results of operations of the Company. The disclosures in the
Registration Statement concerning the effects of federal,
state and local laws, rules and regulations on the Company's
business as currently conducted and as contemplated are
correct in all material respects and do not omit to state a
fact
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<PAGE>
necessary to make the statements contained therein not
misleading in light of the circumstances in which they were
made;
ii) to the best of such counsel's knowledge, the
Company does not own an interest in any other corporation,
partnership, joint venture, trust or other business entity;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and
any amendment or supplement thereto, under "Capitalization"
and "Description of Capital Stock," and the Company is not a
party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this
Agreement, the Representative's Warrant Agreement and as
described in the Prospectus. The Securities, and all other
securities issued or issuable by the Company conform in all
material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none
of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company. The
Shares, the Representative's Warrants and the Representative's
Shares to be sold by the Company hereunder and under the
Representative's Warrant Agreement are not and will not be
subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for
the authorization, issue and sale of the Shares, the
Representative's Warrants and the Representative's Shares has
been duly and validly taken; and the certificates representing
the Shares and the Representative's Warrants are in due and
proper form. The Representative's Warrants constitute valid
and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement and the
Representative's Warrant Agreement of the Shares and the
Representative's Warrants, respectively, to be sold by the
Company, the Underwriters and the Representative,
respectively, will acquire good and marketable title to the
Shares and Representative's Warrants free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security
interest, or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Underwriters in connection with (A) the issuance by the
Company of the Shares, (B) the purchase by the Underwriters
and the Representative of the Shares and the Representative's
Warrants, respectively, from the Company, (C) the consummation
by the Company of any of its obligations under this Agreement
or the Representative's
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<PAGE>
Warrant Agreement, or (D) resales of the Shares in connection
with the distribution contemplated hereby;
iv) The conversion of $1,012,500 in principal amount
of the Convertible Notes into an aggregate of 150,000 shares
of Common Stock of the Company as set forth in the Prospectus
has been duly authorized by the Company, the holders of the
Convertible Notes and the shareholders of the Company, if
applicable, in accordance with all agreements, documents,
understandings and instruments affecting the rights, duties,
responsibilities, obligations and/or privileges of holders of
the Convertible Notes or to which the Company is bound,
including without limitation, the Convertible Notes, the
Company's certificate of incorporation and the Company's
by-laws; and upon the consummation of the Offering, without
any further action of the Company, any holder of a Convertible
Note(s) or any shareholder of the Company, the aggregate
outstanding principal amount of the Convertible Notes will
simultaneously convert into 150,000 validly issued, fully paid
and nonassessable shares of Common Stock;
v) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or Prospectus or any
part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or, to the
best of such counsel's knowledge, threatened or contemplated
under the Act;
vi) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and other financial and statistical data included therein, as
to which no opinion need be rendered) comply as to form in all
material respects with the requirements of the Act and the
Rules and Regulations;
vii) to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required
by the Act to be described in the Registration Statement and
the Prospectus and filed as exhibits to the Registration
Statement other than those described in the Registration
Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in
part, by reference therein) and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company is a party
or by which it is bound, including any document to which the
Company is a party or by which it is bound, incorporated by
reference into the Prospectus and any supplement or amendment
thereto, are accurate in all material respects and fairly
represent the information required to be shown by Form S-1;
(C) there is not pending or threatened against the Company any
action, arbitration, suit,
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proceeding, inquiry, investigation, litigation, governmental
or other proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving
the properties or business of the Company which (x) is
required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all
material respects), (y) questions the validity of the capital
stock of the Company or this Agreement or the Representative's
Warrant Agreement, or of any action taken or to be taken by
the Company pursuant to or in connection with any of the
foregoing; (D) no statute or regulation or legal or
governmental proceeding required to be described in the
Prospectus is not described as required; and (E) there is no
action, suit or proceeding pending, or threatened, against or
affecting the Company before any court or arbitrator or
governmental body, agency or official (or any basis thereof
known to such counsel) in which there is a reasonable
possibility of an adverse decision which may result in a
material adverse change in the condition, financial or
otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of
operations of the Company, which could adversely affect the
present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's
Warrant Agreement or which in any manner draws into question
the validity or enforceability of this Agreement or the
Representative's Warrant Agreement;
viii) the Company has full legal right, power and
authority to enter into each of this Agreement and the
Representative's Warrant Agreement, and to consummate the
transactions provided for herein and therein; and each of this
Agreement and the Representative's Warrant Agreement has been
duly authorized, executed and delivered by the Company. Each
of this Agreement and the Representative's Warrant Agreement,
assuming due authorization, execution and delivery by each
other party thereto constitutes a legal, valid and binding
agreement of the Company enforceable against the Company in
accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors'
rights and the application of equitable principles in any
action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of
the Company's execution or delivery of this Agreement and the
Representative's Warrant Agreement, its performance hereunder
or thereunder, its consummation of the transactions
contemplated herein or therein, or the conduct of its business
as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, or the conversion
of the Convertible Notes as set forth in the Registration
Statement, the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect
or other restriction or equity of any
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kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (A) the
certificate of incorporation or by-laws of the Company, (B)
any license, contract, indenture, mortgage, deed of trust,
voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which
the Company is a party or by which it is or may be bound or to
which any of its respective properties or assets (tangible or
intangible) is or may be subject, or any indebtedness, or (C)
any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or any of its activities
or properties;
ix) except as described in the Prospectus, no
consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws,
as to which no opinion need be rendered) is required in
connection with the issuance of the Shares pursuant to the
Prospectus, the issuance of the Representative's Warrants, and
the Registration Statement, the performance of this Agreement
and the Representative's Warrant Agreement, and the
transactions contemplated hereby and thereby;
x) the properties and business of the Company
conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus;
and the Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or
leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests,
defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable;
xi) to the best knowledge of such counsel, the
Company is not in breach of, or in default under, any term or
provision of any license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, partnership agreement,
note, loan or credit agreement or any other agreement or
instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which the property
or assets (tangible or intangible) of the Company is subject
or affected; and the Company is not in violation of any term
or provision of its certificate of incorporation by-laws, or
in violation of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation;
xii) the statements in the Prospectus under
"BUSINESS," "MANAGEMENT," "PRINCIPAL SHAREHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES
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ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel,
and insofar as they refer to statements of law, descriptions
of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
xiii) the Shares have been accepted for quotation on
NNM;
xiv) the persons listed under the caption "PRINCIPAL
SHAREHOLDERS" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in regulation 13d-3 under
the Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
xv) except as described in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xvi) except as described in the Prospectus, there are
no claims, payments, issuances, arrangements or understandings
for services in the nature of a finder's or origination fee
with respect to the sale of the Securities hereunder or
financial consulting arrangement or any other arrangements,
agreements, understandings, payments or issuances that may
affect the Underwriters' compensation, as determined by the
NASD;
xvii) assuming due execution by the parties thereto
other than the Company, the Lock-up Agreements are legal,
valid and binding obligations of parties thereto, enforceable
against the party and any subsequent holder of the securities
subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law);
and
xviii) except as described in the Prospectus, the
Company does not (A) maintain, sponsor or contribute to any
ERISA Plans, (B) maintain or contribute, now or at any time
previously, to a defined benefit plan, as defined in Section
3(35) of ERISA, and (C) has never completely or partially
withdrawn from a "multiemployer plan".
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters were discussed and,
although such
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counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or Prospectus).
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991), or any
comparable State bar accord.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriters'
Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company, and
certificates or other written statements of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' Counsel if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the
Representative and they are justified in relying thereon.
At each Option Closing Date, if any, the Underwriters shall
have received the favorable opinion of Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A., counsel to the Company, dated the Option Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel confirming as of Option Closing Date the statements made
by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., in its opinion
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the
Option Closing Date, if any, Underwriters' Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this SECTION 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
(f) Prior to each of the Closing Date and each Option
Closing Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective
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<PAGE>
change in the condition, financial or otherwise, prospects, stockholders' equity
or the business activities of the Company, whether or not in the ordinary course
of business, from the latest dates as of which such condition is set forth in
the Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in default under any
provision of any instrument relating to any outstanding indebtedness; (iv) the
Company shall not have issued any securities (other than the Securities); the
Company shall not have declared or paid any dividend or made any distribution in
respect of its capital stock of any class; and there has not been any change in
the capital stock of the Company, or any material change in the debt (long or
short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have
been pending or threatened (or circumstances giving rise to same) against the
Company, or affecting any of its properties or business before or by any court
or federal, state or foreign commission, board or other administrative agency
wherein an unfavorable decision, ruling or finding may adversely affect the
business, operations, prospects or financial condition or income of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act and no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option
Closing Date, if any, the Underwriters shall have received a certificate of the
Company signed by the principal executive officer and by the chief financial or
chief accounting officer of the Company, dated the Closing Date or Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry are contemplated or threatened under
the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be
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<PAGE>
stated therein or necessary to make the statements therein not
misleading and neither the Preliminary Prospectus or any
supplement thereto included 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, in
light of the circumstances under which they were made, not
misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (a) the Company has not incurred up to and
including the Closing Date or the Option Closing Date, as the
case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or
contingent; (b) the Company has not paid or declared any
dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the
ordinary course of business; (d) there has not been any change
in the capital stock of the Company or any material change in
the debt (long or short-term) of the Company; (e) the Company
has not sustained any material loss or damage to its property
or assets, whether or not insured; (g) there is no litigation
which is pending or threatened (or circumstances giving rise
to same) against the Company, or any affiliated party of any
of the foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been set
forth; and (h) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not
been set forth.
References to the Registration Statement and the Prospectus in this subsection
(g) are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriters, as described in the Registration Statement.
(i) At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
in all respects to the Underwriters and Underwriters' Counsel, from KPMG Peat
Marwick, L.L.P.;
(i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the applicable Rules and Regulations;
ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company
included in the Registration Statement comply as to form in
all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations
thereunder and that the Representative may rely upon the
opinion of KPMG Peat Marwick, L.L.P. with
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<PAGE>
respect to such financial statements and supporting schedules
included in the Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited
interim financial statements of the Company, a reading of the
latest available minutes of the stockholders and board of
directors and the various committees of the boards of
directors of the Company, consultations with officers and
other employees of the Company responsible for financial and
accounting matters and other specified procedures and
inquiries, nothing has come to their attention which would
lead them to believe that (A) the pro forma financial
information contained in the Registration Statement and
Prospectus does not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Rules and Regulations or is not fairly presented in conformity
with generally accepted accounting principles applied on a
basis consistent with that of the audited financial statements
of the Company or the unaudited pro forma financial
information included in the Registration Statement, (B) the
unaudited financial statements and supporting schedules of the
Company included in the Registration Statement do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements of the Company included in the Registration
Statement, or (C) at a specified date not more than five (5)
days prior to the effective date of the Registration
Statement, there has been any change in the capital stock of
the Company, any change in the long-term debt of the Company,
or any decrease in the stockholders' equity of the Company or
any decrease in the net current assets or net assets of the
Company as compared with amounts shown in the June 30, 1996
balance sheets included in the Registration Statement, other
than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (D) during
the period from June 30, 1996 to a specified date not more
than five (5) days prior to the effective date of the
Registration Statement, there was any decrease in net revenues
or net earnings of the Company or increase in net earnings per
common share of the Company, in each case as compared with the
corresponding period beginning June 30, 1995 other than as set
forth in or contemplated by the Registration Statement, or, if
there was any such decrease, setting forth the amount of such
decrease;
iv) setting forth, at a date not later than five (5)
days prior to the date of the Registration Statement, the
amount of liabilities of the Company (including a break-down
of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus in each
case to the extent that such amounts, numbers, percentages,
statements and information
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<PAGE>
may be derived from the general accounting records, including
work sheets, of the Company and excluding any questions
requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found
them to be in agreement; and
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Representative may
request.
(j) At the Closing Date and each Option Closing Date,
if any, the Underwriters shall have received from KPMG Peat Marwick, L.L.P. a
letter, dated as of the Closing Date or the Option Closing Date, as the case may
be, to the effect that they reaffirm the statements made in the letter furnished
pursuant to SUBSECTION (i) of this Section hereof except that the specified date
referred to shall be a date not more than five days prior to the Closing Date or
the Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (v) of SUBSECTION (i) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(k) The Company shall have delivered to the
Representative a letter from KPMG Peat Marwick, L.L.P. addressed to the Company
stating that they have not during the immediately preceding two year period
brought to the attention of the Company's management any "weakness" as defined
in Statement of Auditing Standards No. 60 "Communication of Internal Control
Structure Related Matters Noted in an Audit," in any of the Company's internal
controls.
(l) On or before the Closing Date, the Underwriters
shall have received the favorable opinion of [____________________], special
intellectual property counsel to the Company, dated the Closing Date, addressed
to the Underwriters, in form and substance satisfactory to Underwriters'
Counsel, and in substantially the form of EXHIBIT A attached hereto.
At each Option Closing date, if any, the Underwriters
shall have received the favorable opinion of [___________________], dated the
relevant Option Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriter's Counsel confirming, as of the Option
Closing Date, the statements made by [___________________], in its opinion
delivered on the Closing Date.
(m) On each of the Closing Date and Option Closing
Date, if any, there shall have been duly tendered to the Representative for the
several Underwriters' accounts the appropriate number of Shares.
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<PAGE>
(n) No order suspending the sale of the Securities in
any jurisdiction designated by the Representative pursuant to subsection (e) of
SECTION 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(o) On or before the Closing Date, the Company shall
have executed and delivered to the Representative, (i) the Representative's
Warrant Agreement substantially in the form filed as Exhibit 4.2 to the
Registration Statement in final form and substance satisfactory to the
Representative, and (ii) the Representative's Warrants in such denominations and
to such designees as shall have been provided to the Company.
(p) On or before the Closing Date, the Shares shall
have been duly approved for quotation on NNM, subject to official notice of
issuance.
(q) On or before the Closing Date, there shall have
been delivered to the Representative all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date or the relevant Option Closing
Date, as the case may be, is not so fulfilled, the Representative may terminate
this Agreement or, if the Representative so elect, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. INDEMNIFICATION.
(a) The Company, agrees to indemnify and hold
harmless each of the Underwriters (for purposes of this SECTION 7 "Underwriter"
shall include the officers, directors, partners, employees, agents and counsel
of the Underwriter, including specifically each person who may be substituted
for an Underwriter as provided in SECTION 11 hereof), and each person, if any,
who controls the Underwriter ("controlling person") within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any
and all losses, claims, damages, expenses or liabilities, joint or several (and
actions, proceedings, investigations, inquiries, and suits in respect thereof),
whatsoever (including but not limited to any and all costs and expenses
whatsoever reasonably incurred in investigating, preparing or defending against
such action, proceeding, investigation, inquiry or suit, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriter or such controlling person may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon (A) any untrue statement
or alleged untrue statement of a material fact contained (i) in any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included securities of
the Company issued or issuable upon exercise of the Securities; or (iii) in any
application or other document or written communication (in this SECTION 7
collectively called "application") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in
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<PAGE>
order to qualify the Securities under the securities laws thereof or filed with
the Commission, any state securities commission or agency, NNM or any other
securities exchange, (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but
not jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act, to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with respect to statements or omissions, if any, made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the Underwriters in connection with this Offering. The
Company acknowledges that the statements with respect to the public offering of
the Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
The indemnity agreement in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Promptly after receipt by an indemnified party
under this SECTION 7 of notice of the commencement of any action, suit or
proceeding, such indemnified party shall, if a claim in respect thereof is to be
made against one or more indemnifying parties under this SECTION 7, notify each
party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this SECTION 7 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action, investigation, inquiry, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement
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<PAGE>
thereof, the indemnifying party or parties will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying parties
in connection with the defense of such action at the expense of the indemnifying
party, (ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action, investigation, inquiry, suit or proceeding on behalf of
the indemnified party or parties), in any of which events such fees and expenses
of one additional counsel shall be borne by the indemnifying parties. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action,
investigation, inquiry, suit or proceeding or separate but similar or related
actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything in this SECTION 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; PROVIDED, HOWEVER, that such consent was not
unreasonably withheld. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle compromise or consent to the entry of
any judgment with respect to any pending or threatened claim, action,
investigation, inquiry, suit or proceeding in respect of which indemnification
or contribution may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party form all liability arising out of such claim, action, suit or
proceeding and (ii) doe snot include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this SECTION 7, 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 this SECTION 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Securities or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
- 33 -
<PAGE>
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is the contributing
party and the Underwriters are the indemnified party, the relative benefits
received by the Company on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations, inquiries,
suits or proceedings in respect thereof) referred to above in this subdivision
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this SECTION 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit, inquiry,
investigation or proceeding against such party in respect to which a claim for
contribution may be made against another party or parties under this
subparagraph (d), notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this subparagraph (d), or to
the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in SECTION 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
- 34 -
<PAGE>
9. EFFECTIVE DATE.
(a) This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the Shares for
sale to the public; PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and
10 of this Agreement shall at all times be effective. For purposes of this
SECTION 9, the Shares to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Representative of telegrams to
securities dealers releasing such shares for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Shares.
10. TERMINATION.
(a) Subject to subsection (b) of this SECTION 10, the
Representative shall have the right to terminate this Agreement, after the date
hereof, (i) if any domestic or international event or act or occurrence has
materially disrupted, or in the Representative's opinion will in the immediate
future materially adversely disrupt the financial markets; or (ii) any material
adverse change in the financial markets shall have occurred; or (iii) if trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Commission or any other
government authority having jurisdiction; or (iv) if trading of any of the
securities of the Company shall have been suspended, or any of the securities of
the Company shall have been delisted, on any exchange or in any over-the-counter
market; or (v) if the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium has been declared by a state or federal
authority; or (vii) if the Company shall have sustained a loss material to the
Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or
other calamity or malicious act which, whether or not such loss shall have been
insured, will, in the Representative's opinion, make it inadvisable to proceed
with the delivery of the Securities; or (viii) if there shall have occurred any
outbreak or escalation of hostilities or any calamity or crisis or there shall
have been such a material adverse change in the conditions or prospects of the
Company, or such material adverse change in the general market, political or
economic conditions, in the United States or elsewhere as in the
Representative's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities or (ix) if Paul I. Mansur and
Pierre G. Mansur shall no longer serve the Company in their present capacity.
(b) If this Agreement is terminated by the
Representative in accordance with the provisions of SECTION 10(a) the Company
shall promptly reimburse and indemnify the Representative for all of their
actual out-of-pocket expenses, including the fees and disbursements of counsel
for the Underwriters (less amounts previously paid pursuant to SECTION 5(c)
above). Notwithstanding any contrary provision contained in this Agreement, if
this
- 35 -
<PAGE>
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted to the Representative, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied (including, without limitation,
pursuant to SECTION 6 or SECTION 12) then, the Company shall promptly reimburse
and indemnify the Representative for all of their actual out-of-pocket expenses,
including the fees and disbursements of counsel for the Underwriters (less
amounts previously paid pursuant to SECTION 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees (such fees not to
exceed $40,000) and expenses and filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without limitation, pursuant to SECTIONS 6, 10, 11
and 12 hereof), and whether or not this Agreement is otherwise carried out, the
provisions of SECTION 5 and SECTION 7 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of SECTION 6, SECTION 10
or SECTION 12 hereof) to purchase the Securities which it or they are obligated
to purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Shares to be purchased
on such date, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the
proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Shares, this Agreement shall
terminate without liability on the part of any non-defaulting
Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. DEFAULT BY THE COMPANY. If the Company shall fail
at the Closing Date or at any Option Closing Date, as applicable, to sell and
deliver the number of Shares which it is obligated to sell hereunder on such
date, then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Shares to be purchased on an Option Closing
- 36 -
<PAGE>
Date, the Underwriters may at the Representative's option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Shares from the Company on such date) without any liability on
the part of any non-defaulting party other than pursuant to SECTION 5, SECTION 7
and SECTION 10 hereof. No action taken pursuant to this Section shall relieve
the Company from liability, if any, in respect of such default.
13. NOTICES. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriters shall be directed to the
Representative c/o First Allied Securities, Inc., 200 Park Avenue, 24th Floor,
New York, New York 10166, Attention: Scott A. Weisman, with a copy to Orrick,
Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention:
Lawrence B. Fisher, Esq. Notices to the Company shall be directed to the Company
at 8425 S.W. 129th Terrace, Miami, Florida 33156, Attention: Paul I. Mansur,
Chief Executive Officer, with a copy to Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention:
Gary M. Epstein, Esq.
14. PARTIES. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Underwriters, the Company and the
controlling persons, directors and officers referred to in SECTION 7 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained. No purchaser of Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
15. CONSTRUCTION. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
16. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which taken together shall be deemed to be one and the same instrument.
17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
- 37 -
<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
MANSUR INDUSTRIES INC.
By:
Paul I. Mansur
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
FIRST ALLIED SECURITIES, INC.
For itself and as Representative
of the several Underwriters named
in Schedule A hereto.
By:
- 38 -
<PAGE>
SCHEDULE A
Member of Firm Shares
NAME OF UNDERWRITERS TO BE PURCHASED
First Allied Securities, Inc..........................
Total.................................................. 850,000
- 39 -
<PAGE>
EXHIBIT A
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1996
FIRST ALLIED SECURITIES, INC.
200 Park Avenue, 24th Floor
New York, New York 10166
Re: PUBLIC OFFERING OF MANSUR INDUSTRIES INC.
Gentlemen:
We have acted as special counsel to MANSUR INDUSTRIES Inc., a
Florida corporation (the "Company"), in connection with the entering into by the
Company of that certain Underwriting Agreement by and between First Allied
Securities, Inc. ("First Allied"), as representative of the several underwriters
named in Schedule A thereto, and the Company, dated _______________, 1996 (the
"Underwriting Agreement"). This opinion is provided to you pursuant to Section
____ of the Underwriting Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed _____,
1996, together with any and all amendments thereof exhibits
thereto (collectively, the "Registration Statement");
(iii) a search of the United States Patent and Trademark
Office records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and hereby incorporated
by reference herein (collectively, the "Patents")),
and trademarks, trademark applications, service marks
and service mark applications (collectively, the
"Marks") (including, without limitation, the Marks
listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),
<PAGE>
First Allied Securities, Inc. __________, 1996
owned, purportedly owned or licensed by the Company
(including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses listed
on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and
correct as of _______________________, 1996 (no earlier than 5
days prior to the date of the Closing (as defined in the
Underwriting Agreement));
(v) _____ a search of the United States Copyright Office
records relevant to ownership of any and all copyrighted
material (including, without limitation, the copyright in, or
license permitting the Company's actual use of, the material
licensed or otherwise distributed by the Company and listed on
Schedule D annexed hereto and hereby incorporated by reference
herein (collectively, the "Copyrighted Material")), owned,
purportedly owned or licensed by the Company conducted by
_____________________ and certified as true and correct as of
__________________, 1996 (no earlier than 5 days prior to the
date of the Closing);
(vi) ____ an intellectual property litigation search with
respect to all Patents, Trademarks, Licenses and Copyrighted
Material, listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
[________________, _____________ and _______], with respect to
the following two categories of general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications, inventions,
know how, trademarks, service marks, copyrights,
service and trade names, intellectual property
licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________,
1996 (no earlier than 5 days prior to the date of the Closing)
and said jurisdictions being the only jurisdictions in which
filing of UCC financing statements or other documents may be
filed to effectively evidence a security or other interest in
said general intangibles; and
A-2
<PAGE>
First Allied Securities, Inc. __________, 1996
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to
the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion
that:
1. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
owns or has the right to use, free and clear of all liens,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including,
without limitation, the Patents),
(ii) all trademarks and service marks (including,
without limitation, the Trademarks),
(iii) all copyrights (including, without limitation,
the Copyrighted Material),
(iv) all service and trade names, and
(v) all intellectual property licenses (including,
without limitation, the Licenses),
used in, or required for, the conduct of the Company's
business.
A-3
<PAGE>
First Allied Securities, Inc. __________, 1996
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its business (including, the Licenses and without limitation,
any such licenses or rights described in the Registration
Statement as being owned, possessed or licensed by the
Company, as the case may be) and such licenses and rights are
in full force and effect.
3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business.
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
is not under any obligation to pay royalties or fees to any
third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement under the
headings, "Risk Factors - ______________________ " and
"Business - ____________________", are accurate in all
material respects, fairly represent the information disclosed
therein and do not omit to state any fact necessary to make
the statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement do not contain
any untrue statement of a material fact with respect to the
intellectual property position of the Company, or omit to
state any material fact relating to the intellectual property
position of the Company which is required to be stated in the
Registration Statement or is necessary to make the statements
therein not misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
A-4
<PAGE>
First Allied Securities, Inc. __________, 1996
The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and Orrick, Herrington & Sutcliffe.
Very truly yours,
A-5
EXHIBIT 3.2
BYLAWS
OF
MANSUR INDUSTRIES INC.
<PAGE>
BYLAWS
OF
MANSUR INDUSTRIES INC.
ARTICLE I. OFFICES 1
ARTICLE II. SHAREHOLDERS 1
Section 1. Annual Meetings 1
Section 2. Special Meetings 1
Section 3. Notice of Meeting 1
Section 4. Notice of Adjourned Meeting 2
Section 5. Waiver of Notice 2
Section 6. Voting Record 2
Section 7. Shareholder Quorum 2
Section 8. Proxies 2
Section 9. Voting of Shares 3
Section 10. Voting of Shares by Certain Holders 3
Section 11. Action Taken by Shareholders Without a Meeting 3
Section 12. Shareholders' Agreements 3
ARTICLE III. BOARD OF DIRECTORS 3
Section 1. Number, Qualification, Election and Tenure 3
Section 2. Regular Meetings 3
Section 3. Special Meetings 4
Section 4. Special Meetings 4
Section 5. Notice and Waiver 4
Section 6. Quorum and Voting 4
Section 7. Action Without a Meeting 4
Section 8. Presumption of Assent 4
Section 9. Vacancies 4
Section 10. Compensation 5
Section 11. Conflict of Interest 5
Section 12. Resignations 5
Section 13. Removal 5
ARTICLE IV. OFFICERS 5
Section 1. Officers 5
Section 2. Election and Term of Office 5
Section 3. Duties 5
Section 4. Vacancies 6
Section 5. Removal 6
Section 6. Compensation 6
Section 7. Repayment by Officers for
Compensation Held Unreasonable 7
Section 8. Delegation of Duties 7
<PAGE>
ARTICLE V. EXECUTIVE AND OTHER COMMITTEES 7
Section 1. Creation of Committees 7
Section 2. Authority 7
Section 3. Qualification and Tenure 7
Section 4. Meetings 7
Section 5. Quorum and Manner of Acting 7
Section 6. Action Without a Meeting
Section 7. Procedure 8
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS 8
Section 1. Contracts 8
Section 2. Loans 8
Section 3. Checks, Drafts, Etc 8
Section 4. Deposits 8
ARTICLE Vll. STOCK 8
Section 1. Certificates 8
Section 2. Issuance of Shares for
Future Services or Promissory Notes 9
Section 3. Transfer of Shares 9
ARTICLE VIII. FISCAL YEAR 9
ARTICLE IX. BOOKS AND RECORDS 9
Section 1. Books and Records 9
Section 2. Inspection by Shareholders 9
Section 3. Financial Reports 10
ARTICLE X. DIVIDENDS 10
ARTICLE XI. CORPORATE SEAL 10
ARTICLE XII. EMERGENCY BYLAWS 10
ARTICLE XIII. AMENDMENTS TO BYLAWS 10
ARTICLE XIV. INDEMNIFICATION 11
ARTICLE XV. CONTROL SHARE ACQUISITIONS 12
<PAGE>
BYLAWS
OF
MANSUR INDUSTRIES INC.
ARTICLE I - OFFICES
The principal office of the Corporation shall be in the State of Florida. The
Corporation may have such other offices, within or outside of the State of
Florida, as the Board of Directors may designate as the business of the
Corporation may require from time to time.
The Corporation shall designate and maintain a registered office within the
State of Florida. Such office need not be identical with the principal office of
the Corporation and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II - SHAREHOLDERS
Section 1. Annual Meetings.
The annual meeting of the Shareholders shall be held at the principal office of
the Corporation during the month of December beginning with the year 1993 or at
such other time and place as may be designated by the Board of Directors. If the
day fixed for the annual meeting shall fall on a Sunday or legal holiday the
meeting shall be held on the next succeeding business day. The purpose of the
annual meeting shall be to elect the Directors of the Corporation and transact
such other businesses as may come before the meeting. Failure to hold a timely
meeting shall in no way affect the terms of Officers or Directors of the
Corporation or the validity of actions of the Corporation.
Section 2. Special Meetings.
Special meetings of the Shareholders, unless otherwise prescribed by statute may
be called by the President or the Board of Directors, and shall be called by the
President at the request of the holders of not less than one-tenth of all
outstanding Shares of the Corporation entitled to vote at the meeting. The
purpose of such special meeting shall be stated in the notice of the meeting and
only business within the purpose or purposes described in the special meeting
notice may be conducted at a special Shareholders' meeting unless all
Shareholders' are in attendance and agree to consider additional business.
Section 3. Notice of Meeting.
Oral or written notice stating the place, day and hour of the Shareholder's
meeting and, in the case of a special meeting, the purpose of the meeting shall,
unless otherwise prescribed by statute, be delivered not less than ten nor more
than sixty days before the date of the meeting. Such notice may be delivered in
person, by telephone, telegram, teletype, fax or other form of electronic
communication, or by mail at the discretion of the person calling the meeting.
If mailed, such notice shall be effective when mailed, postpaid, to the
Shareholder's address of record.
1
<PAGE>
Section 4. Notice of Adjourned Meeting.
If a meeting is adjourned to another date, time or place, notice need not be
given of the new date, time or place if the new date, time or place is announced
at the meeting before the adjournment is taken, and any business may be
transacted at the adjourned meeting that might have been transacted on the
original date of the meeting.
Section 5. Waiver of Notice.
A written waiver of notice signed by a Shareholder before or after a meeting
shall be the equivalent of giving the Shareholder notice of the meeting and
shall be filed with the Corporate records. Attendance of a Shareholder at a
meeting shall constitute a waiver of notice of the meeting except when the
Shareholder attends for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Any Shareholder attending a meeting also waives
objection to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless the
Shareholder objects to considering the matter when it is presented.
Section 6. Voting Record.
The Officer or Agent having charge of stock transfer records of the Corporation
shall make a list of all Shareholders entitled to vote at such meeting or any
adjournment thereof. The record date may not be more than 70 days before the
meeting or action requiring a determination of Shareholders and shall not be
later than the day prior to delivery of the first notice to any Shareholder.
Such record date shall be effective for any adjournment of the meeting unless
the meeting is adjourned to a date more than 120 days after the date fixed for
the original meeting. The list of Shareholders eligible to vote shall include
the address and number of Shares held for each Shareholder, and shall be kept on
file either at the registered or principal office of the Corporation or at the
office of the transfer agent of the Corporation and shall be open for inspection
during usual business hours by any Shareholder, Shareholder's agent, or
attorney, at the Shareholder's expense, at least ten days prior to the meeting.
The list shall also be available at the Shareholder's meeting and open for
inspection by any Shareholder, Shareholder's agent or attorney at any time
during the meeting. If the requirements of this section have not been
substantially complied with, then, upon demand by any Shareholder, personally or
by proxy, the meeting shall be adjourned until the requirements of this section
are complied with. If no such demand is made, failure to comply with the
requirements of this section shall not affect the validity of any action taken
at such meeting.
Section 7. Shareholder Quorum.
A majority of the outstanding Shares of the Corporation, represented in person
or by proxy, entitled to vote shall constitute a quorum at the meeting of
Shareholders. If less than a quorum is present at the meeting, a majority of the
Shares represented at the meeting may adjourn the meeting without further
notice. The Shareholders present at a duly organized meeting may continue to
transact business until adjournment notwithstanding the withdrawal of enough
Shareholders during the meeting to leave less than quorum.
Section 8. Proxies.
Every Shareholder entitled to vote at a Shareholder's meeting may vote in person
or by proxy executed in writing by the Shareholder or the Shareholder's
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or during the meeting. No proxy shall be valid after eleven
months from the date of its execution unless otherwise provided in the proxy.
Every proxy is revocable by the Shareholder unless the appointment form
specifically states that is irrevocable and the appointment is coupled with an
interest.
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Section 9. Voting of Shares.
Each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of Shareholders. Unless otherwise
provided in the Articles of Incorporation or these Bylaws, at any duly convened
Shareholders' meeting an affirmative vote of a majority of Shares in attendance
shall be the act of Shareholders. If a quorum exists, action is taken
affirmatively on a matter if the votes favoring the action exceed the votes cast
opposing the action. Abstentions constitute neutral votes.
Section 10. Voting of Shares by Certain Holders.
Shares held in the name of another corporation may be voted by such officer,
agent or proxy as the bylaws of such corporation may prescribe, or in the
absence of such provision, as the Board of Directors of such other corporation
may determine.
Section 11. Action Taken by Shareholders Without a Meeting.
Any action required or permitted to be taken at a meeting of the Shareholders
may be taken without a meeting, without prior notice, and without a vote if
consent in writing, setting forth the action so taken, shall be signed by the
holders of the outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all Shares entitled to vote thereon were present and voted. No written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the date of receipt by the Corporation of the earliest
dated consent, all required consents are received. Any written consent may be
revoked prior to the date the Corporation receives the required number of
consents to authorize the proposed action. Whenever action is taken pursuant to
this Section, all written consent of Shareholders shall be held with the
Corporate minutes.
Section 12. Shareholder's Agreements.
The Shareholders may enter into a Shareholder's Agreement, and the provision of
such agreement will supersede these Bylaws providing all Shareholders are
parties to the agreement.
ARTICLE III - BOARD OF DIRECTORS
Section 1. Powers.
Subject to limitation by the Articles of Incorporation these Bylaws and Florida
statutes, all business of the Corporation shall be directed and managed by the
Board of Directors.
Section 2. Number, Qualification, Election. and Tenure.
The initial Directors of the Corporation shall be Pierre G. Mansur and Paul I.
Mansur. Pierre G. Mansur shall serve as the initial Chairman of the Board.
Pierre G. Mansur may appoint additional directors who shall serve until the
first annual meeting of the Shareholders in 1996. Commencing in 1996, Directors
shall be elected by the Shareholders at the annual Shareholder's meeting and
shall hold office until the next annual Shareholder's meeting and until their
successors have been elected and qualified. The number of Directors may be
increased or decreased from time to time by a majority of vote of the
Shareholders without need to amend these Bylaws but shall never be less than
one. The Directors must be natural persons but need not be Shareholders nor
residents of the State of Florida. The majority of Directors in office shall
select a Chairman immediately subsequent to their election.
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Section 3. Regular Meetings.
Regular annual meetings of the Board of Directors shall be held without other
notice than by this bylaw immediately after, and at the same place as, the
annual Shareholder's meeting. Additional regular meetings may be provided by
resolutions of the Board of Directors and held without notice other than such
resolution. Meetings may be held by telephone conference.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by or at the request of
the Chairman of the Board, the Chief Executive Officer, the President, or any
Director. Meetings may be held by telephone conference.
Section 5. Notice and Waiver.
Oral or written notice of any special meeting shall be given at least two days
prior to the meeting. Such notice may be delivered in person, mailed, or given
by telephone, telegram, teletype, fax or other electronic method. If mailed,
such notice shall be deemed to be delivered when mailed, postage paid, to the
Director at the Director's current address in the Corporation's records. Any
Director may waive notice of any meeting. Attendance by a Director at a meeting
shall constitute a waiver of notice except where a Director attends a meeting
for the express purpose of objecting to any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at the
meeting nor the purpose need to be stated in the notice or waiver of any
meeting.
Section 6. Quorum and Voting.
A majority of Directors shall constitute a quorum for the transaction of
business and a vote of the majority of Directors present at a duly convened
meeting shall be the act of the Board of Directors. If less than a quorum is
present then a majority of the Directors present may adjourn the meeting without
notice until a quorum is present.
Section 7. Action without a Meeting.
Any action required or permitted to be taken by the Board of Directors at a
meeting may be taken without a meeting if a consent in writing, setting forth
the action to be taken, shall be signed by all of the Directors. Such action is
not effective until the last required consent is received by the Corporation.
Section 8. Presumption of Assent.
A Director who is present at a meeting of the Board of Directors at which action
on any corporate matter is taken shall be presumed to have assented to the
action taken unless he votes against such action or abstains from voting. An
abstention is a neutral vote.
Section 9. Vacancies.
Any vacancy occurring in the Board of Directors may be filled by an affirmative
vote of majority of the remaining Directors though less than a quorum of the
Board of Directors, or by a majority vote of the Shareholders. A Director
elected to fill a vacancy shall be elected for the unexpired term of the
Director's predecessor. Any Directorship to be filled due to an increase in the
number of Directors shall be filled by a vote of the majority of the Board, the
term of office continuing only until the next election of Directors by the
Shareholders.
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Section 10. Compensation.
By resolution of the Board of Directors each Director may be paid the expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a stated salary as Director or a fixed sum for attendance at each meeting or
both. No such payment shall preclude any Director from serving the Corporation
in any other capacity and receiving compensation therefor. Directors may set
their own compensation for service as Officers as well as for service as
Directors.
Section 11. Conflict of Interest.
Any contract or other transaction between the Corporation and any corporation or
firm in which any of its Directors holds a financial interest shall be valid for
all purposes notwithstanding the presence of such Director at the meeting
authorizing such contract or transaction, or his participation in such meeting.
The foregoing shall, however, apply only (a) if the interest of such Director is
disclosed to the Board of Directors at said meeting; (b) the Board, having been
apprised of the interest, affirmed the subject transaction with no vote cast by
the interested Director; or (c) the contract or transaction is deemed to be fair
and reasonable to the Corporation at the time it is authorized. The interested
Director may be counted for the purpose of determining whether a quorum is
present.
Section 12. Resignations.
Directors may resign at any time by delivering written notice to the Corporation
or to the Board of Directors.
Section 13. Removal.
At any duly convened meeting of Shareholders called expressly for that purpose,
any Director may be removed from office, with or without cause.
ARTICLE IV - OFFICERS
Section 1. Officers.
The Officers of the Corporation shall be elected or appointed by the Board of
Directors and may include a Chief Executive Officer, President, Secretary,
Treasurer, one or more Vice Presidents, Controller and/or such other Officers as
may be deemed necessary or desirable. Any two or more offices may be held by the
same person. The Directors may eliminate or add Officers at any time by
resolution.
Section 2. Election and Term of Office.
All Officers to be elected or appointed by the Board of Directors shall be
elected or appointed at the regular annual meeting of the Board. Each Officer
shall hold office until that Officer's death, resignation or removal or until
his or her successor shall have been duly elected or appointed in accordance
with these Bylaws.
Section 3. Duties.
A. President: The President shall have the responsibility for the
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board are carried into effect. The
President shall preside at all meetings of the Shareholders and of Board of
Directors unless the Board elects a Chairman of the Board or Chief Executive
Officer. The President shall have all powers generally associated with the
Presidency of the Corporation as well as any powers authorized by resolution of
the Board.
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B. Vice President: The Vice Presidents, in the order designated by the
Board of Directors if there is more than one, shall in the absence or disability
of the President, perform the duties and exercise the powers of the President
and shall perform other duties as the Board of Directors may prescribe.
C. Secretary: The Secretary shall attend all meetings of the
Shareholders and of the Board of Directors and shall record all votes and the
minutes of all such proceedings in a book to be kept for that purpose and shall
perform like duties for committees of the Corporation when required. The
Secretary shall give, or cause to be given, all required notices for such
meetings and shall perform other duties as may be prescribed by the President or
the Board of Directors. When required or requested, the Secretary shall execute
with the President all contracts, conveyances or other instruments of the
Corporation and shall, when requested, provide certifications of recorded
minutes. The Secretary shall keep safe custody of the Corporate Seal and, when
requested, shall affix same to any instrument requiring it. The Secretary shall
keep a current register of the mailing addresses of each Shareholder, such
addresses to be furnished to the Secretary by the Shareholders and the
responsibility for keeping said addresses current shall be upon the
Shareholders. The Secretary shall have general charge of the stock transfer
books of the Corporation and shall issue or transfer stock at the direction of
the Board of Directors.
D. Treasurer: The Treasurer shall have custody of and keep of all
money, funds and property of the Corporation, unless otherwise determined by the
Board of Directors, and shall render such accounts and present such statements
to the Directors and President when requested. The Treasurer shall deposit funds
of the Corporation which may come into his or her hands into such bank or banks
as designed by the Board of Directors and shall keep all bank accounts in the
name of the Corporation and shall exhibit the Corporation's books and accounts
at all reasonable times to any Director of the Corporation upon reasonable
notice and during regular business hours. If required by the Board, the
Treasurer shall give a bond to the Corporation with such surety in such amount
as are acceptable to the Board.
E. Assistant Officers: The Assistant Secretaries and Assistant
Treasurers, if any, in the order designated by the Board, shall perform the
respective duties of the Secretary and Treasurer.
F. Other Officers: Should the Board designate Officers other than those
listed above, they shall, by resolution, set forth the specific duties of each
Officer designated.
Section 4. Vacancies.
Any vacancies shall be filled at any time by an election or appointment by the
Board of Directors for the unexpired term of such offices.
Section 5. Removal.
Any Officer or Agent of the Corporation may be removed at any time with or
without cause by the Board of Directors.
Section 6. Compensation.
All compensation of Officers shall be fixed from time to time by the Board of
Directors; no Officer shall be prevented from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
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Section 7. Repayment by Officers for Compensation Held Unreasonable.
Any payments made to an Officer of the Corporation, including but not limited
to, salary, commissions, bonuses, interest, rent or entertainment or other
expenses incurred by him, which shall be disallowed in whole or in part as a
deductible expense by the Internal Revenue Service shall be reimbursed by such
Officer to the Corporation to the full extent of such disallowance. It shall be
the duty of the Board to enforce payment of all amounts so disallowed. In lieu
of payment by the Officer, subject to the determination of the Directors,
proportionate amounts may be withheld from any Officer's future compensation
payments until the amount owed to the Corporation has been recovered.
Section 8. Delegation of Duties.
Should an Officer be absent or disabled or for any other reason be unable to
perform his duties, the Board of Directors may delegate his powers or duties to
any other Officer.
ARTICLE V - EXECUTIVE AND OTHER COMMITTEES
Section 1. Creation of Committees.
The Board of Directors may, by resolution, designate an Executive Committee or
other committees consisting of two or more members of the Board. The designation
of such committees, however, shall not relieve the Board of Directors or any
member thereof of any responsibility imposed by law and any such committees'
powers are limited by Florida Statutes.
Section 2. Authority.
The Executive Committee shall consult with and advise the Officers of the
Corporation in the management of its business and shall have, and may exercise,
to the extent provided in the resolution of the Board of Directors creating such
committee, such powers as may be lawfully delegated by the Board. Other
committees shall have the functions and may exercise such power of the Board as
can be lawfully delegated and as provided in the resolutions of the Board
creating such committees.
Section 3. Qualifications and Tenure.
All members of the Executive Committee and other committees appointed by the
Board shall be members of the Board and shall hold office until the next regular
annual meeting of the Board, their resignation, death or removal by a majority
vote of the Board.
Section 4. Meetings.
Regular meetings of the Executive Committee may be held without notice at such
times and places as the committee may affix from time to time by resolution.
Special meetings of the Executive Committee or other committees, may be called
by any member thereof upon not less than one day's notice to the other members
of the committees, which notice may be oral or by mail. If given by mail, such
notice shall be deemed to be delivered when deposited, postage paid, in the
United States mail addressed to the committee member at this business address.
Any member of any committee may waive notice of any meeting and attendance at a
meeting shall constitute waiver of notice of the meeting.
Section 5. Quorum and Manner of Acting.
At all committee meetings, a majority of committee members then in office shall
constitute a quorum for the transaction of business. The acts of a majority of
committee members at any duly convened meeting of that committee shall be the
act of that committee.
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Section 6. Action without a Meeting.
Any action required or permitted to be taken by a committee may be taken without
a meeting if a consent in writing, setting forth the action so taken shall be
signed by all the members of the Committee. Such action shall not become
effective until the last required consent has been received by the Corporation.
Section 7. Procedure.
Each Committee shall elect its own presiding Officer from its members and may
fix its own rules of procedure as long as such rules are not inconsistent with
these Bylaws. The Committees shall keep regular minutes of their proceedings and
report same to the Board of Directors when requested.
ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts.
The Board of Directors may authorize any Officer or Agent to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances.
Section 2. Loans.
No loans shall be contracted on behalf of the Corporation and no evidences of
indebtedness shall be issued in its name unless authorized by resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc.
All checks, drafts or other order for the payment of money, notes or other
evidences of indebtedness of the Corporation shall be signed by such Officers or
Agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits.
All funds of the Corporation not otherwise employed shall be deposited to the
credit of the Corporation in such depositories as the Board of Directors may
select.
ARTICLE VII - STOCK
Section 1. Certificates.
The Directors may, but do not need to, provide for Certificates to represent
shares of the Corporation. If required, such certificates shall be in such form
as shall be determined by the Board of Directors, signed by an authorized
Officer of the Corporation and may, but need not be, sealed with a corporate
seal or facsimile thereof. The signature of an authorized Officer upon a
certificate may be a facsimile if the certificate is manually signed on behalf
of transfer agent or a registrar. Each certificate shall be consecutively
numbered and contain the following information: (a) the name of the Corporation,
(b) that the Corporation is organized under the laws of the State of Florida,
(c) the name of the person or persons to whom issued, (d) the number and class
of shares and the designation of series, if any, which the certificate
represents, (e) the par value of each share. If there are any restrictions on
transfer of the stock, the certificate shall so state.
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Section 2. Issuance of Shares for Future Services or Promissory Notes.
Shares may be issued in exchange for a promissory note and such note may be
unsecured if deemed sufficient by the Directors. Shares may be issued in
exchange for a written contract for future services. Any shares issued in this
manner must be disclosed to all existing Shareholders. In either event the
Directors may determine whether to immediately issue such Shares or to place
them in escrow until the promissory note is paid in full or the contract for
services has been fully performed. In the event the promissory note is not paid
or a contract for services not performed, the shares issued therefore shall be
deemed recalled and cancelled.
Section 3. Transfer of Shares.
All certificates surrendered to the Corporation for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for like
number of shares shall have been surrendered and cancelled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the Corporation as the Board of Directors may
prescribe. Transfer of Shares shall be made only on the stock transfer books of
the Corporation by the holder of record thereof or by his legal representative
who shall furnish proper evidence of authority to transfer, or by his attorney
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation. The person in whose name the shares stand on the books of the
Corporation shall be deemed to be the owner thereof for all purposes. There
shall be no treasury stock and all previously issued stock transferred to the
Corporation shall revert to authorized unissued stock.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the 1st day of January in each
year. The fiscal year may be changed by a resolution of the Board of Directors
without amending these Bylaws.
ARTICLE IX - BOOKS AND RECORDS
Section 1. Books and Records.
The Corporation shall keep complete and accurate books, records of account and
minutes of the proceedings of Shareholders, the Board of Directors and
Committees of Directors. The Corporation shall keep at its registered office,
principal place of business or office of its attorneys, a record of all
Shareholders, indicating the name, address and number of shares held by each
registered Shareholder.
Section 2. Inspection by Shareholders.
Upon five business days written notice, any Shareholder may, in person or by
agent or attorney, inspect and copy at the Shareholder's expense at the
Corporation's principal office during regular business hours (a) The Articles of
Incorporation and amendments, (b) the Bylaws and amendments, (c) resolutions
adopted by the Board of Directors creating a series of classes of stock and
fixing their relative rights, preferences and limitations, if shares issued
pursuant to those resolutions are outstanding, (d) minutes of all Shareholders'
meetings and actions taken by them without a meeting for the past three years,
(e) written communications to all Shareholders of a class or series within the
past three years, including financial statements for the past three years, (f)
a list of the names and business street addresses of current Directors and
Officers, and (g) the Corporations most recent Corporate Annual Report filed
with the Secretary of State.
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Upon five business days written notice, any Shareholder may, in person or by
agent or attorney, inspect and copy at the Shareholder's expense at the
Corporation's principal office during regular business hours, any other books
and records of the Corporation if (a) the demand is made in good faith and for a
proper purpose, (b) the Shareholder describes with particularity his or her
purpose and the records to be inspected, and (c) the records demanded are
directly connected with the Shareholder's purpose.
SECTION 3. FINANCIAL REPORTS.
Not later than four months after the close of each fiscal year, the Corporation
shall furnish to all Shareholders financial statements for the prior fiscal year
that include a balance sheet, an income statement, and a cash flow statement.
ARTICLE X - DIVIDENDS
The Board of Directors may from time to time declare dividends on its Shares in
cash, property or its own Shares except when the Corporation is insolvent, or
when the payment thereof would render the Corporation insolvent.
ARTICLE XI - CORPORATE SEAL
The Board of Directors may, but does not need to, require a corporate seal. If
required, such seal shall be in circular form, embossing in nature, and
inscribed with the name of the Corporation, the year of incorporation and the
words "Corporate Seal".
ARTICLE XII - EMERGENCY BYLAWS
In accordance with Section 22 of the Florida Business Corporation Act, in the
event that a quorum of the Corporation's Directors cannot be readily assembled
because of some catastrophic event, the directors may adopt emergency Bylaws.
Such Bylaws may be adopted prior or during such emergency, shall be effective
only during such emergency and are subject to amendment or repeal by the
Shareholders. Such Bylaws may provide for procedures for calling a meeting of
the Directors, establish quorum requirements for such a meeting, and provide for
the designation of additional or substitute directors. All provisions of the
regular Bylaws of the Corporation that are not inconsistent with the emergency
Bylaws remain in effect. Any Corporate action taken in good faith in accordance
with emergency Bylaws binds the Corporation and may not be used to impose
liability on a corporate director, officer, employee or agent.
ARTICLE XIII - AMENDMENTS TO BYLAWS
These Bylaws may be revised, amended or replaced and new Bylaws adopted by the
Board of Directors provided that any such revisions, amendments or new Bylaws
may be repealed by the Shareholders at a special meeting called for that
purpose.
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ARTICLE XIV - INDEMNIFICATION
The Corporation shall indemnify its present and former Officers and Directors to
the fullest extent permitted by law. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed claim, demand, action, suit, or proceeding, whether civil
or criminal, administrative or investigative, by reason of the fact that he or
she is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust, or other enterprise. Such indemnification
shall be against expenses including, without limitation, attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him or her in connection with such claim, demand, action, suit, or
proceeding, including any appeal of such action, suit or proceeding, if he or
she acted in good faith or in a manner he or she reasonably believed to be in
the best interests of the Corporation, and with respect to any criminal action
or proceeding, if he or she had no reasonable cause to believe such conduct was
unlawful. However, with respect to any action by or in the right of the
Corporation to procure a judgement in its favor, no indemnification shall be
made with respect to any claim, issue, or matter as to which such person is
adjudged liable for negligence or misconduct in the performance of his or her
duty to the Corporation unless, and only to the extent that, the court in which
such action or suit was brought determines, on application, that despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity in view of all the circumstances of the case. Any indemnification
under this article shall be made only on a determination by a majority of
disinterested directors or upon the approval of a majority of shareholders; that
indemnification is proper in the particular circumstances because the party to
be indemnified has met the applicable standard of conduct. Determination of any
claim, demand, action, suit, or proceeding by judgement, order, settlement,
conviction, or on a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the party did not meet the applicable standard
of conduct. Indemnification may be paid by the Corporation in advance of the
final disposition of any claim, demand, action, suit, or proceeding, on a
preliminary determination that the director or officer met the applicable
standard of conduct and on receipt of an undertaking by or on behalf of the
director or officer to repay such amount, unless it is ultimately determined
that he or she is entitled to be indemnified by the Corporation as authorized in
this article.
The Corporation shall have power to purchase and maintain insurance on behalf of
any person who was or is a director or officer of the Corporation, or who is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him or her and incurred by him or her in
any such capacity, or arising out of his or her status as such, whether or not
the Corporation would have authority to indemnify him or her against such
liability under the provisions of these articles, or under the law.
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ARTICLE XV - CONTROL SHARE ACQUISITIONS
Section 607.0902 of the Florida Business Corporation Act shall not apply to
control share acquisitions of shares of the Corporation.
Exhibit 4.1
MANSUR INDUSTRIES
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
NUMBER SHARES
MI
CUSIP 564491 10 8
THIS CERTIFIES THAT_____________________________________________________
IS THE OWNER OF ________________________________________________________
FULLY-PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
MANSUR INDUSTRIES INC.
Transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Articles of Incorporation, as
amended, and the Bye-Laws of the Corporation, as amended (copies of which are on
file at the office of the Transfer Agent), to all of which the holder of this
Certificate by acceptance hereof assents. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar. WITNESS the
facsimile seal of the Corporation and the facsimile signatures of its duly
authorized officers.
Dated:
Paul I. Mansur
Chief Executive Officer
Pierre G. Mansur
Chairman of the Board
Countersigned and registered
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
<PAGE>
MANSUR INDUSTRIES INC.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE
A FULL STATEMENT OF (A) THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS APPLICABLE TO EACH CLASS OF CAPITAL STOCK AUTHORIZED TO BE ISSUED;
(B) THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH
SERIES AUTHORIZED TO BE ISSUED WITHIN EACH SUCH CLASS AND (C) THE AUTHORITY
OF THE BOARD OF DIRECTORS TO DETERMINE SUCH VARIATIONS FOR SUBSEQUENT SERIES.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIT GIFT MIN ACT_____Custodian_____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act______________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Shares of the common stock evidenced by this Certificate, and do hereby
irrovocably constitute and appoint
_______________________________________________________________________Attorney,
to transfer the said shares on the books of the Corporation with full power
of substitution.
Dated________________________
NOTICE ________________________________________________________________________
THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature Guaranteed:
_______________________________________________________________________________
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
September 24, 1996
Paul I. Mansur
Chief Executive Officer
Mansur Industries Inc.
8425 S.W. 129th Terrace
Miami, Florida 33156
Re: Initial Public Offering
Gentlemen:
On July 23, 1996, Mansur Industries Inc., a Florida corporation (the
"Company"), filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (No. 333-08657) (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement
relates to: (i) the sale by the Company of (a) up to 977,500 shares (the "Public
Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock"), (b) 85,000 common stock purchase warrants (the "Representative's
Warrants"), and (c) up to 85,000 shares of Common Stock (the "Warrant Shares")
issuable upon exercise of the Representative's Warrants; and (ii) the sale by
certain selling shareholders of the Company of 150,000 shares of Common Stock
(the "Resale Shares"), which Resale Shares are issuable upon conversion of
$1,012,500 in principal amount of Convertible Redeemable Notes due June 10, 1997
(the "Convertible Notes"). We have acted as counsel to the Company in connection
with the preparation and filing of the Registration Statement.
In connection therewith, we have examined and relied upon copies of (i)
the Company's Amended and Restated Articles of Incorporation and Bylaws; (ii)
resolutions of the Company's Board of Directors authorizing the offering and the
issuance of the Public Shares, Representative's Warrants, Warrant Shares and
Resale Shares and related matters; (iii) the Registration Statement and exhibits
thereto; (iv) the Representative's Warrants and the Convertible Notes, and (v)
such other documents and instruments as we have deemed necessary for the
expression of opinions herein contained. In making the foregoing examinations,
we have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, and the conformity to original documents
of all documents submitted to us as certified or photostatic copies. As to
various questions of fact material to this opinion, we have relied, to the
extent we deemed reasonably appropriate, upon representations or certificates of
officers or directors of the Company and upon documents, records and instruments
furnished to us by the Company, without independently verifying the accuracy of
such documents, records and instruments.
Based upon the foregoing examination, we are of the opinion that:
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Paul I. Mansur
September 24, 1996
Page 2
1. The Public Shares have been duly and validly authorized and, when
issued and delivered in accordance with the terms of the Underwriting Agreement
filed as Exhibit 1.1 to the Registration Statement, will be validly issued,
fully paid and nonassessable.
2. The Representative's Warrants have been duly and validly authorized,
and when issued and paid for in accordance with the terms of the Warrant
Agreement filed as Exhibit 4.2 to the Registration Statement, will be validly
issued, fully paid and nonassessable.
3. The Warrant Shares have been duly and validly authorized and, when
issued and paid for in accordance with the terms of the Representative's
Warrants, will be validly issued, fully paid and nonassessable.
4. The Resale Shares have been duly authorized and, when issued upon
conversion of and in accordance with the Convertible Notes, will be validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations promulgated thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
By: /S/ GARY M. EPSTEIN
----------------------------
Gary M. Epstein
GME:wp
Enclosure
Exhibit 10.24
BUSINESS LEASE
THIS AGREEMENT, entered into this 1st day of September, 1996 between
Y.F.G., Inc.; 13015 S.W. 85th Avenue Road, Dade, Florida 33156, hereinafter
called the lessor or landlord, party of the first part, and Mansur Industries,
Inc.; 8425 S.W. 129th Terrace Miami, Florida 33156 hereinafter called the lessee
or tenant, party of the second part:
WITNESSETH, that the said lessor or landlord does this day lease unto
said lessee, and said lessee does hereby hire and take as tenant _____ under
said lessor the following described premises; (Describe type of property,
address, etc.)
No. 12940 S.W. 85th Avenue Road
situate in Dade County, State of Florida ________, to be used and occupied by
the lessee as storage and light manufacturing/assembly of recyclable parts
washers and for no other purposes or uses whatsoever, for the term of two (2)
years, subject and conditioned on the provisions of clause ten of this lease
beginning the 1st day of September 1996, and ending the 30th day of August,
1998, at and for the agreed total rental of Sixty Thousand Five Hundred 16/100
($60,500.16) Dollars, payable as follows:
$2,520.84 per month plus sales tax charged by the State of Florida
commencing September 1, 1996.
The landlord has received one month rent in advance including sales tax
in the amount of $2,684.70 and two months security deposit in the
amount of $5,041.68.
Sales tax is $163.86 per month, plus any increase in sales tax
applicable. Thereby making total monthly payment of $2,684.70.
all payments to be made to the lessor on the first day of each and every month
in advance without demand at the office of Y.F.G., Inc., 13015 S.W. 85th Avenue
Road in the City of Miami, Florida 33156 or at such other place and to such
other person, as the lessor may from time to time designate in writing.
The following express stipulations and conditions are made a part of
this lease and are hereby assented to by the lessee:
FIRST: The lessee shall not assign this lease, nor sub-let the
premises, or any part thereof nor use the same, or any part thereof, nor permit
the same, or any part thereof, to be used for any other purpose than as above
stipulated, nor make any alterations therein, and all additions thereto, without
the written consent of the lessor, and all additions, fixtures or improvements
which may be made by lessee, except movable office furniture, shall become the
property of the lessor and remain upon the premises as a part thereof, and be
surrendered with the premises at the termination of this lease.
SECOND: All personal property placed or moved in the premises above
described shall be at the risk of the lessee or owner thereof, and lessor shall
not be liable for any damage to said personal property, or to the lessee arising
from the bursting or leaking of water pipes, or from any act of negligence of
any co-tenant or occupants of the building or of any other person whomsoever.
THIRD: That the tenant shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and City Government and of any and all their Departments and
Bureaus applicable to said premises, for the correction, prevention, and
abatement of nuisances or other grievances, in, upon, or connected with said
premises during said term, and shall also promptly comply with an execute all
rules, orders and regulations of the applicable fire prevention codes for the
prevention of fires, at ___________________ own cost and expense.
<PAGE>
FOURTH: In the event the premises shall be destroyed or so damaged or
injured by fire or other casualty during the Life of this agreement, whereby the
same shall be rendered untenantable, then the lessor shall have the right to
render said premises tenantable by repairs within ninety days therefrom. If said
premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this lease, and in the event of such cancellation
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
FIFTH: The prompt payment of the rent for said premises upon the dates
named, and the faithful observance of the rules and regulations printed upon
this lease, and which are hereby made a part of this covenant, and of such other
and further rules or regulations as may be hereafter made by the lessor, are the
conditions upon which the lease is made and accepted and any failure on the part
of the lessee to comply with the terms of said lease, or any of said rules and
regulations now in existence, or which may be hereafter prescribed by the
lessor, shall at the option of the lessor, work a forfeiture of this contract,
and all of the rights of the lessee hereunder.
SIXTH: If the lessee shall abandon or vacate said premises before the
end of the term of this lease, or shall suffer the rent to be in arrears, the
lessor may, at his option, forthwith cancel this lease or he may enter said
premises as the agent of the lessee, without being liable in any way therefor,
and relet the premises with or without any furniture that may be, therein, as
the agent of the lessee, at such price and upon such terms and for such duration
of time as the lessor may determine, and receive the rent therefor, applying the
same to the payment of the rent due by these presents, and if the full rental
herein provided shall not be realized by lessor over and above the expenses to
lessor in such re-letting, the said lessee shall pay any deficiency, and if more
than the full rental is realized lessor will pay over to said lessee the excess
of demand.
SEVENTH: Lessee agrees to pay the cost of collection and ten percent
attorney's fee on any part of said rental that may be collected by suit or by
attorney, after the same is past due.
EIGHTH: The lessee agrees that he will pay all charges for rent, gas,
electricity or other illumination, and for all water used on said premises, and
should said charges for rent, light or water herein provided for at any time
remain due and unpaid for the space of five days after the same shall have
become due, the lessor may at its option consider the said lessee tenant at
sufferance and the entire rent for the rental period then next ensuing shall at
once be due and payable and may forthwith be collected by distress or otherwise.
NINTH: The said lessee hereby pledges and assigns to the lessor all the
furniture, fixtures, goods and chattels of said lessee, which shall or may be
brought or put on said premises as security for the payment of the rent herein
reserved, and the lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the said lessor, and does hereby
agree to pay attorney's fees of ten percent of the amount so collected or found
to be due, together with all costs and charges therefore incurred or paid by the
lessor.
TENTH: The lessor, or any of his agents, shall have the right to enter
said premises during all reasonable hours, to examine the same to make such
repairs, additions or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or of said building, or to exhibit said
premises, and to put or keep upon the doors or windows thereof a notice "FOR
RENT" at any time within thirty (30) days before the expiration of this lease.
The right of entry shall likewise exist for the purpose of removing placards,
signs, fixtures, alterations, or additions, which do not conform to this
agreement, or to the rules and regulations of the building.
ELEVENTH: Lessee hereby accepts the premises in the condition they are
in at the beginning of this lease and agrees to maintain said premises in the
same condition, order and repair as they are at the commencement of said term,
excepting only reasonable
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wear and tear arising from the use thereof under this agreement, and to make
good to said lessor immediately upon demand, any damage to water apparatus, or
electric lights or any fixture, appliances or appurtenances of said premises, or
of the building, caused by any act or neglect of lessee, or of any person or
persons in the employ or under the control of the lessee.
TWELFTH: It is expressly agreed and understood by and between the
parties to this agreement, that the landlord shall not be liable for any damage
or injury by water, which may be sustained by the said tenant or other person or
for any other damage or injury resulting from the carelessness, negligence, or
improper conduct on the part of any other tenant or agents, or employees, or by
reason of the breakage, leakage, or obstruction of the water, sewer or soil
pipes, or other leakage in or about the said building.
THIRTEENTH: If the lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the lessee, before the end of said term
the lessor is hereby irrevocably authorized at its option, to forthwith cancel
this lease, as for a default. Lessor may elect to accept rent from such
receiver, trustee, or other judicial officer during the term of their occupancy
in their fiduciary capacity without affecting lessor's rights as contained in
this contract, but no receiver, trustee or other judicial officer shall ever
have any right, title or interest in or to the above described property by
virtue of this contract.
FOURTEENTH: Lessee hereby waives and renounces for himself and family
any and all homestead and exemption rights he may have now, or hereafter, under
or by virtue of the constitution and laws of this State, or of any other State,
or of the United States, as against the payment of said rental or any portion
hereof, or any other obligation or damage that may accrue under the terms of
this agreement.
FIFTEENTH: This contract shall bind the lessor and its assigns or
successors, and the heirs, assigns, personal representatives, or successors
as the case may be, of the lessee.
SIXTEENTH: It is understood and agreed between the parties hereto that
time is of the essence of this contract and this applies to all terms and
conditions contained herein.
SEVENTEETH: It is understood and agreed between the parties hereto that
written notice mailed or delivered to the premises leased hereunder shall
constitute sufficient notice to the lessee and written notice mailed or
delivered to the office of the lessor shall constitute sufficient notice to the
lessor, to comply with the terms of this contract.
EIGHTEENTH: The rights of the lessor under the foregoing shall be
cumulative, and failure on the part of the lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights.
NINETEENTH: It is further understood and agreed between the parties
hereto that any charges against the lessee by the lessor for services or for
work done on the premises by order of the lessee or otherwise accruing under
this contract shall be considered as rent due and shall be included in any lien
for rent due and unpaid.
TWENTIETH: It is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the premises
leased hereunder shall be first submitted to the lessor for approval before
installation of same.
TWENTY-FIRST: RADON GAS NOTIFICATION (the following notification may be
required in some states): Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings. Additional
information regarding radon and radon testing may be obtained from your county
public health unit.
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TWENTY-SECOND: Tenant shall have the right to cancel this lease by
giving four months prior written notice to the Landlord.
TWENTY-THREE: All notices shall be sent by certified mail.
TWENTY-FOURTH: Lessee shall not, either in the course of its business
or otherwise, cause to be released upon the leased premises any
hazardous or toxic waste materials, nor shall lessee engage in illegal
activities upon said premises.
TWENTY-FIFTH: It is hereby understood that any repairs to the inside of
the building will be the responsibility of the tenant, including oil/or
grease stains in the concrete floor.
TWENTY-SIXTH: The responsibility of the lessor will for the repair of
the roof through normal wear. If the roof damage occurs through lessee
negligence, then damage must be repaired by the lessee.
**FROM FIFTH: The lessor, his agents or attorneys, shall have the right
to enter said premises and remove all personal property from the
premises and declare the rent for the entire balance of the term of
this lease presently due and payable.
IN WITNESS WHEREOF, the parties hereto have executed this instrument
for the purpose therein expressed, the day and year above written.
Signed, sealed and delivered in the presence of:
/s/ John P. Germano
- ------------------------------ ------------------------------
Witness Signature (as to Lessor) Lessor Signature
John P. Germano
- ------------------------------ ------------------------------
Printed Name Printed Name
- ------------------------------ ------------------------------
Witness Signature (as to Lessor) Post Office Address
- ------------------------------
Printed Name
- ------------------------------
Witness Signature (as to Lessee)
/s/ Paul I. Mansur CEO
- ------------------------------ ------------------------------
Printed Name Lessee Signature
- ------------------------------ Paul I. Mansur
Witness Signature (as to Lessee) ------------------------------
Printed Name
- -------------------------------- ------------------------------
Printed Name Post Office Address
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LEASE AGREEMENT BETWEEN: Y.F.G. INC./MANSUR INDUSTRIES, INC.
NO. 12940 S.W. 85TH AVENUE ROAD
SEPTEMBER 1, 1996
STATE OF FLORIDA ____________________ ) I hereby Certify that on this day,
COUNTY OF DADE ______________________ ) before me, an officer duly authorized
to administer oaths and take acknowledgments, personally appeared Paul Mansur,
known to me to be the person described in and who executed the foregoing
instrument, who acknowledged before me that ______ executed the same, and an
oath was not taken. (Check one;)[x] said person(s) is/are personally known
to me. [ ] Said person(s) provided the following type of
identification:___________________________________________________.
/s/ Lydia Hubbell
- ------------------------------
Lydia Hubbell
- ------------------------------
Printed Name
/Notary Rubber Stamp Seal/
Witness my hand and official seal in the
County and State last aforesaid this 30th day
of August, A.D. 1996.
_____________________________
Notary Public
_____________________________
Printed Name
Exhibit 10.25
LEASE
THIS LEASE entered into this 15th day of September 1996, by and between
BUSINESS ENTERPRISE OF PINELLAS LIMITED (hereinafter called "Owner") and MANSUR
INDUSTRIES, INC. (hereinafter called "Tenant"), whose address is 8425 S.W. 129th
Terrace, Miami, Florida 33156.
W I T N E S S E T H:
Article 1. - GRANT AND TERM
1.1 LEASED PREMISES. In consideration of the rents, covenants,
and agreements herein set forth, Owner hereby leases to Tenant and Tenant hereby
rents from Owner those certain premises containing approximately 1692 square
feet of space MOL (hereinafter referred to as "Leased Premises"), located at
6561 44th Street North, Building 3, Unit 3004, Pinellas Park, Florida 33781.
1.2 USE OF COMMON AREAS. In addition to the Leased Premises,
Tenant shall have the right of nonexclusive use, in common with others, of the
hereinafter defined Common Area subject to this lease and to reasonable rules
and regulation for use thereof as prescribed from time to time by Owner.
1.3 QUIET ENJOYMENT. Tenant shall have the right to quiet enjoyment
of the Leased Premises subject to the terms, conditions, and covenants of this
lease.
1.4 TERM. The initial Term shall be for a period of two (2)
lease years and one-half lease month, as hereinafter defined plus the part of a
month, if any, from the date of commencement of the term to the first day of the
first full calendar month in the term. Commencement date will be September 15,
1996.
Article 2. - RENT
2.1 BASIC RENT. Tenant agrees to pay to Owner as basic rent for
the Premises, the sum of Twelve-thousand, nine-hundred, eighty-two and 50/100
Dollars ($12,982.50), payable $525.00 per month plus seven (7%) percent sales
tax for a total monthly payment of $561.75 for year one and $535.00 per month
plus seven (7%) sales tax for a total monthly payment of $572.45 for year two.
Rent shall be due and payable on the first day of cash calendar month without
demand, setoff, or deduction whatsoever, (except as herein provided) at the
office of the Owner designated for notices. If the term shall commence upon a
day other than the first day of a calendar month, then the rent payable in
advance for such fraction of a month until the beginning of the first lease year
shall be the monthly rent prorated on a daily basis. Tenant is to pay all
utility charges attributable to its Premises, including all electricity, water
and telephone charges.
2.2 PAST DUE RENT. If the Tenant shall fail to pay within five
(5) days after the same is due and payable, any rent or other amounts or charges
provided for in this lease, there shall
<PAGE>
become due and payable in additional rent, an amount equal to ten percent (10%)
of the amount past due to cover the Owner's additional costs in handling
delinquent charges.
Article 3. - CONDUCT OF BUSINESS BY TENANT
3.1 USE OF PREMISES. The Leased Premises shall be used by Tenant
solely for the purpose of conducting therein a business of storage, distribution
and light manufacturing of recycling parts washers. NO OUTSIDE STORAGE. Tenant
shall not suffer or permit all or any part of the Leased Premises to be used for
any other business or purpose or by any other person without the prior written
consent of Owner.
3.2 GOVERNMENTAL REGULATION. Tenant, at its expense, shall
comply with all federal, state, and local laws, ordinances, orders, rules,
regulations, all agreements and covenants of public record pertaining to any of
the entire Premises now or hereafter in force, and all recommendations of the
Fire Underwriters Rating Bureau, with respect to the use or occupancy of the
Leased Premises by Tenant; however, Tenant shall not be required to effect any
structural nature by reason of any such laws, ordinances, rules, regulations,
covenants, or agreements, unless the conditions constituting a violation of any
such provisions were created by improvements to or use of the Leased Premises by
Tenant.
In the event that Tenant's use of said premises constitutes a violation of any
Federal, State or Local laws, ordinances, orders, rules, regulations, agreements
and covenants of public record pertaining to any of or the entire premises now
or hereafter in force, then in such event such violation, after notice duly
given and if not cured within thirty (30) days, shall constitute a default
hereunder.
3.3 WASTE OR NUISANCE. Tenant shall not commit or suffer to be
committed any waste upon the Leased Premises or the Entire Premises or any
nuisance or other act or thing which may disturb the quiet enjoyment of any
other tenant of the building or surrounding property owners. In the event that
tenants use of said leased premises constitutes any waste upon the leased
premises or the entire premises or any nuisance or other act or thing which may
disturb the quiet enjoyment of any other tenant of the building or surrounding
property owners, then in such event such violation after notice duly given shall
be cured and corrected at Tenant's sole expense to Landlord's reasonable
satisfaction, and if not cured within thirty days, shall constitute a default
hereunder.
Article 4. - SECURITY
4.1 AMOUNT AND USE OF DEPOSIT. At the commencement of the term
of this lease, Tenant shall pay to Owner the sum of Five hundred, twenty-five
and 00/100 ($525.00) Dollars as security for the performance by Tenant of all of
the terms, covenants and conditions of this lease by said Tenant to be kept and
performed during the term hereof, and shall be held without liability for
interest. If at any time during the term of this lease, any of the rent herein
reserved or any other sum payable by Tenant to Owner hereunder shall be overdue
and unpaid, then Owner may, at its option, apply all or any portion of said
deposit to the payment of such overdue rent or other sum. In the event the
deposit or any portion thereof is so applied, Tenant shall, after written
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request by Owner, remit to Owner a sufficient amount in cash to restore said
security to the original sum deposited and Tenant's failure to do so within five
(5) days after receipt shall constitute a breach of this lease. The deposit or
any unexpended balance thereof shall be returned in full to Tenant upon the
expiration of this lease or the earlier termination hereof.
Article 5. - CONTROL AND USE OF COMMON AREAS
5.1 DESCRIPTION OF COMMON AREAS. Common Areas are all those
areas and facilities including parking areas, driveways, sidewalks, landscaped
areas, utility and drainage systems, utility rooms, hallways and improvements
provided by the Owner for the general use, in common, of tenants, their
officers, agents, employees, customers, or persons having business with tenants.
5.2 CONTROL OF COMMON AREAS BY OWNER. Common Areas are subject
to the exclusive control and management of Owner, who shall have the right from
time to time to establish, modify and enforce reasonable rules and regulations
with respect to their use. Owner shall have the right to construct, maintain and
operate lighting, refuse storage or removal, parking and other facilities, to
restrict parking, to discourage parking by persons not having business with
tenants, to temporarily close Common Areas, to close all or any portion of said
areas or facilities to such extent as may, in the opinion of Owner's counsel, be
legally sufficient to prevent a dedication thereof or the accrual of any rights
to any person or the public therein, and to do and perform such other acts in
and to said areas and improvements as, in the exercise of good business
judgment, the Owner shall determine to be advisable with a view to the
improvement of the convenience and use thereof by tenants and persons having
business with tenants. The rights accruing to Owner pursuant to this section
shall not imply any obligation on Owner to exercise them. Owner will operate and
maintain the Common Areas to the extent that it, in its sole discretion, shall
determine from time to time.
Article 6. - MAINTENANCE OF LEASED PREMISES
6.1 MAINTENANCE BY TENANT. Tenant shall at all times keep the
Leased Premises, (including exterior entrances, and all glass and windows), all
floors, and all partitions, doors (including overhead doors), fixtures,
equipment and appurtenances thereto, (including lighting, heating, plumbing
fixtures and air conditioning equipment), in good order and repair, and in a
clean and sanitary condition, and shall make all necessary repairs, ordinary and
extraordinary, foreseen and unforeseen, including all necessary replacements,
alterations, additions and betterments, using material and equipment of like
kind and quality to the original improvements.
If Tenant fails to repair property as required hereunder and to the
reasonable satisfaction of Owner as soon as is reasonably possible, after
written request, Owner shall hereby have the right to enter the Leased Premises
as is necessary to effect repairs and to make such repairs at Tenant's expense,
without liability to Tenant for any loss or damage that may accrue to Tenant's
merchandise, fixtures, or other property or to Tenant's business by reason
thereof except for owner negligence in performing its obligation under this
Lease, and upon completion thereof, Tenant shall pay as additional rent Owner's
costs for making such repairs, plus twenty percent (20%) for overhead, upon
presentation of the bill therefore, which shall be conclusive evidence of the
amount of such cost.
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<PAGE>
6.2 MAINTENANCE OF BUILDING. Owner shall keep and maintain the
structure and exterior walls, roof of the building and sprinkler system except
such portion Tenant has altered, and the Common Areas in good order, condition
provided that if Owner is required to make repairs to structure or exterior or
Tenant walls, or roof portions of the building by reason of Tenant's negligent
act or omission to act, or if the presence of waste or rubbish in the Common
Areas is caused by Tenant, its officers, agents, employees or invitees, Owner
may charge the cost of such repairs or the removal of such waste or rubbish to
the Tenant, which charge shall thereafter become due and payable as additional
rent.
Upon the expiration of the tenancy hereby created, Tenant shall
surrender the Leased Premises in the same condition as existing upon delivery of
possession thereof under this lease, reasonable wear and tear and damage by
unavoidable casualty excepted, and shall surrender all keys for the Leased
Premises to Owner at its place then fixed for the payment of rent. Tenant shall
remove all its trade fixtures, and any alterations or improvements which have
not become the property of the Owner pursuant to Section 7.2 hereof, before
surrendering the Premises as aforesaid and shall repair any damage to the Leased
Premises or building caused thereby. Tenant's obligation to observe or perform
this covenant shall survive the expiration or termination of the term of this
lease.
6.3 RULES AND REGULATIONS. The Rules and Regulations adopted by
Owner are hereby made a part of this lease, and Tenant's failure to keep and
observe said rules and regulations shall constitute a breach of the terms of
this lease in the manner as if the same were contained herein as covenants.
Owner reserves the right from time to time to add to, amend, or supplement said
rules and regulations. Any such Rules and Regulations and amendments and
supplements shall be given to Tenant in writing and Tenant agrees thereupon to
comply therewith, provided the same shall apply uniformly to all Tenants of the
building.
Article 7. - FIXTURES, ALTERATIONS, REPLACEMENTS, IMPROVEMENTS
7.1 APPROVAL BY OWNER. Tenant shall not, without the prior
written approval of Owner, install or permit to be installed any fixture or
improvement or make any alterations, replacement or repair upon the Leased
Premises or building, including signs, HVAC systems, electrical apparatus, or
cutting or drilling into any part of the Leased Premises or building or securing
any fixtures, apparatus or equipment of any kind to any part of the Leased
Premises or building. Tenant shall present to Owner plans and specifications for
such work at the time approval is sought, and when approval is granted, shall
cause all work to be done according to said plans and specifications, in
compliance with all codes, ordinances, rules and regulations of any authority,
and in a neat and workmanlike manner. The cost of repair of any damage resulting
from any such approved work shall be borne by Tenant.
7.2 OWNERSHIP OF IMPROVEMENTS. All alterations, heating and air
conditioning systems, replacements and improvements permanently affixed to the
Leased Premises by Tenant shall become the property of the Owner upon
termination of this Lease or any extension or renewal and shall remain on the
Leased Premises in absence of a written agreement of the Owner to the contrary.
Upon expiration of this Lease, or any renewal term thereof, any property
belonging to
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the Tenant, which the tenant has failed to remove from the Leased Premises shall
forthwith become the property of the Owner and Tenant shall be liable for the
cost of removal thereof.
7.3 TENANT SHALL DISCHARGE ALL LIENS. Tenant shall promptly pay
all contractors and materialmen working on the Leased Premises on his account,
so as to minimize the possibility of a lien attaching to any of the Entire
Premises. Should any such lien be made or filed, Tenant shall notify Owner
immediately and bond against or discharge the same within ten (10) days after
such lien is made or filed.
Article 8. - EXTERIOR APPEARANCE
8.1 CONTROL BY OWNER. The exclusive right is reserved to the
Owner to control the exterior appearance of the Entire Premises, including but
not limited to all signs, decoration, lettering and advertising visible from the
exterior of the building, (including those on the interior or on windows or
doors), shades, awnings, window coverings, exterior or interior lights,
antennae, canopies, or anything whatsoever affecting the visual appearance of
the building. Tenant will not place or suffer to be placed or maintained any
item of any kind on or in any of the Entire Premises affecting the exterior
appearance of the building of common areas without first obtaining Owner's
written approval and consent. Tenant further agrees to maintain any said item as
may be approved in good condition and repair at all times.
Article 9. - INSURANCE AND INDEMNITY
9.1 LIABILITY INSURANCE. Tenant will keep in force at its own
expense throughout the term of this lease, public liability insurance with
respect to the Leased Premises and business operated by Tenant in such companies
and in such form as are acceptable to Owner with minimum limits with respect to
bodily injury of One Hundred Thousand Dollars ($100,000) per person, and Three
Hundred Thousand Dollars ($300,000) per accident or occurrence, and with respect
to property damage, Fifty Thousand Dollars ($50,000). Tenant will have all such
public liability policies endorsed to show the Owner as an additional insured
with respect to occurrences upon the Leased Premises. The Tenant's insurance
policy will further provide for at least thirty (30) days notice to Owner before
substantial reduction of policy limits, cancellation, or any other policy
changes adverse to the Owner's interests. Tenant will furnish Owner with a copy
of policy or policies of such insurance or certificates thereof, within ten (10)
days of a request therefor by Owner. If Tenant shall not comply with the
provision of this Section 9.1, Owner may at its option, cause insurance as
aforesaid to be issued, and in such event, Tenant agrees to pay the premium for
such insurance promptly upon Owner's demand. Nothing herein contained shall
require the Owner to be liable for any loss occasioned by fire or other casualty
to personal property or fixtures of the Tenant, its agents, employees,
assignees, subleases, bailors, invitees or of any other person, firm or
corporation upon any part of the Leased Premises.
9.2 INCREASE IN FIRE OR CASUALTY INSURANCE PREMIUM. In the event
Tenant's occupance causes any increase of premium for the fire, extended
coverage, or other casualty or liability insurance on the building or any part
thereof above, the rate for the least hazardous type of occupancy legally
permitted in the Leased Premises, the Tenant shall pay the additional premiums
on the casualty or liability insurance policies by reason thereof. The Tenant
shall also pay in such event its prorata share of any additional premium on the
rent insurance policy that may be carried
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by the Owner for its protection against rent loss through casualty. Bills for
such additional premiums shall be rendered by Owner to Tenant at such times as
Owner may elect, shall be due from and payable by Tenant when rendered, and the
amount thereof shall be paid as additional rent.
9.3 INDEMNITY BY TENANT. Tenant shall indemnify, save harmless
and defend Owner from and against any and all suits, claims, actions, damages,
liability and expense, including reasonable attorneys' fees in connection with
loss of life, personal injury and/or damage to property arising from or out of
the occupancy or use by Tenant of the Entire Premises or any part thereof or
occasioned wholly or in part by any act or omission of Tenant, its officers,
agents, servants, contractors or employees.
9.4 EMPLOYER'S LIABILITY INSURANCE. Tenant shall, throughout the
term of this lease or any renewal thereof, maintain such workmen's compensation
or employer's liability insurance as may be required by law and shall indemnify
and hold harmless the Owner against loss, claim or demand of employees, agents,
contractors and subcontractors of the Tenant.
Article 10. - ASSIGNMENT AND SUBLETTING
10.1 CONSENT REQUIRED. Tenant shall not sell, assign, sublease,
or in any manner transfer this Lease or any estate or interest therein, nor rent
the leased premises or any part or parts thereof, nor grant any license or
concessions therein, without the prior written consent of Owner, which shall not
be unreasonably withheld.
Notwithstanding consent, such assignment or subletting shall not
relieve Tenant of any obligations imposed on him under the terms and conditions
of the written Lease, and Tenant shall remain primarily liable for rent for the
balance of the term. Owner's rights to sell, assign, or otherwise transfer this
Lease are and shall remain unqualified.
Article 11. - DEFAULT OF TENANT
11.1 RIGHT TO RE-ENTER. In the event of any failure of Tenant to
pay any rental due hereunder within ten (10) days after the same shall be due,
or any failure to perform any other of the terms, conditions or covenants of
this lease to be observed or performed by Tenant for more than fifteen (15) days
after written notice of such default shall have been given to Tenant, or if
Tenant or any guarantor of this lease shall become bankrupt or insolvent or file
any debtor proceedings or take or have taken against Tenant of this lease in any
court pursuant to any statute either of the United States or any state, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee or all or a portion of Tenant's or any such
guarantor's property, or if Tenant or any such guarantor makes any assignment
for the benefit of creditors, or petitions for or enters into an arrangement, or
if Tenant shall abandon said Leased Premises or suffer this lease to be taken
under any writ of execution, the Owner, besides other right or remedies it may
have, shall have then immediate right to re-enter and may remove all persons and
property from the Leased Premises and such property may be removed and stored in
public warehouse or elsewhere at the cost of and for the account of Tenant, all
without service
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of notice or resort to legal process and without being guilty of trespass, or
becoming liable for any loss or damage which may be occasioned thereby.
11.2 LEGAL EXPENSES. In case suit be brought for recovery of
possession of the Leased Premises, for the recovery of rent or any other amount
due under the provisions of this lease, or because of the breach of any other
covenant herein contained on the part of the Tenant to be kept or performed, and
a breach shall be established, Tenant shall pay to Owner all expenses incurred
therefor, including reasonable attorneys fees and attorney's fees on appeal.
Article 12. - ACCESS BY OWNER
12.1 RIGHT OF ENTRY - Owner or Owner's agents shall have the
right to enter the Leased Premises during business hours and during emergencies
to examine the same and to show them to prospective purchasers of the building,
and to make such repairs, alterations, improvements or additions to the building
as Owner may deem necessary or desirable, and Owner shall be allowed to take all
material into and upon said Premises that may be required therefor without the
same constituting an eviction of tenant in whole or in part and the rent
reserved shall abate pro-rata according to the diminution of tenants use of said
Leases Premises while said repairs, alterations, improvements or additions are
being made, by reason of loss or interruption of business of Tenant, or
otherwise. During the 30-day period prior to the expiration of the term of this
lease or any renewal term, Owner may exhibit the Leased premises to prospective
tenants during reasonable business hours, and place upon the Premises the usual
"For Rent" notices, which notices Tenant shall permit to remain thereon without
molestation. If Tenant shall not be personally present to open and permit an
entry into said Leased Premises during business hours or when, for any reason an
entry therein shall be necessary or permissible, Owner or Owner's agents may
enter the same by master key, or may forcibly enter the same, without rendering
Owner or agents liable therefor and without in any manner affecting the
obligations and covenants of this lease. Nothing herein contained, however,
shall be deemed or construed to impose upon Owner any obligation, responsibility
or liability whatsoever, for the care, maintenance or repair of the building or
any part thereof; except as otherwise herein specifically provided.
Article 13. - TENANT'S PROPERTY.
13.1 TAXES ON TENANT'S LEASEHOLD - Tenant shall be responsible
for and shall pay before delinquency, all municipal, county, state, and federal
taxes assessed during the term of this lease against personal property of any
kind, owned by or placed in, upon or about the Leased Premises by the Tenant.
13.2 LOSS AND DAMAGE - Owner shall not be liable for any damage
to property of Tenant or others located on the Leased Premises, nor for the loss
of or damage to any property of Tenant or of others by theft or otherwise. Owner
shall not be liable to Tenant for and Tenant shall hold Owner harmless from and
indemnify Owner against any claims arising from injury to or death of person or
damage to property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, flood, air pollution, rain or leaks from any part of the
Leased Premises or from the pipes, appliances or plumbing works or by dampness
or by any other cause of whatever nature. Owner shall not be liable to Tenant
for such damage caused by other tenants or person in the Leased
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Premises, occupants of any of the Entire Premises or adjacent property, or the
public or caused by operations in construction of any private, public or
quasipublic work unless such damage shall be caused by the willful act or gross
neglect of Owner.
13.3 NOTICE BY TENANT - Tenant shall give immediate notice to
Owner in case of fire or other casualty or accidents in the Leased Premises or
in the building, or of defects therein or in any fixtures or equipment.
Article 14. - HOLDING OVER, SUCCESSORS.
14.1 HOLDING OVER - This lease and the tenancy hereby created
shall cease and terminate at the end of the original term hereof, or any
extension or renewal thereof, without the necessity of any notice from either
Owner or Tenant to terminate the same, and Tenant hereby waives notice to vacate
the premises and agrees that Owner shall be entitled to the benefit of all
provisions of law respecting the summary recovery of possession of premises from
a Tenant holding over to the same extent as if statutory notice had been given.
Any holding over after the expiration of the term hereof, with the
consent of the Owner, shall be construed to be a tenancy from month to month at
a rent five percent (5%) greater than the basic, added and additional rent
herein specified, (prorated on a monthly basis) and shall otherwise be on the
terms and conditions herein specified, so far as applicable.
14.2 SUCCESSORS - All rights and liabilities herein given to or
imposed upon, the parties hereto shall insure to the benefit of and be binding
upon their respective heirs, executors, administrators, successors and assigns,
and if there shall be more than one Tenant, they shall all be bound jointly and
severally by the terms, covenants and agreements herein. No rights, however,
shall insure to the benefit of any assignee of Tenant unless the assignment to
such assignee has been approved by Owner in writing as provided elsewhere in
this lease.
Article 15. - CONDEMNATION.
15.1 CONDEMNATION - If during the term of this lease or any
renewal thereof, the whole of the Leased Premises of such a portion thereof as
will make these Leased Premises unusable for the purpose leased, be condemned or
taken in any manner for public use, then in either event the term hereby granted
shall cease and come to an end as of the date of the vesting of title in such
public authority. The Owner shall be entitled to the entire award for such
taking except for any claim of the Tenant for injury, damage or destruction of
Tenant's business accomplished by such taking. If a portion of the Leased
Premises unusable for the purposed lease, this lease will not be terminated but
shall continue. In no event shall Owner be liable to Tenant for any business
interruption, diminution in use or for any value of any unexpired term of this
lease.
Article 16. - MISCELLANEOUS.
16.1 WAIVER - The waiver by Owner of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Owner shall not be deemed to be A waiver of any
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previous breach by Tenant of any term, covenant, or condition of this lease,
other than the failure of the Tenant to pay the particular rental so accepted,
whether or not Owner had knowledge of such previous breach at the time of
acceptance of such rent. No covenant, term or condition of this lease shall be
deemed to have been waived by Owner, unless Owner waives the same in writing.
16.2 ACCORD AND SATISFACTION - No payment by Tenant or receipt by
Owner of an amount less tan the monthly rent herein stipulated shall be deemed
to be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement on any check or in any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Owner may accept such
check or payment without prejudice to Owner's right to recover the balance of
such rent or pursue any other remedy provided in this lease.
16.3 ENTIRE AGREEMENT - This lease and the Riders attached hereto
and forming a part hereof set forth all the covenants, promises, agreements,
conditions and understandings between Owner and Tenant concerning the Leased
Premises and there are no covenants, promises, agreements, conditions, or
understandings, either oral or written, between them other than are herein set
forth. Except as herein otherwise provided, no subsequent alteration amendment,
change or addition to this lease shall be binding upon Owner or Tenant unless
reduced to writing and signed by them.
16.4 NOTICES - Any notice, demand, request, or other instrument
which may be or is required to be given under this lease shall be delivered in
person or sent by United States certified mail postage prepaid, return receipt
requested, and shall be addressed (a) if to Tenant, at the Leased Premises or at
such other address as the Tenant shall designate by written notice and, (b) if
to Owner, RYON & ASSOCIATES, INC., 2203 NORTH LOIS AVENUE, SUITE 704, TAMPA,
FLORIDA 33607 or at such other address as Owner may designate by written notice.
16.5 CAPTIONS, AND SECTION NUMBERS - The captions, section
numbers and article numbers and an index appearing in this lease are inserted
only as a matter of convenience and in no way define, limit, constitute or
describe the scope of intent of such sections or articles of this lease nor in
any way affect this lease.
16.6 TENANT DEFINED, USE OF PRONOUN - The word "Tenant" shall be
deemed and taken to mean each and every person or party mentioned as Tenant
herein, be the same one or more, and if there shall be more than one such person
or party, any notice required or permitted by the terms of this lease may be
given by or to any one thereof. The use of the neuter singular pronoun to refer
to Owner or Tenant shall be deemed a proper reference even though Owner or
Tenant may be an individual, a partnership, a corporation or a group of two or
more individuals or corporations. The necessary grammatical changes required to
make the provisions of this lease apply in the plural sense where there is more
than one Owner or Tenant and to either corporations, associations, partnerships
or individuals, males or females, shall in all instances be assumed as though in
each case fully expressed.
16.7 PARTIAL INVALIDITY - Of any term, covenant, or condition of
this lease, the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the
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remainder of this lease or the application of such terms, covenants or condition
to persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term, covenant or
condition of this lease shall be valid and be enforced to the fullest extent
permitted by law.
16.8 FLORIDA LAWS TO GOVERN - This lease shall be construed
according to the laws of the State of Florida.
16.9 INTEREST OF MORTGAGE - Tenant understands and agrees that
this Lease shall be subject and subordinate to any mortgage. This provision
shall be self-operative but Tenant will execute and deliver any additional
instruments which may be required by the holder of the Mortgage to evidence such
subordination.
16.10 SPECIFIC PERFORMANCE OF LEASE - Owner shall have the right
to enforce Tenant's specific performance of each and every covenant, condition
and other provision of this lease.
16.11 WAIVER OF RIGHT OF REDEMPTION - Tenant hereby waives all
right of redemption to which Tenant or any person under Tenant might be entitled
by any law nor or hereafter in force.
16.12 OTHER REMEDIES - Owner's pursuit of any remedy hereunder are
in addition to any other remedy allowed by law or in equity and shall not
preclude the pursuit of any other remedies herein provided.
Article 17. - DESTRUCTION OF PREMISES
17.1 TOTAL DESTRUCTION - If the Leased Premises are substantially
or totally destroyed by fire or other casualty, both the Tenant and Owner shall
have the option of terminating this lease upon thirty (30) days written notice.
17.2 PARTIAL DESTRUCTION - If such Leased Premises are partially
damaged by fire or other casualty, the rents shall be prorated accordingly
during the term the Premises are untenable, and the Owner shall have an option
to determine whether to undertake to rebuild the premises or terminate this
lease within thirty (30) days after said event, by written notice to Tenant.
17.3 The Owner shall not be liable for any inconvenience or
interruption of business of the Tenant occasioned by fire or other casualty.
Article 18. - ESTOPPEL CERTIFICATES - Tenant hereby covenants and
agrees that it shall, without charge, and at any time from time to time within
ten (10) days after request by Owner, deliver a written instrument to Owner or
to any person, firm or corporation specified by Owner, which written instrument
shall state the following information:
(a) That this lease is unmodified and in full force and
effect, or if there have been any modifications, that the same
is in full force and effect as so modified, and identifying
any such modifications;
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(b) Whether there are any existing defaults by Owner with
respect to the terms of this lease known to Tenant, and if any
such defaults are known, specifying the same;
(c) The dates to which rental and all other charges under this
lease have been paid.
Article 19. - AD VALOREM TAX INCREASE - In the event there is any
increased during any year of the term of this lease in the City, County or State
real estate taxes over and above the amount of such taxes assessed for the tax
year during which the term of this lease commences, whether because of increased
rate or valuation, Lessee shall pay to Lessor upon presentation of paid tax
bills an amount equal to the Pro Rata % of the increase in taxes upon the land
and building in which the leased premises are situated. In the event that such
taxes are assessed for a tax year extending beyond the term of the lease, the
obligation of Lessee shall be proportionate to the portion of the lease term
included in such year.
IN WITNESS WHEREOF, Owner and Tenant have signed and sealed this lease
as of the day and year first above written.
WITNESSES: OWNER
____________________________________ BUSINESS ENTERPRISE OF
PINELLAS LIMITED
____________________________________ By:________________________________
As to Owner TENANT
MANSUR INDUSTRIES, INC.
____________________________________ By:________________________________
____________________________________ By:________________________________
As to Tenant
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ENTERPRISE BUSINESS PARK
RULES AND REGULATIONS
AS OF AUGUST 12, 1994
1) Tenant is to park only in parking spaces directly in front of their
leased unit.
2) No pets of any kind allowed on the premises.
3) No outside storage will be permitted. This includes non-conforming
vehicles.
4) No dumping of any kind in the business park dumpster.
5) The usage of the lake is prohibited for swimming, fishing, littering and
social gatherings.
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These rules are subject to change at any time.
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EXHIBIT 23.2
The Board of Directors
Mansur Industries Inc.:
We consent to the use of our report dated January 19, 1996 of Mansur Industries
Inc. included herein in this registration statement on Form S-1 of Mansur
Industries Inc. and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG PEAT MARWICK LLP
Miami, Florida
September 24, 1996
