As filed with the Securities and Exchange Commission on October 29, 1996
Registration No. 33-90696
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
AMENDMENT NO. 11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ANDEAN DEVELOPMENT CORPORATION
(Name of Small Business Issuer in its Charter)
--------------------
FLORIDA 8700 65-0548697
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
835 LAKESIDE DRIVE PEDRO PABLO ERRAZURIZ
BOCA RATON, FL 33434 ANDEAN DEVELOPMENT CORPORATION
(407) 482-6336 835 LAKESIDE DRIVE
(Address and telephone number of BOCA RATON, FLORIDA 33432
principal executive offices and (407) 482-6336
principal place of business) (Address and telephone number of
principal executive offices and
principal place of business)
--------------------
Please address a copy of all communications to:
CHARLES B. PEARLMAN, ESQ. DAVID A. CARTER, P.A.
ROXANNE K. BEILLY, ESQ. 355 W. PALMETTO PARK ROAD
ATLAS, PEARLMAN, TROP & BORKSON, P.A. BOCA RATON, FLORIDA 33432
200 E. LAS OLAS BOULEVARD PHONE (561) 750-6999
FORT LAUDERDALE, FLORIDA 33301 FAX (561) 367-09670
PHONE (954) 763-1200
FAX (954) 523-1952
--------------------
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement is effective.
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, as amended, 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.
===============================================================================
<PAGE>
===============================================================================
(Registration Statement cover page cont'd)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Title of Each Class of Amount to be Proposed Proposed Amount of
Securities to be Registered Registered Maximum Maximum Registration
Offering Price per Aggregate Fee
Unit (1) Offering Price
(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value $.0001 per 1,320,000 $5.00 $6,600,000 $2,000.00
share)(2)
- -----------------------------------------------------------------------------------------------------------------------
Warrants(3) 1,320,000 $0.125 $165,000 $50.00
- -----------------------------------------------------------------------------------------------------------------------
Common Stock issuable under 1,320,000 $5.00 $6,600,000 $2,000.00
Warrants(4)
- -----------------------------------------------------------------------------------------------------------------------
Representative's Warrants 120,000 $.0002 $24.00 $.73
- -----------------------------------------------------------------------------------------------------------------------
Common Stock issuable under the
Representative's Warrants and the
Common Stock issuable under the
Representative's Warrants(4) 240,000 $7.50 $1,800,000 $545.45
- -----------------------------------------------------------------------------------------------------------------------
Warrants issuable under the
Representative's Warrants 120,000 $.1875 $22,500 $6.82
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $4,603.00*
=======================================================================================================================
<FN>
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933,
as amended.
(2) Includes 120,000 shares of Common Stock issuable pursuant to the
Representatives' Over-Allotment Option.
(3) Includes 120,000 Warrants issuable pursuant to the Representatives'
Over-Allotment Option.
(4) Represents shares of Common Stock issuable upon exercise of the
Warrants registered hereby together with such additional indeterminate
number of shares as may be issued upon exercise of such Warrants by
reason of the anti-dilution provisions contained therein.
* Filing fee previously paid.
</FN>
</TABLE>
ii
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
--------------------
Cross Reference Sheet for Prospectus Under Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Item No. and Caption Caption or Location in Prospectus
<S> <C> <C>
1. Front of Registration Statement and Facing Page of Registration Statement; Outside
Outside Front Cover of Prospectus Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front and Outside Back Pages of
Pages of Prospectus Prospectus
3. Summary Information and Risk Factors Summary; The Company; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Underwriting
6. Dilution Risk Factors; Dilution
7. Selling Security-Holders *
8. Plan of Distribution Inside Front Cover Page of Prospectus;
Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Shareholders;
Beneficial Owners and Management Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Experts; Legal Matters
14. Disclosure of Commission Position on Management - Indemnification
Indemnification for Securities Act Liabilities of Officers and Directors
15. Organization within Last Five Years Business; Certain Transactions
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis Management's Discussion and Analysis of
or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Transactions
Transactions
- --------------------
</TABLE>
* Not applicable or answer in negative
iii
<PAGE>
<TABLE>
<S> <C> <C>
20. Market for Common Equity and Risk Factors; Description of Securities
Related Stockholder Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with *
Accountants on Accounting and
Financial Disclosure
</TABLE>
- --------------------
* Not applicable or answer in negative
iv
<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, DATED OCTOBER 29, 1996
ANDEAN DEVELOPMENT CORPORATION
1,200,000 Shares of Common Stock and
1,200,000 Redeemable Common Stock Purchase Warrants
--------------------
Andean Development Corporation (the "Company" or "ADC") is offering
1,200,000 shares of Common Stock, par value $.0001 per share (the "Common
Stock") and 1,200,000 Redeemable Common Stock Purchase Warrants (the
"Warrants"). The Common Stock and the Warrants (collectively, the "Securities")
are being offered separately and not as units, and each are separately
transferable. Each Warrant entitles the holder to purchase one share of Common
Stock at $5.00 per share (subject to adjustment) during the five-year period
commencing on the date of this Prospectus. The Warrants are redeemable by the
Company for $.05 per Warrant, on not less than thirty (30) nor more than sixty
(60) days written notice if the closing bid price for the Common Stock for
twenty-one (21) trading days during any thirty (30) consecutive trading day
period ending not more than fifteen (15) days prior to the date that the notice
of redemption is mailed, equals or exceeds $10.00 per share subject to
adjustment under certain circumstances during a period of thirty (30)
consecutive trading days ending not earlier than ten (10) days of the date of
the Warrants are called for redemption and provided there is then a current
effective registration statement under the Securities Act of 1933, as amended
(the "Act") with respect to the issuance and sale of Common Stock upon the
exercise of the Warrants. Any redemption of the Warrants during the one-year
period commencing on the date of this Prospectus shall require the written
consent of Barron Chase Securities, Inc., the representative of the Underwriters
(the "Representative"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. The initial public offering prices of the Common Stock
and Warrants and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Representative and
are not related to the Company's assets, book value, financial condition or
other recognized criteria of value. Although the Company has applied for the
inclusion of the Common Stock and the Warrants on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market System
under the symbols "ADCC" and "ADCCW," respectively, there can be no assurance
that an active trading market in the Company's securities will develop or be
sustained.
--------------------
THESE ARE SPECULATIVE SECURITIES, AN INVESTMENT IN THE SECURITIES OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION
AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD
TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" ON PAGES 7-16 AND "DILUTION."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)(3)
- -------------------------------------------------------------------------------
Per Share........... $5.00 $.50 $4.50
- -------------------------------------------------------------------------------
Per Warrant......... $.125 $.0125 $.1125
- -------------------------------------------------------------------------------
Total (3)........... $6,150,000 $615,000 $5,535,000
===============================================================================
*SEE FOOTNOTES ON FOLLOWING PAGE
The shares of Common Stock and the Warrants are being offered by the
Underwriters on a firm commitment basis, 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. It is
expected that delivery of the certificates representing the Common Stock and the
Warrants will be made against payment therefor at the offices of the
Representative at 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433 on
or about _____________, 1996.
-------------------
BARRON CHASE FIRST LONDON
SECURITIES SECURITIES CORPORATION
The date of this Prospectus is __________, 1996
<PAGE>
(1) Does not include additional underwriting compensation to be received
in the form of (i) a non-accountable expense allowance equal to 3% of
the gross proceeds of the offering of which $30,000 has been paid to
date; (ii) Representative's Purchase Warrants to purchase 120,000
shares of Common Stock and 120,000 Warrants exercisable for a five-year
period commencing from the effective date of the offering at an
exercise price of 150% of the price at which the Common Stock and the
Warrants are sold to the public, subject to adjustment; and (iii) a
financial advisory agreement for the Representative to act as an
Investment Banker for the Company for a period of three (3) years at a
fee of $108,000, payable at the closing of the Offering. In addition,
the Company has granted to the Representatives certain registration
rights with respect to registration of the shares of Common Stock and
the Warrants underlying the Representatives' Purchase Warrants and the
shares of Common Stock issuable upon exercise of the Warrants issuable
upon exercise of the Representative's Purchase Warrants and to
indemnify the Underwriters against certain liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $444,898,
including the Representative's non-accountable expense allowance.
(3) The Company has granted the Representative an option (the
"Representative's Over-Allotment Option"), exercisable within 30 days
from the date of this Prospectus, to purchase up to 120,000 additional
shares of Common Stock and up to 120,000 additional Warrants at an
exercise price of $5.00 solely to cover over-allotments, if any. If the
Representatives' Over-Allotment Option is exercised in full, the total
Price to Public, Underwriting Commissions, and Proceeds to Company will
be $6,765,000, $676,500 and $6,088,500, respectively. See
"Underwriting."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement on Form SB-2, pursuant to the
Securities Act of 1933, as amended, with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in said Registration Statement, and the exhibits thereto. THE STATEMENTS
CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER
DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY COMPLETE,
AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR DOCUMENT
FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING
QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further information
with respect to the Company and the securities offered hereby, reference is made
to such Registration Statement and exhibits which may be inspected without
charge at the Commission's principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549.
Upon consummation of this Offering, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934 and in
accordance therewith will file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; at its New York Regional Office,
Room 1400, 7 World Trade Center, New York, New York 10048; and at its Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material can be obtained from the Public
Reference Section at prescribed rates. The Company intends to furnish its
shareholders with annual reports containing audited financial statements and
such other reports as the Company deems appropriate or as may be required by
law.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that was incorporated by reference in the Prospectus (not including
exhibits to the information that was incorporated by reference unless the
exhibits are themselves specifically incorporated by reference). Such requests
may be directed to Pedro P. Errazuriz, President and Chief Executive Officer,
c/o Andean Development Corporation, 835 Lakeside Drive, Boca Raton, Florida
33434, telephone number (407) 482-6336.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE- COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE
OF THE REPRESENTATIVE'S OVER-ALLOTMENT OPTION, THE REPRESENTATIVE'S PURCHASE
WARRANTS, THE WARRANTS, WARRANTS TO PURCHASE 21,000 SHARES OF COMMON STOCK (THE
"BRIDGE WARRANTS") ISSUED TO A BRIDGE LENDER IN CONNECTION WITH CERTAIN BRIDGE
FINANCING RECEIVED BY THE COMPANY IN APRIL, 1996 (SEE "BRIDGE FINANCING"), UP TO
250,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S STOCK
OPTION PLAN OR DIRECTORS STOCK OPTION PLAN (SEE "MANAGEMENT - INCENTIVE AND
NON-QUALIFIED STOCK OPTIONS PLAN"); (II) ASSUMES A PUBLIC OFFERING PRICE OF
$5.00 PER SHARE OF COMMON STOCK AND $.125 PER WARRANT; AND (III) GIVES EFFECT AS
OF DECEMBER 31, 1994, TO A REORGANIZATION (THE "REORGANIZATION") WHEREBY
ERRAZURIZ Y ASOCIADOS INGENIEROS S.A. ("E&A") AND IGENOR ANDINA S.A. ("INA"),
BOTH CORPORATIONS DOMICILED IN SANTIAGO, CHILE WILL BECOME SUBSIDIARIES OF THE
COMPANY EFFECTIVE UPON CLOSING OF THIS OFFERING AND WHEREBY THE SHAREHOLDERS OF
THESE AFFILIATED COMPANIES WILL EXCHANGE THEIR SHARES FOR SHARES IN THE COMPANY.
THE COMPANY
Andean Development Corporation was organized in 1994 as a holding
company to acquire Errazuriz y Asociados Ingenieros S.A. ("E&A") and Igenor
Andina S.A. ("INA"), both corporations domiciled in Santiago, Chile. Andean
Export Corporation, ("ADX"), domiciled in Boca Raton, Florida, U.S.A., is a
subsidiary of Andean Development Corporation. Andean Development Corporation,
E&A, INA, and ADX are collectively referred to as the "Company" or "ADC".
E&A, organized in February 1991, specializes, as an agent, in the sale
of major electrical and mechanical equipment and the representation of foreign
manufacturers of electrical and mechanical equipment in Chile. E&A also offers
technical assistance to, and prepares tender (bid) documents on behalf of its
customers in connection with turnkey and non-turnkey public works and
development projects to be constructed in Chile. Since 1991, E&A has facilitated
the sale of more than $415 million of equipment including generators, turbines
and conveyors (see "Business - Major Projects"), which has generated more than
$5 million of commissions for the Company. See "Business-Core Business."
INA, organized in 1986, provides engineering, consulting and project
management services for electric generating facilities and civil construction
projects including hydroelectric and other electric power plans, tunneling
projects and water treatment facilities located principally in Chile. Since
1986, INA alone and in conjunction with Norconsult International, A.S. of Norway
("Norconsult"), an international engineering company, has provided engineering,
consulting and project management services relating to engineering projects
valued at $19 million which services generated approximately $8.6 million in
revenues for the Company. See "Business - Core Business."
The Company's strategy is two-fold. First, the Company intends to
continue to grow and expand its core business presently being conducted through
E&A and INA. To facilitate this growth the Company will immediately establish a
sales and marketing office in the United States and in the latter part of 1996
will establish a second sales and marketing office in Spain which may also be
used for sales and marketing throughout Europe. The Company believes that its
future growth will be a natural consequence of the Company's historical
participation in the electric utility sector, ecology-oriented projects and the
potable and waste water treatment fields. The Company intends to expand its
marketing focus to include medium sized utilities, private mining companies and
large industrial companies. The Company believes that these businesses will
require the services of the Company, either to acquire new equipment, to
optimize and/or upgrade their existing installations or to comply with the
increasing ecological regulations of the government.
The Company believes that creating a U.S. holding company and
establishing a U.S. sales and marketing office will enhance its ability to do
business with U.S. companies and other North American
3
<PAGE>
companies. As part of this strategy, the Company will seek to take advantage of
the relative stability of the Chilean peso to the U.S. dollar. The Company
believes that, as a result of this relative stability, certain U.S., as well as
Canadian and Mexican, manufactured equipment and products may now be marketed to
customers in Chile at prices competitive with other foreign manufacturers(See
"Exchange Rates"). The Company also believes that many U.S. manufacturers may be
unfamiliar with the conditions and the qualifications required to bid on
projects in Chile. By establishing a U.S. office, the Company believes that it
will be able to act as a representative (both on an exclusive and non-exclusive
basis) of U.S. manufacturers both in the U.S. and Chile for projects located in
Chile by providing local expertise and understanding of the Chilean business
environment. The Company currently intends to employ one engineer and one
marketing person on a full-time basis in Boca Raton, Florida.
Second, the Company intends to capitalize on opportunities in the
current Chilean economy by acquiring equity interests in certain
ecology-oriented and electrical utility-related projects in Chile as well as by
providing management and other services to these projects. The Company also
intends to take advantage of the continuing privatization of businesses in
Chile, which has increased investment in Chile and increased Chilean industrial
and agricultural output. As an example of this strategy, the Company, through an
affiliate, has entered into an agreement with Empresa de Servicios de
Antofagasta, S.A. ("ESSAN"), a Chilean government-owned corporation that
provides water utility services to the municipality of Antofagasta, Chile, (See
"Business - Bayesa Project") to invest in a waste water treatment facility
located in Antofagasta, Chile (the "Bayesa Project"). In addition, the Company
is exploring potential equity participation in other ecology-oriented and
electric utility-related projects such as small to medium-sized hydroelectric
generating plants, electrical utilities, waste water treatment facilities and
other water-related projects. See "Business - Strategy for Equity
Participation." As of the date of this Prospectus, however, the Company has not
entered into any agreements with respect to acquiring equity interests in any
projects other than the Bayesa Project. The Company, pending completion of its
research and due diligence, intends to enter into formal negotiations in other
ecology-oriented and electrical utility projects in Chile, leading to formal
agreements.
The Company was incorporated on October 19, 1994, under the laws of the
State of Florida. The Company's offices are currently located at 835 Lakeside
Drive, Boca Raton, Florida, U.S.A. and its telephone number is (407) 482-6336.
4
<PAGE>
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered..................1,200,000 Shares
Warrants Offered......................1,200,000 Warrants
Common Stock Outstanding:
Before the Offering..........1,700,100(1)(2)
After the Offering...........2,800,100 Shares(1)(2)
Warrants Outstanding:
Before the Offering..........None
After the Offering...........1,200,000
Estimated Net Proceeds ...............$5,090,111(3)
Use of Proceeds:......................Purchase equity interests in ecology-oriented and electric utility-related
projects in Chile, establish offices in the U.S. and Spain, general and
administrative expenses and additional working capital. See "Use of
Proceeds."
Proposed Nasdaq Symbols(4):
Common Stock ................ADCC
Warrants.....................ADCCW
Risk Factors(5).......................The Common Stock and the Warrants offered hereby are speculative and
involve a high degree of risk. Investors should carefully consider the risk
factors enumerated hereafter before investing in the Common Stock and
the Warrants. See "Risk Factors" and "Dilution."
</TABLE>
- --------------------
(1) Gives effect to the Reorganization. The remaining 100 shares of Common
Stock are promotional shares held by Mr. Pedro P. Errazuriz, the
President, CEO and Chairman of the Board of ADC and were issued to
comply with Chilean law.
(2) Does not include Common Stock reserved for the Company's Stock Option
Plan and Directors Plan. See "Management - Incentive and Non-Qualified
Stock Option Plans."
(3) After subtracting the Underwriting discounts and commissions and
estimated offering expenses payable by the Company including a 3%
non-accountable expense allowance to the Representative.
(4) Nasdaq symbols do not imply that an established public trading market
will develop for any of these securities, or if developed, that any
such market will be sustained.
(5) See "Risk Factors-Possible Applicability of Rules Relating to
Low-Priced Stock; Possible Failure to Qualify for Nasdaq National
Market Listing."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth selected financial information
concerning the Company qualified by reference to the historical consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Period ended June 30,
-------------------------- -------------------------
(unaudited)
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED EARNINGS DATA:
Revenues $ 2,042,884 $ 2,717,341 $ 1,355,266 $ 1,472,037
Cost of Operations 296,896 697,599 266,753 318,167
Selling and Administrative
Expenses 460,775 509,563 321,050 227,300
Other Income (Expenses) (223,963) (520,543) (350,758) (131,061)
Income before Income Taxes 1,061,250 989,636 416,705 795,509
Income Taxes (Credit) 51,780 50,636 64,613 119,326
Net Income 1,009,470 939,000 352,092 676,183
Net Income per
common share $ 0.67 $ 0.63 $ 0.24 $ 0.45
Weighted average shares
outstanding 1,500,100 1,500,100 1,500,100 1,500,100
</TABLE>
<TABLE>
<CAPTION>
Period Ended
Period Ended Period Ended June 30, 1996
December 31, 1995 June 30, 1996 As Adjusted(1)
----------------- ------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital $ 173,329 $ 753,121 $ 5,783,512
Total assets 3,960,481 4,415,134 9,445,525
Total long-term Liabilities 706,624 646,359 646,359
Total liabilities 2,194,564 1,897,434 1,832,434
Stockholders' equity 1,765,917 2,517,700 7,548,091
<FN>
- -----------------------
(1) Adjusted to reflect sale of 1,200,000 shares of Common Stock and
1,200,000 Warrants offered hereby and the receipt of the net proceeds
therefrom (assuming an initial public offering price of $5.00 per share
of Common Stock and $.125 per Warrant, respectively, and after
deducting underwriting discounts and commissions and estimated offering
expenses). Does not include receipt of net proceeds from the
exercise of the Warrants, the Representatives' Purchase Warrants, the
Representative's Over-Allotment Option or the Bridge Warrants.
</FN>
</TABLE>
6
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Prospectus. Statements contained in this Prospectus that are not
historical facts are forward-looking statements that are subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. A number
of important factors could cause the Company's actual results for 1996 and
beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These factors include, without
limitation, those listed below in "Risk Factors."
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK AND THE WARRANTS OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN
INVESTMENT DECISION, SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS (INCLUDING THE FINANCIAL STATEMENTS AND
NOTES THERETO), THE FOLLOWING FACTORS:
LIMITED OPERATING HISTORY AND RISK OF INVESTMENT.
ADC was recently organized as a holding company to acquire E&A and INA,
both corporations domiciled in Chile. All the revenues shown in the financial
statements are attributable to operations of E&A and INA during the relevant
periods. By itself, the Company has only begun limited operations since its
inception on October 19, 1994, and has no revenue through the date hereof
although its operating companies, E&A and INA, have been in business for five
years and ten years, respectively. The Company anticipates that it will have
increased operating overhead as a result of its expanded operations resulting
from the implementation of its planned business strategy, strategic plan to
develop a stronger asset base, including acquisition of equity interests in the
Bayesa Project and other projects, which may adversely impact the Company's
profitability. Additionally, certain of the Company's proposed operations are
subject to all risks inherent in the establishment of a new business enterprise
in Chile. See "Business - Core Business and Strategy for Equity Participation."
RISK OF NEW PHASE OF DEVELOPMENT
Historically, the Company's operations and revenues have been based
primarily on services provided in connection with the sale of major electrical
equipment and engineering and other consulting services. While the Company has
been profitable during the fiscal years ended December 31, 1994 and 1995 and the
first and second quarters of the 1996 fiscal year, based upon its
service-oriented business, the Company is dependent on the proceeds of this
Offering to expand its operations in order to implement its strategic plan to
develop a stronger asset base and establish its presence in the U.S. and expand
its presence in Europe. "See Business - Major Projects."
Results of operations in the future will be influenced by numerous
factors, including market acceptance of the Company's future projects and
investments in Chile, the Company's capacity to develop and manage the projects
and businesses within which it invests, competition, and the ability of the
Company to control costs. There can be no assurance that revenue growth will be
sustained or that these projects or businesses will be profitable. Additionally,
the Company will be subject to all the risks incidental to a business entering
new markets in which such business has limited history or experience.
Accordingly, there can be no assurances that the Company will be able to
implement its business plan, expand its operations, or develop and sustain
profitable operations following the completion of this Offering. See "Business."
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NEED FOR ADDITIONAL FINANCING
Based on the Company's internal projections and budgets, as well as its
results for 1994, 1995, and the first and second quarters of 1996 the Company
believes that the net proceeds of this Offering, in addition to funds generated
from (i) anticipated cash flow from operations, (ii) additional equity
participation by third parties in certain of the Company's projects, and (iii)
project debt financing for certain of current projects, will enable the Company
to satisfy all of its anticipated financing needs for at least 12 months
following the closing of this Offering. See "Use of Proceeds" and "Business -
Strategy for Equity Participation."
The Company currently owns 4.5% of Bayesa S.A ("Bayesa"), the owner of
the Bayesa Project, through its 45% equity interest in Aguas y Ecologia S.A.
("A&E"). A&E currently owns 10% of the equity in Bayesa. The Company will
acquire an additional 2.25% interest in Bayesa by purchasing an additional 22.5%
interest in A&E pursuant to an agreement to purchase A&E shares from Inversiones
y Desarrollo Demco, S.A. ("Invdemco"), for $141,750, using a portion of the net
proceeds from this Offering (See "Use of Proceeds"). The Company may also
purchase additional equity in Bayesa from Biwater International Ltd. ("Biwater")
depending on the cost of the shares compared to other potential projects.
Biwater is a major international corporation domiciled in the U.K. and is
engaged in, among other businesses, the construction and operation of waste
water treatment facilities and currently owns 90% of the equity in Bayesa. It is
estimated that the cost to complete the Bayesa Project is $8 million and that
the Bayesa Project will be completed in approximately 14-16 months after the
effective date of this Prospectus. Of the $8 million needed to complete the
Bayesa Project, Bayesa has entered into a credit line agreement with Banco
Security to finance $4 million. In addition, Empresa de Servicios Sanitarios de
Antofagasta, S.A. ("ESSAN"), a governmentowned entity in charge of the water
system for the Province of Antofagasta, Chile, will fund approximately $2
million through the payment of construction and management fees pursuant to the
terms of the contract between ESSAN and Bayesa to construct and operate the
Bayesa Project. Banco Security has been granted a lien on the flow of payments
from ESSAN as well as the equipment and machinery contained in the Bayesa
Project. During the term of its contract with ESSAN, Bayesa will receive a total
of approximately $19 million plus an inflation factor from ESSAN over 150
months. The balance of approximately $2 million necessary for construction of
the Bayesa Project has been funded by the shareholders of Bayesa, who include
Biwater and A&E, in the form of equity contributions to Bayesa. Biwater has
provided approximately $1,800,000, and A&E has provided $200,000. Following the
purchase of additional shares in A&E from Invdemco using a portion of the
proceeds from this Offering, the Company will be a 67.5% shareholder in A&E.
The Company believes that Bayesa has sufficient commitments from
financial institutions and other sources for both debt and equity financing for
the Bayesa Project. There can be no assurances, however, that financing will be
available for future projects when needed or, if available, that it will be on
terms acceptable to the Company or in the best interests of its shareholders.
See "Use of Proceeds," "Business - Strategy for Equity Participation,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements."
RELIANCE ON THIRD PARTY MANUFACTURERS MAY DISRUPT OPERATIONS
The Company does not manufacture or sell any equipment. In its core
business, the Company, on a contract basis, relies on third-party manufacturers
for the equipment sold. Reliance on such manufacturers may subject the Company
to various risks associated with scheduling and timely production and delivery
of equipment, availability of completed products, as well as administrative
problems dealing with one or more manufacturers or suppliers. These risks
include, among others, the possibility of a change in the amount of commission
payable and a postponement when a commission owed to the Company may be due.
While the Company has never been subject to any material disruptions in its
operations, any such disruption could have a material adverse effect on the
Company. See "Business - Core Business."
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COMPETITION
In its core business, the Company is engaged in a highly-competitive
segment of an industry which is very active and consistently attracts new
competitors. The Company competes directly or indirectly with a number of
companies, many of which are larger, better capitalized, more established and
have greater access to resources necessary to produce a competitive advantage.
The Company's major competitors may be deemed to be those who represent
well-known manufacturers in Chile and include Gildemeister S.A.C. (Caterpillar),
Sigdo Koppers Comercial S.A.C. (Dresser International, Bridgestone), Pfeninger
and Co. (Sulzer Escher Wyss, Joy Manufacturing) and the local offices of larger
manufacturers or traders such as Marubeni, Babcock Wilcox, Mitsubishi, General
Electric, and GEC Alsthom. The Company believes, however, that the majority of
these competitors do not provide the range of services that the Company provides
to its customers, including arranging financing, local support and procuring
local materials and products, and coordinating suppliers with the customer
engineering departments. See "Business - Major Projects; Selected
Representations - Non-Exclusive; Competition."
CONTROL BY MANAGEMENT AND PRESENT SHAREHOLDERS OF THE COMPANY
Prior to this Offering, Mr. Pedro P. Errazuriz, the President, Chief
Executive Officer and Chairman of the Board of ADC, and his immediate family,
directly or indirectly, owned approximately 100% of the Company's issued and
outstanding Common Stock. After this Offering, Mr. Errazuriz and his immediate
family will directly or indirectly own approximately 71% of the outstanding
shares of Common Stock. See "Principal Shareholders." Since holders of the
Common Stock do not have any cumulative voting rights and directors are elected
by plurality vote, Mr. Errazuriz is in a position to control the election of
directors as well as the other affairs of the Company. See "Management" and
"Principal Shareholders."
DEPENDENCE ON KEY PERSONNEL
The success of the Company is highly dependent upon the continued
services of Mr. Pedro P. Errazuriz, who is the founder, President, CEO and
Chairman of the Board of ADC, and of Mr. Jose Luis Yrarrazaval, Mr. Gonzalo
Cordua, Mr. Juan Phillips and Mr. Juan Andres Errazuriz who are ADC's Treasurer
and Secretary, Operations Vice President, Technical Vice President and General
Manager, respectively. Although the Company currently has employment agreements
with Mr. Pedro P. Errazuriz, Mr. Yrarrazaval, Mr. Phillips, Mr. Cordua and Mr.
Juan Andres Errazuriz, the loss of the services of any of these individuals
could eventually have a material adverse effect on the business of the Company.
The Company intends to obtain a $1,000,000 key man life insurance policy, of
which the Company will be the beneficiary, on the life of Mr. Pedro P.
Errazuriz, effective as of the closing of the Offering. See "Management."
With the implementation of the Company's business strategy, it may
become necessary for the Company to hire additional experienced professional
individuals to meet its expanding needs. The Company intends to use certain of
its existing staff to perform a number of these duties and to participate in the
selection of new personnel, as required. Such individuals may include engineers,
technicians, management, marketing personnel or specialized consultants. While
the Company believes that by offering competitive salaries and benefit packages,
it will be able to solicit and hire qualified individuals, no assurances can be
made that such individuals will accept employment with the Company or will
continue to be employed by the Company, or that qualified individuals will
always be available to the Company when needed.
RELATED PARTY TRANSACTIONS
The Company has entered into transactions and may do so in the future
with officers, directors and shareholders of the Company, as well as their
affiliated companies. The terms of these transactions were no less favorable to
the Company than those available from and to unaffiliated parties. To the extent
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that the Company enters into transactions with these affiliated persons and
entities in the future, it will do so only on terms no less favorable to the
Company than those available from and to unaffiliated parties. See "Certain
Transactions."
ASSETS AND USE OF PROCEEDS TO BE HELD OUTSIDE THE U.S.; ENFORCEABILITY OF CIVIL
LIABILITIES AGAINST FOREIGN PERSONS
While ADC is a U.S. corporation, it is a holding company for E&A and
INA, both domiciled in Chile. For the foreseeable future, substantially all of
the assets of the Company, including approximately 87.5% of the net proceeds
from this Offering, will be held or used outside the United States (primarily in
Chile). See "Use of Proceeds" and "Business - Strategy For Equity
Participation."
Enforcement by investors of civil liabilities under the U.S. Federal
securities laws may adversely be affected by the fact that while ADC is located
in the U.S., two of its principal subsidiaries are located in Chile. The
Company's current officers, directors and management are residents of Chile, and
substantially all of the assets of the Company and of the officers, directors
and management of the Company are located outside the United States.
Additionally, the Company's major shareholders, Errazuriz y Asociados
Arquitectos, Ltda. (which currently owns approximately 40% of the Company before
the Offering) is domiciled in Chile and Igenor, Ingenierie et Gestion, S.A.
(which currently owns approximately 60% of the Company before the Offering) is
domiciled in Switzerland. See "Principal Shareholders."
DISCRETION IN USE OF PROCEEDS
The Company presently intends to use the net proceeds from this
Offering for the purposes set forth in "Use of Proceeds." However, management of
the Company has broad discretion to adjust the application and allocation of the
net proceeds of this Offering in order to address changes in circumstances or
opportunities. Up to approximately 44% of the net proceeds has been allocated to
Bayesa and other projects. In addition, approximately 28% of the net proceeds
are allocated to working capital, including expansion of marketing and sales and
hiring of personnel. As a result of the foregoing, the success of the Company
will be substantially dependent upon the discretion and judgment of the
management of the Company with respect to the application and allocation of the
net proceeds of this Offering. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
This Offering involves immediate dilution of approximately $2.20 per
share of Common Stock (or approximately 44% dilution) to new investors, without
giving effect to the exercise or issuance of the Warrants, the Representative's
Over-Allotment Option, the Representative's Purchase Warrants, the Bridge
Warrants, or up to 250,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan and Directors Plan. See "Dilution" and
"Management - Incentive and Non-Qualified Stock Option Plans."
ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS
The public offering price of the Common Stock and the Warrants and the
exercise price of the Warrants, as well as the exercise price of the
Representative's Purchase Warrants, have been determined solely by negotiations
between the Company and the Representative. Among the factors considered in
determining these prices were the Company's current financial condition and
prospects, market prices of similar securities of comparable publicly-traded
companies, and the general condition of the securities market. However, the
public offering price of the Common Stock and the Warrants, and the exercise
price of the Warrants and the Representative's Purchase Warrants do not
necessarily bear any relationship to the Company's assets, book value, earnings
or any other established criterion of value. See "Underwriting."
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NECESSITY TO MAINTAIN CURRENT PROSPECTUS
The shares of Common Stock issuable upon exercise of the Warrants and
the Securities issuable upon exercise of the Representative Purchase Warrants
have been registered with the Commission. The Company will be required, from
time to time, to file post-effective amendments to its registration statement in
order to maintain a current prospectus covering the issuance of such shares upon
exercise of the Warrants. The Company has undertaken to make such filings and to
use its best efforts to cause such post-effective amendments to become
effective. If for any reason a required post-effective amendment is not filed or
does not become effective or is not maintained, the holders of the Warrants may
be prevented from exercising their Warrants. See "Description of Securities -
Warrants."
STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants have the right to exercise the Warrants only if
the underlying shares of Common Stock are qualified, registered or exempt from
registration under applicable securities laws of the states in which the various
holders of the Warrants reside. The Company cannot issue shares of Common Stock
to holders of the Warrants in states where such shares are not qualified,
registered or exempt. The Company has undertaken, however, to qualify on NASDAQ
National Markets which provides for blue sky registration in substantially all
states. See "Description of Securities - Warrants."
CALLABLE WARRANTS AND IMPACT ON INVESTORS
The Warrants are subject to redemption by the Company in certain
circumstances. The Company's exercise of this right would force a holder of the
Warrants to exercise the Warrants and pay the exercise price at a time when it
may be disadvantageous for the holder to do so, to sell the Warrants at the then
current market price when the holder might otherwise wish to hold the Warrants
for possible additional appreciation, or to accept the redemption price, which
is likely to be substantially less than the market value of the Warrants in the
event of a call for redemption. Holders who do not exercise their Warrants prior
to redemption by the Company will forfeit their right to purchase the shares of
Common Stock underlying the Warrants. The foregoing notwithstanding, the Company
may not call the Warrants at any time that a current registration statement
under the Securities Act of 1933, as amended, is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the date
of this Prospectus shall require the written consent of the Representative. See
"Description of Securities - Warrants."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET
It is anticipated that a significant amount of the Common Stock and the
Warrants will be sold to customers of the Representative. Although the
Representative has advised the Company that it intends to make a market in the
Common Stock and the Warrants, it will have no legal obligation to do so. The
prices and the liquidity of the Common Stock and the Warrants may be
significantly affected by the degree, if any, of the Representative's
participation in the market. No assurance can be given that any market making
activities of the Representative, if commenced, will be continued. See
"Underwriting."
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REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE COMPANY
The Company has agreed that after the effective date of this
Prospectus, the Representative may designate a person to attend meetings of the
Board of Directors.
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE
TO QUALIFY FOR NASDAQ NATIONAL MARKET SYSTEM OR SMALLCAP MARKET LISTING
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price (as defined) of less
than $5 per share, subject to certain exceptions. While the price at which the
shares of Common Stock offered to the public pursuant to this Offering will be
at $5.00, the Warrants offered hereby will initially be deemed to be
"penny stocks" and thus will become subject to rules that impose additional
sales practice requirements on broker/dealers who sell such securities to
persons other than established customers and accredited investors, unless the
Common Stock and the Warrants are listed on the Nasdaq SmallCap Market or the
Nasdaq National Market. There can be no assurance that the Company will be able
to satisfy the listing criteria of the Nasdaq SmallCap Market or the Nasdaq
National Market System or that the Common Stock or the Warrants will trade for
$5 or more per security after the offering. Consequently, the "penny stock"
rules may restrict the ability of broker/dealers to sell the Company's
securities and may affect the ability of purchasers in this Offering to sell the
Company's securities in a secondary market.
Although the Company has applied for listing of the Common Stock and
the Warrants on the Nasdaq National Market, there can be no assurance that such
application will be approved or that a trading market for the Common Stock and
the Warrants will develop or, if developed, will be sustained. Furthermore,
there can be no assurance that the securities purchased by the public hereunder
may be resold at their original offering price or at any other price. If the
Common Stock and the Warrants are not approved for listing on the Nasdaq
National Market, the Company intends to apply for listing of the Common Stock
and the Warrants on the Nasdaq SmallCap Market, however, there can be no
assurance that such application would be accepted.
In order to qualify for initial listing on the Nasdaq SmallCap Market,
a company must, among other things, have at least $4,000,000 in total assets, $2
million net worth, $1 million "public float," and a minimum bid price for its
securities of $3 per share. For continued listing on the Nasdaq SmallCap Market,
a company must maintain $2 million in total assets, a $200,000 market value of
the public float and $1 million in total capital and surplus. In addition,
continued inclusion requires two market-makers and a minimum bid of $1 per
share; provided, however, that if a company falls below such minimum bid price,
it will remain eligible for continued inclusion on the Nasdaq SmallCap Market if
the market value of the public float is at least $1 million and the Company has
$2 million in capital and surplus. The failure to meet these maintenance
criteria in the future may result in the discontinuance of the inclusion of the
Common Stock and Warrants on the Nasdaq SmallCap Market.
If the Company is or becomes unable to meet the listing criteria
(either initially or on a continued basis) of the Nasdaq SmallCap Market and is
never traded or becomes delisted therefrom, trading, if any, in the Common Stock
and the Warrants would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or, if then available, "Electronic Bulletin Board"
administered by the National Association of Securities Dealers, Inc. (the
"NASD"). In such an event, the market price of the Common Stock and the Warrants
may be adversely impacted. As a result, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market value of the
Common Stock and the Warrants.
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock of the
Company, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. Upon completion of this Offering,
the Company will have a total of 2,700,100 shares of Common Stock outstanding
(without giving effect to the exercise of the Warrants, the Representatives'
Over-Allotment Option, the Representative's Purchase Warrants, the Bridge
Warrants, or up to 250,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan and Directors Plans), of which 1,500,100
represent shares of Common Stock which will be "restricted" securities within
the meaning of Rule 144 under the Act and, generally, may be sold only in
compliance with Rule 144 under the Act. Under Rule 144 a person who has held
restricted securities for a period of two years may sell a limited number of
such securities into the public market without registration of such securities
under the Act. Rule 144 also permits, under certain circumstances, persons who
are not affiliates of the Company to sell their restricted securities without
quantity limitations once they have satisfied the Rule's three year holding
period. See "Risk Factors - Shares Eligible for Future Sale." Sales made
pursuant to Rule 144 by the Company's existing shareholders may have a
depressive effect on the price of the shares of Common Stock in the public
market, should a public market for the shares of Common Stock develop. Such
sales could also adversely affect the Company's ability to raise capital at that
time through the sale of its equity securities. No prediction can be made as to
the effect, if any, that future sales of Common Stock, or the availability of
Common Stock for future sales, will have on the market price of the Common Stock
from time to time or the Company's ability to raise capital through an offering
of its equity securities in the future. The holders of the Company's outstanding
shares of Common Stock have agreed, however, not to sell or otherwise dispose of
for a 24-month period from the date hereof any of the Common Stock without the
prior consent of the Company and the Representative. The Representative has
no agreements or understandings with respect to granting such consent and, in
general, determine whether to grant such consent based on the facts and
circumstances of a specific request.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and
Bylaws may be deemed to have anti-takeover effects and may delay, defer or
prevent a takeover attempt of the Company, which include when and by whom
special meetings of the Company may be called. In addition, certain provisions
of the Florida Business Corporation Act also may be deemed to have certain
anti-takeover effects which include that control of shares acquired in excess of
certain specified thresholds will not possess any voting rights unless these
voting rights are approved by a majority of a corporation's disinterested
shareholders.
Additionally, the Company's Articles of Incorporation, Bylaws and
Florida law authorize the Company to indemnify its directors, officers,
employees and agents and limit the personal liability of corporate directors for
monetary damages, except in certain instances. See "Description of Securities -
Certain Florida Legislation; Anti-takeover Effects of Certain Provisions of the
Company's Articles of Incorporation and Bylaws."
EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS
In connection with this Offering, the Company will sell to the
Representatives, for nominal consideration, warrants to purchase 120,000 shares
of Common Stock and 120,000 Warrants from the Company. The Representative's
Purchase Warrants will be exercisable for a five year period commencing from the
effective date of the offering price of 150% of the price at which the Common
Stock and the Warrants are sold to the public subject to adjustment. The
Representative's Purchase Warrants may have certain dilutive effects because the
holders thereof will be given the opportunity to profit from a rise in the
market price of the underlying shares with a resulting dilution in the interest
of the Company's other shareholders. The terms on which the Company could obtain
additional capital during the life of the Representative's Purchase Warrants may
be adversely affected
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because the holders of the Representative's Purchase Warrants might be expected
to exercise them at a time when the Company would otherwise be able to obtain
comparable additional capital in a new offering of securities at a price per
share greater than the exercise price of the Representative's Purchase Warrants.
The Company has agreed that, at the request of the holders thereof
under certain circumstances, it will register under federal and state securities
laws the Representative's Purchase Warrants and/or the securities issuable
thereunder. Exercise of these registration rights could involve substantial
expense to the Company at a time when it could not afford cash expenditures and
may adversely affect the terms upon which the Company may obtain additional
funding and may adversely affect the price of the Common Stock. See
"Underwriting."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Although the Company has applied to list the Common Stock
and the Warrants for quotation on the Nasdaq National Market System, there can
be no assurance that a regular trading market will develop (or be sustained, if
developed) for the Common Stock or the Warrants upon completion of this
Offering, or that purchasers will be able to resell their Common Stock or
Warrants or otherwise liquidate their investment without considerable delay, if
at all. Recent history relating to the market prices of newly public companies
indicates that, from time to time, there may be significant volatility in their
market price. There can be no assurance that the market price of the Common
Stock or the Warrants will not be volatile as a result of a number of factors,
including the Company's financial results or various matters affecting the stock
market generally.
CONSIDERATIONS RELATING TO CHILE
RISKS INHERENT IN INVESTING IN SOUTH AMERICAN COUNTRIES
In the past, geopolitical frictions have existed between countries
located in the southern area of South America, which includes Argentina, Brazil,
Bolivia, Chile, Paraguay, Peru and Uruguay (the "Southern Cone" countries). This
tension has resulted in difficulties in foreign trade, and particularly the
inherent adverse effects that may develop when goods (including equipment sold
through the Company) are delayed by customs. Additionally, there have been
problems with citizens of one Southern Cone country freely traveling to other
Southern Cone countries. Furthermore, countries have been reluctant to hire
nationals of one country for executive positions in other Southern Cone
countries.
While over the past five years, travel and commerce among the Southern
Cone countries have become increasingly easier and the Company has not been
adversely affected by geopolitical, economical, legal or other problems inherent
in doing business with foreign countries, there can be no assurances that such
problems will not occur in the future. However, the Company currently does not
import or export products or equipment from or to foreign countries (including
Southern Cone countries). Nonetheless, to the extent that the Company does
decide to become involved in projects in foreign countries and particularly with
Southern Cone countries in the foreseeable future, it will do so primarily with
Chilean-based companies that are developing projects outside of Chile, but who
make their bidding decisions and payments in Chile.
INFLATION
A number of reforms have been introduced by the Chilean government over
the past 20 years to achieve macroeconomic stability and to increase economic
growth, while controlling inflation. The average annual inflation rate in Chile,
as of December 1993, December 1994, and December 1995, has been 12.2%, 8.9% and
8.2% (based on information provided by the Banco Security). These economic and
inflationary reforms which have had a direct impact on the country and,
therefore, the Company
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include (i) implementing a monetary stabilization program, which decreases the
public sector deficit and keeps a tight control on monetary expansion while
maintaining a flexible, but controlled, exchange rate with foreign currencies;
(ii) privatization of public utilities; and (iii) trade, labor market and social
security reforms including the free interchange of foreign and Chilean capital,
elimination of many trade and custom barriers and modification and privatization
of the Chilean social security system. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Based on its recent experience, the Company believes, but there can be
no assurances, that moderate inflation in Chile will have no material adverse
effect on the Company's operations because (i) substantially all of the
Company's bids and agreements are made in UF (Unidad de Fomento), an indexing
mechanism used in Chile that ties most of the payments and obligations owed to
the Company to Chile's consumer price index; (ii) a number of agreements are
tied to tariffs regulated by the Chilean government which also contain other
indexing mechanisms intended to neutralize the effects of inflation; and (iii)
other agreements include other inflationary controls in the event of a
devaluation of the Chilean peso against other foreign currencies. See "Use of
Proceeds," "Exchange Rates" and "Business."
While Chilean inflation has not had a material adverse effect on the
operations of the Company over the past three years, there can be no assurance
that changes in the performance of the Chilean economy will not adversely affect
the Company or the securities offered hereby.
CURRENCY FLUCTUATIONS
The Chilean government's economic policies and any future changes in
the value of the Chilean peso against the U.S. dollar could adversely affect the
value of the Common Stock and Warrants. The Chilean peso has been subject to
large devaluations in the past and may be subject to significant fluctuations in
the future. In the period from January 1, 1994 to March 31, 1996, the value of
the peso relative to the U.S. dollar declined approximately 5% (from 397.87 to
411.61 Chilean pesos for one U.S. dollar) in nominal terms, based on the Tipo de
Cambio Observado (Observed Exchange Rate), an exchange rate value supplied daily
by the Central Bank of Chile which corresponds to the medium rate at which the
U.S. dollars were freely sold or bought by the banks to any customer the day
before. See "Exchange Rates."
Currency fluctuations may have an effect on the Company's current
activities by the fact that the Company's operational expenses (costs) are tied
to the UF, while revenues are generally tied to the U.S. dollar or other foreign
currencies (depending from whom equipment is purchased or for whom services are
provided). See "Exchange Rates." A weakening of the U.S. dollar (or other
foreign currencies) against the Chilean peso means that while the Company's
revenues may remain unaffected by the weakening of the U.S. dollar against the
Chilean peso, the Company's costs (which are paid in Chilean pesos) will
increase. Conversely, if the Chilean peso is weak against foreign currencies,
the cost of local goods and services are less expensive. While currency
fluctuations have not had a material effect on the financial condition of the
Company during the past three years (see "Financial Statements") because most of
the Company's contracts and agreements (both with foreign and domestic entities)
either are tied (i) directly to the UF; (ii) to both the UF and U.S. dollar in
parity; or (iii) are regulated by government controlled tariffs with internal
mechanisms to control currency fluctuations, no assurances can be made that any
such currency fluctuation will not adversely affect the Company. See "Exchange
Rates" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
FOREIGN CORRUPT PRACTICES ACT
Substantially all of the Company's operations are transacted in South
America. To the extent that the Company conducts operations and sells its
products outside the U.S., the Company is subject to the Foreign Corrupt
Practices Act which makes it unlawful for any issuer to corruptly pay or offer
to pay, any money or anything of value to any foreign official, foreign
political party or official thereof or any candidate for foreign political
office ("Foreign Officials") or any person with knowledge that all or a portion
of such money or thing of value will be offered, given, or promised, directly or
indirectly, to any Foreign Official.
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While the Company has not made any offers, payments, promises to pay,
or authorization of any money or anything of value to any foreign officials, the
Company has implemented a policy to be followed by the officers, directors,
employees and anyone acting on behalf of the Company, that no such payments can
and will be made. The Company has made all employees cognizant of the need for
compliance with the Foreign Corrupt Practices Act and any violation of the
Company policy will result in dismissal. Further, the Company conducts periodic
reviews of this policy with all employees to ensure full compliance.
TAXES ON DIVIDENDS
Upon distribution of a dividend, a foreign or a Chilean shareholder of
a Chilean corporation is subject to a 35% percent withholding tax less a credit
for any corporate taxes paid by the Chilean corporation. However, the payment of
foreign (Chilean) taxes may be credited against U.S. federal income tax. Persons
investing in Chilean corporations have the right to be exempt from any
contribution, tax or other obligation on the net proceeds resulting from the
sale of stock of such Chilean corporation or the sale or liquidation of entities
acquired with proceeds of such investment, up to the amount of capital brought
into Chile through the investment. This is accomplished by entering into a
foreign investment contract with the Chilean government.
In addition, persons investing in Chilean corporations have the right
to opt for a system of tax invariability that fixes the tax laws applicable to
the investment to the laws applicable at the time of the investment (See "Risk
Factors - Restrictions on Repatriation with Respect to Investment in Underlying
Shares").
Through the Reorganization and the use of net proceeds of this Offering
by the Company to conduct operations in Chile, the Company will be making
investments subject to the aforementioned taxes. Potential purchasers of the
Common Stock and the Warrants should consult their own tax advisors regarding
the impact of these taxes.
RESTRICTIONS ON REPATRIATION WITH RESPECT TO INVESTMENTS IN UNDERLYING SHARES
Equity investments in Chile by persons who are not Chilean residents
are legally protected and cannot be generally subject to exchange-control
regulations which restrict the repatriation of the investments, if not expressly
agreed otherwise at the moment of investing in the country. Earnings follow the
same rule, but are subject to profit taxes (See "Risk Factors - Chilean Taxes on
Dividends"). Although there have been no cases of deviations from this rule for
more than 21 years, there is no assurance that such a deviation could not occur
in the future. The Company intends to enter into a foreign investment contract
with the government which stays the laws concerning foreign investments as of
the date of the contract and permits income to flow outside Chile. Through the
Reorganization and the use of net proceeds of this offering to conduct
operations in Chile, the Company will be making investments subject to the
aforementioned restrictions. There can be no assurances that the aforementioned
restrictions will not have a material adverse impact on the Company and its
shareholders. See "Business - Government Regulations."
It is not possible to foresee all risk factors which may affect the
Company. Moreover, there can be no assurance that the Company will successfully
effectuate its business plan. Each prospective investor should carefully analyze
the risks and merits of an investment in the Common Stock and the Warrants and
should take into consideration when making such an analysis, among others, the
risk factors discussed above.
16
<PAGE>
USE OF PROCEEDS
The gross proceeds from the sale of the 1,200,000 shares of Common and
1,200,000 Warrants offered hereby are estimated to be $6,150,000 assuming an
initial public offering price of $5.00 per share of Common Stock and $0.125 per
Warrant. The proceeds of this Offering are estimated to be $5,090,111 after
deducting from the gross proceeds of this Offering underwriting discounts and
commissions, a non-accountable expense allowance payable to the Representative
equal to 3% of such gross proceeds. This does not include Offering expenses
payable by the Company estimated to be approximetely $260,961. Approximately
$4,327,079 (85%) of the net proceeds will flow to Chile. The Company intends to
use the proceeds of this Offering, during the 12 months following the date of
this Prospectus, approximately as follows:
<TABLE>
<CAPTION>
Anticipated Use of Net Proceeds Approximate Amount Percentage of Proceeds
- ------------------------------- ------------------ ----------------------
<S> <C> <C>
Acquisition and Development of
other Projects(1)(3)................................ $2,158,250 42.4%
Purchase of Additional Shares of Bayesa(2).......... $ 141,750 3%
Retirement of Debt(4)............................... $ 700,000 14%
Establishment of a U.S. office(5).................. $ 425,000 8.3%
Establishment of an office in Spain(5).............. $ 425,000 8.3%
Repayment of Bridge Loan . ......................... $ 65,000 1%
---------- ----
Working capital(6).................................. $1,175,111 23%
---------- ----
Total............................................... $5,090,111 100%
========== ====
</TABLE>
- -----------------
(1) The aggregate amount of proceeds that directly or indirectly flow to
affiliates include the purchase of an additional equity interest in the
Bayesa Project through the purchase of A&E shares from Invdemco for
$141,750 and the retirement of the outstanding mortgage on the
Villarrica Property ($700,000) upon the purchase of the Villarrica
Property by Invdemco. Invdemco is owned by Mr. Errazuriz, President,
CEO and Chairman of the Board of ADC, and other members of his family.
Mr. Errazuriz is a 50% shareholder of Invdemco. See notes (2) and (4)
herein and "Certain Transactions".
(2) The Bayesa Project includes the design, construction and management of
a waste water treatment facility in Antofagasta, Chile and the right to
sell reclaimed industrial grade water. To facilitate the acquisition of
an additional equity interest in Bayesa, the Company will purchase an
additional 22.5% interest in A&E which translates into a 2.25% equity
interest in Bayesa for $141,750, pursuant to an agreement to purchase
A&E shares from Invdemco consummated in March of 1996 with the
shareholders of Invdemco. Invdemco is owned by Mr. Errazuriz,
President, CEO and Chairman of the Board of ADC, and other members of
his family. Mr. Errazuriz is a 50% shareholder of Invdemco. During
December, 1995, the Company completed a similar transaction, and
purchased 45% of A&E which equals a 4.5% equity interest in Bayesa for
$283,500. The valuation of the shares of A&E acquired and to be
acquired from Invdemco was determined by an unrelated third party
valuation consultant, Ingesis Ltd., and was based upon the projected
revenues for the Bayesa Project. The Company may consider purchasing
additional equity in Bayesa from Biwater depending on the cost of such
equity as compared to other potential projects. The cost of the Bayesa
Project is estimated to be $8 million, of which $6 million or 75% is
expected to come from sources other than capital contributions to
Bayesa, including bank financing ($4 million) and from the payment of
construction and management fees ($2 million). The remaining $2 million
for the Bayesa Project has been funded by the shareholders of Bayesa in
the form of capital contributions to Bayesa ($1,800,000 by Biwater and
$200,000 by A&E). See "Risk Factors - Need for Additional Financing."
(3) The Company is presently reviewing various projects for acquisition and
development. However, as of the date of this Prospectus, the Company
has not entered into any agreements with respect to acquiring equity
interests in any projects other than the Bayesa Project.
(4) Retirement of Debt relates to retirement of the outstanding mortgage on
the Villarrica Property which is being sold to Invdemco for $1,212,063.
Invdemco is owned by Mr. Errazuriz, President, CEO and Chairman of the
Board of ADC, and other members of his family. Mr. Errazuriz is a 50%
shareholder of Invdemco. See "Management Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources" and "Certain Transactions" and "Supplemental Consolidated
Financial Statements-Note 9."
(5) A total of $850,000 will be used to establish Company offices in Spain
and the U.S.
(6) The working capital will be used, primarily, in Chile.
The amounts set forth above are estimates developed by management of
the allocations of the net proceeds of this Offering based upon the current
state of the Company's business operations, its plans and current economic and
industry conditions. The proposed application of the net proceeds is subject to
changes in operating circumstances and financial conditions in general not
presently anticipated and
17
<PAGE>
not deemed to represent a substantial departure from the allocations set forth
above. There can be no assurance that the Company's estimates will prove to be
accurate or that unforeseen expenses will not occur. The Company expects that
the net proceeds from this Offering, combined with funds generated from on-going
business operations, will be sufficient to enable the Company to continue to
pursue its present and proposed business activities for a period of at least 12
months from the date of the completion of this Offering. Any additional proceeds
realized from the exercise of the Representative's Over-Allotment Option or the
Warrants will be used for working capital in Chile to develop an equity
participation by the Company in the hydroelectric sector in Chile. Pending use
of the net proceeds of this Offering, the Company may make temporary investments
in bank certificates of deposit, interest bearing savings accounts, prime
commercial paper, United States Government obligations and money market funds.
Any income derived from these short term investments will be used for working
capital.
DIVIDEND POLICY
ADC has never paid dividends on its common stock since its inception on
October 19, 1994; however, both INA and E&A paid dividends in the aggregate to
their shareholders during 1993, 1994 and 1995, of $835,737, $866,256 and
$300,000, respectively, based on net revenues and net income for those years.
The Company does not intend to pay cash dividends in the foreseeable future. See
"Principal Shareholders" and "Description of Securities."
18
<PAGE>
DILUTION
The net tangible book value of the common stock at June 30, 1996 was
$2,517,700 or $1.68 per share. "Net tangible book value per share" represents
the amount of total tangible assets less total liabilities, divided by the
number of total shares of Common Stock outstanding. After giving effect to the
sale of the 1,200,000 shares of Common Stock at an assumed initial public
offering price of $5.00 per share, with no value being attributable to the
Warrant, and the initial application of the estimated net proceeds therefrom,
pro forma as adjusted net tangible book value of the Company at June 30, 1996,
would have been $7,548,711 or $2.80 per share, representing an immediate
increase in net tangible book value of $1.12 per share to existing shareholders
and an immediate dilution of $2.20 per share (or approximately 44% dilution) to
purchasers of shares of Common Stock in this Offering as illustrated in the
following table:
Assumed initial public offering price per share(1)............. $5.00
Net tangible book value per share before Offering............ $1.68
Increase in value per share attributable to new investors... 1.12
----
Pro forma net tangible book value per share after Offering(2).. 2.80
----
Dilution per share to new investors............................ $2.20
Percent of Dilution to new investors........................... 44%
The following table sets forth as of June 30, 1996, (i) the number of shares of
Common Stock purchased from the Company by the existing shareholders (giving
effect to the exchange of shares of Common Stock for all of the issued and
outstanding equity interests of INA and E&A to be effective upon closing of this
Offering), the total consideration paid and the average price per share paid for
such shares by the existing shareholders; and (ii) the number of shares of
Common Stock to be sold by the Company in this offering, the total consideration
to be paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Cash Consideration Average Price
---------------- ------------------------ -------------
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 1,500,110 56% $ 749,722 10.87% $ 0.50
New Investors 1,200,000 44% $6,150,000(2) 89.13% $5.125(1)
--------- ---- ---------- ------ ======
Total 2,700,100 100% $6,899,722 100.0% $2.555
========= ==== ========== ======
</TABLE>
- -------------------
(1) Offering price before deduction of underwriting discounts and
commissions payable by the Company.
(2) Does not include exercise or issuance of the Warrants, the
Representatives's Over-Allotment option, the Representative's Purchase
Warrants, the Bridge Warrants, or up to 250,000 shares of common stock
reserved for issuance under the Stock Option Plan or the Directors
Plan. See "Management - Incentive and Non-Qualified Stock Option
Plans."
19
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996, the capitalization
of the Company, actual and as adjusted for the issuance and sale of the
1,000,000 shares offered hereby assuming an initial public offering price of
$6.00 per share of Common Stock and $.25 per Warrant and after deducting
estimated offering expenses payable by the Company and underwriting discounts
and commissions and after giving effect to the initial application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
Historical
Historical(1) As Adjusted(1)(2)
------------- -----------------
<S> <C> <C>
Long-term Debt(3)................................................... $628,243 $252,965
Retirement benefit obligation....................................... 18,116 18,116
Stockholders' equity:
Common Stock ($.0001 par value) 20,000,000 shares authorized;
1,500,100 issued and outstanding (actual) and 2,700,100
(as adjusted)(2)................................................. 150 270
Additional paid-in capital.......................................... 749,722 5,856,213
Retained earnings................................................... 1,813,919 1,738,319
Cumulative translation adjustment................................... (46,091) (46,091)
---------- ----------
Total shareholders' equity.......................................... 2,517,700 7,548,711
Total capitalization............................................. $3,164,059 $7,819,789
</TABLE>
- -------------------
(1) Gives effect to the Reorganization and excludes the issuance of (i)
1,200,000 shares of Common Stock upon exercise of the Warrants (ii) up
to 120,000 shares of Common Stock issuable pursuant to the
Representative's Over-Allotment Option or that underlie the Warrants
contained therein; (iii) up to 120,000 shares issuable pursuant to the
Representative's Purchase Warrants or that underlie the Warrants
contained therein and (iv) up to 21,000 share of Common Stock issuable
upon exercise of the Bridge Warrants and (v) up to 250,000 shares of
Common Stock reserved for issuance under the Company's Stock Option
Plans and Directors Stock Option Plan, of which no shares of Common
Stock are currently subject to outstanding options. See "Underwriting,"
"Management - Incentive and Non-Qualified Stock Option Plans," and
"Description of Securities.
(2) Gives effect to the issuance of 1,200,000 shares of Common Stock and
1,200,000 Warrants offered hereby and the receipt of the net proceeds
therefrom.
(3) Includes the deduction of long-term debt on the Villarrica property.
See "Supplemental Consolidated Financial Statements - Note 9."
20
<PAGE>
EXCHANGE RATES
Unless otherwise specified, references herein to "U.S. dollars",
"dollars", "$", or "U.S.$" are to United States dollars and references to
"Chilean pesos," "pesos" or "Ch$" are to Chilean pesos, the legal currency of
Chile, and peso-denominated monetary unit. The Unidad de Fomento (UF) rate is
set daily against the Chilean peso in advance based upon the changes in the
previous month's inflation rate. The UF is a monetary unit indexed daily with
the Chile Consumer Price Index (CPI). As of July 11, 1996, the exchange rate was
31.77 U.S. dollars to 1 UF.
For the convenience of the reader, this Prospectus contains
translations of certain peso amounts into U.S. dollars at specified rates.
Unless otherwise indicated, information regarding the U.S. dollar equivalents of
amounts in pesos is based on the Observed Exchange Rate (as defined herein under
"Exchange Rate") reported by the Banco Central de Chile (the "Central Bank of
Chile" or the "Central Bank") for July 11, 1996, which was Ch$411.29 =
U.S.$1.00. The Federal Reserve Bank of New York does not report a noon buying
rate for pesos. No representation is made that the peso or U.S. dollar amounts
shown in this Prospectus could have been or could be converted into U.S. dollars
or pesos, as the case may be, at such rate or at any other rate.
Chile's Ley Organica Constitucional del Banco Central de Chile No.
18.840 (the "Central Bank Act") enacted in 1989, liberalized the rules that
govern the ability to buy and sell foreign exchange. Prior to 1989, the law
permitted the purchase and sale of foreign exchange only in those cases
explicitly authorized by the Central Bank of Chile (the "Central Bank"). The
Central Bank Act now provides that the Central Bank may determine that certain
purchases and sales of foreign exchange may be exercised by the banks and other
entities so authorized by the Central Bank.
For the purposes of certain operations at the Formal Exchange Market,
the Central Bank sets a reference exchange rate (dolar acuerdo) (the "Reference
Exchange Rate"). The Reference Exchange Rate is reset monthly by the Central
Bank, taking internal and external inflation into account, and is adjusted daily
to reflect variations in parities between the peso and each of the U.S. dollar,
the Japanese yen and the German mark. In January 1992, the Central Bank revalued
the Reference Exchange Rate by 5%. The Central Bank, in order to keep the
average exchange rate within certain limits, intervenes by buying or selling
foreign exchange on the Formal Exchange Market. The daily observed exchange rate
or spot rate for a given date (the "Observed Exchange Rate") is the average
exchange rate at which commercial banks conduct authorized transactions on such
date as determined by the Central Bank. The Central Bank is authorized to carry
out its transactions at those rates. It generally carries out its transactions
at the Reference Exchange Rate and at the spot market rate. However, when
commercial banks exceed their own regulations and responsibilities and need to
buy U.S. dollars from the Central Bank, or need to sell U.S. dollars to the
Central Bank, such sales are made by the Central Bank not above 10% of the
Reference Exchange Rate and such purchases are made by the Central Bank not
below 10% of the Reference Exchange Rate. Authorized transactions by banks are
generally transacted at the spot market rate which may fluctuate between 10%
over and 10% under the Reference Exchange Rate as a maximum, but has a steady
movement with daily fluctuations which usually do not exceed 0.5% of the
previous day's price.
Purchases and sales of foreign exchange which may be affected outside
the Formal Exchange Market can be carried out in the Mercado Cambiario Informal
(the "Informal Exchange Market"). The Informal Exchange Market and its
predecessor, the "Unofficial Market," reflect the supply and demand for foreign
currency. There are no limits imposed on the extent to which the rate of
exchange in the Informal Exchange Market can fluctuate above or below the
Observed Exchange Rate. The Company estimates that since 1989, the rate of
exchange for pesos into U.S. dollars on such markets has usually fluctuated
between approximately 0.2% below and 1.5% above the Observed Exchange Rate.
21
<PAGE>
The following table sets forth the annual high, low, average and
year-end Observed Exchange Rate for U.S. dollars for each year starting in 1990
as reported by the Central Bank. The Federal Reserve Bank of New York does not
report a noon buying rate for pesos.
Year Observed Exchange Rates of Ch$ per U.S.$
---- ----------------------------------------
Low(1) High(1) Average(2) Period End
------ ------- ---------- ----------
1990 280.88 337.75 304.90 336.86
1991 336.67 374.87 349.21 371.93
1992 343.93 382.33 362.58 382.33
1993 382.12 431.04 404.17 431.04
1994 397.87 433.69 420.18 404.09
1995 385.78 409.40 396.73 395.89
1996 (1st Quarter) 404.76 413.86 410.35 411.61
Source: CENTRAL BANK OF CHILE
- -------------------
(1) Exchange rates are the actual high and low, on a day-to-day basis, for
each period.
(2) The average monthly rates during the period.
22
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth below contain selected consolidated
financial data as of and for the dates indicated, which have been derived from
the Company's historical consolidated financial statements which have been
audited by Mutnick & Associates, P.A., independent auditors for the years ended
December 31, 1994 and 1995, and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements and the notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Period ended June 30,
-------------------------- -------------------------
(unaudited)
1994 1995 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED EARNINGS DATA:
Revenues $ 2,042,884 $ 2,717,341 $ 1,355,266 $ 1,472,037
Cost of Operations 296,896 697,599 266,753 318,167
Selling and Administrative
Expenses 460,775 509,563 321,050 227,300
Other Income (Expenses) (223,963) (520,543) (350,758) (131,061)
Income before Income Taxes 1,061,250 989,636 416,705 795,509
Income Taxes (Credit) 51,780 50,636 64,613 119,326
Net Income 1,009,470 939,000 352,092 676,183
Net Income per
common share $ 0.67 $ 0.63 $ 0.24 $ 0.45
Weighted average shares
outstanding 1,500,100 1,500,100 1,500,100 1,500,100
</TABLE>
<TABLE>
<CAPTION>
Period Ended
Period Ended Period Ended June 30, 1996
December 31, 1995 June 30, 1996 As Adjusted(1)
----------------- ------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital $ 173,329 $ 753,121 $ 5,783,512
Total assets 3,960,481 4,415,134 9,445,525
Total long-term Liabilities 706,624 646,359 646,359
Total liabilities 2,194,564 1,897,434 1,832,434
Stockholders' equity 1,765,917 2,517,700 7,548,091
</TABLE>
- -----------------------
(1) Adjusted to reflect sale of 1,200,000 shares of Common Stock and
1,200,000 Warrants offered hereby and the receipt of the net proceeds
therefrom (assuming an initial public offering price of $5.00 per share
of Common Stock and $.125 per Warrant, respectively, and after
deducting underwriting discounts and commissions and estimated offering
expenses). Does not include receipt of net proceeds from the exercise
of the Warrants, the Representative's Purchase Warrants, the
Representative's Over-Allotment Option.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus.
OVERVIEW
The Company was organized in 1994 to acquire E&A and INA which, since
1991 and 1986, respectively, have been engaged in Chile in the sale, as agent,
of foreign electrical and mechanical equipment, representation of foreign
manufacturers of these types of equipment and products in Chile, and providing
engineering, consulting and project management services in Chile.
Commencing in or about 1991, the Company directly focused its efforts
in the mining and energy sectors believing that representation and services in
such areas would offer greater efficiency and profitability to the Company. To
facilitate this change in focus which required more highly qualified
technological services, the Company changed the composition of its personnel to
include civil and industrial engineers with special expertise in the mining and
energy areas.
While the Company's revenues and earnings have increased from 1992
through June 30, 1996, management believes that in addition to growing its core
business, it can maximize its growth and profitability, as well as increase its
asset base, by establishing equity positions in various projects.
Decisions by management have been made in the context of changes in the
Chilean political and economic environment. Today, Chile is one of the fastest
growing economies in Latin America, with a 6.9% growth rate in 1995 marking its
12th year of growth in a row. The transformation of the Chilean economy, which
started in the mid-1970's following the assumption of power by the military
government and a return to democracy in 1984, has continued over the past twenty
years with reforms being made in various areas. As they relate to the Company,
the more significant areas of reform include:
1. Monetary stabilization program aimed at reducing inflation;
2. Public sector reforms seeking to reach macroeconomic stability
and improving the efficiency of the public sector and economy
as a whole;
3. Privatization programs to remove the government from
activities that the private sector could undertake and to
expand activities where the public sector has a role to play
such as basic health and education services;
4. Trade reforms to provide appropriate incentives to export
oriented and import competing activities and increasing the
integration of Chile with the rest of the world; and
5. Social security reforms.
Coupled with these five areas, the Chilean government has attempted to
grant foreigners greater access to all sectors and markets of the economy. As a
result, the amount of foreign private investment has significantly increased,
particularly during the 1990's.
24
<PAGE>
The Chilean government is also pursuing various trade initiatives which
are as follows:
* EU (European Union) Market: The Chilean government has been
advised by the committee of EU ambassadors that the EU
organization is considering the request of the Chilean
government for Chile to become an associate member of the EU.
However, because the EU is presently focusing on agreements
with eastern European countries, the Chilean government does
not expect any actions to be taken by the EU in the near
future.
* MERCOSUR: The Chilean government has recently been admitted as
a full member of Mercosur, an alliance of Argentina, Brazil,
Paraguay and Uruguay that eliminates tariffs in order to
create free trade among its member nations. However, as a
precondition to its joining Mercosur, the Chilean government
has required that the other member countries comply with the
Chilean system, which is oriented to a market type of economy.
This would mean that the Mercosur countries would diminish
their custom duties to no more than 11% (with certain minor
exceptions) and accept products from Chile consisting of
imported components. The Chilean government has not received
any indication that these conditions will occur within the
foreseeable future.
* NAFTA (the North American Free Trade Agreement): The Chilean
government has anticipated that it will become a signatory to
NAFTA which will bring the country into the
U.S.-Mexican-Canadian free trade zone, once the treaty is
resubmitted to and approved by the U.S. Congress to accept
Chile as a signatory to NAFTA. As a result of the economic
crisis in Mexico, during 1995 the current U.S. administration
temporarily shelved the vote on Chile to become a member
nation of NAFTA, and there are indications that it will be
resubmitted following this year's U.S. elections. There can be
no assurance, however, that such treaty will be approved by
the U.S. Congress or the Chilean government in the foreseeable
future.
Management believes that the reforms and programs that have been
implemented by the Chilean government over the past twenty years have been
positive for the Company. Although increased competition may arise from
companies providing similar services, the Company, for reasons stated herein,
(see "Business Competition") believes that demand will continue for its
services. As an example, the total amount of electrical power on line in Chile
is approximately 5,500 megawatts (MW). It is projected that the need for
electrical power will continue to increase by at least 5% annually, and the
Company, which has historically been involved in the construction of most
electrical generation projects in Chile, will continue to be so involved.
Additionally, and as an adjunct to the growth of electrical generation projects
in Chile, there are plans for two natural gas pipelines: one in the north and
one in the south of Chile, to be used as a source for energy. The Company has
received a written agreement from Westinghouse Electric Corporation, whereby the
Company is to act as special agent on behalf of Westinghouse for the first of a
number of electrical generation projects fueled by natural gas in Chile.
The Company believes that, as a result of currency and other monetary
reforms, the government of Chile has reduced the risk of fluctuations of
currency on its business. Generally the Company's commission revenue is in the
foreign currency of the primary manufacturer of the equipment (generally U.S.
dollars or Swiss francs) although approximately one-third of its income comes
from local sources and is received in foreign contracts denominated in pesos
(typically UF). See "Exchange Rates."
Moreover, should the various trade initiatives result in trade
agreements, the Company believes that it will be well positioned to take
advantage of these agreements, since the Company would have a wider array of
potential manufacturers to represent on specific bids and there may be
additional opportunities to sell products and services in South America.
However, since the current import duty levied on goods and services
25
<PAGE>
in Chile from most foreign manufacturers is 11%, the Company is not dependent on
any of these initiatives resulting in a trade agreement(s).
The Company has represented foreign manufacturers and engineering
companies in the sale of products and services to the majority of the electric
utilities, mining, oil and cellulose companies in Chile, which are both
privately owned and government owned. In selling equipment and services to these
companies, there is normally a pre-qualification process that results in a list
of qualified bidders. Therefore, if the manufacturers and engineers represented
by the Company have the proper qualifying credentials, the Company is assured of
being able to present a bid on behalf of these companies. Additionally, while
the concentration of potential customers is limited by the size of Chile per se,
historically companies requesting bids have multiple bids throughout the course
of the year.
PLAN OF OPERATIONS
In addition to the growth of its core business, the Company's plan of
operation for the next 12 months involves the establishment of equity positions
in some projects, as well as participation in the management of these projects.
While requirements and issues of liquidity are described below, the Company does
not expect a significant change in the number of employees after the closing of
this Offering, except for the staffing of the U.S. and European offices and the
Company does not anticipate the purchase or sale of plant and significant
equipment.
RESULTS OF OPERATIONS
In the past, the Company's core operations have been focused on three
areas (i) engineering services and the sale of minor equipment and parts for
projects throughout Chile; (ii) project management and the sale, as agent, of
major equipment for three to five large projects during any given year and (iii)
the preparation of business for third parties. While the period between the
payment by the Company for the goods and services and the receipt of revenues in
connection with the goods and services described in (i) above is typically close
in time, this is not necessarily so with regard to payments and receipts for
those goods and services described in (ii) and (iii) above. Often the interval
between payments by the Company for equipment and services for major projects
and receipt of revenues in connection with the same equipment and services is
spread out over a longer period of time. Thus, the fluctuation in the results of
operations for each quarter may vary greatly, depending on the timing of
payments for major equipment (both by and to the Company).
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Gross revenues for the fiscal year ended December 31, 1995, increased
$674,457 over the fiscal year ended December 31, 1994 from $2,042,884 to
$2,717,341, an increase of approximately 33%. This increase is due primarily to
being awarded certain projects such as the Mitsubishi/Endesa Quillota Combined
Cycle Gas powered electrical generating plant (the "Endesa Quillota Project")
and the Westinghouse Gas Turbine in Peru and the billing for work associated
with the research and design of the Macul Project.
Cost of Operations for the fiscal year ended December 31, 1995,
increased $400,703 from $296,896 to $697,599 for the fiscal year ended December
31, 1994, an increase of 135%. This significant increase in cost of operations
and consequently the decrease in gross margins is attributable to start-up costs
associated with the Macul Project (including engineering studies costing
$75,000, and fencing and signage costs of $20,000), increased technical
consulting services associated with the Endesa Quillota Project, and costs of
other projects ;which required the use of outside consultants. (approximately
$150,000).
Selling and administrative expenses for the fiscal year ended December
31, 1995, were $509,563, versus $460,775 for fiscal year ended December 31,
1994, an increase of $48,788. This increase is attributable to the increase in
total revenues which required an additional support staff for various bids and
other core business projects.
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Other expenses for the fiscal year ended December 31, 1995, were
$520,543, versus $223,963 for fiscal year ended December 31, 1994, an increase
of $296,580. This increase is attributable to an increase in interest payments
on corporate debt and $276,506 in non-operating curtailed offering costs as
reflected as a seperate line item in the financial statements.
Net income for the fiscal year ended December 31, 1995, was $939,000,
versus $1,009,470 for fiscal year ended December 31, 1994, an increase of
$70,470. This decrease is attributable to the Company having a non-operating
expenses of $276,506 associated with the curtailed public offering against the
efforts of the Company successfully presenting bids for manufacturers it
represented and receiving commissions and consulting fees for such work.
SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30,
1995
Gross revenues for the six month period ended June 30, 1996, increased
$106,771 from that of the six month period ended June 30, 1995, from $1,355,266
to $1,427,037 or 7%. This increase is attributable to the Company being awarded,
contracts for the six month period ended June 30, 1996, including a contract on
behalf of Siemens Corporation, of the Limache Combined Cycle Power Plant for
Colbun S.A., which offset revenues from contracts that concluded in the first
six month period end June 30, 1995. The result is an overall increase of
$106,771. Because of the nature of the Compnay's business (based on the timing
of regognition of revenues), it is possible that there can be significant
differences from one quarter to the next.
Cost of Operations for the six month period ended June 30, 1996,
increased $51,414 over the same period ended June 30, 1995, from $266,753 to
$318,167 or 21%. This increase is attributable to the use of outside consultants
for the Colbun, S.A. projects.
Selling and Administrative Expenses for the six month period ended
June 30, 1996 were $227,300, a decrease of $93,750 or 29% over the amount of
$321,050 for same period ended June 30, 1995. This decrease is attributable to a
reduction in staffing that was required previously to develop and sell the Macul
Project, and additionally because of the transfer of some of the staff from
employment by the Company to employment by the new owners of the Macul Project.
Other expenses for the period ended June 30, 1996 were $131,061
versus $350,758 of other expenses for the period ended June 30, 1995 or a
decrease of $219,697 or 62.6%. This decrease is attributable to the fact during
the six months of 1995, the Company was able to earn other income from rental
charges it made to a non-affiliate in its establishment of a restaurant on the
site of the Macul project and the Company had non-operating expenses of $276,506
associated with the curtailed public offering which resulted in a net of other
expenses of $350,758 as reflected as a separate line item in the financial
statements.
Net income for the period June 30,1996, was $676,183 versus $352,092
for June 30, 1995, an increase of $324,091 or 92%. During the first six months
ending June 30, 1996, there was other income of $59,267 associated with the
Macul project and there was also an increase expense during the period of
$15,886. This 92% increase is attributable to an overall increase in gross
revenues.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, accounts receivable increased by $365,522 to
$1,768,523 from $1,403,001 as of year ended December 31, 1995. The amount of the
receivables outstanding and the number of days outstanding is attributable to
the timing of recognition of revenues as compared to the date of payment. In
particular, in the case of equipment sales, the Company recognizes revenues on
the sale of the equipment or on a turnkey project, where the contract between
the purchasing company and the manufacturer is signed by both parties or an
"order to proceed" is issued by the buyer. While the schedule of payment is set
by contract, the time of payment is determined by practices of the exporting
country involved in the transaction as well as unanticipated delays caused by
obtaining permits and export licenses and as a result, it is not unusual for
a transfer of funds to take 60-180 days. The Company normally receives its
commissions, which are fully earned at the time the award is made, 30 days after
receipt of funds by the manufacturer it represents and generally payment terms
conform to the payment schedule between the buyer and the seller. Therefore, as
in the case of the Polpaico project, which was awarded to Mitsubishi in December
of 1995 and which was initially in excess of $1,000,000, payment for this
project which accounts for $537,927 of the outstanding receivables at June 30,
1996 was delayed because of changes in the export license. While 50% of the
initial receivable of in excess of $1,000,000 was paid to the Company in June
1996, the Company anticipates that it will be paid the balance of the receivable
from Mitsubishi in December 1996. In addition, at June 30,1996, the Company had
a receibable from Siemens, A.G. of $1,022,038. Payment of $840,000 is to be
received on or about September 15, 1996, while the balance of approximately
$160,000 is to be paid in December 1996. The timing of the receipt of payment
may from time to time affect the Company's liquidity. In the past, the Company
has utilized its short term lines of credit to satisfy its financial
requirements. In the future, the Company anticipates it will have proceeds from
this offering which may be used in additon or in lieu of tis lines of credit.
<PAGE>
Based upon the historical collectability of its receivables and the nature of
the companies and/or entities with which it engages in business (e.g. Mitsubishi
Corporation and Siemens A.G., among others) management believes that all of its
receivables are collectible.
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Accounts payable decreased $119,824 from $384,282 as of fiscal year
ended December 31, 1995 to $269,458 as of June 30, 1996. This decrease is
attributable to receipt of certain outstanding accounts receivable.
Due from related parties remained relatively unchanged from $5,696 at
December 31, 1995 to $0 at June 30, 1996.
Current obligations with banks increased to $387,361 at June 30, 1996
from $367,658 at December 31, 1995, a decrease of $12,206. This increase is
attributable to the Company need for increased capital required for other
projects. Short term obligations with banks are current as of June 30, 1996.
Current other assets decreased to $91,961 at June 30, 1996 from
$177,489 at December 31, 1995, a decrease of $85,528 or 48%. This decrease is
attributable to a reduction in deposits to suppliers and other advances to
subcontractors required for various core projects.
Income taxes expense increased to $119,326 at June 30, 1996 from
$50,636 at December 31, 1995, an increase of $68,690 or 136%. This increase is
attributable to a reduction in foreign income and reflects the profit from the
period ended June 30, 1996 being taxed at the maximum Chilean rate of 15%.
The Company's balance sheet reflects undeveloped real estate in the
amount of $481,278. This property, located in Villarrica, Chile, was previously
categorized as "property for sale." The property as of March 31, 1996 has been
taken off the market indefinitely, but may still be utilized for various bank
guarantees. In addition to this undeveloped real estate, the Company owns real
estate which includes a house (the "Villarrica Property") which has a carrying
value of $1,212,063 (reflecting depreciation for the three months ended March
31, 1996). This property was formerly categorized as "under construction" has
now been completed and has been used to secure various loans. Concurrent with
the closing of this Offering, Mr. Errazuriz, the Company's President, Chief
Executive Officer and Chairman of the Board will acquire this house and property
from the Company for $1,212,063. The Company intends to pay off all outstanding
mortgages on this property (approximately $700,000) from the proceeds of this
Offering. Therefore, the Company will divest itself of a non-performing asset
and will receive cash and a note which will enhance the Company liquidity.
In December, 1995, the Company purchased a 45% interest in A&E for
$283,500 which translates into a 4.5% equity interest in Bayesa. This investment
is being accounted for on the financial statements of the Company using the
equity method (See Note - to the Consolidated Financial Statements of the
Company).
In addition, during the period ended March 31, 1996, the Company sold
the balance of its ownership in ITL (Macul Project) at its cost of $199,918.
Management does not intend to invest in leisure projects in the future, although
it may develop projects on a fee basis for unrelated third parties.
With the exception of mortgage financing, the Villarrica Property,
which debt will be repaid in conjunction with the sale of the Villarrica
Property as described above, and other limited bank financing, the Company has
financed its operations through internally generated funds. While the Company's
core business can continue without additional financing, the Company has
determined that to facilitate its plan of operations it will use certain of the
proceeds of this Offering together with additional equity and bank financing for
certain projects.
Additionally, the Company's liquidity has been historically affected
because of the distribution to its shareholders of dividends of $835,737,
$866,256 and $300,000 during 1993, 1994 and 1995, respectively, as well as the
cost of the non-performing Villarrica Property. Up to the closing of this
Offering, the Company, which
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built the Villarrica Property for the personal use of Pedro P. Errazuriz, the
President, CEO and Chairman of the Board of ADC, and his family, also used the
Villarrica Property as a guaranty for the payment of certain lines of credits
and other short term debt financing.
With the change in the Company's strategy to establish equity
positions, together with the management and consulting services, the Company
will be dependent upon the proceeds of this Offering and additional financing as
described herein.
The Company's cost of capital, to the extent determinable, is TAB plus
3% (TAB is the average rates Chilean banks pay on deposits which varies between
6%-8%. While cash flow from the Company's current business may provide a cushion
vis-a-vis the operating expenses to be incurred in connection with its asset
based expansion, management intends to provide separate sources of funding for
the present and proposed projects.
BAYESA PROJECT
The Company participated with Biwater in the design of the Bayesa
Project and the negotiations leading to the award of the Bayesa Project to
Bayesa. The Company currently owns 4.5% of Bayesa, through its ownership of a
45% interest in A&E. To facilitate the acquisition of an additional equity
interest in Bayesa in March 1996, the Company entered into an agreement with
Invdemco to purchase A&E shares that would result in an additional 22.5%
interest in A&E, which translates into an additional 2.25% interest in Bayesa
for $141,750. The Company may also purchase additional equity in Bayesa from
Biwater depending on the cost of such shares as compared to other potential
projects. See "Use of Proceeds."
It is estimated that the cost of completion of the Bayesa Project is $8
million and will be completed in approximately 14-16 months from the date of
this Prospectus. Bayesa has entered into a credit line agreement with Banco
Security to finance $4 million. ESSAN, the governmental entity in charge of the
water system for the municipality of Antofagasta where the Bayesa Project is
located, will fund approximately $2 million through the payment of construction
and management fees pursuant to the terms of Bayesa's contract with ESSAN. The
Banco Security credit line agreement provides in pertinent part for a nine-year
term loan at TAB plus 3%. The bank has required a lien on the flow of payments
from ESSAN, undertakings to specify that the Bayesa Project will be exclusive to
ESSAN and that Bayesa's debt to equity ratio shall not exceed two until 1998 and
shall be reduced thereafter. Additionally, Banco Security has received a
security interest in and to the equipment and machinery owned by Bayesa
Furthermore, the funding by Banco Security is subject to Bayesa receiving $2
million in equity contributions from its shareholders which funding has been
received by Bayesa as discussed above.
Commencing in January 1995 and continuing for 150 months thereafter,
pursuant to its contract with ESSAN, Bayesa will receive monthly payments of
$129,544 for the design and construction of the Bayesa Project. The total value
of this aspect of its contract with ESSAN is approximately $19,431,600.
Additionally, commencing in July 1995, Bayesa began receiving approximately
$40,000 per month (which is adjustable) for 360 months, which amount covers
Bayesa's costs which include personnel, electricity, repairs, etc.
The total cost of design and construction for the Bayesa Project is
estimated at approximately $8 million, plus interest and fees of approximately
$2 million, for a total of approximately $10 million. Therefore, the net pre-tax
profit for the design and construction is approximately $9 million (based upon
$19,431,600 less $10 million).
Additionally, commencing in July 1995, Bayesa began selling reclaimed
water at the rate of 70 liters per second to new agricultural developments in
the Antofagasta area of Chile. Commencing in January 1997, Bayesa anticipates
that it will sell 220 liters per second and based upon these assumptions, the
gross revenues will reach approximately $410,000 per month. The net pre-tax
profit from the sale of this reclaimed water
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at this assumed rate is anticipated to be approximately $125,000 per month or
$1.5 million per year. Over the 28-year period, net profits are anticipated to
be approximately $42 million.
MACUL PROJECT
In March 1995, the Company organized Inversiones Tiempo Libre S.A.
("ITL") as a wholly-owned subsidiary to develop, build, market, own and manage a
family-oriented multi-faceted entertainment project. During November 1995, the
Company sold 70% of its interest in this project and in March 1996 the balance
of its interest was sold.
OTHER INVESTMENTS
The Company will use approximately $425,000 from the proceeds of this
Offering to immediately establish a sales and marketing office in Boca Raton,
Florida. The Company will also use approximately $425,000 of this Offering to
establish an office in Spain during the latter part of 1996. The Company
believes that this amount, in addition to cash generated from its core business,
will be sufficient to operate these offices for at least 12 months. The Company
believes that it will continue to operate its core business with cash generated
from this aspect of the business. The Company does not have any plans to
increase the operating costs of its core business in any material respects.
Management does not foresee any need for additional financing as a
result of the Company's equity participation in any of its currently proposed
projects, either to purchase the Company's equity interest or to fund the
proposed projects. Furthermore, the Company will not engage in hedging
activities and does not intend to offer equity participation in any of these
projects other than as set forth in the "Use of Proceeds".
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BUSINESS
INTRODUCTION
Andean Development Corporation was organized in 1994 as a holding
company to acquire E&A and INA, both corporations domiciled in Santiago, Chile.
ADX, domiciled in Boca Raton, Florida, U.S.A., is a subsidiary of Andean
Development Corporation. Andean Development Corporation, E&A, INA, and ADX are
collectively referred to as the "Company" or "ADC".
E&A, organized in February 1991, specializes, as an agent, in the sale
of major electrical and mechanical equipment and the representation of foreign
manufacturers of electrical and mechanical equipment in Chile. E&A also offers
technical assistance and prepares tender (bid) documents for both turnkey and
nonturnkey public works and development projects to be constructed in Chile.
Since 1991, E&A has facilitated in the sale of more than $415 million of
equipment including generators, turbines and conveyors (see "Major Projects" on
p. 41), which has generated more than $5 million of commissions for the Company.
See "Business - Core Business."
INA, organized in 1986, focuses on providing engineering consulting
services and project management for hydroelectric power plants and civil
construction projects generally related to hydroelectric power plants, tunneling
projects and water treatment plants in Chile. Since 1986, INA alone and in
conjunction with Norconsult International, A.S. of Norway ("Norconsult") an
international engineering company, has provided engineering, consulting and
project management services relating to engineering projects valued at $19
million of which approximately $8.6 million was revenues the Company has
realized. See "Business - Core Business."
The Company's strategy is two-fold. First, the Company intends to
continue to grow and expand its core business presently being conducted through
E&A and INA. To facilitate this growth the Company will immediately establish a
sales and marketing office in the United States and in the latter part of 1996
will establish a second sales and marketing office in Spain which may also be
used for sales and marketing throughout Europe. Management of the Company
believes that its future growth will be a natural consequence of the Company's
historical participation in the electric utility sector, ecology oriented
projects and the potable and waste water treatment fields. The Company intends
to expand its marketing focus to include medium sized utilities, private mining
companies and large industrial companies. Management believes these businesses
will require the services of the Company, either to acquire new equipment, to
optimize and/or upgrade their existing installations or to comply with the
increasing ecological regulations of the government.
The Company believes that creating a U.S. holding company and
establishing a U.S. sales and marketing office will enhance its ability to do
business with U.S. companies and other North American companies. As part of this
strategy, the Company will seek to take advantage of the relative stability of
the Chilean peso to the U.S. dollar. As a result of this relative stability, the
Company believes that certain U.S.,
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as well as Canadian and Mexican, manufactured equipment and products are now
available at prices competitive with other foreign manufacturers. See "Exchange
Rates." The Company also believes that many U.S. manufacturers may be unfamiliar
with the conditions and the qualifications required to bid on projects in Chile.
By establishing a U.S. office, the Company believes that it will be able to act
as a representative (both on an exclusive and non-exclusive basis) of U.S.
manufacturers both in the U.S. and Chile for projects located in Chile by
providing local expertise and understanding the Chilean business environment.
The Company currently intends to employ one engineer and one marketing person on
a full-time basis in Boca Raton, Florida.
Secondly, the Company intends to capitalize on opportunities in the
current Chilean economy by taking an equity position in certain ecology-oriented
and electrical utility related projects in Chile as well as by providing
management and other services to these projects. The Company also intends to
take advantage of the continuing privatization of businesses in Chile, which has
increased investment in Chile and increased industrial and agricultural output.
As an example of this strategy, the Company, through an affiliate, has entered
into an Agreement (See "Business - Bayesa Project") to invest in a waste water
treatment facility located in Antofagasta, Chile (the "Bayesa Project"). In
addition, the Company is exploring potential equity participation in
ecology-related and electric utility-related projects such as small to
medium-sized hydroelectric generating plants, electrical utilities and other
water-related projects. See "Business - Strategy for Equity Participation."
Although, as of the date of this Prospectus, the Company has not entered into
any agreements with respect to acquiring equity interests in projects other than
the Bayesa Project. The Company, pending completion of its research and due
diligence, intends to enter into formal negotiations in other ecology-oriented
and electrical utility projects in Chile, leading to formal agreements.
E&A was organized on February 28, 1991, in Santiago, Chile as a limited
partnership under the name "Errazuriz y Asociados Ingenieros Limitada." On
September 21, 1994, pursuant to Chilean law, E&A was reorganized as a Chilean
corporation and its name was changed to "Errazuriz y Asociados Ingenieros, S.A."
INA was organized on June 11, 1986, in Santiago, Chile as a limited partnership
under the name "Ingenieria Norconsult Andina Limitada." On September 15, 1994,
pursuant to Chilean law, INA was reorganized from a limited partnership to a
Chilean corporation, and its name was changed to "Igenor Andina S.A."
The Company, under the name "Igenor U.S.A., Inc.," was incorporated on
October 19, 1994, under the laws of the State of Florida. On January 10, 1995,
its name was changed to "Andean Development Corporation." The Company's offices
are currently located at 835 Lakeside Drive, Boca Raton, Florida, U.S.A. and its
telephone number is (407) 482-6336.
CORE BUSINESS
E&A specializes as an agent in the sale of major electrical and
mechanical equipment through the representation of foreign manufacturers of
these types of equipment and products. A substantial amount of its sales are for
equipment relating to the electrical utilities, mining, and materials handling
industries which include medium and high voltage generators, transformers,
controls, cables, gas and steam turbines and industrial boilers, as well as
other materials such as cranes, unloading facilities, coal handling systems,
crushers, air cleaning systems and ventilators. Additionally, E&A offers
technical assistance to bidders during the preparation of tender (bid) documents
for turnkey and non-turnkey projects as well as throughout a project, once bids
have been awarded. E&A has been successful in obtaining and maintaining its
representations of foreign equipment manufacturers by offering engineering and
sales support by experienced civil and industrial engineers. These individuals
are knowledgeable in both the technical and sales aspects of a project and also
have the contacts and networks in Chile necessary to successfully compete with
larger international companies. While many of the services offered by the
Company are comparable to those of its competitors, because of the Company's
historical presence in Chile and reputation for quality services, it can
effectively compete with larger competitors and offer additional services not
available from its competitors. See "Business - Core Business; Competition."
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The services offered by E&A include, but are not limited to:
1. * Forecasting of market trends
* Market research
* Financing (expertise in local and foreign loans)
* Packaging with other manufacturers
* Knowledge of the decision making procedures and the scheduling
of projects
2. * Local engineering support (by the Company's employees or
through subcontractors)
* Procurement of local materials and products
* Construction and plant erection capabilities
* Project managing capabilities
* Coordination with customer and customer engineering
While E&A does not charge any fee for the services described in item 1
above and funds the related operating costs, the services described in item 2
above are developed for a customer on a fee basis once a project is secured.
Additionally, equipment manufacturers pay E&A a commission upon receipt of the
award of the project. The commission is typically based on a percentage of the
amount of the sale, which varies depending upon the size and scope of the
project.
In preparing bid documents for various projects, E&A has and will
continue to form consortiums of various equipment manufacturers who provide
products on competitive terms and conditions. E&A intends to assist in obtaining
financing of projects through both domestic (Chile) and international financial
institutions.
INA was initially organized in 1986 as a joint venture between
Norconsult, a worldwide engineering consulting company based in Oslo, Norway and
Errazuriz y Asociados Arquitectos S.A. ("EAA"). EAA is a major shareholder of
ADC whose shareholders include Berta Dominguez (58%), the Chairman and CEO of
E&A and the wife of Pedro P. Errazuriz, the President, CEO and Chairman of the
Board of ADC, and each of their six children (7% each). See "Principal
Shareholders." Norconsult, which subsequently sold its participation to Igenor
Ingenierie et Gestion, S.A. a holding company which is a majority shareholder of
the Company and whose shareholders include Mr. Errazuriz (50%), his wife
(49.25%), their son Pedro Pablo Errazuriz (.25%) and M. Claude Mermier (.25%) a
director of ADC. See "Principal Shareholders."
INA focuses primarily on providing engineering consulting services for
hydroelectric plants and civil construction projects (tunneling projects). Most
of the engineering services provided by INA result from INA's exclusive
representation of Norconsult. Currently, one or two hydroelectric plants are
built in Chile every year, while each year Norconsult participates world-wide in
the design of 10 to 15 of such plants. As a result, INA's relationship with
Norconsult provides INA with the ability to offer its customers state-of-the-art
knowledge for these types of projects while, at the same time, associating with
local engineering companies in preparing bid documents for such projects. INA
also offers most services relating to hydroelectric power plants, from the
pre-construction stage through the commissioning of the project. As an example,
in conjunction with Cade-Idepe (Chile's largest engineering company), INA was
recently awarded a feasibility study for the Rucue Project, a new hydroelectric
power plant of 100 MW to be built by Colbun S.A., a government owned utility, in
Chile.
While Chile builds approximately 20 to 30 kilometers of tunnels each
year, Norconsult has designed and inspected approximately 700 kilometers per
year for the past 20 years. This experience, along with the sophistication of
the projects in which Norconsult has been involved (which include water pressure
tunnels), gives the Company an added advantage of having a knowledgeable
resource for these types of projects in Chile. As an example, on May 15, 1995,
INA and Norconsult had Andrade Gutierrez, a large Brazilian contractor and
investor, design the pre-feasibility study for the first segment of 40
kilometers of pressure tunnels for a 400 MW hydropower project for Cortaderal.
See "Major Projects" and "1995/1996 Proposed
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Projects" for an overview of the types of services for which INA intends to
provide both in connection with hydroelectric power plants and tunneling
projects.
Additionally, INA erects electro-mechanical installations and material
handling systems. As a project manager, INA coordinates with a consortium of
equipment manufacturers in the preparation and delivery of turnkey projects
after a bid has been awarded. INA also provides local engineering support to its
clients.
Both E&A and INA believe they have built excellent reputations in their
specific areas of expertise, having been involved in the greater majority of all
hydroelectric plants built in Chile since 1985, as well as other major
electro-mechanical projects. See "Major Projects." A major part of the Company's
know-how is its understanding of the customer's needs and being able to offer
its customers goods and services that deviate only to the extent that such
deviations or substitutions make a bid more competitive. The Company believes
that in order to be awarded a bid, a bidder needs to know the end-user and
through the years, the Company has obtained this knowledge by working with the
major companies in Chile (both private and public) who request these bids. See
"Major Projects".
With a portion of the proceeds of this Offering, the Company will seek
to further grow its core business by expanding in North America and Europe as
well as to seek additional representation of U.S. and other North American based
companies for sales to be made in Chile. To facilitate this growth, the Company
has decided to establish permanent offices located in Boca Raton, Florida and
Spain. The Company believes that by establishing its presence in the U.S. and
Europe, it will be more competitive because it will have more direct access to
foreign manufacturers located in the U.S., as well as other countries in North
America and in Europe. For example, manufacturers such as Rapid Power, Inc.
(formerly represented exclusively by the Company), a U.S. based manufacturer of
rectifiers, are well known in the U.S. as manufacturers of energy-related
equipment, but to the Company's knowledge, many Chilean customers are not aware
of companies such as Rapid Power. As a result, many of these U.S. manufacturers
provide little, if any, documentation that explains their experience or the
performance of their products to companies requesting bids for Chilean projects,
and most Chilean companies will not qualify manufacturers in the list of bidders
without such documentation. Because of the Company's understanding of these
dynamics, it believes it is able to offer U.S. manufacturers as well as other
foreign manufacturers who wish to enter into the Chilean market, expertise that
other companies, who offer services similar to those of the Company, do not
possess.
MARKETING AND SALES
The Company's marketing and sales are presently managed by the
Company's management, in-house engineers and other technical employees. A
substantial amount of the marketing accomplished is by word of mouth, personal
visits and solicitations by the Company's management and employees. The Company
uses brochures and does limited advertising in trade journals and publications
in Chile. The Company will initiate a more formal sales and marketing program
upon the opening of its new offices in the U.S. and Spain.
HISTORY AND ECONOMIC OVERVIEW
From the inception of INA in 1986, the Company has transitioned itself
from small equipment sales into commercial work and procuring large turnkey
projects as a consultant to and representative of international consortiums.
Commencing in or about 1991, the Company has specialized in the energy and
mining sector, as well as in port installations for coal and other material
handling systems. In connection with these activities, the Company has also
acted as a project manager and a supplier of specialized engineering services.
Generally, all services related to engineering, design, consulting, supervising
and inspecting of construction projects have been initiated by INA and those
related to sale of equipment for construction projects have been initiated by
E&A.
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The Company has not experienced any significant differences between
dealing with governmental agencies or with private companies, whether national
or international, nor does the Company believe that the continuing trend of
privatization in Chile will have an adverse effect on its core business and, in
fact, will likely continue to affect its core business in a positive manner. The
Company's services have historically been provided to both private companies and
governmental agencies, with more than half of the Company's total revenues
coming from the private sector during 1995.
While prior to 1980 the greater majority of equipment for the mining
and the utilities industries in Chile was purchased from U.S. manufacturers, due
to the strength of the U.S. dollar in relationship to other currencies during
the 1980's, the cost of goods and services from the U.S. became less competitive
than that of other foreign manufacturers. Additionally, during the 1980's, many
U.S. manufacturers reduced their international initiatives which made it very
difficult to deal with U.S. manufacturers. However, due to both stabilization of
the U.S. dollar and the Chilean peso in the late 1980's, prices of U.S. produced
equipment became more competitive in Chile. Now with the possible inclusion of
Chile as a signatory to NAFTA, which reduces tariffs among member nations and
therefore increases trade, the potential for additional relationships between
the Company and North American companies may increase. Regardless of whether
Chile is included as a member of NAFTA, management believes that as a result of
the privatization and growth of the Chilean economy, foreign investment
(including from the U.S.) in Chile will continue to increase. To enhance its
success rate in both private and public tenders (bids), the Company is seeking
to obtain additional exclusive representation of U.S., Canadian and Mexican
manufacturers in specific market areas. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview." With the
establishment of a sales and
35
<PAGE>
marketing office in Boca Raton, Florida, which will initially include at least
one engineer and one marketing person, as well as an office in Spain, the
Company will more aggressively pursue opportunities with North American and
European manufacturers and other companies who wish to do business in Chile.
While the Company acknowledges that large international power and
utility companies have invested directly in Chile and that certain manufacturers
have established local offices in Chile, management believes that the Company's
growth should continue because of its local knowledge and experience with
Chilean projects. In particular, the Chilean economy is currently at a point
where several large international power and utilities companies including
Southern Electric Corp. (USA), Transalta Corp. (Canada), Iberduero S.A. (Spain)
and Andrade Gutierrez S.A. (Brazil) have invested directly in major
hydro-electrical power plants in Chile. The Company believes that because of its
experience in a majority of the hydro-electrical plants constructed in Chile
over the past 10 years, the Company has and will continue to work with these
large power and utilities companies by offering their engineering and sales
services and support. Furthermore, international companies will not necessarily
participate in smaller projects because of the economics of size and cost and
the Company will continue to aggressively bid for these projects.
Additionally, while several foreign manufacturers have established
offices in Chile, the Company continues to represent these manufacturers on a
case by case basis. For example, Babcock Wilcox Espanola hired E&A, as its
representative, to sell its 150 MW coal fired thermopower plant to Southern
Electric Corp. while maintaining a local office in Chile; Endesa S.A., the
largest electric utility in Chile, has hired INA to provide engineering services
for specialized projects in rock mechanics while maintaining their own in-house
engineering staff through INGENDESA, the wholly-owned engineering subsidiary of
Endesa S.A., of more than 350 engineers; and Biwater Ltd. (UK) has asked the
Company to represent them and become equity partners in the Bayesa Project. See
"Business-Strategy for Equity Participation and The Bayesa Project."
Moreover, the trend in the private sector has been to specialize in a company's
core business and subcontract for services and supplies from other companies
that may be more efficient in those areas. For example, the Company has been a
supplier of equipment, spare parts and engineering services for most of the
largest utilities in Chile (ENDESA, S.A., Chilgener S.A., Minera, Valparaiso
S.A., CREO (Cooperativa Regional Electrica de Osorno), and Edelnor S.A., which
are private companies; and Codelco (Corporacion Nacional del Cobre de Chile),
Colbun S.A., and Petrox S.A. (Electricidad del Aysen S.A.) which are
government-owned). See "Major Projects." Management believes that the trend
toward specialization, which includes segregating the generation, distribution
and transmission of electricity, enhances the role of specialized companies such
as E&A (as agents or representatives) and INA (as engineers). The ability of the
Company to adapt to the changes in the Chilean economy has permitted it to
develop new contacts with Westinghouse, Mitsubishi and Marubeni where the
Company has participated in four new combined power cycle plant projects in
Chile which are Renca 1 and 2 (Chilgener); Polpaico and Bocamina (Endesa) and El
Rodeo, now called Limache (Colbun). The Company is also working with
Westinghouse and Mitsubishi in a consultant capacity on projects in Argentina.
1995 PROJECTS
During 1995, the Company was involved, in a consultant or
representative capacity, in the following significant projects within their core
business:
RENCA I - CHILGENER
The second largest utility in Chile had a tender offer for a combined
cycle thermo-electric plant to be located in Santiago. Because of the scope and
complexity of this tender, Mitsubishi engaged the Company to act as their
consultant to advise as to the engineering interpretation of the tender
documents, the development of a financial strategy and to act as their
representative in all negotiations with Chilgener. Although Mitsubishi was not
successful in this tender, the Company received a substantial fee for their
consultancy. More importantly, this engagement marked the first time that the
Company was engaged by a customer whereby the fee was not contingent on the
success of the bid.
36
<PAGE>
LOMA ALTA
Empresa Electrica Hydrovevey Pehuenche, S.A., a subsidiary of Endesa,
the largest electrical utility in Chile, requested tender offers for the supply
and construction of a 80MW hydroelectric plant. The Company acted as the
representative for the Siemens Hydrovevey Consortium, who were the successful
bidders at approximately $16.7 million.
ENDESSA
The Company, in their representative capacity, successfully represented
a joint venture on behalf of Mitsubishi/Westinghouse in a tender offer to Endesa
S.A. for a 350MW natural gas-fired power plan to be installed 50 kilometers
south of Santiago. The total value of this award winning turnkey bid was
approximately $150 million.
PUERTO VENTANAS CEMENT HANDLING PROJECT
Cemento Melon, the leading cement company in Chile, called for tender
offers to build a cement and clinker unloading system in Puerto Ventanas, 120
miles from Santiago, with a stock capacity of 45,000 metric tons and a value of
$15 million. The contract has been awarded to General Electric Engineering
Services, for which the Company acted as consultant.
1996 PROJECTS
During 1996 the Company has identified and has submitted bids or
intends to submit additional bids on behalf of various foreign manufacturers
and/or consortiums. No assurance can be given, however, that the Company and the
companies it represents will be awarded any bids. The various projects are
listed below:
PILMAIQUEN S.A. (RUCATAYO PROJECT)
Pilmaiquen S.A. plans to construct a 60MW hydroelectric plant. The
Company, as representative of Norconsult, has presented a bid for engineering
services regarding the construction of a dam on the Pilmaiquen River. The
Company, in a representative capacity, will also present a bid on behalf of
Kvaener Turbine A.B., which will include one Kaplan Turbine. The total cost, as
a turn-key project, is estimated to be $20 million. The anticipated date of the
award for engineering services is August 30, 1996. The anticipated date for the
award of the turnkey project is December 15, 1996. Moreover, should Norconsult
and Kvaener be the successful bidders, then the Company would be in position to
provide civil works support and construction management services.
CHILQUINTA S.A. (TINQUIRIICA AND SAN JOSE PROJECTS)
Chilquinta S.A., an electric utility, is developing plans to build two
98MW and one 12MW hydroelectric power plants. The Company has been consulted by
potential investors from the U.S. who intend to develop a strategy and conduct
negotiations with Chilquinta regarding a joint venture relative to these
projects.
ANDRADE GUTIERREZ S.A. (CORTADERAL/ALTO PROJECT)
Andrade Gutierrez S.A. is developing a 400MW hydropower plant which is
currently in the pre-construction stage. The Company represented Kvaener Energy
A.S. for the sale of four (4) turbine generator sets and other relevant
equipment estimated to be $60,000,000 to $70,000,000. The project was awarded to
this group during September 1996. A contract was signed during September, 1996.
37
<PAGE>
COLBUN S.A. (LIMACHE COMBINED CYCLE POWER PLANT)
Colbun S.A. is building a combined cycle 350MW plant. The Company
represents Siemens Corp. in this bid of $140,000,000. Siemens Corp. was awarded
the bid by Colbun S.A. on May 8, 1996.
HACIENDA SAN LORENZO S.A. (MAMPIL Y PEUCHEN POWER PLANT)
Elecnor S.A., along with Iberdrola (Spain), have been awarded the bid
for the construction, operation and partial ownership of a group of small power
plants in the south of Chile. The Company has been invited to submit bids on
behalf of Kvaerner Turbin A.B., Siemens, and Ateliers Mecaniques de Vevey S.A.
for the equipment to be used in connection with the power houses. During
October, the electrical side of the project was assigned to Siemens and the
contract is pending the successful completion of contractual negotiations.
CEMENTO MELON S.A. (PUERTO VENTANAS CEMENT HANDLING PROJECT)
The Company successfully acted as a representative of General Electric
Engineering Services in this bid, which was awarded to General Electric during
1995. In addition, during 1996, the Company, as consultant, will provide local
project coordination and will continue to do so through completion of the
project which is estimated to be April 1997.
CENTRAL PUERTO S.A. (BUENOS AIRES, ARGENTINA)
Chilgener S.A. is the majority owner of Central Puerto S.A. Chilgener,
S.A. requested bids for the supply of a 350MW, gas-fired combined cycle
powerstation estimated to have a value of approximately $150 million. Siemens
requested the Company to be their representative for the presentation of this
bid. The bid was submitted on June 30, 1996 and the estimated date of award is
November, 1996.
CENTRAL COSTANERA S.A. (BUENOS AIRES, ARGENTINA)
This company, a subsidiary of Endesa S.A. of Chile, has called for bids
to be submitted by August 30, 1996 for equipment similar to that of Central
Puerto. The Company will represent Mitsubishi Corporation in this matter.
PUERTO PATACHE CONCENTRATE AND COAL HANDLING SYSTEM
Endesa is currently constructing a thermo-electrical plant to supply
energy to the Collahuasi Copper Mine. A port, both for unloading coal for the
thermo-electrical plant is going to be built and will be equipped with a coal
unloading crane, conveyor belts and a solid/liquid separation plan to treat the
concentrate. The project value is estimated to be $8 million. The Company has
successfully participated in the tender for a turnkey project representing
Babcock Wilcox of Spain ("BWE"). BWE was awarded this tender during October,
1996.
CREO - LA FLOR
A 12MW hydropower project upstream from the Capullo project, for which
the Company is currently providing all electromechanical equipment on a turnkey
project. La Flor has the same characteristics and dimensions as the Capullo
project for which the Company founded a consortium and was project coordinator.
The expected date of the award of the equipment is December 15, 1996, and the
anticipated completion date is May 30, 1998. The estimated value of this project
is $12 million.
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<PAGE>
MAJOR PROJECTS
The following table is a representative list of the main equipment,
turnkey projects and engineering sales made by the Company during the last 10
years.(1)(2)(3)
<TABLE>
<CAPTION>
Equipment or Gross Value
Name of Project Year Customer Supplier Service Sold Size US$ Millions
- --------------- ---- -------- -------- ------------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Los Quilos 1984 Guardia Vieja General Electric Company of England Generator 12.6 MVA 3.6
Los Bajos 1984-85 Caemsa General Electric Company of England Generator 2.2 MVA 0.8
Los Morros 1985 Carbomet Ateliers Mecaniques de Vevey S.A. (of Hydro Turbine 0.8 MW 1.2
Switzerland) in consortium with Mecanica
de la Pena S.A. (of Bilbao, Spain)
Tocopilla Cranes 1986 Codelco Tocopilla Boetticher y Navarro, S.A. 2 Level Luffin 2x750 T/hr 4.6
Cranes
Trafo Andina 1986 Codelco Andina Sumitomo Corporation Transformer 25 MW 0.8
Colbun 1987 Colbun Machicura Boetticher y Navarro, S.A. Gate 17mx17m each 6.9
Int. Tocopilla 1987 Codelco Tocopilla Consonni, S.A.(4) Interchanger 0.8
mata Turbines
TG. Chuqui 1987-88 Codelco Chuqui- Westinghouse Electric Revamping of 3 gas 0.4
camata turbines
Submarine Cable 1988 Endesa Sumitomo Corporation Three Phases Cable 8.6
TG Methanex 1989 Capehorn Methanol Ruston Gas Turbines Inc., a subsidiary of Gas Turbine 6 MW 3.1
GEC, General Electric Company of England
TG Petrox 1989-90 Petrox Ruston Gas Turbines Inc., a subsidiary of 2 Diesel Turbines 2x3 MW 3.2
General Electric Company of England
Puerto Ventanas 1990 Chilgener Babcock & Wilcox Espanola S.A. 2 L. Luffin Cranes 2x750 T/hr 8.0
Cranes
Puerto Ventanas 1991 Chilgener Babcock & Wilcox Espanola S.A. in System of 8 Belt 3000m/1500 2.1
Conveyors consortium with INGEMAS S.A. Conveyors T/hr
Curillinque 1991 Pehuenche Hydro Vevey S.A. in consortium with Turn-key 85 MW 28.5
ABB, Asea Brown Bovery S.A.
La Florida 1991-92 Canal de Maipo Kvaerner Energy A.S.(5) 2 Hydro Turbines 2x9.5 MW 3.0
Aconcagua I 1992 Minera Valparaiso Kvaerner Energy A.S.(5) Hydro Turbine 56 MW 3.6
Aconcagua II 1992 Minera Valparaiso Kvaerner Energy A.S.(5) Hydro Turbine 33 MW 3.1
Mejillones I 1992-93 Edelnor(6) Consortium formed by Babcock & Turn-key 150 MW 150.0
Wilcox Espanola S.A. and Siemens A.G.
Capullo 1993 Creo Babcock Hydro S.A. Turn-key 15 MW 5.5
Pangue 1993-94 Endesa Kvaerner Energy A.S.(5) Turn-key 450 MW 69.3
Antofagasta 1994-95 Essan/Bayesa Biwater(7) Turn-key 600 1/seg 7.7
Renca I 1995 Mitsubishi Mitsubishi Combined Cycle TG Finance & 340 MW 120.0
Coordination
Loma Alta 1995 Pehuenche S.A. Siemens/Hidrorevey Hydropower Plant Turn-key 80 MW 16.7
Quillota 1995 Endesa/San Isidro/ Mitsubishi Combined Cycle Gas Powered Turn-key 370MW 126.0
Electric Plant
Limache 1995 Colbun/Mehueulo/ Siemens Combined Cycle Gas Turbine Coordinator 370MW 130.0
Santa Rosa, Peru 1995 Edegel Westinghouse Open Cycle Gas Turbine Turn-key 100MW 30.0
</TABLE>
- -------------------
(1) There are approximately 40 major utilities and mining companies in
Chile. Not all of these companies are noted above as the products
purchased by some of these companies have been inconsequential to the
Company's overall revenues. One of the reasons that the Company is
expanding its business to include an asset base is to make it less
dependent on the limited number of its major customers. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition
and Result of Operations" and "Business - Introduction."
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<PAGE>
(2) Many of the bids awarded for the projects set forth above were awarded
to a group of bidders forming a consortium.
(3) As a general rule, for projects valued in excess of $100 million, the
Company will earn a commission from between 0.03% to 1% of the bid
price of the project; for projects valued between $20 million and $100
million, from 1% to 3.5%; and from $1 million to $20 million, between
3% and 5%. For sales less than $1 million, the commission ranges from
between 5% and 10%. Factors that determine the amount of commission
include the amount of engineering service provided and the difficulty
and sophistication of the project.
(4) Mr. Pedro P. Errazuriz, the President, CEO, and Chairman of the Board
of ADC, owns 53% of Consonni, S.A., a Spanish corporation.
(5) The Company is the exclusive agent for Kvaerner Energy A.S. in Chile
and Mr. Pedro P. Errazuriz had the power of attorney in Chile to
execute agreements and sign checks on behalf of Kvaerner Energy A.S.
which he resigned in May of 1996.
(6) One of the current directors of ADC was President of Edelnor from March
1990 through March 1994.
40
<PAGE>
<TABLE>
<CAPTION>
SALES OF ENGINEERING (DESIGN, ADVISING, SUPERVISION AND INSPECTION OF
CONSTRUCTION):
Gross Value
Project Year Customer Supplier Equipment or Service Sold US$ Thousand
- ------- ---- -------- -------- ------------------------- ------------
<S> <C> <C> <C> <C> <C>
Alfalfal 1985-91 Chilgener Norconsult(1)(2)(3) Engineering, supervision & inspection of a 160 MW power 14,000
International A.S. plant and 30 miles of tunnels systems
Pehuenche 1988 Pehuenche Norconsult(1)(2)(3) Design of the Inspection System for the construction of 340
International A.S. a 500 MW hydroelectric plant
1990 Pehuenche Norconsult(1)(2)(3) Design and inspection of measures in a case of rock 68
International A.S. explosion in their tunnel system
1992 Pehuenche Norconsult(1)(2)(3) Quality assessment and repair measures in the two Neyrpic 21
International A.S. Turbines (250MW each)
Pehuenche 1991 Bank of INA Study of the profitability of the Pehuenche Project 12
America
Maitenes 1988 Chilgener Norconsult(1)(2)(3) Study to modernize three power plants: Maitenes, Volcan 30
International A.S. and Queltehues in Maipo River Valley
Alfalfal II 1989 Chilgener Norconsult(1)(2)(3) Pre-construction study for a 400 MW hydropower plant 120
International A.S.
Mapocho River 1989 Biwater INA Study of the Mapocho contamination impact over Santiago region 70
Aconcagua 1992 Bank of INA Study of the profitability of Aconcagua Project 20
America
Thermal Plants 1989 Chilgener Raytheon Company Study to upgrade three old thermal plants called: Renca, 35
Study Ventanas and Laguna Verde
TG Chilgener 1989-90 Chilgener Raytheon Company Inspection and quality assessment of a Gas Turbogenerator 21
Canutillar 1990 Endesa Norconsult(1)(2)(3) Design and inspection of Underwater Lake piercing and 71
International A.S. intake for a hydropower plant
1993 Endesa Norconsult(1)(2)(3) Redesign of the tunnel reinforcements after some problems 65
International A.S. with their original design (10-mile tunnel)
Ortiga Tunnel 1990 Exxon Norconsult(1)(2)(3) Design and inspection of the construction of a tunnel 170
International A.S.
Conveyor Belts 1992 Chilgener INA Coordination and supervision for erection of a conveyor 60
Puerto Ventanas belt system and unloading facility
Mejillones 1993 Babcock INA Rate of Exchange analysis and risk coverage for a US$ 90M 12
Power Plant Wilcox loan for Edelnor S.A.
Capullo 1993-95 Creo INA Project management of the construction of a 15 MW plant 450
Pangue 1994-97 Endesa INA Coordination office and local engineering along the 389
construction of Pangue Power Plant, a project of US$
70M in investments
Pangue 1994-97 Endesa Norconsult(1)(2)(3) Coordination of Manufacturers 2,700
International A.S.
Melon Tunnel 1995 Endesa Norconsult(1)(2)(3) Ventilation system study 20
International A.S.
Alto Cachapoal 1995 Andrade Norconsult(1)(2)(3) Prefeasibility for Tunnel System 25
Gutierrez International A.S.
Rucue 1995 Colbin S.A. INA Basic and detail engineering for power house 70
Ventana 1996 GEC INA Coordination of manufacturers 160
</TABLE>
- --------------------
(1) The Company is the exclusive agent for Norconsult in Chile and Mr.
Pedro P. Errazuriz had the power of attorney in Chile to execute
contracts and sign checks on behalf of Norconsult which he resigned in
May of 1996.
(2) When the Company acts as the representative of Norconsult, the
commissions paid to the Company range from 4% to 5%.
(3) There are certain projects in which the engineering is performed by INA
for which the entire fee is paid directly to the Company.
41
<PAGE>
<TABLE>
<CAPTION>
MAJOR REPRESENTATIONS (EXCLUSIVE):
Name of Company Country of Origin Sector
- --------------- ----------------- ------
<S> <C> <C>
Accusonic, Inc./O.R.E. U.S.A. Ecology & water treatment
Intl. Inc.
Berdal Stromme A.S. Norway Engineering
Consonni S.A. Spain Energy and electricity
Indar S.A. (AEG License) Spain Electricity
Kvaerner Energy A.S. Norway Energy
Kvaerner Turbin A.B. Sweden Mech. equipment for energy
Linde A.G. Germany Mining processor, chemical plants
Norconsult
International A.S. Norway Engineering
Trandes S.A. Spain Electricity
Union Espanola de
Explosivos Spain Mining explosives
SELECTED REPRESENTATIONS (NON-EXCLUSIVE):
Name of Company Country of Origin Name of Project
- --------------- ----------------- ---------------
ABB-Air Preheater U.S.A. Ventanas Power Plant
ABB-Sweden Sweden Pangue
ABB-Switzerland Switzerland Curillinque
ABB-Solyvent Ventec Spain Various mines (Exxon)
AEG Germany Pangue
Babcock & Wilcox
Cranes Division Spain Ventanas Cranes
Babcock & Wilcox
Espanola, S.A. Spain Mejillones Power Plant
Baedeker y Navarro
(BYNSA) Spain Tocopilla Cranes
Combustion Engineering U.S.A. Chuquicamata
G.E.C. Large Machines U.K. Guardia Vieja
G.E.C. Mechanical
Handling U.K. Cement Storage and Conveyor
Ingemas Spain Ventanas Conveyor System
Marubeni Corp. Japan Copper Concentrates Distr.
Mitsubishi Japan Polpaico
National Drying
Machinery Co. U.S.A. Invertec
Siemens A.G. Germany Mejillones Power Plant/Loma Alta
Sumitomo Corp. Japan Submarine Cables
Westinghouse Electric Company U.S.A. Turbines/Edegel, Peru
</TABLE>
STRATEGY FOR EQUITY PARTICIPATION
Although, both E&A and INA have been profitable for more than the past
four years, the ability to expand their businesses and to increase profitability
is limited by the nature of their core service businesses, as their activities
depend exclusively on the number of bids that are awarded to each of them.
Income from these businesses requires that first, new projects are developed;
second, appropriate equipment is available to offer to the project at
competitive prices; and third and most important, that the businesses are
successful in selling the equipment and services. To expand the businesses of
E&A and INA the Company through consolidation may require higher fixed costs and
less flexibility. Alternatively, increasing the number of employees does not
necessarily mean increased sales and profitability to the Company.
Management believes that by establishing an equity position in certain
projects, it will be able to grow a more solid asset base which will provide the
Company with the following: (a) steady profitable growth; (b) stabilized cash
flow; and (c) the ability to further capitalize on the dynamics of the Chilean
economy. There are two emerging areas in which the Company intends to focus:
ecology-related projects, specifically in sewage treatment and water supply,
both of which are starting to be developed by and through private companies in
Chile and projects primarily undertaken by smaller electric utilities.
Therefore, in addition to its core business, the Company seeks to raise
sufficient capital to establish equity positions in certain projects. See "Use
of Proceeds."
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<PAGE>
WATER SUPPLY AND WASTEWATER TREATMENT FACILITIES
While Chile has made significant economic gains over the past 10 years
in terms of foreign trade, development of electrical utilities and export of
agricultural and cellulose products, the efforts of the Chilean government to
take actions in the sanitary services and waste water treatment have been slower
in coming. The first steps toward waste water treatment commenced in 1987 when
the Ministry of Public Works called for bids to clean the Mapocho River Systems
(which account for 30% of all the waste water in Santiago), however a number of
political stalemates halted development in this area until 1993. It is the
announced intent of the Chilean government to privatize the water utility
industry. As part of standard bid documents, the purchaser of various water
utilities projects will be required to install water treatment facilities or
subcontract to companies, such as the Company, specializing in this area.
Since 1993, Chile has commenced an ecological-oriented development that
includes not only waste water management, but also other areas of pollution
control, committing large sums of money, particularly for the mining and oil
refinery sector owned by the government. It is estimated that Corporacion del
Cobre (Codelco), the state-owned copper mine company which owns Codelco Mining
will spend $500 million over five years; Enami, the state-owned minerals
refining company, will spend $200 million over five years; and the larger
sanitary-related companies such as EMOS, in charge of the water system for
Santiago, should spend $500 million to $1 billion over the next 10 years.
Additionally, other areas close to Santiago and other major cities, are now
starting to develop plans to develop water resources and install wastewater nets
and treatment plants. In connection with this growth, the Chilean government has
issued Decree Law 351 that regulates the constitutional right of a citizen to
live in an environment free of contaminants and in particular, addresses issues
concerning potable water.
Realizing that there appeared to be an emerging business in water
purification and treatment due to the Chilean government's announced plans to
privatize the water utilities and its initiatives to ensure clean water and air
for its citizens, the Company sought relationships with foreign entities that
have experience in water purification. Effective January 1993, the Company
entered into a representation agreement with Biwater, a major international
company engaged in waste water treatment and facilities whose principal office
is located in Surrey, England to develop one project in the waste water
treatment in the North area of Chile.
In connection with this Agreement, the Company researched and will
continue to research and develop the market in the north of Chile for both its
own services and those of Biwater's in Chile. The results of this research
concluded that Chile was initially slow to react to its citizen's needs for
better sanitary conditions. Additionally, based on its research, the Company
believes that an investment of up to $2 billion by both the private and public
sector over the next 10 years will be necessary in order to bring the sanitary
facilities up to international standards (See discussion above).
BAYESA PROJECT
Late in 1993, Corporacion de Fomento ("CORFO"), the Chilean agency for
the development of the country, decided to commence with three new waste water
treatment facility projects which would place the treatment of water and the
sale of reclaimed water in the private sector by means of a subcontract through
a public entity. In April 1994, CORFO, through Empresa de Servicios Sanitarios
de Antofagasta, S.A. ("ESSAN"), a wholly-owned subsidiary of CORFO in charge of
the water system for the Province of Antofagasta, called for public bids to
construct and manage a waste water treatment facility (the "Bayesa Project").
The Company, on behalf of Bayesa, S.A., a consortium owned by Biwater (90%) and
A&E (10%), was the successful bidder for the Bayesa Project. The contract
included design, construction and management of the waste water facility, as
well as the right to sell reclaimed industrial grade water. During 1995 the
Company acquired a 45% interest in A&E, which translates into a 4.5% interest in
Bayesa from Invdemco and with a portion of the proceeds ($141,750) will acquire
A&E shares from Invdemco an additional 22.5% interest in A&E, which will
translate into an additional 2.25% interest in Bayesa The Company may also
purchase additional equity in Bayesa from Biwater depending on the cost of the
shares compared to other potential projects. See "Use of Proceeds" and "Certain
Transactions."
43
<PAGE>
The agreement dated September 1, 1994, between ESSAN and Bayesa is
divided into three separate, although related, segments. The first is the
construction of an interceptor of 3.6 miles of waste water recovery pipelines,
pumping stations and a treatment plant connected to an emergency sea outfall.
During this segment, Bayesa will act as a contractor, performing construction
services for ESSAN. Income from ESSAN to Bayesa is based on 150 monthly
installments, commencing in January 1995, of approximately $129,000 per month.
The second part of the contract consists of the operation of the waste
water disposal and treatment system. Income from ESSAN to Bayesa will be in
fixed monthly installments of approximately $40,000 for a period of 30 years,
plus a variable monthly rate based on the amount of treated water of $18.60 per
1,000 cubic meter. The third segment of the contract is the sale of treated
(purified) waste water for irrigation and industrial purposes. The Company
believes that upon completion of the pipelines and pumping station (estimated to
be 14-16 months), Bayesa will be able to sell the industrial and agricultural
grade water for $.60 per cubic meter. The drinkable water price is $1.10 per
cubic meter.
Bayesa has signed a letter of intent with the Antofagasta Municipality
to provide water to local parks. Additionally, the Chilean Ministry of
Agriculture is planning a new farming facility in this area which may purchase a
significant amount of the industrial grade water to be produced by the Bayesa
Project. However, there can be no assurance that Bayesa will be able to sell all
the treated water for farming or industrial purposes that the sewage waste water
facility of Antofagasta will be able to provide.
44
<PAGE>
Additionally, the Company believes that anticipated profits to Bayesa
from the sale of reclaimed water may also be significant because of the location
of the Bayesa Project in Antofagasta. Antofagasta is a seaside city
approximately 1,000 miles north of Santiago. It serves as the beach resort and
the port for the Chuquicamata copper mine, currently the world's largest open
pit copper mine, and many other large mines located approximately 200 miles to
the east in or around the city of Calama. The Antofagasta region is primarily
desert and therefore receives very little, if any, precipitation. The region,
however, has had significant growth, more than doubling its mining activity and
population over the past 10 years, and has an anticipated population growth rate
of 3-5% per year. This population growth rate is directly attributable to the
increased economic development in the area. In addition to the continual
expansion of the Chuquicamata mine, there are now more than three additional
copper mines under development, which are anticipated to be similar in size to
the Chuquicamata mine.
While the Chilean government is currently pursuing the implementation
of pollution-control technologies in new state-owned and private mining
companies to minimize the need for end-of-pipe solutions such as the Bayesa
Project, these new technologies are geared to the mines themselves and not to
the waste resulting from the cities that may surround these mines. Therefore,
the Company believes that there will be a continued population growth that will
create an increased need for more water which will be available through the
Bayesa Project, and other future waste water and potable water projects on which
the Company intends to bid.
The Bayesa Project will terminate after 30 years of operation as the
written agreement between the parties foresees the transfer of all installations
to ESSAN for no consideration. The Company took the reversion of the Bayesa
Project back to ESSAN into consideration when deciding to take an equity
position in the Bayesa Project, and concluded to that it made economic sense to
invest in the Bayesa Project because of its potential profitability during the
30-year term of the contract. The Company intends to participate, in a joint
venture with Biwater, in bidding for the full property of ESSAN (or a percentage
thereof), once the Chilean government and Parliament have determined the method
to privatize the sanitary section of the government. The ability of the Company
to participate in this bidding process will depend on its future cash flow.
Bayesa typically will require the services of E&A for future
engineering studies and administrative decisions related to the economy of the
Bayesa Project, as well as to supply equipment and spare parts for the project.
Additionally, Bayesa will require the support of E&A to sell treated water and
will pay E&A a commission for these sales. There is no written obligation from
Bayesa to continue to use E&A for these services. Nonetheless, because of its
position as an equity participant in Bayesa, the Company
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does not foresee any change in the current oral agreements between Bayesa and
E&A. See "Use of Proceeds" and "Certain Transactions."
IQUIQUE WATER PROJECT - "AGUAS DE IQUIQUE"
The city of Iquique is located in the middle of a desert area, 1,100
miles north from Santiago. It is a fast growing city due to the copper, gold,
Nitrate and Iodine mining projects that have been and are being constructed in
the area. Water sources are as far away as 150 miles inland in the Andes
Mountains. The Chilean Military owns a property 25 miles away from Iquique. This
property contains underground streams that could produce 100 liters per second
of water. The military, however, is precluded from any commercial activities.
The Company is presently in negotiations with the Army to acquire the rights to
the underground water. The basis of the potential contract is a concession for
25 years. During that period, the Company will be able to commercialize the
water, selling it for housing or industrial purposes. The Company will pay the
Army a tariff for each cubic meter sold (around .05 USD/m3). The Company will
perform the works and provide the investment needed to carry the water to the
consumption centers (digging wells, pumping, eventually treatment, piping).
The current price of the water in Iquique is around $0.80 USD per cubic
meter. Annual production is estimated to be $1,900,000. Net profit to the
Company after taxes from this project could be more than $400,000 annually.
Additionally, if more water resources are found in the Army's land, the Company
intends to negotiate an option to include these sources in the future contract
at the same price and conditions.
The Company is currently in the process of studying the cost of the
project in order to determine if it will proceed. If the Company makes a
determination to proceed and depending on costs, it intends to seek additional
equity partners for this project.
In addition to those projects referenced above, Chilgener, the second
largest electrical generating company in Chile, is developing a strategy to
diversify its investments. Among the key areas that it is seeking to diversify
into are water treatment, sewage treatment and water supply. In this regard,
Chilgener has engaged the Company as a consultant to study various possibilities
in this area. The Company has identified the following geographic areas for
Chilgener.
Antofagasta has a population of 250,000 in a desert area 1,000 miles to
the north from Santiago. It is the center of the largest copper mining projects
in the country and, as a consequence of the very active investments in this
field, is growing at rate of 3% to 5% annually. The need for water resources,
water supply and distribution and additional sewage treatment is anticipated to
be very critical in the next few years and is seen as a significant business
opportunity.
Colina is one of the main suburbs for Santiago. Currently, many first
class real estate projects are under development in this area. It is expected
that, in 10 years the population will grow to 600,000. Water is currently a
limitation and is expected to become a major problem in the near future. The
Company has been asked to analyze a water business in this sector for Chilgener
and will be interested in participating in that business, if one develops.
A similar situation has occurred in Temuco, the fastest growing city in
Chile. In 1995, the population increase in Temuco was 23% and currently it has
around 300,000 inhabitants. Chilgener has requested the Company to investigate,
a water supply project that could be developed in that city.
These studies have recently begun and therefore while the Company would
consider a joint venture and equity participation with Chilgener on any of these
possibilities, it will require more research and analysis.
ESSAT (ARICA WATER SUPPLY)
The city of Arica, Chile's most northern city, has a potential water
shortage of between 100 and 200 liters per second. However, the local farmers of
the Azapa Valley situated in close proximity to Arica,
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have between 400 and 600 liters per second of industrial grade water for farming
that could be treated by Essat (the local water authority). The Company is
organizing a plan to build a treatment plant, negotiate an agreement among the
parties and a negotiate a contract with Essat to buy approximately 200 liters
per second of potable water from the farmers and replace it with treated water
from the city of Arica. Biwater, is expected to participate in this project. The
anticipated date of the award is October 31, 1996, and the anticipated date of
completion is March 30, 1998. If awarded the bid, the Company would provide
engineering services as well as a fee. Additionally, the Company would consider
purchasing an equity position in the project, which terms have not been
determined. There are no current agreements at this time.
PROJECTS RELATED TO ELECTRICITY
EDELAYSEN S.A.
During 1983, CORFO (the state-owned development corporation)
incorporated Empressa Electrica de Aysen, S.A. (Edelaysen) to consolidate
various electric grounding and distribution systems located in the south of
Chile, into one company. Today, Edelaysen S.A. has a present demand of 9,000 KW
and more than 19,000 customers. CORFO intends to sell this utility by public
tender on or about August 30, 1996. The Company is currently reviewing various
financial and other documents and anticipates that it will render a bid to
purchase this utility. There cannot, however, be any assurances that the Company
will be the successful bidder.
COMPETITION
The Company believes that each aspect of its business is competitive
and that competition is based not only on price but also on quality of service.
The Company's competitors include a number of international companies with local
offices in Santiago, Chile, many of which are larger and better capitalized than
the Company. While a majority of these larger competitors may bid on the same
projects as the Company, and although there can be no assurances that the offers
will be competitive, the Company believes that it has and will continue to
participate effectively in the bid process.
Most of the Company's competitors are Chilean based intermediaries with
some "local" know-how with respect to the Chilean market, but who do not
actively engage in the electric utility, mining and materials handling
industries in Chile. More typically, the Company's competitors have local
offices which consist of a small administrative and sales staff who, in most
cases, are not engineers. To the Company's knowledge, these competitors rely on
the engineering expertise of local subcontractors (such as the Company) or on
engineers who are not Chilean-based. On the other hand, the Company's staff is
comprised of Chilean-based civil and industrial engineers who have an
understanding of the intricacies of bid documents, the nuances of Chilean
projects, and who have the ability to source local manufacturers to complement
the equipment to be purchased from foreign manufacturers, in order to present a
competitively priced package. Additionally, the Company's engineers are also its
sales force, so the Company is able to provide continued sales and engineering
support throughout the entire scope of the project.
The Company believes it has demonstrated its ability to seek and enter
into relationships with those manufacturers whose products are most
competitively priced, not only in terms of dollars, but also in terms of overall
product efficiency and support for specific projects. Moreover, the Company has
been successful in putting together consortiums of manufacturers, whereby it has
been able to quote on the large multi-faceted projects. Nonetheless, the Company
believes that each area of the new projects and investments in which the Company
intends to become involved is highly competitive. Its competitors may be larger,
better capitalized, may have more experienced management, and may have greater
access to resources which may be deemed necessary to produce a competitive
advantage and there can be no assurance that the Company will continue to
operate at its current level, enabling it to be profitable.
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GOVERNMENT REGULATIONS
GENERAL
The Company's business is subject to the full range of governmental
regulation and supervision generally applicable to companies engaged in business
in Chile, including labor laws, social security laws, public health,
environmental laws, securities laws and anti-trust laws.
ENVIRONMENTAL REGULATIONS
Bayesa's agreement with the Municipality of Antofagasta for the Bayesa
Project provides that certain water, once treated at the Bayesa Project, will be
disposed of in the ocean. In order for the Bayesa Project to discard this water
into the ocean, the amount of contaminants remaining must meet the requirements
mandated by Chilean environmental laws.
FOREIGN INVESTMENT LAWS AND REGULATIONS
The Chilean Constitution establishes that any Chilean or foreigner may
freely develop any activity in Chile so long as the activity does not contravene
existing laws dealing with public morals, public safety or national security. It
also establishes the principle of non-discrimination, thus guaranteeing foreign
investors equal protection under Chilean law. Additionally, Chilean law
prohibits any discretionary acts by the Chilean government or other entities
against the rights of persons or property in derogation of this principle.
Foreign investors may transfer capital and net profits abroad. There are no
exchange control regulations which restrict the repatriation of the investment
or earnings except that the remittance of capital may take place starting a year
after the date the funds were brought into the country, but net profits can be
remitted at any time. Therefore, equity investments in Chile by persons who are
not Chilean residents follow the same rules as investments made by Chilean
citizens.
These principles are the basis for the Foreign Investment Law of 1974
(commonly known as DL 600) by which foreigners are guaranteed to receive equal
treatment access to all segments of the economy subject to a limited number of
internationally-accepted exceptions. Based on DL 600, the foreign investor and
the government sign a legally-binding investment contract which may only be
modified by mutual consent. The contract sets forth the current law as it
relates to the specific investments by that investor in Chile. Thus, the
investor is protected against any subsequent changes in the law which could
adversely affect the investor or his investments in Chile. Although the Chilean
Government has been successful in keeping this principle in place for the last
21 years, there is little information regarding the unilateral breach of an
investment contract by the Government and there can be no assurances that a
breach by the Government will not occur in the future or that it would not
adversely affect the rights of the Company to do business in Chile. Moreover,
while there has been no precedent that political changes had determined changes
in these rules, no assurances can be made that such changes will not occur in
the future. The Company intends to enter into an investment contract with the
Government of Chile on or around the closing of this Offering.
CONTROLS ON FOREIGN INVESTMENTS
Equity investments in Chile by persons who are not Chilean residents
follow the same rules as the investments of the citizens of the country. Foreign
investors may transfer abroad capital and net profits that they generate. There
are no exchange control regulations which restrict the repatriation of the
investment or earnings therefrom except that the remittance of capital may take
place starting a year after the date the funds were brought into the country,
but net profits can be remitted at any time. Although there has been no
precedent that political changes had determined changes in these rules, no
assurance can be given that this situation will not occur in the future.
EMPLOYEES
As of June 15, 1996, the Company employed 18 full-time employees, nine
of whom are managers/engineers and nine of whom are administrative staff.
Employees of the Company are not represented by labor unions. The Company
considers its relationship with its employees to be good.
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PROPERTIES
The Company leases a 3,300 square foot office in Santiago, Chile
pursuant to a month-to-month lease at a monthly rate of $4,351.20 per month.
The Company currently owns a house located near Villarrica in the south
of Chile situated on approximately 13.5 acres. the Villarrica Property. As of
March 31, 1996, the book value of the 13.5 acre Villarrica Property was
$1,212,063 and had outstanding mortgages of approximately $700,000. The Company
intends to sell the Property to a related entity (Invdemco), and will satisfy
the outstanding mortgage on the property upon the closing of this Offering. See
"Use of Proceeds" and "Certain Transactions."
The Company, through INA, also owns a farm located in Villarrica
consisting of two lots of an aggregate of approximately 107.75 acres. The farm
is used as a guarantee for bank loans and other financing operations.
LEGAL PROCEEDINGS
The Company is not a party to any pending litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of ADC are as follows:
Name Age Position
- ---- --- --------
Pedro Pablo Errazuriz 59 President/Chief Executive Officer/Chairman of
the Board
Jose Luis Yrarrazaval 56 Chief Financial Officer/Treasurer/Secretary/
Director
Alberto Coddou 57 Director
Sergio Jimenez 60 Director
Claude Mermier 60 Director
PEDRO PABLO ERRAZURIZ has served as Chief Executive Officer and
Chairman of the Board of Directors of Andean Development Corporation ("ADC")
since October 19, 1994, and its President since January 11, 1995. He has also
served as the President and sole Director of Andean Export Corporation since
February 9, 1995. Mr. Errazuriz founded Ingenieria Norconsult Andina, the
predecessor company of INA in 1986 as a continuation of his activities in the
sales of equipment, project management and procurement for electricity
generation projects and has served as its president since its inception and
through March 20, 1995. In 1991, Mr. Errazuriz founded E&A and served as its
president since its inception through March 20, 1995. Mr. Errazuriz has also
served as Chairman of the Board of Kvaerner Chile S.A., a subsidiary of Kvaerner
A.S., a Norwegian-based manufacturer of electrical and mechanical equipment)
since 1992 and as the exclusive agent for Kvaerner Turbin A.B. (Sweden) since
1994. Since 1986, Mr. Errazuriz has acted as an exclusive agent in Chile for
Norconsult. Mr. Errazuriz is a civil engineer, having received his engineering
degree from the Catholic University of Chile in 1959.
JOSE LUIS YRARRAZAVAL has been a member of the Board of Directors of
ADC since March 20, 1995 and its Chief Financial Officer, Treasurer and
Secretary since March 20, 1995. He also serves as Chief Executive Officer and a
Director of INA and Chief Financial Officer, Treasurer, Secretary and a Director
of E&A since March 20, 1995. Since November 1993, Mr. Yrarrazaval has served as
the general manager of both E&A and INA, which responsibilities include all
financial matters and personnel management. From April 1988 through October
1993, Mr. Yrarrazaval served as the project manager for INA, supervising the
projects of INA. From 1973 through 1988, Mr. Yrarrazaval was a partner and
technical manager of a construction company, including the construction of
industrial plants, buildings, and housing developments. He also acted as
supervisor in the construction of agro-industrial and cold storage plants. Mr.
Yrarrazaval has a Civil Engineering and Construction Degree from the State
Technical University in Santiago, Chile.
ALBERTO CODDOU has served as a member of the Board of Directors of the
Company since March 20, 1995, and as a member of the Board of Directors of E&A
since March 20, 1995. Mr. Coddou has been a partner with the law firm of
Figueroa & Coddou in Santiago, Chile since 1965. He has also been an Assistant
Professor of Law at the University of Chile, School of Law from 1959 through
1982. In May 1995, Mr. Coddou was appointed Chairman of the Board and Legal
Representative of Consorio Periodistico de Chile S.A., the owners and editors of
a Chilean newspaper called La Epoca.
SERGIO JIMENEZ has served on the Board of Directors of ADC since March
20, 1995. As of June 1995, Mr. Jimenez has been appointed as a member of the
Board of ENAP (Empresa Nacional del Petroleo) the Chilean oil company owned by
the government. Mr. Jimenez served as President of Edelnor S.A. from March
1990 to March 1994. Edelnor, which generates and transmits electricity in the
northern regions of Chile, was a subsidiary of CORFO, the holding company of
Chilean state-owned companies before it was privatized in 1994. From 1990
through 1992, Mr. Jimenez was President and Chief Executive Officer of Metro
S.A., also a subsidiary of CORFO, which operates the Santiago subway system. Mr.
Jimenez is also a partner and Managing Director of Consultora Jimenez y Zanartu
Limitada, which consults on engineering projects for segments of the Chilean
government related to public works. Mr. Jimenez is a civil engineer, having
received his degree from the University of Chile, in Santiago and has a post
graduate degree in project evaluation from the University of Chile.
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CLAUDE MERMIER has served on the Board of Directors of ADC since March
20, 1995. Mr. Mermier has served as the Chairman of the Board of INA since March
20, 1995. Mr. Mermier has also served as Chairman of Igenor Ingenierie & Gestion
S.A., a principal shareholder of the Company, since its inception in March 1992.
Since 1979, Mr. Mermier has been the President of Compagnie Financiere pour le
Commerce Exterieur S.A., a Swiss company involved in property development
throughout Europe.
Directors are elected at the Company's annual meeting of shareholders
and serve for one year or until their successors are elected and qualified.
Officers are elected by the Board of Directors and their terms of office are,
except to the extent governed by employment contract, at the discretion of the
Board. All of the Company's executive officers are full-time employees of the
Company. The Company intends to pay non-employee directors a fee of $1,000 per
meeting attended, and will reimburse all directors for their expenses in
connection with their activities as directors of the Company. Directors of the
Company who are also employees of the Company will not receive additional
compensation for their services as directors. The Company intends to purchase
directors and officers insurance to the extent that it is available and cost
effective to do so.
The Company has agreed that after the effective date of this
Prospectus, the Representative may designate a person to attend meetings of the
Board of Directors. The Company may elect additional Board Members following the
completion of this Offering.
Upon completion of this Offering, the Company will establish separate
audit and compensation committees consisting of at least two independent
directors.
DIRECTORS AND OFFICERS OF THE SUBSIDIARIES
JUAN ANDRES ERRAZURIZ, age 28, has been a member of the Board of
Directors of INA since March 20, 1995, and its Treasurer and Secretary since
March 20, 1995. He has served as a member of the board of directors of
Inversiones Tiempo Libre S.A. (ITL) since March 1995, the company which
presently owns the Macul Project. Mr. Errazuriz joined INA in October 1993 as
Development Manager and as a coordinator between the different areas and
activities. Before joining the Company, Mr. Errazuriz worked as a manager of
Chile's largest pulp and paper company (CMPC), executing feasibility and market
studies for the company's projects from May 1992 through September 1993. He has
prepared economic and financial feasibility studies for several companies in
Chile and in Spain. From July 1991 through May 1992, Mr. Errazuriz was employed
by Proyectos y Equipos, S.A., an affiliate of the Company as its marketing and
strategy director. Mr. Errazuriz graduated from Catholic University of Chile in
1991, with a Civil Engineering Degree, specializing in industrial engineering
systems, administration and finance.
BERTA DOMINGUEZ, age 57, has served as the Chairman of the Board of E&A
since 1988 and its Chief Executive Officer since March 20, 1995. Mrs. Dominguez
has served as a Director of Errazuriz y Asociados Arquitectos Limitada, one of
the principal shareholder of the Company since 1990.
Mr. Juan Andres Errazuriz is the son of Mr. Pedro P. Errazuriz, the
Chief Executive Officer, President, and Chairman of the Board of the Company and
Mrs. Berta Dominguez, the Chairman of the Board and CEO of E&A. Mrs. Berta
Dominguez is the wife of Mr. Pedro P. Errazuriz and the mother of Juan Andres
Errazuriz.
KEY EMPLOYEES
GONZALO CORDUA, age 36, has been operations vice president in charge of
all new projects undertaken by INA since July 1993. Since March 1995, he has
served as president of Inversiones
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Tiempo Libre S.A. (ITL), the company which presently owns the Macul Project.
From December of 1992 through July 1993, Mr. Cordua was manager for industrial
cooperation of Fundacion Empresarial Communidad Europea-Chile ("FECEC"), where
his duties included the company's services to European business in Chile and to
Chilean business in Europe. From August 1991 through November 1992, Mr. Cordua
worked as an expert for FECEC in industrial cooperation as part of the team in
charge of designing and implementing the project. From June 1990 through July
1991, he worked for the Agencia de Cooperacion Internacional as an expert in
industrial cooperation where he was in charge of cooperation and development
programs for the Chilean productive sectors. From August 1988 through May 1990,
Mr. Cordua was employed as a project manager for INA. Mr. Cordua received his
B.S. in Civil Engineering from the University of Chile, his M.S. in Civil
Engineering from the University of California at Berkeley, his Masters of
Engineering in Water Resources Management from the University of California at
Berkeley and a degree in Business Administration from the Fonds Leon A. Bekaert,
Brussels, Belgium.
JUAN PHILLIPS, age 51, has been Technical Vice President and manager of
engineering department of E&A. His duties have included project director of the
Capullo Hydroelectric Power Generating Plant as well as procurement of equipment
for that project. He also organized the liaison office for the Pangue Hydropower
Plant equipment supply. From 1986 through 1989, Mr. Phillips was project manager
for INA. Mr. Phillips received his degree in Civil Engineering from the Catholic
University in Santiago, Chile.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The following table sets forth compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each executive officer whose
compensation exceeded 60,000 for the years ended 1995. The Company did not grant
any stock options, restricted stock awards or stock appreciation rights or make
any long-term incentive plan payments during 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary($)(1)(2) Bonus ($) Compensation($)
- --------------------------- ---- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Pedro P. Errazuriz 1995 $97,801(3) $92,000 $79,104(4)
Chief Executive Officer, 1994 $90,000 $78,481(5) $92,112(3)
President, Chairman
Jose L. Yrarrazaval 1995 $56,886(3) $30,000 $17,700(6)
Chief Financial Officer/ 1994 $58,077(3) $30,000 $17,700(6)
Treasurer/Secretary/Director
Juan Andres Errazuriz 1995 $48,000(3) $12,000 None
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Gonzalo Cordua Hoffman 1995 $48,000(3) $16,000 None
Juan Phillips Davila 1995 $48,000(3) $16,000 None
</TABLE>
(1) Payment of the compensation to the persons set forth above was
apportioned among the following subsidiaries and affiliated companies
as follows: E&A - 35%; INA 25%; Electromecanica Osorno S.A. - 20%, a
Chilean corporation currently owned by Errazuriz y Asociados
Arquitectos Ltda. ("EAA") and by Igenor, Ingenierie et Gestion, S.A.
("Igenor"), each principal shareholders of the Company; and Proyectos y
Equipos, S.A. a Chilean corporation owned by EAA, Igenor, and a family
member of Mr. Pedro P. Errazuriz, the Chief Executive Officer,
President and Chairman of the Board of ADC. See "Principal
Shareholders." The proportions established as compensation to be paid
by the different companies was arbitrarily determined, intended to
minimize tax payments and to indicate the involvement of the Company's
executives in all related companies. Upon the closing of this Offering,
the Company's management will be employed by ADC.
(2) The gross salary includes social security and retirement benefits.
Social Security in Chile was established as a private system, that
requires all companies to retain 20% of the gross salaries of its
employees which is used to pay both Administrators of Pension Funds
Companies ("AFP") and Institutions of Previsional Health ("ISAPRE").
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The allocation of this 20% to each service is as follows:
(a) 10% to the AFP: This amount is deposited in an individual
interest-bearing account of each employee to cover their
retirement. In Chile, the age of retirement is 60 years in
case of women and 65 years for men.
(b) 3% to the AFP: This amount covers any partial or permanent
disability and, in the case of death, will provide a monthly
amount to the deceased's spouse. The amount paid corresponds
to 70% of an employee's average salary, based upon the last 10
years of the employee's life.
Both items (a) and (b) are limited to approximately $1,700 per month.
(c) 7% to the ISAPRE: This amount covers medical fees,
hospitalization and clinical examinations, although in many
instances it may be necessary to pay additional costs for
health care.
Chilean law requires the payment of one month salary for each year
worked by the employee when he is dismissed. When the employee
terminates his or her employment, no compensation is legally required.
(3) Paid in full from the Company to the employee.
(4) Includes an annual allowance of $15,000 for automobile costs and
maintenance; an annual housing/vacation allowance of $10,500; $7,200
for domestic employees; and $46,404, based upon a percentage of profit
of the Company. This profit percentage was based on 2% of the total net
profits of all related companies for 1995, calculated to Chilean
accounting standards. In the future, all accounting standards will be
pursuant to U.S. GAAP.
(5) Includes an annual allowance of $15,000 for automobile costs and
maintenance; an annual housing/vacation allowance of $10,500; $7,200
for domestic employees and $45,781 based upon a percentage of profit of
the Company for 1994.
(6) Includes $15,000 car allowance.
EMPLOYMENT AGREEMENTS
On March 15, 1996, the Company entered into employment agreements with
Messrs. Pedro P. Errazuriz, Jose Luis Yrarrazaval, Juan Phillips and Gonzalo
Cordua. Each of the employment contracts are for one year. The salaries and
social security benefits will not be less than those for fiscal year 1995, which
shall be determined by the Company's Board of Directors. Additionally, these
individuals will also be entitled to a bonus, as determined by the Company's
Board of Directors.
INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS
Under the Company's Stock Option Plan (the "Stock Option Plan") and
Directors Stock Option Plan (the "Directors Plan"), 175,000 shares of Common
Stock and 75,000 shares of Common Stock, respectively, are reserved for issuance
upon exercise of options. The Plans are designed to serve as an incentive for
retaining qualified and competent employees and directors. Both the Stock Option
Plan and the Directors Plan apply to Andean Development Corporation and each of
its subsidiaries. No options have been issued under the Plans.
The Company's Board of Directors, or a committee thereof, administers
and interprets the Stock Option Plan and is authorized to grant options
thereunder to all eligible employees of the Company, including officers and
directors (whether or not employees) of the Company. The Stock Option Plan
provides for the granting of "incentive stock options" (as defined in Section
422 of the Internal Revenue Code), non-statutory stock options and "reload
options." Options may be granted under the Stock Option Plan on such terms and
at such prices as determined by the Board, or a committee thereof, except that
in the case of an incentive stock option granted to a 10% shareholder, the per
share exercise price will not be less than 110% of such fair market value. The
aggregate fair market value of the shares covered by incentive stock options
granted under the Plans that become exercisable by a grantee for the first time
in any calendar year is subject to a $100,000 limit.
The purchase price for any option under the Stock Option Plan may be
paid in cash, in shares of Common Stock or such other consideration that is
acceptable to the Board of Directors or the committee thereof. If the exercise
price is paid in whole or in part in Common Stock, such exercise may result in
the issuance of additional options, known as "reload options," for the same
number of shares of Common Stock surrendered upon the exercise of the underlying
option. The reload option would be generally subject to the same provisions and
restrictions set forth in the Stock Option Plan as the
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underlying option except as varied by the Board of Directors or the committee
thereof. A reload option enables the optionee to ultimately own the same number
of shares as the optionee would have owned if the optionee had exercised all
options for cash.
Only non-employee directors are eligible to receive options under the
Directors Plan. The Directors Plan provides for an automatic grant of an option
to purchase 3,000 shares of Common Stock upon a person's election as a director
of the Company and an automatic grant of an option to purchase 3,000 shares of
Common Stock at each annual meeting through which a director's term continues.
Upon consummation of this Offering, the Company will grant to each of Messrs.
Coddou and Mermier options to purchase an aggregate of 6,000 shares of Common
Stock under the Directors Plan at an exercise price equal to the initial public
offering price of the Common Stock offered hereby.
Options granted under the Stock Option Plan will be exercisable after
the period or periods specified in the option agreement, and options granted
under the Directors Plan are exercisable immediately. Options granted under the
Plans are not exercisable after the expiration of five years from the date of
grant and are not transferable other than by will or by the laws of descent and
distribution. The Plans also authorize the Company to make loans to optionees to
enable them to exercise their options.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act. Insofar as indemnification
for liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. See "Principal Shareholders" for a listing of the
shareholders of EAA and Igenor.
CERTAIN TRANSACTIONS
During 1995 the Company acquired a 45% interest in A&E, which
translates into a 4.5% interest in Bayesa from an affiliate of the Company,
Invdemco, a Chilean investment company. The Company has also agreed to purchase
an additional 22.5% interest in A&E from A&E shares held by Invdemco, which
translates into an additional 2.25% interest in the Bayesa Project for $141,750.
The shareholders of Invdemco are Mr. Pedro P. Errazuriz (50%), President, CEO,
and Chairman of the Board of ADC; Mr. Errazuriz' wife (45%), Berta Dominguez;
and Berta Errazuriz (5%), a daughter of Mr. Errazuriz and Mrs. Dominguez. See
"Use of Proceeds" and "Business - Strategy for Equity Participation - the Bayesa
Project." A&E, as of the date of the closing of this Offering, will own 10% of
Bayesa. Biwater, a major international company engaged in waste water treatment
and facilities, owns 90%. The purchase price for Invdemco's interest in the
Bayesa Project is based upon a valuation of the Invdemco stock prepared by an
independent consultant, Ingesis Ltd. and was based upon the projected revenues
from the Bayesa Project. As of the date of this Prospectus, the Company has not
entered into any agreements with respect to acquiring equity interests on
projects other than the Bayesa Project. The Company, pending completion of its
research and due diligence, intends to enter into formal negotiations in other
ecology-oriented and electrical utility projects in Chile, leading to formal
agreements.
At the closing of this Offering, the Company will sell to Invdemco a
non-performing asset of the Company consisting of a house located near
Villarrica, Chile in the south of Chile, situated on approximately 13.5 acres
(the "Villarrica Property"). The Villarrica Property which is carried at a cost
of approximately $1,212,063 on the financial statements of the Company at March
31, 1996, was subject to mortgages totalling approximately $663,045. However,
the Villarrica Property is used as a guarantee
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<PAGE>
for payment of certain loans (similar to revolving or preferred line of credit
or a home equity loan) and as of the closing of this Offering, it is estimated
that the outstanding mortgages on the Villarrica Property will be approximately
$700,000. See "Use of Proceeds" and "Financial Statements." At closing, the
Company will transfer title to the Villarrica Property to Invdemco, and will
satisfy the outstanding mortgages on the property.
Invdemco will pay $606,031.50, (50% of the purchase price) of the
Villarrica Property in cash at closing with the balance being paid in four
annual installments of principal together with interest at the rate of 8-1/2% on
the unpaid balance.
EAA and Igenor, the principal shareholders of the Company, also own, in
the aggregate, controlling interests in Proyectos y Equipos S.A. and
Electromecanica Osorno S.A., two Chilean corporations which specialize in the
sale of air compressors and ventilators and related products and small
electrical equipment, respectively. The Company, from time to time, intends to
enter into agreements with these companies to perform certain services, based
upon competitive bids received from these companies.
Mr. Pedro P. Errazuriz, the President, Chief Executive Officer and
Chairman of the Board of Directors of ADC, also owns a 57% interest in Consonni,
S.A., of Spain. Consonni manufactures and sells electronic controls and
switchgear. The Company currently is the exclusive representative of Consonni in
Chile.
All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties. In the future, the
Company intends to handle transactions of a similar nature on terms no less
favorable to the Company than those available from unaffiliated parties.
Igenor Ingenierie et Gestion, S.A., a swiss corporation, and Errazuriz
y Asociados Arquitectos, Limitada, a Chilean limited partnership, are
shareholders of the Company. See "Principal Shareholders".
Invdemco, a Chilean investment company, is involved in transactions
relating to the Bayesa Project and the Villarrica Property. See "Business -
Bayesa Project and Properties."
Inversiones Tiempo Libre, S.A. was a Corporation organized for the
Macul Project. The Company sold the balance of its ownership. See "Management
Discussion and Analysis of Financial Condition - Results of Operations and
Liquidity and Capital Resources."
Norconsult has provided engineering, consulting and project services is
conjunction with the Company. See "Business - Core Business."
Mr Pedro P. Errazuriz was on the Board of Directors and had power of
attorney for Kvaerner Chile, S.A. and Kvaerner Hydro, Agencia de Kvaerner Turbin
Aguas y Ecologia, S.A., corporations involved in the manufacturing and selling
of electrical materials. Mr. Errazuriz has resigned from the Board of Directors
and has relinquished his power of attorney.
Biwater is represented by the Company is various transactions and is
involved in transactions relating to the Bayesa Project. See "Business - Bayesa
Project and Strategy for Equity Participation."
Tacora was previously represented by Mr. Pedro P. Errazuriz in a
business relation with a French company with mining interests in Chile. They are
no longer related to the Company.
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<PAGE>
BRIDGE FINANCING
During April 1996, the Company borrowed $65,000 from LeNoble and
Associates and First Capitol Resources, Inc. (the "Lenders"), the proceeds of
which were used to pay certain expenses of this offering. The loan, which bears
interest at the rate of 8-1/2% per annum, will be due at the earlier of January
15, 1997 or the effective date of this offering. In connection with the loan,
the Lenders will also receive warrants (the "Bridge Warrants") to purchase
21,000 shares of the Company's Common Stock at 1/3 of the initial offering
price. While the Company has granted certain registration rights, the Lenders
have agreed that the shares underlying the warrants cannot be publicly sold
until six months from the effective date of this Offering.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
Company's common stock beneficially owned as of the date of this Prospectus (i)
by each person who is known by the Company to own beneficially 5% or more of the
Company's common stock; (ii) by each of the Company's directors; and (iii) by
all executive officers and directors as a group. As of the date of this
Prospectus, there were 1,500,100 shares of Common Stock outstanding, after
giving effect to the Reorganization, which will be effective as of the date of
closing of this Offering. See "Certain Transactions." The number of shares
discussed below are all Common Stock. See "Description of Securities."
<TABLE>
<CAPTION>
Number of Shares Percentage
of Common Stock -----------------------
Name and Address of Beneficially Owned Before After(2)(3)
Beneficial Owner(1) Before Offering Offering Offering
- ------------------- --------------- -------- --------
<S> <C> <C> <C>
IGENOR, INGENIERIE
ET GESTION, S.A.,
a Swiss corporation(4)(5) 900,000 60% 36.6%
ERRAZURIZ Y ASOCIADOS
ARQUITECTOS, LIMITADA,
a Chilean limited partnership(6) 600,000 40% 22.4%
PEDRO P. ERRAZURIZ(7)
President, CEO and Director 450,100 30% 16.8%
BERTA DOMINGUEZ(8) 791,250 52.8% 29.5%
CLAUDE MERMIER(4)(9)
Director 2,250 (10) (10)
SERGIO JIMENEZ
Director -0- -0- -0-
ALBERTO CODDOU(11)
Director -0- -0- -0-
All executive officers and directors
as a group (5 persons)(12) 452,350 30.2% 16.9%
</TABLE>
- --------------------
See footnotes on next page
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<PAGE>
(1) Unless otherwise indicated, the address of the following is Los
Conquistadores 1700, Piso 21, Santiago, Chile.
(2) Assumes no exercise of the Representative's Over-Allotment Option, (see
"Underwriting") or options issued to Bridge Financing lenders.
(3) Does not give effect to the exercise of Warrants into shares of Common
Stock.
(4) The address is c/o Etude Montavon-Mermier, 22, rue Etienne Dumont, 1211
Geneve 3, Switzerland.
(5) The shareholders are Mr. Pedro P. Errazuriz (50%), the President, Chief
Executive Officer and Chairman of the Board of ADC; Ms. Berta Dominguez
(49.25%), the wife of Mr. Errazuriz and the Chairman, Chief Executive
Officer and director of E&A; Mr. Pedro Pablo Errazuriz, a son of Mr.
Errazuriz and his wife; Mr. Claude Mermier (.25%), a director of Andean
Development Corporation; and Pierre Yves Montavon (.25%), an unrelated
third party.
(6) The partners are Ms. Berta Dominguez (58%), and the six children of Mr.
Pedro P. Errazuriz and Ms. Dominguez, who each owns a 7% interest and
who are (i) Pedro Pablo Errazuriz Dominguez, (ii) Berta Errazuriz
Dominguez, (iii) Magdalena Errazuriz Dominguez, (iv) Juan Andres
Errazuriz Dominguez, (v) Felipe Errazuriz Dominguez, and (vi) Arturo
Errazuriz Dominguez.
(7) Includes shares of Common Stock owned by Igenor, Ingenierie et Gestion,
S.A. of which Mr. Errazuriz owns 50% of the outstanding equity and 100
shares of Common Stock were issued to him on October 19, 1994.
(8) Mrs. Dominguez owns 49.25% of Igenor, Ingenierie et Gestion, S.A. and
58% interest in Errazuriz y Asociados Arquitectos, Ltda. She is the
wife of Mr. Errazuriz, the President, CEO and Chairman of ADC.
(9) M. Mermier owns a 0.25% interest in Igenor, Ingenierie et Gestion, S.A.
(10) Less than 1%.
(11) The address is Santa Lucia 280-OF, 12 Santiago, Chile.
(12) All of these shares are held indirectly through either Igenor,
Ingenierie et Gestion, S.A. and/or Errazuriz y Asociados Arquitectos,
Ltda.(5)
After giving effect to the Reorganization, all but one share of the
outstanding stock of each of these subsidiaries will be held by ADC. The
remaining one share of INA will be owned by E&A; the remaining one share of E&A
will be owned by INA and thus there will be, at all times, at least two
different entities having an ownership interest in E&A and in INA, a condition
for Chilean corporations, which requires that a corporation have at least two
different shareholders at any given time.
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DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 20,000,000 shares of
Common Stock, par value $.0001, of which 1,500,100 shares were outstanding as of
the date of this Prospectus, after giving effect to the Reorganization, which
will be effective as of the closing of this Offering. The Company has also
reserved up to 250,000 shares of Common Stock pursuant to its Stock Option Plan
and Directors Plan.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on
all matters to be voted on by the shareholders and do not have cumulative voting
rights which means that the holders of more than 50% of the shares voting for
the election of directors can elect all of the directors if they choose to do
so, and in such event, the holders of the remaining shares will not be able to
elect any directors. Following the Offering made hereby, the Company's
management will own or have the ability to vote 1,500,100 shares or
approximately 55.5% of the outstanding Common Stock (without giving effect to
the exercise of the Representative's Over-Allotment Option, the Representative's
Purchase Warrants, the Warrants or the Bridge Warrants). The Bylaws of the
Company require that only a majority of the issued and outstanding shares of
common stock of the Company need be represented to constitute a quorum and to
transact business at a shareholders' meeting.
Holders of shares of Common Stock are entitled to share, on a ratable
basis, such dividends as may be declared by the Board of Directors out of funds
legally available therefor. ADC has never paid dividends on its common stock
since its inception on October 19, 1994; however, both INA and E&A paid
dividends to their shareholders during 1993, 1994 and 1995 of (an aggregate of)
$835,737, $866,256 and $300,000, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Financial
Statements."
Upon liquidation, dissolution or winding up of the Company, after
payment of creditors and holders of any senior securities of the Company, as
applicable, the assets of the Company will be divided pro rata on a per share
basis among the holders of the shares of Common Stock. The Common Stock has no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such shares. All
outstanding shares of common stock are, and the shares of common stock offered
hereby will be, upon completion of this Offering, fully paid and non-assessable.
WARRANTS
The Warrants will be issued in registered form pursuant to an agreement
dated the date of this Prospectus (the "Warrant Agreement"), between the Company
and American Stock Transfer and Trust Company as Warrant Agent (the "Warrant
Agent"). The following discussion of certain terms and provisions of the
Warrants is qualified in its entirety by reference to the Warrant Agreement. A
form of the certificate representing the Warrants which form a part of the
Warrant Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
Each of the Warrants entitles the registered holder to purchase one
share of Common Stock. The Warrants are exercisable at a price of $5.00 (which
exercise price has been arbitrarily determined by the Company and the
Representative) subject to certain adjustments. The Warrants are entitled to
the benefit of adjustments in their exercise prices and in the number of shares
of Common Stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation or merger.
The Warrants may be exercised at any time and continuing thereafter
until the close of five years from the date hereof, unless such period is
extended by the Company. After the expiration date, Warrant holders
shall have no further rights. Warrants may be exercised by surrendering the
certificate
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<PAGE>
evidencing such Warrant, with the form of election to purchase on the reverse
side of such certificate properly completed and executed, together with payment
of the exercise price and any transfer tax, to the Warrant Agent. If less than
all of the Warrants evidenced by a warrant certificate are exercised, a new
certificate will be issued for the remaining number of Warrants. Payment of the
exercise price may be made by cash, bank draft or official bank or certified
check equal to the exercise price.
Warrant holders do not have any voting or any other rights as
shareholders of the Company. The Company has the right at any time beginning six
months from the date hereof to redeem the Warrants, at a price of $.05 per
Warrant, by written notice to the registered holders thereof, mailed not less
than thirty (30) nor more than sixty (60) days prior to the Redemption Date. The
Company may exercise this right only if the closing bid price for the Common
Stock for twenty-one (21) trading days during a thirty (30) consecutive trading
day period ending no more than 15 days prior to the date that the notice of
redemption is given, equals or exceeds $10.00 per share subject to adjustment.
If the Company exercises its right to call Warrants for redemption, such
Warrants may still be exercised until the close of business on the day
immediately preceding the Redemption Date. If any Warrant called for redemption
is not exercised by such time, it will cease to be exercisable, and the holder
thereof will be entitled only to the repurchase price. Notice of redemption will
be mailed to all holders of Warrants of record at least thirty (30) days, but
not more than sixty (60) days, before the Redemption Date. The foregoing
notwithstanding, the Company may not call the Warrants at any time that a
current registration statement under the Act is not then in effect. Any
redemption of the Warrants during the one-year period commencing on the date of
this Prospectus shall require the written consent of the Representative.
The Warrant Agreement permits the Company and the Warrant Agent without
the consent of Warrant holders, to supplement or amend the Warrant Agreement in
order to cure any ambiguity, manifest error or other mistake, or to address
other matters or questions arising thereafter that the Company and the Warrant
Agent deem necessary or desirable and that do not adversely affect the interest
of any Warrant holder. The Company and the Warrant Agent may also supplement or
amend the Warrant Agreement in any other respect with the written consent of
holders of not less than a majority in the number of the Warrants then
outstanding; however no such supplement or amendment may (i) make any
modification of the terms upon which the Warrants are exercisable or may be
redeemed; or (ii) reduce the percentage interest of the holders of the Warrants
without the consent of each Warrant holder affected thereby.
In order for the holder to exercise a Warrant, there must be an
effective registration statement, with a current prospectus on file with the
Commission covering the shares of Common Stock underlying the Warrants, and the
issuance of such shares to the holder must be registered, qualified or exempt
under the laws of the state in which the holder resides. If required, the
Company will file a new registration statement with the Commission with respect
to the securities underlying the Warrants prior to the exercise of such Warrants
and will deliver a prospectus with respect to such securities to all holders
thereof as required by Section 10(a)(3) of the Securities Act of 1933, as
amended. See "Risk Factors - Necessity to Maintain Current Prospectus" and
"State Blue Sky Registration Required to Exercise Warrants."
CERTAIN FLORIDA LEGISLATION
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 of a
corporation's disinterested shareholders. The provisions of the "Control Share
Act" apply to the Company. The Florida Affiliated Transactions Act generally
requires super majority approval by disinterested 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
provisions of the Florida Affiliated Transactions Act do not apply to the
Company as it has opted out of the provisions of the Affiliated Transactions
Act. Florida law and the Company's Articles of Incorporation and Bylaws also
authorize the Company to indemnify the Company's directors, officers, employees
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<PAGE>
and agents. In addition, the Company's Articles and Florida law presently limit
the personal liability of corporate directors for monetary damages, except where
the directors (i) breach their fiduciary duties and (ii) such breach constitutes
or includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of the Articles of Incorporation and Bylaws of the
Company summarized in the following paragraphs will become operative upon the
closing of the Offering and may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt, including
attempts that might result in a premium being paid over the market price for the
shares held by shareholders. The following provisions may not be amended in the
Company's Articles or Bylaws without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Common Stock. Such provisions
could: (1) result in the Company being less attractive to a potential acquiror;
(2) result in shareholders receiving less for their shares in the event of a
take-over attempt.
SPECIAL MEETING OF SHAREHOLDERS.
The Articles and Bylaws provide that special meetings of shareholders
of the Company may be called only by a majority of the Board of Directors, the
Company's Chief Executive Officer or holders of not less than ten percent (10%)
of the Company's outstanding voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and Warrants is
American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York,
NY 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 2,700,100
shares of Common Stock outstanding (2,820,100 shares if the Representatives'
Over-Allotment Option is exercised in full but without giving effect to the
exercise of the Warrants) of which 1,500,100 shares of Common Stock outstanding
are restricted securities as such term is defined under the Securities Act of
1933, as amended.
Of the shares of Common Stock, 1,200,000 shares sold in this Offering
(1,320,000 if the Representative's Over-Allotment Option is exercised in full)
will be freely tradeable without restriction or further registration under the
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 shares
will be subject to the resale limitations of Rule 144 under the Act. An
additional 1,200,000 shares of Common Stock have been registered (1,320,000 if
the Representative's Over-Allotment Option is exercised in full) and reserved
for issuance upon exercise of the Warrants.
In general, Rule 144, promulgated under the Securities Act of 1933, as
amended, permits a shareholder of the Company who has beneficially owned
restricted shares of Common Stock for at least two years to sell without
registration, within a three-month period, such number of shares not exceeding
the greater of one percent of the then outstanding shares of Common Stock or,
generally, the average weekly trading volume during the four calendar weeks
preceding the sale, assuming compliance by the Company with certain reporting
requirements of Rule 144. Furthermore, if the restricted shares of Common Stock
are held for at least three years by a person not affiliated with the Company
(in general, a person who is not an executive officer, director or principal
shareholder of the Company during the three month period prior to resale), such
restricted shares can be sold without any volume limitation. Since the Company
was not organized until October 1994, as of the date hereof none of the
Company's
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<PAGE>
Common Stock currently outstanding would have been deemed held for at least two
years and will be eligible for sale upon consummation of this Offering, subject
to the volume limitations and other restrictions of Rule 144. Any sales of
shares by shareholders pursuant to Rule 144 may have a depressive effect on the
price of the Company's Common Stock.
Notwithstanding the foregoing, all of the Company's holders of Common
Stock prior to the closing of this Offering (including shareholders of E&A and
INA who will exchange their shares of INA and E&A for shares of ADC as of the
closing of this Offering) have agreed not to, directly or indirectly, offer to
sell, contract to sell, sell, transfer, assign, encumber, grant an option to
purchase or otherwise dispose of any beneficial interest in such securities for
a period of 24 months from the date hereof without the prior written consent of
the Company and the Underwriter. An appropriate legend referring to these
restrictions will be marked on the face of the certificates representing all
such securities.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom Barron Chase Securities, Inc. is acting as
Representative, have severally agreed to purchase from the Company an aggregate
of 1,200,000 Shares of Common Stock ("Shares") and 1,200,000 Warrants
(collectively the "Securities"). The number of Shares and Warrants which each
Underwriter has agreed to purchase is set forth opposite its name.
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
---- --------- ---------
Barron Chase Securities, Inc. .................
First London Securities Corp. .................
--------- ---------
TOTAL..................................... 1,200,000 1,200,000
========= =========
The Securities 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 counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the
Underwriters propose initially to offer the Securities offered hereby to the
public at the offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Securities through members of the National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to
certain dealers who are members of the NASD and who agree to sell the Securities
in conformity with the NASD Conduct Rules. Such concessions shall not exceed the
amount of the underwriting discount that the Underwriters are to receive.
The Company has granted to the Representative options, exercisable for
30 days from the date of this Prospectus, to purchase up to an additional
120,000 Shares and an additional 120,000 Warrants at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus
(the "Over-Allotment Option"). The Representative may exercise this option
solely to cover over-allotments in the sale of the Securities being offered by
this Prospectus.
Officers and directors of the Company may introduce the Representative
to persons to consider this offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation.
The Company has agreed to pay the Representative a commission of ten
percent (10%) of the gross proceeds of the offering (the "Underwriting
Discount"), including the gross proceeds from the sale of the Over-Allotment
Option, if exercised. In addition, the Company has agreed to pay to the
Representative a non-accountable
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<PAGE>
expense allowance of three percent (3%) of the gross proceeds of this Offering,
including proceeds from any Securities purchased pursuant to the Over-
Allotment Option. The Representative's expenses in excess of the non-accountable
expense allowance will be paid by the Representative. To the extent that the
expenses of the Representative is less than the amount of the non-accountable
expense allowance received, such excess shall be deemed to be additional
compensation to the Representative. The Representative has informed the
Company that it does not expect sales to discretionary accounts to exceed five
(5%) of the total number of Securities offered by the Company hereby.
The Company has agreed to engage the Representative as a financial
advisor for a period of three (3) years from the consummation of this Offering,
at a fee of $108,000, all of which is payable to the Representative on the
closing date. Pursuant to the terms of a financial advisory agreement, the
Representative has agreed to provide, at the Company's request, advice to the
Company concerning potential merger and acquisition and financing proposals,
whether by public financing or otherwise.
Prior to the Offering, there has been no public market for the Shares
of Common Stock or Warrants of the Company. Consequently, the initial public
offering price for the Securities, and the terms of the Warrants (including the
exercise price of the Warrants), have been determined by negotiation between
the Company and the Representative. Among the factors considered in
determining the public offering price were the history of, and the prospect for,
the Company's business, an assessment of the Company's management, its past
and present operations, the Company's development and the general condition of
the securities market at the time of the offering. The initial public offering
price does not necessarily bear any relationship to the Company's assets, book
value, earnings or other established criterion of value. Such price is subject
to change as a result of market conditions and other factors, and no assurance
can be given that a public market for the Shares and/or Warrants will develop
after the close of the Public Offering, or if a public market in fact develops,
that such public market will be sustained, or that the Shares and/or Warrants
can be resold at any time at the offering or any other price. See "Risk
Factors."
At the closing of the Offering, the Company will issue to the
Representative and/or persons related to the Representative, for nominal
consideration, Common Stock Representative Warrants and Warrant Representative
Warrants (the "Representative's Warrants") to purchase up to 120,000 Shares
and 120,000 Warrants ("Underlying Warrants"). The Representative's Warrants will
be exercisable for a five year period commencing on the date of this Prospectus.
The initial exercise price of each Common Stock Representative Warrant shall be
$7.50 per share (150% of the public offering price). The initial exercise price
of each Warrant Representative Warrant shall be $.1875 per Underlying Warrant
(150% of the public offering price). Each Underlying Warrant will be
exercisable for a five (5) year period commencing on the date of this
Prospectus to purchase one Share of Common Stock at an exercise price of $7.50
per share of Common Stock. The Representative's Warrants will not be
transferable for one year from the date of this Prospectus, except (i) to
officers of the Representative, other Underwriters, and members of the selling
group and officers and partners thereof; (ii) by will; or (iii) by operation of
law.
The Representative's Warrants contain provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representative's Warrants contain net issuance provisions
permitting the holders thereof to elect to exercise the Representative's
Warrants in whole or in part and instruct the Company to withhold from the
securities issuable upon exercise, a number of securities, valued at the current
fair market value on the date of exercise, to pay the exercise price. Such net
exercise provision has the effect of requiring the Company to issue shares of
Common Stock without a corresponding increase in capital. A net exercise of the
Representative's Warrants will have the same dilutive effect on the interests of
the Company's shareholders as will a cash exercise. The Representative's
Warrants do not entitle the holders thereof to any rights as a shareholder of
the Company until such Representative's Warrants are exercised and shares of
Common Stock are purchased thereunder.
The Representative's Warrants and the securities issuable thereunder
may not be offered for sale except in compliance with the applicable provisions
of the Securities Act of 1933. The Company has agreed that if it shall
63
<PAGE>
cause a post-effective amendment, a new registration statement, or similar
offering document to be filed with the Commission, the holders shall have the
right, for seven years from the date of this Prospectus, to include in such
registration statement or offering statement the Representative's Warrants
and/or the securities issuable upon their exercise at an expense to the holders.
Additionally, the Company has agreed that, upon request by the holders of 50% or
more of the Representative's Warrants and Registrable Securities during the
period commencing one year from the date of this Prospectus and expiring four
years thereafter, the Company will, under certain circumstances, register the
Representative's Warrants and/or any of the securities issuable upon their
exercise.
The Company has also agreed that if the Company participates in any
merger, consolidation or other such transactions which the Representative has
brought to the Company during a period of five years after the closing of this
offering, and which is consummated after the closing of this offering
(including an acquisiton of assets or stock for which it pays, in whole or in
part, with Shares or other securities), or if the Company retains the services
of the Representative in connection with any merger, consolidation or other such
transaction, then the Company will pay for the Representative's services an
amount equal to 5% of up to one million dollars of value paid or received in the
transaction, 4% of the next million dollars of such value, 3% of the next
million dollars of such value, 2% of the next million dollars of such value and
1% of the next million dollars and of all such value above $4,000,000.
The Company has agreed to indemnify the Underwriters against any costs
or liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
Legal matters in connection with the Common Stock and Warrants being
offered hereby will be passed upon for the Company by Atlas, Pearlman, Trop &
Borkson, P.A., Fort Lauderdale, Florida. Atlas, Pearlman, Trop & Borkson, P.A.
will own 10,000 shares effective as of the Closing of this Offering of the
Common Stock. The Company is being represented as to matters of Chilean law by
Figeroa & Coddou. Certain legal matters will be passed upon for the Underwriters
by David A. Carter, P.A.
EXPERTS
The supplemental consolidated balance sheets of the Company and subsidiaries as
of December 31, 1995, and the related supplemental consolidated statements of
earnings, statements of shareholders'
64
<PAGE>
equity and cash flows for each of the two years, in the period ended December
31, 1995, included in this Prospectus have been so included in reliance upon the
report of Mutnick & Associates, P.A., independent accountants, given on
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, with respect to the securities being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information about the Company
and the securities offered hereby, reference is made to the Registration
Statement and to the exhibits filed as a part thereof. The statements contained
in this Prospectus as to the contents of any contract or other document
identified as exhibits in this Prospectus are not necessarily complete, and in
each instance, reference is made to a copy of such contract or document filed as
an exhibit to the Registration Statement, each statement being qualified in any
and all respects by such reference. The Registration Statement, including
exhibits, may be inspected without charge at the principal reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Los Angeles, California Regional Office of the Commission, 5757
Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036-3648, and
copies of all or any part thereof may be obtained from the Commission upon
payment of fees prescribed by the Commission from the Public Reference Section
of the Commission at its principal office in Washington, D.C. set forth above.
65
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)
TABLE OF CONTENTS
<S> <C>
Independent Auditors' Report F2
Supplemental Consolidated Balance Sheets F3 - F5
Supplemental Consolidated Statements of Income F6
Supplemental Consolidated Statements of
Stockholders' Equity F7 - F8
Supplemental Consolidated Statements of
Cash Flows F9 - F11
Notes to Supplemental Consolidated Financial
Statements F12 - F26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Andean Development Corporation
Boca Raton, Florida
We have audited the accompanying supplemental consolidated balance sheet of
Andean Development Corporation and subsidiaries as of December 31, 1995 and the
related supplemental consolidated statements of income, stockholders' equity and
cash flows for each year in the two 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 supplemental consolidated
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 audits 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 provided a reasonable basis for our opinion.
The supplemental consolidated financial statements give retroactive effect to
the merger of Andean Development Corporation and Errazuriz y Asociados
Ingenieros, S.A. and Igenor Andina, S.A., which will be effectuated at the time
of the closing of a public offering of Andean stock, which has been accounted
for as a pooling of interests as described in Note 1 to the supplemental
consolidated financial statements. Generally accepted accounting principles
proscribe giving effect to a consummated business combination accounted for by
the pooling of interests method in financial statements that do not extend
through the date of consummation, however; they will become the historical
consolidated financial statements of Andean Development Corporation and
subsidiaries after financial statements covering the date of consummation of the
business are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Andean
Development Corporation and subsidiaries as of December 31, 1995 and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination.
MUTNICK & ASSOCIATES, P.A.
Pembroke Pines, Florida
March 29, 1996, except for Note 15 to
which the date is October 21, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
A S S E T S
AS OF
AS OF JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 52,574 $ 49,073
Time deposits 18,361 18,189
Accounts receivable, net 1,403,001 1,768,523
Due from affiliated companies - 16,167
Due from related parties 5,696 -
Deferred income taxes 4,148 4,148
Deferred financing charges - 75,600
Other current assets 177,489 72,496
---------- ----------
TOTAL CURRENT ASSETS 1,661,269 2,004,196
---------- ----------
FIXED ASSETS:
Furniture and equipment 163,638 239,410
Less: Accumulated depreciation (69,328) (72,019)
---------- ----------
TOTAL FIXED ASSETS 94,310 167,391
---------- ----------
OTHER ASSETS:
Undeveloped real estate - held for investment 473,125 481,278
Real estate - held for sale 1,222,248 1,201,878
Capitalization of public offering costs - 244,009
Deferred income taxes 30,329 30,329
Investment in affiliated companies 476,859 283,500
Other assets 2,341 2,553
---------- ----------
TOTAL OTHER ASSETS 2,204,902 2,243,547
---------- ----------
TOTAL ASSETS $3,960,481 $4,415,134
========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED)
L I A B I L I T I E S
AS OF
AS OF JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Obligations with banks $ 367,658 $ 387,361
Current portion of long-term debt 205,532 178,162
Accounts payable 384,282 247,830
Due to related parties 132,256 169,161
Income taxes payable 36,014 155,340
Accrued expenses and withholdings 39,599 16,855
Current portion of staff severance
indemnities 22,599 31,366
Dividends payable 300,000 -
Bridge loan payable - 65,000
---------- ----------
TOTAL CURRENT LIABILITIES 1,487,940 1,251,075
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt, excluding current portion 688,508 628,243
Staff severance indemnities,
long-term portion 18,116 18,116
---------- ----------
TOTAL LONG-TERM LIABILITIES 706,624 646,359
---------- ----------
TOTAL LIABILITIES $2,194,564 $1,897,434
========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED)
STOCKHOLDERS' EQUITY
AS OF
AS OF JUNE 30,
DECEMBER 31, 1996
1995 (UNAUDITED)
------------ -----------
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
20,000,000 shares authorized,
2,500,100 issued and outstanding
at December 31, 1995 and
June 30, 1996, respectively $ 150 $ 150
Additional paid-in capital 674,122 749,722
Retained earnings 1,137,736 1,813,919
Cumulative translation adjustment (46,091) (46,091)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,765,917 2,517,700
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,960,481 $4,415,134
========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIOD (UNAUDITED)
ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES FROM OPERATIONS:
Revenues $2,042,884 $2,717,341 $1,355,266 $1,472,037
Cost of operations (296,896) (697,599) (266,753) (318,167)
---------- ---------- ---------- ----------
GROSS PROFIT 1,745,988 2,019,742 1,088,513 1,153,870
SELLING AND ADMINISTRATIVE EXPENSES (460,775) (509,563) (321,050) (227,300)
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 1,285,213 1,510,179 767,463 926,570
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest income 1,456 - - -
Interest expense (125,701) (213,618) (97,677) (113,563)
Profit (loss) on foreign currency exchange (75,096) (9,692) (40,829) (12,347)
Realized profit/(loss) on sale of assets (25,326) 8,909 8,909 18,923
Costs of curtailed public offering - (276,506) (276,506) -
Other, net 704 (29,636) 55,345 (24,074)
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (EXPENSES) (223,963) (520,543) (350,758) (131,061)
INCOME BEFORE INCOME TAXES 1,061,250 989,636 416,705 795,509
INCOME TAXES 51,780 50,636 64,613 119,326
---------- ---------- --------- ----------
NET INCOME $1,009,470 $939,000 $ 352,092 $ 676,183
========== ======== ========== ==========
NET INCOME PER COMMON SHARE $0.67 $0.63 $0.24 $0.45
===== ===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING 1,500,100 1,500,100 1,500,100 1,500,100
========= ========= ========= =========
</TABLE>
Please read accompanying notes to the financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1994, 1995, AND JUNE 30, 1996
(UNAUDITED)
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 150 $ 542,704 $ 355,522 $ (97,217) $ 801,159
Additional paid-in capital - 131,418 - - 131,418
Net income - - 1,009,470 - 1,009,470
Dividends to stockholders - - (866,256) - (866,256)
Translation adjustment - - - 91,532 91,532
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 $ 150 $ 674,122 $ 498,736 $ (5,685) $1,167,323
========== ========== ========== ========== ==========
Balance at December 31, 1994 $ 150 $ 674,122 $ 498,736 $ (5,685) $1,167,323
Additional paid-in capital - - - - -
Net income - - 939,000 - 939,000
Dividends to stockholders - - (300,000) - (300,000)
Translation adjustment - - - (40,406) (40,406)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 $ 156 $ 674,122 $1,137,736 $ (46,091) $1,765,917
========== ========== ========== ========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE PERIODS ENDED DECEMBER 31, 1994, 1995 AND JUNE 30, 1996
(UNAUDITED)
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY
----------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 150 $ 674,122 $1,137,736 $ (46,091) $1,765,917
Additional paid-in capital associated
with detachable stock warrants - 75,600 - - 75,600
Net income - - 676,183 - 676,183
Dividends to stockholders - - - - -
Translation adjustment - - - - -
---------- ---------- ---------- ---------- ----------
Balance at June 30,
1996 (unaudited) $ 150 $ 749,722 $1,813,919 $ (46,091) $2,517,700
========== ========== ========== ========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD (UNAUDITED)
ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,009,470 $939,000 $ 352,092 $ 676,183
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Deferred income taxes (5,407) - - -
Depreciation 23,582 20,277 8,086 23,061
Provision for vacations (3,941) 5,217 5,217 -
Provision for severance indemnity (601) 14,025 13,848 8,767
Loss/(profit) on sale of fixed assets 750 (8,909) (8,909) -
Other losses 1,676 20,968 6,670 -
(Increase) decrease in
accounts receivable (204,209) (1,198,792) (553,495) (365,522)
(Increase) in due from sale of
affiliated company stock - - (141,376) -
(Increase) in other assets (50,539) (61,175) (257,202) (212)
Increase in accounts payable 34,255 272,742 222,860 (136,452)
Increase (decrease) in accrued
expenses and withholdings 13,482 (7,958) (8,330) (22,744)
Increase in income taxes payable 8,368 (5,022) 93,122 119,326
(Decrease) increase in deferred income (53,672) - - -
----------- ----------- ----------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 773,214 $ (9,627) $ (267,417) $ 302,407
=========== =========== =========== ==========
</TABLE>
Please read accompanying notes to the financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE PERIOD (UNAUDITED)
ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
1994 1995 1995 1996
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in prepaid expenses $ - $ - $ - $ 104,993
Purchase of fixed assets (62,712) - - (75,772)
Payments for purchase of property
under construction or land for sale (420,575) (89,347) (89,347) (8,153)
Proceeds from sale of fixed assets 31,415 46,281 46,281 -
Proceeds from sale of subsidiary (ITL) - 466,413 - 193,359
Investment in affiliated company (ITL) - (666,304) - -
Investment in subsidiary (A & E) - (283,500) - -
(Increase) decrease in time deposits 20,171 (4,890) (3,996) 172
---------- ----------- ----------- ----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (431,701) (531,347) (47,062) 214,599
---------- ---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cost of public offering - - - (244,009)
Proceeds from related parties - 310,174 23,417 42,601
Proceeds from (payments on)
notes payable to banks 718,289 247,628 275,412 (67,932)
Capital contributions 131,418 - - -
Proceeds from bridge loan - - - 65,000
Dividends paid (866,256) - - (300,000)
Payments to related parties (354,349) - (23,646) (16,167)
---------- ----------- ---------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (370,898) 557,802 275,183 (520,507)
---------- ---------- ---------- ----------
</TABLE>
Please read accompanying notes to the financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE PERIOD (UNAUDITED)
ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES $ 56,297 $ (31,402) $ 21,470 $ -
---------- ---------- ---------- ----------
NET INCREASE (DECREASE)IN CASH 26,912 (14,574) (17,826) (3,501)
CASH AT BEGINNING OF PERIOD 40,236 67,148 67,148 52,574
---------- ---------- ---------- ----------
CASH AT END OF PERIOD $ 67,148 $ 52,574 $ 49,322 $ 49,073
========== ========== ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE:
The Company paid $99,518, $169,854, $97,677 and $113,563 for interest and
$97,930, $27,971, $18,617 and $-0- for income taxes in 1994, 1995, and for the
six months ended June 30, 1995 and 1996, respectively. In April of 1996 the
Company capitalized financing costs associated with the issuance of warrants
at a total cost $75,600. This resulted in an increase in additional paid-in
capital in the same amount.
Please read accompanying notes to the financial statements.
F-11
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO JUNE 30, 1996 AND 1995)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Andean Development Corporation, (the "Company"), is a
Florida corporation incorporated on October 19, 1994. The Company is
in the business of providing engineering, technical assistance and
equipment in the development of specialized projects throughout the
country of Chile and more recently in Peru.
BASIS OF PRESENTATION - The accompanying supplemental consolidated
financial statements include the accounts of the Company, and its
wholly-owned subsidiaries, Errazuriz y Asociados Ingenieros, S.A. and
Igenor Andina, S.A., two Chilean service corporations. In addition,
the equity method of accounting is used for the Company's 30% owned
subsidiary Inversiones Tiempo Libre, S.A. "ITL", acquired in March
1995, and its 45% owned subsidiary A & E.
The accompanying supplemental consolidated financial statements have
been prepared in conformity with generally accepted accounting
principles and all material intercompany transactions have been
eliminated.
In November of 1995, (subsequently revised in October of 1996), the
Company entered into an agreement to acquire 100% of the issued and
outstanding common stock of Errazuriz y Asociados Ingenieros, S.A.
and Ingenor Andina, S.A., in exchange for 2,500,000 (subsequently
revised to 1,500,000) shares of common stock which will be effective
as of the closing of the initial public offering of the Company's
stock. (See Note 13 for more details.) Generally accepted accounting
principles prescribe giving effect to a consummated business
combination accounted for by the pooling of interests method in
financial statements that do not include the date of consummation.
Accordingly, the supplemental consolidated financial statements for
all periods presented have been prepared assuming the acquisition by
the Company took place on January 1, 1992, that the Company was
incorporated on that date, and the exchange of shares from 1,500,000
was effectuated at that time.
Had the Company presented combined historical financial statements of
the two subsidiaries only, the presentation would not materially
differ from the supplemental consolidated presentation referred to
above. In addition, these financial statements will become the
historical consolidated financial statements of the Company and
subsidiaries after financial statements covering the date of
consummation of the business combination are issued.
F-12
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table reflects the revenue, net income and intercompany
transactions for the previously separate entities (Errazuriz y
Asociados Ingenieros, S.A. and Igenor Andina, S.A.) prior to the
business combination.
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD ENDED
AT DECEMBER 31, JUNE 30,
1994 1995 1995 1996
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Errazuriz y Asociados $1,337,940 $1,309,946 $808,450 $720,888
Igenor Andina 746,830 940,052 667,423 569,848
Revenues shared by
E&A and I&A outside
of Chile - 521,134 - 181,301
---------- ---------- --------- ---------
Sub total revenues 2,084,770 2,771,132 1,475,873 1,472,037
Less: Intercompany
rev. (41,886) (53,791) (120,607) -
---------- ---------- ---------- ---------
TOTAL REVENUES 2,042,884 2,717,341 1,355,266 1,472,037
---------- ---------- --------- ---------
NET INCOME:
Errazuriz y Asociados 837,322 661,725 11,874 413,711
Igenor Andina 172,148 277,275 340,218 262,472
INTERCOMPANY TRANSACTIONS:
Due from Igenor to
Errazuriz 136,503 - - -
Due from Errazuriz
to Igenor - 5,661 - 148,486
Fees paid by Igenor
to Errazuriz - - - -
Purchase of land
by Igenor from
Errazuriz 480,655 - - -
Gain on sale of
land to Igenor 89,409 - - -
Consulting services paid by
Errazuriz to Igenor 41,886 53,791 120,607 -
</TABLE>
F-13
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FUNCTIONAL CURRENCY - The financial statements have been translated
in accordance with the provisions set forth in Statement of Financial
Accounting Standards No. 52, from Chilean pesos (the functional
currency) into US dollars (the reporting currency).
REVENUE RECOGNITION - The Company earns income in two basic ways; via
commissions associated with the sale of major equipment items and
from the performing of engineering services.
In the case of equipment sales, the company earns a commission on the
sale of equipment or turn-key jobs when the contract between the
purchasing company (buyer of the equipment), is signed by both
parties or an "Order of Proceed" is issued by the buyer. At this
moment all the work of the Company has been completed and the
commission has been earned regardless of any future developments
between the supplier and the buyer. The time of payment of the
commissions is determined by the practices of the countries involved
in receiving and sending monies from and to other countries. As a
result, it is not unusual for it to take 60-180 days for the funds to
be transferred.
Revenues associated with engineering services are recognized as
services and are performed based on standard billing rates.
TIME DEPOSITS - Time deposits are recorded at the original amount
plus interest accrued at each year end.
INCOME TAXES - In February 1992, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes. SFAS 109 requires a change
from the deferred method of accounting for income taxes prescribed by
APB Opinion 11, to the asset and liability method of accounting for
income taxes. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future
income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the
financial statement 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 apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, 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.
During 1994 and 1995, the Company performed consulting services for
European companies which resulted in income received by the Company
in Europe. Income from European operations was $737,008 and $612,669
in 1994 and 1995, respectively. The make-up by country was $345,365,
$231,643 and $160,000, in Sweden, Norway and England, respectively,
for 1994, and $399,068, $203,601 and $10,000, in Germany, England and
Norway, respectively, in 1995. No consulting services have been
performed for
F-14
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
European companies in 1996. As a result of the adoption of SFAS 109,
the Company provides no deferred income taxes on its European
earnings as the revenues will not be transferred to Chile or the
United States; rather such earnings will be reinvested in European
operations, thereby eliminating any deferred tax liability.
A deferred tax asset was recognized at December 31, 1995 and for the
six months ended June 30, 1996 of $34,477 and $34,477, respectively.
Income tax expense totalled $51,780, $50,636, $64,613 and $119,326
for the years ended December 31, 1994 and 1995, and for the six
months ended June 30, 1995 and 1996, respectively.
FIXED ASSETS - Furniture and equipment are recorded at cost.
Depreciation is provided on a straight-line method based on the
estimated useful life of the asset.
REAL ESTATE - Real estate is recorded at cost, which includes the
cost of acquisition of land plus costs incurred in the construction
of a house. These aggregate carrying costs do not exceed the net
realizable value (selling price less any costs of completion and
disposal) of the property under construction. This estimate was based
on an independent appraisal of the real estate. The basis for this
assessment is the existing contract between Invdemco (a company owned
by Mr. Errazuriz who is Chief Executive Officer and member to the
Board of the Company) and his wife to transfer the house at closing
from the Company to Invdemco at its net book value. As the house has
now been completed, (December 1995), the Company is depreciating it
on the straight-line basis over 30 years with the quarterly
depreciation beginning in March of 1996.
STAFF SEVERANCE INDEMNITIES - The Company provides for certain lump
sum severance indemnities to its employees at the end of their
employment as required by Chilean law. The obligation is calculated
based on the present value of the vested benefits to which an
employee is entitled, the expected service lives of the employees and
current salary levels. The Company believes that the above
calculation is not materially different from the calculation required
by SFAS 87, which would reflect expected future salary increases.
CASH - Cash includes cash on hand.
FOREIGN OPERATIONS - As the Company is a holding company for two
existing Chilean companies, operating exclusively in South America,
one must be aware of the potential for both economic and political
change in the business environment, different than that of the United
States. The success of the Company depends on the success of the
Chilean operations and a stable economic and political environment.
During 1995 the Company performed services for the Westinghouse
Corporation in Peru. The total revenues from this transaction as
reflected in the 1995 financial statements was $312,500 of
commissions. There were no other foreign generated revenues.
F-15
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER COMMON SHARE - Earnings per share are based on the
weighted average number of shares outstanding of 1,500,100 for each
of the three years presented giving effect to the exchange of shares
with the offering.
RECENT PRONOUNCEMENTS - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," which established
a fair value based method of accounting for those stock-based
compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting. In its
adoption of FASB 123, the Company has decided to retain the existing
measurement values as prescribed under APB 25 and would provide
additional proforma disclosure if and when such options are granted.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which requires the Company to review for impairment of
long lived assets and certain identifiable assets whenever events or
changes in circumstances indicate that the carrying amount of an
asset might not be recoverable. In certain situations, an impairment
loss would be recognized. As a result, the Company has adopted FASB
121 effective January 1, 1996. The Company has studied the
implications of FASB 121 and, based on its evaluation, has determined
that its adoption does not have a material impact on the Company's
financial condition or results of operations. At June 30, 1996,
there were no impairments.
ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 - TIME DEPOSITS
Time deposits consist of funds totalling $18,361 and $18,189 at
December 31, 1995 and at June 30, 1996, respectively, invested in a
local Chilean bank with maturity dates ranging from 3 months to 1
year. These investments earn an annual rate of interest ranging from
1.44% to 3.60%.
F-16
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - OTHER CURRENT ASSETS
Other current assets consist of the following at December 31, 1995
and June 30, 1996, respectively:
AT (UNAUDITED)
DECEMBER 31, AT JUNE 30,
1995 1996
------------ -------------
Prepaid expenses* $ 123,452 $ -
Due from sale of timber 54,037 53,529
Recoverable taxes - 10,323
Other - 8,644
---------- ----------
Total other current assets $ 177,489 $ 72,496
========== ==========
* - This represents payments to suppliers as advances against
future services.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company conducts a substantial amount of its business with
companies that are affiliated with shareholders common to the
corporation. As a result, commissions have been received from both
engineering and consulting services and have been paid for consulting
services to and from these affiliated companies. Following is a list
of those affiliated companies:
<TABLE>
<CAPTION>
RELATION
COMPANY NAME 1994 1995 1996
------------ -------- -------- ------
<S> <C> <C> <C>
Igenor Ingenierie et
Gestion, S.A. Parent Parent Parent
Inversiones y Desarrollo
Demco, S.A. (Invdemco) Equity Related(1) Related
Electromecanica Osorno, S.A. Equity Related(1) Related
Errazuriz y Asociados
Arquitectos, Ltda. Equity Equity Equity
Inversiones Tiempo
Libre, S.A. Equity Equity Not related(2)
Proyectos y Equipos, S.A. Equity Related(1) Related
Norconsult International, S.A. Related Related Not related(3)
Kvaerner Chile, S.A. Related Not related(4) Not related
Kvaerner Hydro, Agencia de
Kvaerner Turbin Aguas y
Ecologia, S.A. Not related Not related Related(5)
Biwater International, L.T.D. Related Related(6) Related(7)
Tacora Related Related Not related(8)
</TABLE>
F-17
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
(1) To clarify the intercompany situation, Inversiones y
Desarrollo Demco S.A., Electromecanica Osomo S.A. and
Proyectos y Equipos S.A. sold their interest in INA and E &
A and vice versa. At present, they are related only by
shareholders that are common to each other.
(2) All the equity of the Company in ITL was sold prior to
June 30, 1996.
(3) The CEO of the Company resigned his power of attorney for
Norconsult A.S.
(4) The CEO of the Company resigned to his place in the Board
of Kvaerner Chile, S.A.
(5) On December 1995, the Company bought 45% of Aguas y
Ecologia S.A. (A&E).
(6)&(7) During 1995, the CEO of the Company resigned his
representation of Biwater, but ADC became related to
Biwater as A&E is a partner of Bayesa, also owned by
Biwater.
(8) The CEO of the Company resigned his power of attorney for
Tacora.
Commissions received by the Company for the engineering of various
projects totalled $470,589, $417,022, $-0- and $62,073 at December
31, 1994, 1995 and for the six months ended June 30, 1995 and 1996,
respectively. Income received for consulting services totalled
$237,754, $244,582, $-0- and $103,800 at December 31, 1994, 1995, and
for the six months ended June 30, 1995 and 1996, respectively. Total
fees charged to the Company for consulting services performed by the
related companies at December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and 1996 were $82,628, $54,794, $-0- and
$-0-, respectively. In addition, fees charged to the Company for
consulting services performed by its principal owners and immediate
family totalled $4,495, $9,825, $-0- and $-0-, at December 31, 1994,
1995, and for the six months ended June 30, 1995 and 1996,
respectively.
The amounts due from the affiliated companies totalled $5,696 and
$-0-, at December 31, 1995 and June 30, 1996, respectively. Funds
payable to these companies totalled $46,035, and $160,645, at
December 31, 1995 and June 30, 1996, respectively.
The Company also carried out transactions with its management,
shareholders and their immediate family. The total amount payable to
them by the Company was $86,221 and $8,516, at December 31, 1995 and
June 30, 1996, respectively. The amount they owed to the Company
totalled $-0- and $-0- at December 31, 1995 and June 30, 1996,
respectively. These balances are reflected in due from and due to
related parties in the balance sheets.
F-18
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - RELATED PARTY TRANSACTIONS (Continued)
The Company also carried some transactions with IGENOR, an affiliate
company and shareholder based in Geneva, Switzerland, and with
Bayesa, a company that became affiliated in January after the
purchase of a participation in it through Aguas y Ecologia, S.A. The
balances are reflected in "Due from affiliated companies" and total
$-0- and $16,167 at December 31, 1995 and June 30, 1996,
respectively.
NOTE 5 - UNDEVELOPED REAL ESTATE - HELD FOR INVESTMENT
The balance of property for sale relates to land near Villarrica,
Chile, which was acquired for resale after being developed in a
resort area and is being used in the meantime as a guarantee for some
of the financial operations of the Company. The property is being
carried at its cost (that value less than the net realizable value
based on an independent appraisal of the real estate). The Company
has no intention to sell the property in the near future and is
treating it as investment property.
NOTE 6 - REAL ESTATE - HELD FOR SALE
The composition of the real estate - held for sale is as follows:
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
Land $ 46,233 $ 46,233
Cost of construction 1,176,015 1,176,015
Less: Depreciation - (20,370)
------------ -----------
$1,222,248 $1,201,878
============ ===========
In March 1996, the Company entered into an agreement with a Chilean
Investment Company, [Inversiones y Desarrollo Demco, S.A.
(Invdemco)], whose shareholders are Mr. Errazuriz, the Company's
President and CEO, his wife, and one of his daughters, to sell them
the non-performing asset real estate for a price of $1,212,063, the
book value of it. Payment terms are 50% in cash at the closing of the
public offering, and the balance in four annual installments with
interest at 8-1/2% per year.
F-19
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - FIXED ASSETS
A detail of furniture and equipment is as follows:
AT (UNAUDITED)
DECEMBER 31, AT JUNE 30,
1995 1996
------------ -------------
Vehicles $118,032 $193,804
Office equipment 42,644 42,644
Furniture and fixtures 2,962 2,962
------------ -------------
Total furniture and equipment
at cost 163,638 239,410
Less: Accumulated depreciation (69,328) (72,019)
------------ -------------
Net fixed assets $ 94,310 $167,391
============ =============
Depreciation expense was $23,582, $20,277, $8,086 and $23,061 for the
years ended December 31, 1994 and 1995, and for the six months ended
June 30, 1995 and 1996, respectively.
NOTE 8 - INCOME TAXES
Deferred tax assets are summarized as follows:
AT (UNAUDITED)
DECEMBER 31, AT JUNE 30,
1995 1996
------------ ------------
CURRENT ASSETS:
Provisions for vacation $ 1,519 $ 1,519
Staff severance indemnities -
current portion 1,163 1,163
Accrued bonuses 879 879
Other 587 587
-------- --------
4,148 4,148
-------- --------
LONG-TERM ASSETS:
Depreciation 16,175 16,175
Staff severance indemnities,
long-term portion (1,920) (1,920)
Property for sale under
construction 5,419 5,419
Property for sale 2,884 2,884
Other 7,771 7,771
-------- --------
30,329 30,329
-------- --------
TOTAL DEFERRED TAX ASSETS $ 34,477 $ 34,477
========= ========
F-20
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - INCOME TAXES (Continued)
The Company is subject to income tax in Chile. Reconciliations
between the statutory income tax rate in Chile, and the Company's
effective income tax rate as a percentage of income before income
taxes is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
AT DECEMBER 31, AT JUNE 30,
1994 1995 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Chilean statutory
tax rate 15.0% 15.0% 15.0% 15.0%
Effect of European
income (8.5) (9.9) 0.0 0.0
Other, net (1.6) 0.0 0.5 0.0
------- ------- ------- --------
Effective income
tax rate 4.9% 5.1% 15.5% 15.0%
======= ======= ======= ========
The provision for income taxes charged to the results of operations
was as follows:
(UNAUDITED)
AT DECEMBER 31, AT JUNE 30,
1994 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Current tax expense $ 57,187 $ 50,636 $ 64,613 $119,326
Deferred tax
expense (benefit) (5,407) - - -
-------- -------- -------- --------
Total provision $ 51,780 $ 50,636 $ 64,613 $119,326
-------- -------- -------- --------
</TABLE>
NOTE 9 - OBLIGATION WITH BANKS
Obligations with banks consist of the following:
(UNAUDITED)
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
Loans payable to bank for liens
of credit due August 1996 with
variable monthly interest.
Currency: Chilean pesos $105,280 $102,192
F-21
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - OBLIGATION WITH BANKS (Continued)
(UNAUDITED)
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ -------------
Short-term loans due July
1996, with interest rates
ranging from 7.6% to 12%.
Currency: Chilean pesos
and UF 262,378 285,169
-------- --------
Total obligations to banks $367,658 $387,361
======== ========
Interest rates on all of these flexible rate loans are based on the
Asociacion de Bancos y Entidades Financieras, (T.A.B.) rate, which
represents a daily average of the interest paid by banks on its
deposits. The rate is then adjusted upwards approximately 1.5% for
the banks profit, and then an additional 1.0%-1.7% reflecting the
individual risk of the bank on the individual loan. The actual
resulting interest rates at December 31, 1994, 1995 and June 30, 1996
were 24%. There are no covenants or restrictions imposed on the
aforementioned obligations with any of the banks involved.
A line of credit for $105,280 and $102,192 at December 31, 1995 and
June 30,1996, respectively, is secured by an assignment of the
Company's term deposits and two cars owned by the Company. Total
credit available on the lines of credit approximate the outstanding
balances adjusted for fluctuations in the market values of the
collateral being provided.
$262,378 and $285,169 of short-term loans at December 31, 1995 and
June 30, 1996, respectively, were collateralized by a mortgage on
real estate held for sale.
It is usual practice in Chile to include every outstanding loan with
the relevant bank, be it short-term or long-term, in the mortgage of
real estate held for sale in favor of that Bank. The Company has
mortgaged the real estate held for sale (Villarrica House) in favor
of Banco del Desarrolo, so all outstanding loans with this bank are
guaranteed by such mortgage. As of June 30, 1996, the Company has the
following loans outstanding with that bank: Long-term debts, (1)
$2,999 at 11% interest payable in UF monthly and maturing in August
1996, (2) $342,128 at 9.5% interest payable in UF monthly and
maturing the 1st of March 2006, (3) $73,235 at 11% interest, payable
monthly in UF and maturing the 1st of January of 2005; and b)
short-term debts as follows, (1) $218,253 at 2.5% monthly interest in
pesos maturing the 31st of August 1996; and (2) $36,459 at 2.5%
monthly interest in pesos maturing the 25th of September 1996, all
totalling $673,074 in debt with Banco del Desarrollo of June 30,
1996.
F-22
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - OBLIGATION WITH BANKS (Continued)
In the same manner the Loncovaca Land (undeveloped real estate held
for investment) is mortgaged to Banco Sudamericano and has two
outstanding loans both of which are long-term. One is in the amount
of $190,696 at 8.7% interest in UF payable monthly and maturing in
December 2002, and the second for $173,024 at 2.5% interest payable
monthly in pesos and maturing in April of 1998.
NOTE 10 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Note payable, collateralized
by land on the real estate held
for sale, due January 2005
with interest at 11%, payable
monthly. Currency: UF $ 75,622 $ 73,235
Note payable, collateralized
by a mortgage on real estate held
for sale, with interest at 9.5%,
due March 2006, payable monthly.
Currency: UF 350,979 342,128
Note payable, collateralized
by mortgage on real estate held
for sale, due August 1996, with
interest at 11%, payable
monthly. Currency: UF 27,629 2,999
Note payable, collateralized
by mortgage on the undeveloped real
estate held for investment,
due December 2002 with interest
at 8.7%, payable monthly commencing
January 1995. Currency: UF 203,025 190,690
Note payable, secured by an assignment
of a vehicle, due April 1997
with interest at 10.9%, payable
monthly. Currency: UF 39,045 24,329
F-23
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - LONG-TERM DEBT (Continued)
(UNAUDITED)
AT AT
DECEMBER 31, JUNE 30,
1995 1996
------------ ------------
Note payable, collateralized by
mortgage on undeveloped real
estate held for sale, due
April 1998 with interest at 2.5%.
Currency: Pesos 197,740 173,024
------------ ------------
Total notes payable 894,040 806,405
Less: Current portion (205,532) (178,162)
------------ ------------
Total long-term debt $688,508 $628,243
============ ============
</TABLE>
The UF is an indexed unit of account expressed in pesos and adjusted
according to inflation (CPI). There are no covenants or restrictions
imposed on the aforementioned obligations with any of the banks
involved.
During 1993, the Company repaid its then outstanding loan balance of
$59,186 with the proceeds from a new loan. Subsequently in 1994, this
loan was refinanced with the same bank.
In 1994, the Company's short-term loans totalling $137,026 were
refinanced into two larger long-term loans of $358,240 and $78,038
with the same bank. In 1995, two short-term loans and a line of
credit were refinanced into a long-term loan of $197,740 with the
same bank.
Interest expense for the years ended December 31, 1994, 1995 and for
the period ended June 30, 1995 and 1996 totalled $125,701, $213,618,
$97,677 and $113,563, respectively.
The following table reflects the annual payments due for the next
five years for the long-term debt.
YEAR ENDING
DECEMBER 31, PAYMENTS
------------ --------
1996 $205,532
1997 176,439
1998 106,727
1999 71,570
2000 and after 333,772
--------
Total $894,040
========
F-24
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - STOCKHOLDERS' EQUITY
In November of 1995, (subsequently revised in October of 1996), the
Company entered into an agreement to exchange 2,500,000
(subsequently revised to 1,500,100) shares of $.0001 par value
common stock for 100% of the then outstanding stock of Errazuriz y
Asociados Ingenieros, S.A. and Igenor Andina, S.A., to be effective
as of the closing of the offering.
During the years 1994 and 1995, the Company paid its shareholders
dividends in the amount of $866,256 and $-0-, respectively. During
1995, the Company declared dividends in the amount of $300,000 to
its shareholders, all of which was paid during the first quarter of
1996.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
At December 31, 1993, the Company entered into a contract with
Corporation de Fomento de la Produccion, a state owned corporation
created to develop various industries and the technology of Chile,
(CORDO). One such project is that of the design of a wave-maker for
swimming pools. Under the terms of the contract, the Company can
buy the exclusive rights to the results of the project by paying
the corporation UF 1,102.80 (equivalent to US $30,658). This
obligation would be payable over a maximum period of five years.
In connection with the contract between the Company and the
corporation, the Company has a letter of guarantee for CH
$23,430,486 (equivalent to US $61,317) in case of non-performance
under the terms of the contract.
NOTE 13 - LEASE COMMITMENTS
The Company rents office facilities of 3,300 sq. feet in Santiago,
Chile under a month-to-month operating lease. Monthly rental
payments were $4,351, $4,354 and $4,507 per month during 1994, 1995
and 1996, respectively.
NOTE 14 - INVESTMENTS IN SUBSIDIARIES
In March of 1995, Inversiones Tiempo Libre, S.A., (ITL), a newly
formed company, owned in part by members of Mr. Errazuriz's family,
paid the Company for all the engineering and research costs
incurred by the latter to develop the amusement park project that
will be managed by ITL. The payment was made with 100% of ITL
stock, corresponding to the exact amount of the services billed,
which totalled $666,305 at March 31, 1995. The Company's revenues
for the first quarter of 1995 increased significantly by this
transaction. During the same period, the Company sold 70% of the
ITL stock at their face value, which was their carrying value. A
"Due from sale of affiliated company stock" account was created to
record the receivable of $466,413 at March 31, 1995. The remaining
30% investment has been accounted for using the equity method.
Under this method the original investment is recorded at cost and
is adjusted
F-25
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - INVESTMENTS IN SUBSIDIARIES (Continued)
periodically to recognize the investor's share of earnings or
losses after the date of acquisition. At December 31, 1995 and June
30, 1996, the Company's share of profits from its investment in ITL
totalled $-0-.
During the fourth quarter of 1995, the Company put up for sale the
remaining 30% investment of the ITL stock. This investment has been
recorded as a current asset on the Company's financial statements.
These shares were sold to members of Mr. Errazuriz's family during
the first quarter of 1996 at their book value of $193,359.
The Company purchased 45% of the stock of Aguas y Ecologiz, S.A.
(A&E), which owns 10% of the stock in Bayesa, S.A. from a Chilean
investment company. This equates to a 4.5% ownership of Bayesa,
S.A. by an additional 22.5% of (A&E) 2.25% of Bayesa S.A., which it
intends to purchase. Financial statements of A&E as prepared in
accordance with GAAP are unavailable and impracticable to produce
at this time. At December 31, 1995, the Company's share of profits
from its investment in A&E totalled, $6,532. No income or loss was
recognized at June 30, 1996.
NOTE 15 - SUBSEQUENT EVENTS
(a) The Company has entered into an oral agreement on a firm
commitment basis to sell 1,200,000 shares of common stock
(10,000,000 shares newly authorized, $.0001 par value), at
$5.00; and 1 warrant convertible into 1 share of common stock
at $5.00 per share within the first 60 months after the
effective date of the offering. The Company anticipates
raising approximately $6,150,000, exclusive of costs or
over-allotments. Of the proceeds, approximately $3,000,000
will be used for the development of and investment in various
capital projects; $700,000 to be utilized in the opening of
offices in Spain and the United States; $1,650,500 will be
held available for working capital and operating costs; and
approximately $799,500 will be used for underwriting
discounts and expenses of the offering. As a result, there
will be 2,700,100 shares of common stock outstanding
(1,500,000 par value .0001 common stock and 1,200,100 par
value .0001 common stock), after the offering, without
considering the over-allotment rights, and the shares to be
interchanged with the warrants. (See "Use of Proceeds" and
"Description of Securities" in Prospectus for details.)
(b) During April 1996, the Company consummated loans in the
amount of $65,000. The loans bear interest at the rate of
8-1/2% annually and will be repaid from the proceeds of the
offering of stock, (see Note 13a above), or no later than
January 15, 1997. The lender also received an aggregate of
21,000 warrants to purchase treasury stock at 33% of the
offering price. The warrants were assigned a value of $3.60
per warrant, for a total of $75,600 which has been
capitalized as a deferred financing charge, which will be
amortized
F-26
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - SUBSEQUENT EVENTS (Continued)
over the term of the loan, and resulted in an increase in
additional paid-in capital on the balance sheet. If such
warrants are exercised the common shares cannot be publically
traded for six months from the effective date of the
offering.
(c) In November of 1995 (subsequently revised in October of
1996), the Company entered into an agreement to exchange
2,500,000 (subsequently revised to 1,500,000) shares of
$.0001 par value common stock for 100% of the then
outstanding stock of Errazuriz y Asociados Ingenieros, S.A.
and Igenor Andina, S.A., to be effective as of the closing of
the offering.
F-27
<PAGE>
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------------
TABLE OF CONTENTS
Page
Available Information....................................... 2
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds ............................................ 17
Dividend Policy............................................. 18
Dilution.................................................... 19
Capitalization.............................................. 20
Exchange Rates.............................................. 21
Selected Financial Data..................................... 23
Management's Discussion and
Analysis of Financial Condition
Results of Operations.................................... 24
Business.................................................... 31
Management.................................................. 50
Certain Transactions........................................ 55
Principal Shareholders...................................... 57
Description of Securities................................... 59
Shares Eligible for
Future Sale............................................... 61
Underwriting................................................ 62
Legal Matters............................................... 64
Experts .................................................... 64
Additional Information...................................... 65
Index to Financial
Statements................................................ F-1
--------------------
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 DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,200,000 SHARES OF
COMMON STOCK
1,200,000 REDEEMABLE
WARRANTS
ANDEAN DEVELOPMENT
CORPORATION
--------------------
PROSPECTUS
--------------------
BARRON CHASE SECURITIES
7770 W. Camino Real
Suite 200
Boca Raton, Florida 33433
(561) 347-1200
Atlanta, Georgia
Beverly Hills, California
Boston, Massachusetts
Chicago, Illinois
Clearwater, Florida
Dallas, Texas
Denver, Colorado
East Boca Raton, Florida
Hoopeston, Illinois
Miami, Florida
Middletown, New Jersey
Minneapolis, Minnesota
Oaklahoma City, Oklahoma
Phoenix, Arizona
Sarasota, Florida
Tampa, Florida
Tuls, Oaklahoma
_______________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides that the
Company shall indemnify to the fullest extent permitted by the Florida Business
Corporation Act (the "Florida Law") any person whom it may indemnify thereunder.
The Bylaws of the Company provide that indemnification shall be made by the
Company.
The provisions of Florida law that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of nonmonetary relief will
remain available. In addition, each director will continue to be subject to
liability for (a) violations of criminal laws, unless the director has
reasonable cause to believe that his or her conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (b) deriving an improper
personal benefit from a transaction, (c) voting for or assenting to an unlawful
distribution and (d) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of the Company to
procure a judgment in its favor or in a proceeding by or in the right
of a shareholder. The statute does not affect a director's responsibilities
under any other law, such as the federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he or she 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 his or her conduct was unlawful.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
Offering described in this Registration Statement. All amounts are estimated
except the SEC Registration fee, the NASD fee and the Representatives'
Non-Accountable Expense Allowance.
SEC Registration fee.................................. $ 4,603.00
NASD fee.............................................. 2,798.00
NASDAQ application and listing fees................... 22,550.00
Printing Costs ....................................... 30,000.00
Accounting fees and expenses ......................... 25,000.00
Legal fees and expenses .............................. 155,000.00
Blue Sky fees and expenses ........................... 10,000.00
Representatives' Non-Accountable Expense Allowance.... 184,500.00
Transfer Agent fees and expenses ..................... 10,000.00
Miscellaneous ........................................ 1,000.00
-------------
Total ...................................... $445,451.00
=============
All of the above expenses of this Offering will be paid by the Company.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
EFFECTIVE AS OF DECEMBER 31, 1994, THE SHAREHOLDERS OF E&A AND INA
EXCHANGED THEIR SHARES IN E&A AND INA FOR 2,500,100 SHARES OF COMMON STOCK,
EFFECTIVE UPON CLOSING OF THIS OFFERING. THE REMAINING 100 SHARES OF COMMON
STOCK ARE PROMOTIONAL SHARES HELD BY MR. PEDRO P. ERRAZURIZ, THE PRESIDENT, CEO
AND CHAIRMAN OF THE BOARD OF ADC AND WERE ISSUED TO COMPLY WITH CHILEAN LAW.
DURING APRIL 1996, THE COMPANY BORROWED $65,000 FROM TWO PRIVATELY-HELD
CORPORATIONS, THE PROCEEDS OF WHICH WERE USED TO PAY CERTAIN EXPENSES OF THIS
OFFERING. THE LOAN, WHICH BEARS INTEREST AT THE RATE OF 8-1/2% PER ANNUM, WILL
BE DUE AT THE EARLIER OF JANUARY 15, 1997 OR THE EFFECTIVE DATE OF THIS
OFFERING. IN CONNECTION WITH THE LOAN, THE LENDER WILL ALSO RECEIVE WARRANTS
(THE "BRIDGE WARRANTS") TO PURCHASE 21,000 SHARES OF THE COMPANY'S COMMON STOCK
AT 1/3 OF THE INITIAL OFFERING PRICE, THIS OFFERING MADE PURSUANT TO THE PRIVATE
PLACEMENT EXEMPTION UNDER 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1.1 Form of Underwriting Agreement(2)
1.1(a) Revised Form of Underwriting Agreement(2)
1.1(b) Revised Form of Underwriting Agreement(3)
1.1(c) Revised Form of Underwriting Agreement(1)
1.2 Revised Form of Agreement Among the Representatives(2)
1.2(b) Revised Form of Agreement Among Representatives(3)
1.2(c) Revised Form of Agreement Among Underwriters(1)
1.3 Revised Form of Selling Group Agreement(2)
1.3(a) Selected Dealers Agreement(3)
1.3(b) Form of Selected Dealers Agreement(1)
2.1(a)(i) Share Exchange Agreement between the Shareholders of Errazuriz y Asociados Ingenieros
S.A. and the Company(2)
2.1(a)(ii) First Modification to Share Exchange Agreement between the Shareholders of Errazuriz y
Asociados Ingenieros S.A. and the Company dated June 15, 1995(2)
2.1(a)(iii) Second Modification to Share Exchange Agreement between the Shareholders of Errazuriz
y Asociados Ingenieros S.A. and the Company dated June 30, 1995(2)
2.1(b)(i) Share Exchange Agreement between the Shareholders of Igenor Andina S.A. and the
Company(2)
2.1(b)(ii) First Modification to Share Exchange Agreement between the Shareholders of Igenor
Andina, S.A. and the Company dated June 15, 1995(2)
2.1(b)(iii) Second Modification to Share Exchange Agreement between the Shareholders of Igenor
Andina, S.A. and the Company dated June 30, 1995(2)
3.1(a) Company's Amended and Restated Articles of Incorporation(2)
3.2 Company's Revised Amended and Restated Bylaws(2)
4.1 Form of Warrant Agreement together with the form of Warrant Certificate(2)
4.1(a) Revised Form of Warrant Agreement together with the form of Warrant Certificate(2)
4.2 Revised Form of Representatives' Warrant Agreement together with the revised Form of
Representatives' Purchase Warrant Certificate(2)
4.2(a) Form of Representatives Warrant and Registration Rights Agreement together with the
revised Form of Representative's Purchase Warrant Certificate(3)
4.2(b) Revised Form of Representative's Warrant Agreement together with the revised Form of
Representative's Purchase Warrant Certificate.(1)
4.3 Specimen of Common Stock Certificate.(3)
4.4 Specimen of Warrant Certificate (to be included in the revised Form of Warrant Agreement
in Exhibit 4.1(a) (3)
4.4(b) Specimen of Warrant Certificate (to be included in the revised Form of Warrant Agreement
in Exhibit 4.2(b))(1)
5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(2)
10.1 Stock Option Plan(2)
10.1(a) Revised Stock Option Plan(2)
II-2
<PAGE>
10.2 Directors Stock Option Plan(2)
10.2(a) Revised Directors Stock Option Plan(2)
10.3 Representation Agreement between Biwater and Errazuriz y Asociados Ingenieros Ltda.(2)
10.4 Agreement between ESSAN and Bayesa for the Final Disposal of the Antofagasta Sewage
(New translation with Appendices No. 1-5 but without maps)(2)
10.5 Decree from the Municipality of Macul awarding the Land Grant to Igenor Andina S.A.(2)
10.6 Agreement Between the Municipality of Macul and Igenor Andina S.A. for the Land Grant
(New translation)(2)
10.7 Agreement between Igenor Andina, S.A. and the owner of the restaurant "Donde la Cuca"
to be located at the Macul Park (in English)(2)
10.8 Agreement between Canales, Errazuriz, Rodriguez, Arquitectos Asociados and TDS
International concerning designing and consulting services for the Macul Project.(2)
10.9 Agreement between Capullo S.A. and Igenor Andina S.A. in Connection with the Capullo
Hydroelectric Plant(2)
10.10 Form of Agreement Between Inversiones y Desarrollo Demco S.A. ("Invdemco") and Igenor
Andina Sociedad Anonima to Exchange the Interest of Invdemco in Aguas y Ecologia S.A.
for Certain and Real Property Near Villarrica, Chile(2)
10.11 Protocolization Request - Final Reception Certificate No. 61 for the Villarrica Property(2)
10.12 Lease Agreement between Juan Carlos Marti Medina, landlord, and Norconsult International
A.S., tenant dated September 16, 1992(2)
10.13 Revised Employment Agreement between Andean Development Corporation and Pedro
Pablo Errazuriz, President and CEO of ADC, and Messrs. Jose Luis Yrarrazaval Torrealba,
Juan Phillips Davila, Gonzalo Cordua Hoffman, Juan Andres Errazuriz Dominguez and
Pedro Pablo Errazuriz Ossa, dated March 15, 1995(2)
10.14 Employment Agreement between Ingenieria Norconsult Andina Limitada and Jose Luis
Yrarrazaval Torrealba dated November 3, 1993 (in English)(2)
10.15 Employment Agreement between Errazuriz y Asociados Ingenieros Limitada and Juan
Phillips Davila dated November 2, 1993 (in English)(2)
10.16 Employment Agreement between Ingenieria Norconsult Andina Limitada and Gonzalo
Cordua Hoffman dated August 1, 1993 (in English)(2)
10.17 Employment Agreement between Ingenieria Norconsult Andina Limitada and Juan Andres
Errazuriz Dominguez dated October 11, 1993 (in English)(2)
10.18 Employment Agreement between Errazuriz y Asociados Arquitectos Limitada and Pedro
Pablo Errazuriz Ossa dated January 1, 1992 (in English)(2)
10.19 Letter from Westinghouse Electric Corporation to the Company acknowledging the parties'
intent for the Company to act as an agent for Westinghouse for certain projects in Chile
dated July 31, 1995.(2)
10.19(a) Special Sales Representative Agreement between Westinghouse Electric Company S.A. and
Errazuriz Y Asociados Ingenieros S.A.(2)
10.20 Credit Line Agreement between Bayesa and Banco Security in connection with the Bayesa
Project dated July 19, 1995.(2)
10.21 Commitment by Sociedad de Inversiones El Rincon S.A. to pay its remaining contribution
of 20% in Inversiones Tiempo Libre S.A. dated April 26, 1995.(2)
10.22 Commitment by Inversiones Zukunft Ltda. to pay its remaining contribution of 34% in
Inversiones Tiempo Libre S.A. dated April 26, 1995.(2)
10.23 Commitment by Margarita Maria Errazuriz to pay her remaining contribution of 13% in
Inversiones Tiempo Libre S.A. dated April 26, 1995.(2)
10.24 Contract with Westinghouse.(2)
10.25 Contract with Mitsubishi.(2)
10.26 Contract between Invdemco and Company for Villarrica Property.(2)
10.27 Revised Shareholder Exchange Agreement(3)
10.28 Form of Financial Advisory Agreement(1)
10.29 Form of Merger and Acquisition Agreement(1)
21 Subsidiaries of Registrant(2)
II-3
<PAGE>
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (to be included in its opinion filed as
Exhibit 5.1)(2)
23.2 Consent of Mutnick & Associates, P.A.(1)
27 Financial Data Schedule incorporated by reference in the Financial Statements.
</TABLE>
- ------------------------
(1) Filed herewith
(2) Previously filed
(3) To be filed by amendment
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a) it will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) include any additional or changed material information
on the plan of distribution;
(iv) for determining liability under the Act, it will treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering.
(v) it will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
Offering.
(vi) it will provide to the Representatives at the Closing of
this Offering certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liability arising under the Act 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.
(c) The undersigned registrant hereby undertakes that:
(i) For determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form
II-4
<PAGE>
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the
Act, 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
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing the this Amendment No. 11 on Form SB-2 and
authorizes this Registration Statement to be signed on its behalf by the
undersigned, in the City of Ft. Lauderdale, State of Florida, on this 29th day
of October, 1996.
ANDEAN DEVELOPMENT CORPORATION
By: /s/Pedro P. Errazuriz
Pedro P. Errazuriz
President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
Signatures Title Date
- ---------- ----- ----
/s/Pedro P. Errazuriz President and Chief Executive October 29, 1996
Pedro P. Errazuriz Officer and Director
(Principal Executive Officer)
/s/Jose Luis Yrarrazaval Chief Financial Officer October 29, 1996
Jose Luis Yrarrazaval (Principal Financial and
Accounting Officer)
and Director
/s/Sergio Jimenez Director October 29, 1996
Sergio Jimenez
/s/Alberto Coddou Director October 29, 1996
Alberto Coddou
/s/Claude Mermier Director October 29, 1996
Claude Mermier
II-6
EXHIBIT 1.1(c)
ANDEAN DEVELOPMENT CORPORATION
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1996
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Gentlemen:
Andean Development Corporation (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell to such Underwriters as named in Schedule A (the
"Underwriters") to the Underwriting Agreement (the "Agreement"), for whom Barron
Chase Securities, Inc. is acting as a representative (the "Representative"),
pursuant to the terms of this Agreement, on a "firm commitment" basis, 1,200,000
shares of Common Stock (the "Shares") at $5.00 per Share and 1,200,000
Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per Warrant.
The Shares and the Warrants are collectively referred to as the "Securities".
Each Warrant is exercisable to purchase one (1) share of Common Stock (the
"Common Stock") at the Initial Public Offering Price per share at any time
during the period between the Effective Date and five (5) years from the
Effective Date. The date upon which the Securities and Exchange Commission
("Commission") shall declare the Registration Statement of the Company effective
shall be the "Effective Date". The Warrants are subject to redemption under
certain circumstances. In addition, the Company proposes to grant to the
Underwriters (or, at the option of the Representative, to the Representative,
individually) the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 120,000 additional Shares and/or 120,000 additional Warrants
(the "Option Securities").
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 33-90696) on Form SB-2 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
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
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters
2
<PAGE>
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and regarding the identity of counsel to the Underwriters
under the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; 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; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
3
<PAGE>
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement, will be duly
and validly authorized, validly issued, fully paid and non-assessable, free of
pre-emptive rights and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company without the prior written consent of the
Representative. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement, will have been duly executed
and delivered and will constitute the valid and legally binding obligation of
the Company enforceable in accordance with its terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Financial Advisory
Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the
Representative's Warrant Agreement have been duly and validly authorized,
executed and delivered by the Company, and assuming due execution of this
Agreement by the other party hereto, constitute valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally. The Company has full power and
lawful authority to authorize, issue and sell the Securities to be sold by it
hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Securities or the securities to be issued
pursuant to the Representative's Warrant Agreement, except such as may be
required
4
<PAGE>
under the Act or state securities laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the Company
or each subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or by-laws of the
Company or each subsidiary, as amended, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or each subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or each subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Mutnick & Associates, P.A., who have given their report on certain
financial statements filed and to be filed with the Commission as part of the
Registration Statement, and which are included in the Prospectus, are with
respect to the Company,
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independent public accountants as required by the Act and the Rules and
Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business
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prospects, net worth, or properties of the Company or any subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any subsidiary that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or cause the Company or any subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly,
at any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
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(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, which shall include, but not be limited to,
all costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the
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Company, no officer, director or five percent (5%) or greater stockholder of the
Company or any subsidiary has any direct or indirect affiliation or association
with any member of the National Association of Securities Dealers, Inc.
("NASD"), except as disclosed to the Representative in writing, and no
beneficial owner of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member except as disclosed to
the Representative in writing. The Company will advise the Representative and
the NASD if any five percent (5%) or greater shareholder of the Company or any
subsidiary is or becomes an affiliate or associated person of an NASD member
participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan", an "employee welfare benefit plan",
or a "multi-employer 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"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy laws or
any state insolvency law filed by or
9
<PAGE>
against them, or by a receiver, fiscal agent or similar officer
appointed by a court for their business or property, or any
partnership in which either or them was a general partner at or
within two years before the time of such filing, or any
corporation or business association of which either of them was an
executive officer at or within two years before the time of such
filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice
in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or
Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for more
than sixty (60) days either of their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any Federal or State
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<PAGE>
securities law, and the judgment in such civil action or
finding by the Commission has not been subsequently reversed,
suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal Commodities Law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,200,000 Shares at $4.50 per Share and 1,200,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)), at the place and
time hereinafter specified, in accordance with the number of Shares and/or
Warrants set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "Securities") plus any additional Securities which such Underwriters
may become obligated to purchase pursuant to the provisions of Section 9 hereof.
The Securities shall consist of 1,200,000 Shares and 1,200,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $5.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200,
Boca Raton, Florida 33433 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Representative shall designate, but not
later than ten (10) business days (holidays excepted) following the first date
that any of the Securities are released to you, such time and date of payment
and delivery for the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriters (or, at the
option of the Representative, to the Representative, individually) to purchase
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<PAGE>
all or any part of an aggregate of an additional 120,000 Shares and 120,000
Warrants at the same price per Share and Warrant as the Underwriters shall pay
for the Securities being sold pursuant to the provisions of subsection (a) of
this Section 2 (such additional Securities being referred to herein as the
"Option Securities"). This option may be exercised within 30 days after the
Effective Date of the Registration Statement upon notice by the Underwriters to
the Company advising as to the amount of Option Securities as to which the
option is being exercised, the names and denominations in which the certificates
for such Option Securities are to be registered and the time and date when such
certificates are to be delivered. Such time and date shall be determined by the
Underwriters (or the Representative, individually) but shall not be later than
ten (10) full business days after the exercise of said option, nor in any event
prior to the Closing Date, and such time and date is referred to herein as the
"Option Closing Date". Delivery of the Option Securities against payment
therefor shall take place at the offices of the Representative. The Option
granted hereunder may be exercised only to cover overallotments in the sale by
the Underwriters of the Securities referred to in subsection (a) above. In the
event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Closing Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date at the offices of the Representative, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative
individually) exercises the option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer, at the
time and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities by
the Representative for the respective accounts
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<PAGE>
of the several Underwriters registered in such names and in such denominations
as the Representative may request.
It is understood that the Representative, individually and not as
Representative of the several Underwriters, may (but shall not be obligated to)
make any and all payments required pursuant to this Section 2 on behalf of any
Underwriters whose check or checks shall not have been received by the
Representative at the time of delivery of the Securities to be purchased by such
Underwriter or Underwriters. Any such payment by the Representative shall not
relieve any such Underwriter or Underwriters of any of its or their obligations
hereunder. It is also understood that the Representative individually, rather
than all of the Underwriters, may (but shall not be obligated to) purchase the
Option Securities referred to in subsection (b) of this Section 2, but only to
cover overallotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of
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<PAGE>
the issuance by the Commission or any state or regulatory body of any stop order
or other order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus and Definitive Prospectus, and the Company has consented
and hereby consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriters and Selected Dealers to use the
Prospectus in connection with the sale of the Securities for such period as in
the opinion of counsel to the Underwriters the use thereof is required to comply
with the applicable provisions of the Act and the Rules and Regulations. In case
of the happening, at any time within such period as a Prospectus is required
under the Act to be delivered in connection with sales by the Underwriters or
Selected Dealers, of any event of which the Company has knowledge and which
materially affects the Company or the securities of the Company, or which in the
opinion of counsel for the Company or counsel for the Underwriters, should be
set forth in an amendment to the Registration Statement or a supplement to the
Prospectus, in order to make the statements therein not then misleading, in
light of the circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Securities, or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the Act and the
Rules and Regulations, the Company will notify you promptly and forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and
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<PAGE>
will make such applications and furnish such information as may be required for
that purpose and to comply with such laws, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Securities. The
Company will, from time to time, prepare and file such statements and reports as
are or may be required to continue such qualification in effect for so long a
period as the Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the
out-of-pocket expenses of the Representative, if the offering for any reason is
terminated. For the purposes of this sub-paragraph, the Representative shall be
deemed to have assumed such expenses when they are billed or incurred,
regardless of whether such expenses have been paid. The Representative shall not
be responsible for any expenses of the Company or others, or for any charges or
claims relative to the proposed public offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of
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all non-confidential documents, including annual reports, periodic reports and
financial statements, furnished to or filed with the Commission under the Act
and the 1934 Act; (iv) copies of each press release, news item and article with
respect to the Company's affairs released by the Company; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The Nasdaq National Market System, and
will use its best efforts to maintain such listing for at least seven (7) years
from the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the
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Registration Statement, Preliminary Prospectus or Prospectus and take any other
action, which in the reasonable opinion of counsel to the Underwriters and the
Company may be reasonably necessary or advisable in connection with the
distribution of the Securities and will use its best efforts to cause the same
to become effective as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement filed as an Exhibit to the Registration
Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), as of the Effective Date,
shall agree in writing, in a form satisfactory to the Representative, not to
sell, transfer or otherwise dispose of any of such securities or underlying
securities for a period of twenty-four (24) months from the Effective Date, or
any longer period required by any State, without the prior written consent of
the Representative. All sales of the Company's securities by officers and/or
directors of the Company shall be effected through the Representative.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on the life of Pedro Pablo Errazuriz in an amount of not less
than $1,000,000, and will use its best efforts to maintain such insurance for a
period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain such listing for a period of
not less than five (5) years. The Company shall take such action as may be
reasonably requested by the Representative to obtain a secondary market trading
exemption in such states as may be reasonably requested by the Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common Stock
at a price less than the
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initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) At the Closing Date, the Company will engage the Representative as
a non-exclusive financial advisor to the Company for a period of thirty-six (36)
months commencing on the first day of the month following the Company's receipt
of the proceeds of this offering, at an aggregate fee of $108,000, all of which
shall be payable to the Representative on the Closing Date. The financial
advisory agreement will provide that the Representative shall, at the Company's
request, provide advice and consulting services to the Company concerning
potential merger and acquisition proposals and the obtaining of short or
long-term financing for the Company, whether by public financing or otherwise.
(t) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(u) The Company shall retain American Stock Transfer & Trust Company as
the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Representative with daily transfer sheets as to
each of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as reasonably requested by
the Underwriter, for a five (5) year period commencing from the Closing Date.
(v) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to deliver a "special security position
report" to the Representative on a daily and weekly basis at the expense of the
Company, for a five (5) year period from the Effective Date.
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(w) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Representative shall designate and the Company may reasonably agree.
(x) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Representative shall have the opportunity to invite an observer to attend Board
of Directors meetings of the Company at the expense of the Company.
(y) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Representative in a form satisfactory to
the Representative, providing:
(1) that the Representative will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
in writing by the Representative (including mergers, acquisitions,
joint ventures, and any other business for the Company introduced by
the Representative) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Representative introduced the
other party to the Company during a period ending five (5) years from
the date of the M/A Agreement; and
(2) that any such finder's fee due to the Representative will be
paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(z) After the Closing Date, the Company shall prepare and publish
"tombstone" advertisements of at least 5 x 5 inches in publications to be
designated by the Representative at a total cost not to exceed $20,000.
(aa) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
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Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
has been declared effective by the Commission and remains current at least until
the date fixed for redemption. In addition, the Warrants shall not be redeemable
during the first year after the Effective Date without the written consent of
the Representative.
(ab) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the
Representative a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary Market Trading Opinion shall be delivered to the Representative on the
Effective Date, and the Company shall continue to update such opinion and
deliver same to the Representative on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ac) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Representative or counsel to the Representative.
4. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of the Closing Date and the Option Closing Date, to the continuing
accuracy of, and compliance with, the representations and warranties of the
Company herein, to the accuracy of statements of officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall be threatened or to the knowledge of the Company contemplated by the
authorities of any such jurisdiction or shall have been issued and in effect;
(iv) any request for additional
20
<PAGE>
information on the part of the Commission or any such authorities shall have
been complied with to the satisfaction of the Commission and any such
authorities, and to the satisfaction of counsel to the Underwriters; and (v)
after the date hereof no amendment or supplement to the Registration Statement
or the Prospectus shall have been filed unless a copy thereof was first
submitted to the Underwriters and the Underwriters did not object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company or
any subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and Prospectus; and (iv) the Registration Statement and the Prospectus
and any amendments or supplements thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstance under
which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants
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<PAGE>
and agreements herein contained to be performed on the part of the Company and
all conditions herein contained to be fulfilled or complied with by the Company
at or prior to the Closing Date shall have been duly performed, fulfilled or
complied with.
(e) At each Closing Date, you shall have received the opinion, together
with copies of such opinion for each of the other several Underwriters, dated as
of each Closing Date, from Atlas, Pearlman, Trop & Borkson, P.A., counsel for
the Company, in form and substance satisfactory to counsel for the Underwriters,
to the effect that:
(i) the Company and each subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with full corporate power and
authority to own its properties and conduct its business as described
in the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the ownership or leasing
of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set forth
under "Capitalization" in the Prospectus; all shares of the Company's
outstanding stock and other securities requiring authorization for
issuance by the Company's Board of Directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company and other securities have not been
issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any preemptive rights or, to
such counsel's knowledge, other rights to subscribe for or to purchase
securities of the Company, nor, to such counsel's knowledge, are there
any restrictions upon the voting or transfer of any of the securities
of the Company, except as disclosed in the Prospectus; the Common
Stock, the Shares, the Warrants, and the securities contained in the
Representative's Warrant Agreement conform to the respective
descriptions thereof contained in the Prospectus; the Common Stock, the
Shares, the Warrants, the shares of Common Stock to be issued upon
exercise of the Warrants and the securities contained in the
Representative's Warrant Agreement, have been duly authorized and, when
issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of pre-emptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in
compliance with or under an
22
<PAGE>
exemption from registration under the Act and applicable state
securities laws and no shareholders of the Company have any rescission
rights against the Company with respect to the Company's securities; a
sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and the Representative Warrants,
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration rights or
other rights, other than those which have been waived or satisfied or
described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement and the M/A
Agreement have been duly and validly authorized, executed and delivered
by the Company and, assuming the due authorization, execution and
delivery of this Agreement by the Representative, are the valid and
legally binding obligations of the Company, enforceable in accordance
with their terms, except (a) as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws from time to time in effect which effect creditors' rights
generally; and (b) no opinion is expressed as to the enforceability of
the indemnity provisions or the contribution provisions contained in
this Agreement;
(iv) the certificates evidencing the outstanding securities of the
Company, the Shares, the Common Stock and the Warrants are in valid and
proper legal form;
(v) to the best of such counsel's knowledge, except as set forth
in the Prospectus, there is not pending or, to the knowledge of the
Company, threatened, any material action, suit, proceeding, inquiry,
arbitration or investigation against the Company or any subsidiary or
any of the officers of directors of the Company or any subsidiary, nor
any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might materially and adversely affect the
condition (financial or otherwise), business prospects, net worth, or
properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement, the
Financial Advisory Agreement and the M/A Agreement, and the incurrence
of the obligations herein and therein set forth and the consummation of
the transactions herein or therein contemplated, will not result in a
violation of, or constitute a default under (a) the Articles of
Incorporation or By-Laws of the Company and each subsidiary; (b) to the
best of such counsel's knowledge, any material obligations, agreement,
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<PAGE>
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company or any subsidiary is a party or by which it or any of
its properties is bound; or (c) to the best of such counsel's
knowledge, any material order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality or court,
domestic or foreign;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Representative's Warrants or the Securities underlying
the Representative's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such counsel
to 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.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it
24
<PAGE>
became effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading or that the Prospectus or any supplement thereto contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make statements therein, in light of the
circumstances under which they are made, not misleading (except, in the case of
both the Registration Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial Officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to their
knowledge, threatened against the Company or any subsidiary or any
officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration Statement
and the Prospectus and, to the best of their knowledge, neither the
Registration Statement nor the Prospectus nor any amendment or
supplement to either of the foregoing contains an untrue statement of
any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been
any material adverse change in the
25
<PAGE>
condition of the Company or any subsidiary, financial or otherwise, or
in the results of its operations, except as reflected in or
contemplated by the Registration Statement and the Prospectus and
except as so reflected or contemplated since such date, there has not
been any material transaction entered into by the Company or any
subsidiary;
(v) The representations and warranties set forth in this Agreement
are true and correct in all material respects and the Company has
complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in the
filing of any federal, state and municipal tax return or the payment of
any federal, state or municipal taxes; they know of no proposed
redetermination or reassessment of taxes, adverse to the Company or any
subsidiary, and the Company and each subsidiary has paid or provided by
adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in
the Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement, the
Warrant Agreement, the Financial Advisory Agreement and the M/A
Agreement, the consummation of the transactions therein contemplated,
and the fulfillment of the terms thereof, will not result in a breach
by the Company of any terms of, or constitute a default under, its
Articles of Incorporation or By-Laws, any indenture, mortgage, lease,
deed or trust, bank loan or credit agreement or any other material
agreement or undertaking of the Company or any subsidiary including, by
way of specification but not by way of limitation, any agreement or
instrument to which the Company or any subsidiary is now a party or
pursuant to which the Company or any subsidiary has acquired any right
and/or obligations by succession or otherwise;
(ix) The financial statements and schedules filed with and as part
of the Registration Statement present fairly the financial position of
the Company as of the dates thereof all in conformity with generally
accepted principles of accounting applied on a consistent basis
throughout the periods involved. Since the respective dates of such
financial statements, there have been no material adverse change in the
condition or general affairs of the Company, financial or otherwise,
other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein,
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neither the Company nor any subsidiary has, prior to the Closing Date,
either (i) issued any securities or incurred any material liability or
obligation, direct or contingent, for borrowed money, or (ii) entered
into any material transaction other than in the ordinary course of
business. The Company has not declared, paid or made any dividend or
distribution of any kind on its capital stock;
(xi) They have reviewed the sections in the Prospectus relating to
their biographical data and equity ownership position in the Company,
and all information contained therein is true and accurate; and
(xii) Except as disclosed in the Prospectus, during the past five
years, they have not been:
(1) Subject of a petition under the Federal bankruptcy laws or
any state insolvency law filed by or against them, or by a
receiver, fiscal agent or similar officer appointed by a court for
their business or property, or any partnership in which either or
them was a general partner at or within two years before the time
of such filing, or any corporation or business association of
which either of them was an executive officer at or within two
years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and
other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the following
activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator,
floor broker, leverage transaction merchant, any other person
regulated by the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an investment
adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment
company, bank, savings and loan association or insurance
company, or engaging in or continuing any conduct or practice
in connection with any such activity;
(ii) engaging in any type of business practice; or
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<PAGE>
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or
Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for more
than sixty (60) days either of their right to engage in any
activity described in paragraph (3)(i) above, or be associated
with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have
violated any Federal or State securities law, and the judgment in
such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have
violated any Federal Commodities Law, and the judgment in such
civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from Mutnick & Associates,
P.A., independent auditors to the Company, certificates or letters, one dated
and delivered on the Effective Date and one dated and delivered on the Closing
Date, in form and substance satisfactory to the Underwriters, stating that:
(i) they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(ii) the financial statements and the schedules included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by them
(not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available
unaudited interim financial statements or other financial information
of the Company (with an indication of the date of the latest available
unaudited interim
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<PAGE>
financial statements), inquiries of officers of the Company who have
responsibility for financial and accounting matters, review of minutes
of all meetings of the shareholders and the Board of Directors of the
Company and other specified inquiries and procedures, nothing has come
to their attention as a result of the foregoing inquiries and
procedures that causes them to believe that:
(a) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to a specified date not more than five days prior to
the date of such letters, there has been any change in the Common
Stock, long-term debt or other securities of the Company (except
as specifically contemplated in the Registration Statement and
Prospectus) or any material decreases in net current assets, net
assets, shareholder's equity, working capital or in any other item
appearing in the Company's financial statements as to which the
Underwriters may request advice, in each case as compared with
amounts shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(b) during the period from (and including) the date of the
financial statements in the Registration Statement and the
Prospectus to such specified date there was any material decrease
in revenues or in the total or per share amounts of income or loss
before extraordinary items or net income or loss, or any other
material change in such other items appearing in the Company's
financial statements as to which the Underwriters may request
advice, in each case as compared with the fiscal period ended as
of the date of the financial statement in the Prospectus, except
in each case for increases, changes or decreases which the
Prospectus discloses have occurred or will occur;
(c) the unaudited interim financial statements of the Company
appearing in the Registration Statement and the Prospectus (if
any) 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 and practices on a basis
substantially consistent with the audited financial statements
included in the Registration Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements
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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 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
(v) they have not during the immediately preceding five
(5) year period brought to the attention of the Company's management
any reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been delivered
to you the signed opinion from Atlas, Pearlman, Trop & Borkson, P.A.,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
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(iii) At the Option Closing Date, there shall have been delivered
to you a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated the Option Closing Date, in form and
substance satisfactory to counsel to the Underwriters, substantially
the same in scope and substance as the certificate furnished to you at
the Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you a letter in form and substance satisfactory to you from Mutnick
& Associates, P.A., independent auditors to the Company, dated the
Option Closing Date and addressed to the several Underwriters
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required
to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Securities shall
be satisfactory in form and substance to the Underwriters, and the
Underwriters and counsel to the Underwriters shall have been furnished
with all such documents, certificates, and opinions as you may request
in connection with this transaction in order to evidence the accuracy
and completeness of any of the representations, warranties or
statements of the Company or its compliance with any of the covenants
or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Representative of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(ab) of this Agreement.
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<PAGE>
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled at,
or at any time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Securities is subject to the following
conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Representative may
agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled after
the Closing Date and prior to the Option Closing Date, then only the obligation
of the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION. (a) The Company indemnifies and holds
harmless each Underwriter and each person, if any, who controls the Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include but not be limited to, all reasonable costs of defense and investigation
and all attorneys' fees), to which the Underwriter or such controlling person
may
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<PAGE>
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in (i) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, (ii) any blue sky
application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company and filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such cases to the extent, but only to the
extent, that any such losses, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. Notwithstanding the foregoing, the Company shall have no
liability under this section if such untrue statement or omission made in a
Preliminary Prospectus is cured in the Prospectus and the Prospectus is not
delivered to the person or persons alleging the liability upon which
indemnification is being sought. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
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<PAGE>
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by you or by any Underwriter through you specifically
for use in the preparation thereof. Notwithstanding the foregoing, the
Underwriters shall have no liability under this section if such untrue statement
or omission made in a Preliminary Prospectus is cured in the Prospectus and the
Prospectus is not delivered to the person or persons alleging the liability upon
which indemnification is being sought through no fault of the Underwriter. This
indemnity agreement will be in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate
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<PAGE>
counsel (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the Underwriter or such controlling
person, it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all such Underwriters and
controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnifying party.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the
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<PAGE>
aggregate damages (even if the Underwriters and their controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the first sentence of this Section; and (b) that the contribution of each
contributing Underwriter shall not be in excess of its proportionate share
(based on the ratio of the number of Securities purchased by such Underwriter to
the number of Securities purchased by all contributing Underwriters) of the
portion of such losses, claims, damages or liabilities for which the
Underwriters are responsible. No person ultimately determined to be guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not ultimately
determined to be guilty of such fraudulent misrepresentation. As used in this
paragraph, the term "Underwriter" includes any officer, director, or other
person who controls the Underwriter within the meaning of Section 15 of the Act,
and the word "Company" includes any officer, director, or person who controls
the Company within the meaning of Section 15 of the Act. If the full amount of
the contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons
to the full extent permitted by law. This foregoing agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent to the settlement; provided, however, that such
consent shall not be unreasonably withheld in light of all factors of importance
to such party.
8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Company who
shall serve as Blue Sky counsel to the Company in connection with the filing of
applications to register the Securities under the state securities or blue sky
laws; the cost of printing and furnishing to the several Underwriters copies of
the Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Selected Dealers
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Agreement, the Agreement Among Underwriters, Underwriters Questionnaire,
Underwriters Power of Attorney and the Blue Sky Memorandum; the cost of printing
the certificates evidencing the securities comprising the Securities; the cost
of preparing and delivering to the Underwriters and its counsel bound volumes
containing copies of all documents and appropriate correspondence filed with or
received from the Commission and the NASD and all closing documents; and the
fees and disbursements of the transfer agent for the Company's securities. The
Company shall pay any and all taxes (including any original issue, transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus. The Company shall also engage the Company's counsel
to provide the Representative with a written Secondary Market Trading Opinion in
accordance with paragraphs 3(ab) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $30,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. SUBSTITUTION OF UNDERWRITERS. If any of the Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
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(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number
of Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If such remaining Underwriters do not, at the
Closing Date, take up and pay for the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase, the time for delivery
of the Securities shall be extended to the next business day to allow the
several Underwriters the privilege of substituting within twenty-four hours
(including non-business hours) another Underwriter or Underwriters satisfactory
to the Company. If no such Underwriter or Underwriters shall have been
substituted as aforesaid, within such twenty-four period, the time of delivery
of the Securities may, at the option of the Company, be again extended to the
next following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
Underwriter or Underwriters to purchase the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted Underwriters to take up
the Securities of the defaulting Underwriter or Underwriters as provided in this
Section, (i) the Company or the Representative shall have the right to postpone
the time of delivery for a period of not more than seven (7) business days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another Underwriter
or Underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another Underwriter or Underwriters for such Securities as aforesaid,
then this Agreement shall terminate.
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If, following exercise of the option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 9 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
10. EFFECTIVE DATE. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the public offering by the Underwriters of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of the
Registration Statement when the Securities are first generally offered by you to
the other Underwriters and Selected Dealers. This Agreement may be terminated by
you at any time before it becomes effective as provided above, except that
Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect
notwithstanding such termination.
11. TERMINATION. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal
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or New York or Florida state authorities; (v) an outbreak of major international
hostilities or other national or international calamity having occurred; (vi)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Representative to have a material adverse impact on the business,
financial condition or financial statements of the Company or the market for the
securities offered hereby; (vii) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement; (viii) any material adverse change having occurred,
since the respective dates as of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business; (ix) a pending or threatened legal or governmental
proceeding or action relating generally to the Company's business, or a
notification having been received by the Company of the threat of any such
proceeding or action, which could, in the reasonable judgment of the
Representative, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (xi) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. REPRESENTATIVE'S WARRANT AGREEMENT. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreement annexed
as an exhibit to the Registration Statement, Representative Warrants to purchase
up to an aggregate of 120,000 Shares and 120,000 Warrants, in such denominations
as the Representative shall designate. In the event of conflict in the terms of
this Agreement and the Representative's Warrant Agreement, the language of the
form of Representative's Warrant Agreement shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
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Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. NOTICE. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telegraphed
and confirmed:
If to the Underwriters: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
355 West Palmetto Park Road
Boca Raton, Florida 33432
If to the Company: Pedro Pablo Errazuriz, President
Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
Copy to: Charles B. Pearlman, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
15. PARTIES IN INTEREST. This Agreement herein set forth is made solely
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. APPLICABLE LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the
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other party to refile such action in an appropriate court in the above
designated county or federal district.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
18. ENTIRE AGREEMENT. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. REPRESENTATIVE AS UNDERWRITER. In the event the Representative acts
as the sole Underwriter ("Underwriter") in connection with the underwriting of
the securities being offered pursuant to the Registration Statement, all
references to the Representative in this Agreement shall be replaced by
reference to the "Underwriter", and (i) any consents required to be obtained
from the Representative shall be required to be obtained solely from the
Underwriter; (ii) all compensation to be received by the Representative shall
instead be received by the Underwriter; and (iii) the provisions of section nine
(9) of this Agreement shall not apply.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
ANDEAN DEVELOPMENT CORPORATION
BY: ___________________________________
Pedro Pablo Errazuriz, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY: ___________________________________
Robert T. Kirk, President
For itself and as Representative
of the several Underwriters
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SCHEDULE A
TO THE UNDERWRITING AGREEMENT
UNDERWRITER SHARES
- ----------- ------
Barron Chase Securities, Inc.........................................
First London Securities Corp.........................................
---------
1,200,000
UNDERWRITER WARRANTS
- ----------- --------
Barron Chase Securities, Inc..........................................
First London Securities Corp..........................................
---------
1,200,000
43
EXHIBIT 1.2(C)
ANDEAN DEVELOPMENT CORPORATION
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 COMMON STOCK PURCHASE WARRANTS
AGREEMENT AMONG UNDERWRITERS
Boca Raton, Florida
_____________, 1996
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Dear Sirs:
1. UNDERWRITING AGREEMENT. We understand that Andean Development
Corporation (the "Company"), proposes to enter into an underwriting agreement
attached hereto as Exhibit A (the "Underwriting Agreement") with Barron Chase
Securities, Inc. (the "Representative") and the other underwriters named in
Schedule A to the Underwriting Agreement (the "Underwriters"), acting severally
and not jointly, with respect to the purchase of an aggregate of 1,200,000
Shares of Common Stock (the "Shares") and 1,200,000 Warrants (the "Warrants").
The Shares and Warrants are hereinafter also referred to collectively as the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Registration Statement, Underwriting Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 120,000 Shares and an additional 120,000 Warrants (the
"Option Securities"), all or any part of which the Representative and/or the
Underwriters are entitled to purchase from the Company upon exercise of the
Representative's over-allotment option referred to in Section 2(b) of the
Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the
terms hereof and of the Underwriting Agreement, the number of Securities set
forth opposite our name in Schedule A, plus such number of Securities, if any,
which we may become obligated to purchase pursuant to Section 2(b) of the
Underwriting Agreement and Section 4 hereof ("our Securities"). The ratio which
the number of our Securities bears to the total number of Securities purchased
pursuant to the Underwriting Agreement is herein called "our underwriting
proportion".
2. REGISTRATION STATEMENT AND PROSPECTUS. We have heretofore received
and examined a copy of the registration statement, as amended to the date
hereof, and the related prospectus in respect of the Securities, as filed with
the Securities and Exchange Commission. The registration statement as
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<PAGE>
amended at the time it becomes effective, including financial statements and
exhibits, is hereafter referred to as the "Registration Statement", and the
prospectus in the form first filed with the Securities and Exchange Commission
pursuant to its Rule 424(b) after the Registration Statement becomes effective
is referred to as the "Prospectus".
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you as Representative,
we have furnished a copy of any amended Preliminary Prospectus to each person to
whom we have furnished a copy of any previous Prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
Prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. AUTHORITY OF THE REPRESENTATIVE. We authorize you, acting as
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as to
the purchase price and the number of our Securities) which, in your judgment, is
not a variation which materially and adversely affects our rights and
obligations. We also authorize you, in your discretion and on our behalf, with
approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any date
specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement shall
be for a period in excess of two business days. We authorize you to take such
action as in your discretion may be necessary or desirable to effect the sale
and distribution of the Securities, including, without limiting the generality
of the foregoing, the right to determine the terms of any proposed offering, the
concession to Selected Dealers (as hereinafter
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<PAGE>
defined) and the reallowance, if any, to other dealers and the right to make the
judgments provided for in the Underwriting Agreement.
4. AUTHORITY OF REPRESENTATIVE AS TO DEFAULTING UNDERWRITERS. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant to
this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. OFFERING OF SECURITIES. We understand that you will notify us when
the public offering of the Securities is to be made and of the initial public
offering price. We hereby authorize you to fix the concession to dealers and the
reallowance to dealers and in your sole discretion after the public offering to
change the public offering price, the concession and the reallowance. The
offering price at any time in effect is hereinafter referred to as the "public
offering price". We agree that we will not offer any of the Securities for sale
at a price other than the public offering price or allow any discount therefrom
except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you
on behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be on our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and
other retail purchasers and to dealers (the "Selected Dealers")
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<PAGE>
to be selected by you (such dealers may include any Underwriter ) such of our
Securities as you in your sole discretion shall determine. Any such offering to
Selected Dealers may be made pursuant to a Selling Agreement, in the form
attached hereto as Exhibit B, or otherwise , as you may determine. The form of
Selling Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or
to any Selected Dealers or Underwriters at the public offering price less all or
any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you from time to time upon
request of the amount of our Securities retained by us remaining unsold. If all
the Securities reserved for offering to Selected Dealers and retail purchasers
are not promptly sold by you, any Underwriter may from time to time, with your
consent, obtain a release of all or any Securities of such Underwriter then
remaining unsold and Securities so released shall thereafter be deemed not to
have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such Prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the laws of the jurisdiction in which such offer or sale is made and (b) we will
furnish to each person to whom any such offer is made a copy of the then current
Preliminary Prospectus and to each person to whom any such sale is made a copy
of the Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any Prospectus, advertisement or other offering document (other than
any such preliminary Prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be
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<PAGE>
prepared and so furnished at our sole risk and expense, and (iii) shall not
contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
Preliminary Prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. COMPENSATION TO REPRESENTATIVE. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management of the offering, an amount equal to $ ______ per Share and/or $ per
Warrant in respect to each of our Securities.
7. PAYMENT AND DELIVERY. At or about 9:00 a.m., Eastern Time, on the
Closing Dates (including the first Closing Date and any Option Closing Date, as
defined in the Underwriting Agreement), we agree to deliver to you at your
office by wire transfer to the account of the Representative or by a certified
or official bank check payable in New York Clearing House funds to your order in
an amount equal to the initial public offering price, less the concession to the
Selected Dealers in respect of that portion of our Securities which has been
retained by or released to us for direct sales.
In the event that our funds are not received by you when required, you
are authorized, in your discretion, but shall not be obligated, to make payment
for our account pursuant to the Underwriting Agreement by advancing your own
funds. Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our
Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid, will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
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<PAGE>
8. AUTHORITY TO BORROW. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. OVER-ALLOTMENT; STABILIZATION. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section exceed 15% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section, upon such terms
as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
mark-up, if any. In lieu of such action you may, in your discretion, sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and
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<PAGE>
will notify us of the date of termination of stabilization. We agree to file
with you any reports required of us including "Not as Manager" reports pursuant
to Rule 17a-2 under the 1934 Act not later than five business days following the
date upon which stabilization was terminated, and we authorize you to file on
our behalf with the Securities and Exchange Commission any reports required by
such Rule.
10. LIMITATION ON TRANSACTIONS BY UNDERWRITERS. Except as permitted by
you, we will not during the term of this Agreement bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable
to this offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less all or any
part of the concession to dealers.
11. ALLOCATION AND PAYMENT OF EXPENSES. We understand that all expenses
of a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of the underwriting
obligations. We authorize you to charge our account with our share, based on our
underwriting obligation, of the aforesaid expenses including all transfer taxes
paid of our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred to
in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. TERMINATION. Unless this Agreement or any provision hereof is
earlier terminated by you and except for provisions herein that contemplate
obligations surviving the termination hereof as noted in the next paragraph,
this Agreement will terminate at the close of business on the 45th day after the
date hereof, but in your discretion may be extended by you for a further period
not exceeding 30 days with the consent of the Underwriters who have agreed to
purchase in the aggregate 50% or more of the
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Securities. No termination or suspension pursuant to this Section
shall affect your authority to cover any short position under this
Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, (ii) our obligation to pay any transfer taxes which
may be assessed and paid on account of any sales thereunder for our account,
(iii) our obligation with respect to purchases which may be made by you from
time to time thereafter to cover any short position incurred under this
Agreement, (iv) the provisions of Sections 13 and 14 and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
13. LIABILITY OF REPRESENTATIVE AND UNDERWRITERS. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the validity
of the form thereof, the Registration Statement, the Prospectus, or agreements
or other instruments executed by the Company or others; or for or in respect of
the delivery of the Securities; or for the performance by the Company or others
of any agreement on its or their part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each
Underwriter elects to be so excluded and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes you, in your
discretion, to execute and file on behalf of the Underwriters such evidence of
election as may be required by the Internal Revenue Service.
14. INDEMNIFICATION AND FUTURE CLAIMS.
(a) We agree to indemnify and hold harmless you and each
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other Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this Section
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person and shall survive the
delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any Preliminary Prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and our underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
15. TITLE TO SECURITIES. The Securities purchased by, or on behalf of,
the respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. BLUE SKY MATTERS. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other person to
offer or to sell Securities in any jurisdiction, not withstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Securities may be sold.
17. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Florida.
18. CAPITAL REQUIREMENTS. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
19. MISCELLANEOUS. Any notice from you to us shall be deemed to have
been duly given if telefaxed, telephoned or telegraphed, and confirmed by mail
to us at the address set forth in the
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Underwriters Questionnaire furnished by us to you. Any notice from us to you
shall be deemed to have been duly given if telefaxed or telegraphed, and
confirmed by mail to you at 7700 West Camino Real, Suite 200, Boca Raton,
Florida 33433.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
actually engaged in the investment banking or securities business and are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possession and not registered as a broker or dealer under the 1934 Act who
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (except
that we may participate in sales to Selected Dealers and others under Section 5
of this Agreement). We hereby agree that if we are members of the NASD, we will
comply with all of the provisions of the NASD Conduct Rules. If we are a foreign
dealer, we agree to comply with Rule 2740 of the NASD Conduct Rules. If we are a
foreign dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, as though we were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
applies to a non-member foreign dealer. In connection with sales and offers to
sell Securities made by us outside the United States, its territories and
possessions (i) we will either furnish to each person to whom any such sale or
offer is made a copy of the then current Preliminary Prospectus or the
Prospectus, as the case may be, or inform such person that such Preliminary
Prospectus or Prospectus will be available upon request, and (ii) we will
furnish to each person to whom any such sale or offer is made such Prospectus,
advertisement or other offering document containing information relating to the
Securities or the Company as may be required under the law of the jurisdiction
in which such sale or offer is made. Any Prospectus, advertisement or other
offering document furnished by us to any person in accordance with the preceding
sentence and any such additional offering material as we may furnish to any
person (i) shall comply in all respects with the law of the jurisdiction in
which it is so furnished, (ii) shall be prepared and so furnished at our sole
risk and expenses and (iii) shall not contain information relating to the
Securities or the Company which is inconsistent in any respect with the
information contained in the then current preliminary Prospectus or in the
Prospectus, as the case may be.
We understand that, in consideration of your services in connection
with the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrants referred to in the Underwriting Agreement for the
sum of $10; (b) to pay to you a non-accountable expense allowance referred to in
the Underwriting Agreement; (c) to pay you a financial advisory fee referred to
in the Underwriting Agreement; and (d) to enter into
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the Merger and Acquisition Agreement (the "M/A Agreement") referred to in the
Underwriting Agreement. In addition, you may, at your sole discretion, elect to
exercise the over-allotment option individually. We confirm to you that we shall
make no claim to the Representative's Warrants (or any offering of the Company's
securities related thereto, or any right to participate in any capacity in any
offering resulting therefrom), any rights related thereto, the Company's
securities underlying the Representative's Warrants, the non-accountable expense
allowance, the financial advisory fee, or, to the over-allotment option to the
extent you elect to exercise such option individually, or the M/A Agreement. You
confirm to us that we shall have no obligation or liabilities with respect to
the purchase of the Representative's Warrants, the exercise thereof, the
Company's securities underlying the Representative's Warrants (or any offering
of the Company's securities related thereto, unless we shall subsequently agree
to become an underwriter for, or otherwise participate in any such offering) or
the non-accountable expense allowance, the financial advisory agreement, the M/A
Agreement, or, the over-allotment option, to the extent you elect to exercise
such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By: _______________________________________
(Attorney-in-fact for each of the
several Underwriters named in Schedule A
to the attached Underwriting Agreement.)
Confirmed as of the date first above written:
BARRON CHASE SECURITIES, INC.
By:_________________________
Robert T. Kirk, President
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
irrevocably constitute and appoint Robert T. Kirk and/or Barron Chase
Securities, Inc., the true and lawful agent and attorney-in-fact of the
undersigned with respect to all matters arising in connection with the
undersigned's acting as one of the Underwriters of the proposed offering of an
aggregate of
1,200,000 Shares of Common Stock and
1,200,000 Common Stock Purchase Warrants
of
ANDEAN DEVELOPMENT CORPORATION
(such securities being more fully described in the Registration Statement No.
33-90696 filed by Andean Development Corporation pursuant to the Securities Act
of 1933) with full power and authority to execute and deliver for and on behalf
of the undersigned all such agreements, consents and documents in connection
therewith as said agent and attorney-in-fact may deem advisable. The undersigned
hereby gives to said agent and attorney-in-fact full power and authority to act
in the premises, including, but not limited to, the power an authority to
execute and deliver an Agreement Among Underwriters relating to such financing,
to agree to increase or decrease the size of the offering to an amount as shall
be approved by Barron Chase Securities, Inc., as Representative of the
Underwriters, and to appoint a substitute or substitutes to act hereunder with
the same power and authority as said agent and attorney-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agent and attorney-in-fact, or any substitute or substitutes, may do by virtue
hereof.
WITNESS the due execution hereof at __________________________________
_______________________________________________________________________________
(Street) (City)
this __________________day of __________________, 1996.
______________________________________
Firm Name
____________________________________ By: ______________________________________
Witness Partner, Officer or Sole Proprietor
(indicate which)
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<PAGE>
CORPORATE ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this __________ day of __________________ , 1996, before me
personally came _____________________________________ , to me know, who being by
me duly sworn, deposes and say that he resides at No.
_______________________________________________________________: that he is the
______________________________________ of ____________________________________,
the aforementioned corporation, which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; and that it was so affixed by order the Board of Directors
of said corporation; and that he signed his name thereto by like order.
_____________________________________
Notary Public
My Commission Expires:
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this __________ day of __________________ , 1996, before me
personally came _____________________________________ , one of the members of
the firm of _________________________________________ , to me known and known to
me to be the individual who executed the foregoing instrument and acknowledged
that he executed, and was duly authorized to execute, the same as and for the
act and deed of said firm.
_____________________________________
Notary Public
My Commission Expires:
Unless prior to 5:00 p.m. Eastern Time, on the date immediately
preceding the proposed public offering date, the Syndicate Department of Barron
Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida
33433 receives a telegram or letter from you revoking the Power of Attorney, the
power and authority granted by such Power of Attorney may be exercised in
accordance with the terms thereof.
13
EXHIBIT 1.3(b)
ANDEAN DEVELOPMENT CORPORATION
1,200,000 Shares of Common Stock and
1,200,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
____________ , 1996
Gentlemen:
1. Barron Chase Securities, Inc. (the "Representative") and the other
Underwriters named in the Prospectus (collectively the "Underwriters"), acting
through us as the Representative, are severally offering for sale an aggregate
of 1,200,000 Shares of Common Stock (the "Shares") and 1,200,000 Warrants (the
"Warrants") (collectively the "Firm Securities") of Andean Development
Corporation (the "Company"), which we have agreed to purchase from the Company,
and which are more particularly described in the Registration Statement,
Underwriting Agreement and Prospectus. In addition, the several Underwriters
have been granted an option to purchase from the Company up to an additional
120,000 Shares and an additional 120,000 Warrants (the "Option Securities") to
cover overallotments in connection with the sale of the Firm Securities. The
Firm Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price"), in accordance with the
terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering, subject
to the terms and conditions hereof, a portion of the Securities for sale to
certain dealers who are actually engaged in the investment banking or securities
business and who are either (a) members in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers with their
principal places of business located outside the United States, its territories
and its possessions and not registered as brokers or dealers under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), who have agreed
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (such
dealers who shall agree to sell Securities hereunder being herein called
"Selected Dealers") at the public offering price, less a selling concession
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(which may be changed) of not in excess of $ _______ per Share and/or $ per
Warrant payable as hereinafter provided, out of which concession an amount not
exceeding $ ___________ per Share and/or $ __________ per Warrant may be
reallowed by Selected Dealers to members of the NASD or foreign dealers
qualified as aforesaid. The Selected Dealers who are members of the NASD agree
to comply with all of the provisions of the NASD Conduct Rules. Foreign Selected
Dealers agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules, and, if any such dealer is a foreign dealer and not a member of the NASD,
such Selected Dealer also agrees to comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding, and to comply, as though it were a
member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD
Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that
Rule applies to non-member foreign dealers. Some or all of the Underwriters may
be included among the Selected Dealers. Each of the Underwriters has agreed
that, during the term of this Agreement, it will be governed by the terms and
conditions hereof whether or not such Underwriter is included among the Selected
Dealers.
4. Barron Chase Securities, Inc. shall act as Representative on behalf of
the Underwriters and shall have full authority to take such action as we may
deem advisable in respect to all matters pertaining to the public offering of
the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by telefax or telegraph at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200,
Boca Raton, Florida 33433. We reserve the right to reject subscriptions in whole
or in part, to make allotments, and to close the subscription books at any time
without notice. The Securities allotted to you will be confirmed, subject to the
terms and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to you only
on behalf of such of the Underwriters, if any, as may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of
offering as set forth herein and in the Prospectus, subject to the securities or
Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the accounts of the several Underwriters
an amount equal to the Selected Dealer concession as to any Securities purchased
by you hereunder which, prior to the completion of the public offering as
defined in paragraph 8 below, we may purchase or contract to purchase for the
account of any Underwriter and, in addition, we may charge you with any broker's
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commission and transfer tax paid in connection with such purchase or contract to
purchase. Certificates for Securities delivered on such repurchases need not be
the identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the number of
Securities purchased by you hereunder and remaining unsold at the time of such
request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of one or more
of the Underwriters, you will, forthwith upon our request, grant to us for the
account or accounts of such Underwriter or Underwriters the right, exercisable
promptly after receipt of notice from you that such right has been granted, to
purchase, at the Public Offering Price less the selling concession or such part
thereof as we shall determine, such number of Securities owned by you as shall
have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer tax,
if payable, upon the sale of the Securities by the respective Underwriters to
you will be paid when such Securities are delivered to you. However, you shall
pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when we
shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You
confirm that you are familiar with
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Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and
final prospectuses for securities of an issuer (whether or not the issuer is
subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act)
and confirm that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number of copies
of the Prospectus (as amended or supplemented) as you may reasonably request for
the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and
regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of the
Securities for sale therein. We will, if requested, file a Further State Notice
in respect of the Securities pursuant to Article 23-A of the General Business
Law of the State of New York.
12. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
13. Nothing will constitute the Selected Dealers an association or other
separate entity or partners with the Underwriters, or with each other, but you
will be responsible for your share of any liability or expense based on any
claim to the contrary. We and the several Underwriters shall not be under any
liability for or in respect of value, validity or form of the Securities, or the
delivery of the certificates for the Securities, or the performance by anyone of
any agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter relating
to this Agreement, except for lack of good faith and for obligations expressly
assumed by us or by the Underwriters in this Agreement and no obligation on our
part shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at the
Public Offering Price less the above-mentioned selling concession on such time
and date as we may advise, at the office of Barron Chase Securities, Inc., 7700
West Camino Real, Suite 200, Boca Raton, Florida 33433, by wire transfer to the
account of the Representative or by a certified or official bank check in
current New York Clearing House funds, payable to the order of Barron Chase
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Securities, Inc., as Representative, against delivery of certificates for the
Securities so purchased. If such payment is not made at such time, you agree to
pay us interest on such funds at the prevailing broker's loan rate.
15. Notices to us should be addressed to us at the offices of Barron Chase
Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433,
Attention: Robert T. Kirk. Notices to you shall be deemed to have been duly
given if telephoned, telefaxed, telegraphed or mailed to you at the address to
which this letter is addressed.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida without giving effect to the choice of law or
conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected Dealer,
please confirm your application by signing and returning to us your confirmation
on the duplicate copy of this letter enclosed herewith, even though you may have
previously advised us thereof by telephone or telegraph. Our signature hereon
may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
As Representative of the Several
Underwriters
BY:________________________________
Authorized Officer
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Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
We hereby subscribe for ____________ Shares and/or ____ Warrants of Andean
Development Corporation in accordance with the terms and conditions stated in
the foregoing Selected Dealers Agreement and letter. We hereby acknowledge
receipt of the Prospectus referred to in the Selected Dealers Agreement and
letter. We further state that in purchasing said Shares and/or Warrants we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
or (ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As a
member of the NASD, we hereby agree to comply with all of the provisions of NASD
Conduct Rules. If we are a foreign Selected Dealer, we agree to comply with the
provisions of Rule 2740 of the Conduct Rules, and if we are a foreign dealer and
not a member of the NASD, we agree to comply with the NASD's interpretation with
respect to free-riding and withholding, and agree to comply, as though we were a
member of the NASD, with provisions of Rules 2730 and 2750 of such Conduct
Rules, and to comply with Rule 2420 thereof as that Rule applies to non-member
foreign dealers.
Firm:_________________________________
By:_________________________________
(Name and Position)
Address:_________________________________
_________________________________
Telephone No.:_________________________________
Dated:______________, 19961
6
EXHIBIT 4.2(B)
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of ____________ , 1996, between ANDEAN
DEVELOPMENT CORPORATION (the "Company"), and BARRON CHASE SECURITIES, INC. (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Representative, to act as the Representative of the Underwriters
in connection with the Company's proposed public offering of 1,200,000 shares of
the Company's Common Stock at $5.00 per share and 1,200,000 Warrants ("Public
Warrants") at $.125 per warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Rule 2710
of the NASD Conduct Rules (the "Holder"), 120,000 warrants ("Common Stock
Representative Warrants") to purchase 120,000 shares of the Company's Common
stock (the "Shares") and 120,000 warrants ("Warrant Representative Warrants") to
purchase 120,000 Common Stock Purchase Warrants ("Underlying Warrants")
exercisable to purchase 120,000 shares of the Company's Common Stock. The
"Common Stock Representative Warrants" and the "Warrant Representative Warrants"
are collectively referred to as the "Warrants". The "Shares" and the "Underlying
Warrants" are collectively referred to as the "Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as Representative
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of TEN DOLLARS AND NO CENTS ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT AND PERIOD.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 33-90696) and declared effective by the Securities and
Exchange Commission (the "SEC" or "Commission") on __________ , 1996 (the
"Effective Date"). This Agreement, relating to the purchase of the Warrants, is
entered into pursuant to the Underwriting Agreement between the Company and the
Representative, as representative of the Underwriters, in connection with the
Public Offering.
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Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 120,000 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $7.50 per share (150% of the public offering
price) and/or 120,000 non-redeemable Underlying Warrants at an initial exercise
price of $.1875 per warrant (150% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $7.50 per share during the five (5) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Representative's Warrant Agreement. In the event of any extension of the
expiration date or reduction of the exercise price of the Public Warrants, the
same such changes to the Underlying Warrants shall be simultaneously effected,
except that the Underlying Warrants shall expire no later than five (5) years
from the Effective Date.
2. WARRANT CERTIFICATES.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 FULL EXERCISE.
(i) The Holder hereof may effect a cash exercise of the
Common Stock Representative Warrants and/or the Warrant Representative
Warrants and/or the Underlying Warrants by surrendering the Warrant
Certificate, together with a Subscription in the form of Exhibit "A"
attached thereto, duly
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executed by such Holder to the Company, at any time prior to the
Expiration Time, at the Company's principal office, accompanied by
payment in cash or by certified or official bank check payable to the
order of the Company in the amount of the aggregate purchase price (the
"Aggregate Price"), subject to any adjustments provided for in this
Agreement. The aggregate price hereunder for each Holder shall be equal
to the exercise price as set forth in Section six (6) hereof multiplied
by the number of Warrants, Underlying Warrants or Shares that are the
subject of each Holder's Warrant (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of
the Common Stock Representative Warrants and/or the Underlying Warrants
by delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly executed
by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each
Holder hereof shall be determined by dividing: (i) the number obtained
by multiplying the number of Shares that are the subject of each
Holder's Warrant Certificate by the amount, if any, by which the then
Market Value (as hereinafter defined) exceeds the Purchase Price; by
(ii) the per share purchase price. In no event shall the Company be
obligated to issue any fractional securities and, at the time it causes
a certificate or certificates to be issued, it shall pay the Holder in
lieu of any fractional securities or shares to which such Holder would
otherwise be entitled, by the Company check, in an amount equal to such
fraction multiplied by the Market Value. The Market Value shall be
determined on a per Share basis as of the close of the business day
preceding the exercise, which determination shall be made as follows:
(a) if the Common Stock is listed for trading on a national or regional
stock exchange or is included on the NASDAQ National Market or
Small-Cap Market, the average closing sale price quoted on such
exchange or the NASDAQ National Market or Small-Cap Market which is
published in THE WALL STREET JOURNAL for the ten (10) trading days
immediately preceding the date of exercise, or if no trade of the
Common Stock shall have been reported during such period, the last sale
price so quoted for the next day prior thereto on which a trade in the
Common Stock was so reported; or (b) if the Common Stock is not so
listed, admitted to trading or included, the average of the closing
highest reported bid and lowest reported ask price as quoted on the
National Association of Securities Dealer's OTC Bulletin Board or in
the "pink sheets" published by the National Daily Quotation Bureau for
the first day immediately preceding the date of exercise on which the
Common Stock is traded.
3.2 PARTIAL EXERCISE. The securities referred to in
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paragraph 3.1 above also may be exercised from time to time in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof, except that with respect to a cash exercise, the Purchase Price payable
shall be equal to the number of securities being purchased hereunder multiplied
by the per security Purchase Price, subject to any adjustments provided for in
this Agreement. Upon any such partial exercise, the Company, at its expense,
will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants
of like tenor calling in the aggregate for the number of securities (as
constituted as of the date hereof) for which the Warrant Certificate shall not
have been exercised, issued in the name of the Holder hereof or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct.
4. ISSUANCE OF CERTIFICATES.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. RESTRICTION ON TRANSFER OF WARRANTS.
The Holder of a Warrant Certificate, by acceptance thereof, covenants
and agrees that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the Effective Date of the Public Offering, except (a) to officers
of the
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Representative or to officers and partners of the other Underwriters or Selected
Dealers participating in the Public Offering; (b) by will; or (c) by operation
of law.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICES.
The initial exercise price of each Common Stock Representative Warrant
shall be $7.50 per share (150% of the public offering price). The initial
exercise price of each Warrant Representative Warrant shall be $.1875 per
Underlying Warrant (150% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $7.50 per share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof. The Warrant Representative Warrants and the Underlying
Warrants are exercisable during the five (5) year period commencing on the
Effective Date.
6.2 EXERCISE PRICE.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Commission at such time as to such securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act and applicable state securities laws is
available.
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7.2 PIGGYBACK REGISTRATION.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement, under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the
Representative and to all other Holders of the Registrable Securities of its
intention to do so. If the Representative and/or other Holders of the
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Documents, the Company shall afford the
Representative and such Holders of such Registrable Securities the opportunity
to have any Registrable Securities registered under such Registration Documents
or any other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Representative and Holders, in order to comply with the provisions of
the Act, so as to permit a public offering and sale of their respective
Registrable Securities for nine (9) consecutive months (or such longer period of
time as permitted by the Act) by such Holders and any other Holders of any of
the Registrable Securities who notify the Company within ten (10) days after
being given notice from the Company of such request. A Demand Registration shall
not be counted as a Demand Registration hereunder until such Demand
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Registration has been declared effective by the SEC and maintained continuously
effective for a period of at least nine months or such shorter period when all
Registrable Securities included therein have been sold in accordance with such
Demand Registration, provided that a Demand Registration shall be counted as a
Demand Registration hereunder if the Company ceases its efforts in respect of
such Demand Registration at the request of the majority Holders making the
demand for a reason other than a material and adverse change in the business,
assets, prospects or condition (financial or otherwise) of the Company and its
subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this Section
7.3 shall:
(i) specify the number of Registrable Securities which the Holders
intend to offer and sell and the minimum price at which the Holders
intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such securities
for sale;
(iii) describe the intended method of distribution of such
securities; and
(iv) contain an undertaking on the part of the Holders to provide
all such information and materials concerning the Holders and take all
such action as may be reasonably required to permit the Company to
comply with all applicable requirements of the Commission and to obtain
acceleration of the effective date of the registration statement.
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(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses in connection with any registration statement filed pursuant to Section
7.3(c). If the Company shall fail to comply with the provisions of Section
7.3(a), the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any or all
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special and consequential damages sustained by the Holder(s) requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Representative as contained in the
Underwriting Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of
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the Holder(s) of the Registrable Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from written
information furnished by such Holder, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in the Underwriting Agreement
pursuant to which the Representative has agreed to indemnify the Company, except
that the maximum amount which may be recovered from each Holder pursuant to this
paragraph or otherwise shall be limited to the amount of net proceeds received
by the Holder from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall deliver promptly to each Holder
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participating in the offering requesting the correspondence and memoranda
described below and the managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable Securities proposed to be sold by such
Holder(s) may otherwise be sold, in the manner proposed by such Holder(s),
without registration under the Securities Act, or (ii) the SEC shall have issued
a no-action position, in form and substance satisfactory to counsel for the
Holder(s) requesting registration of such Registrable Securities, to the effect
that the entire number of
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Registrable Securities proposed to be sold by such Holder(s) may be sold by it,
in the manner proposed by such Holder(s), without registration under the
Securities Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR
RECLASSIFICATIONS.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
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Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
8.3 DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution
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made as a cash dividend payable out of earnings or out of any earned surplus
legally available for dividends under the laws of the jurisdictions of
incorporation of the Company), whether issued by the Company or by another, the
Holders of the unexercised Warrants shall thereafter be entitled, in addition to
the shares of Common Stock or other securities and property receivable upon the
exercise thereof, to receive, upon the exercise of such Warrants, the same
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that they would have been entitled to receive at the time of such
distribution as if the Warrants had been exercised immediately prior to such
distribution. At the time of any such distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection or an adjustment to the Exercise Price, which shall be effective as
of the day following the record date for such distribution.
8.4 ADJUSTMENT IN NUMBER OF SECURITIES.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to any Holder of
the Warrants and/or Underlying Warrants at the Holder's address as shown on the
Company's books.
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The certificate shall set forth such adjustment or readjustment, showing in
detail the facts upon which such adjustment or readjustment is based including,
but not limited to, a statement of (i) the Exercise Price at the time in effect,
and (ii) the number of additional securities and the type and amount, if any, of
other property which at the time would be received upon exercise of the Warrants
and/or Underlying Warrants.
8.7 ADJUSTMENT OF UNDERLYING WARRANT EXERCISE PRICE.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTEREST.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise of the Warrants and/or
Underlying Warrants, nor shall it be required to issue script or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests may be eliminated, at the Company's option, by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights, or in lieu thereof
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paying cash equal to such fractional interest multiplied by the current value of
a share of Common Stock.
11. RESERVATION AND LISTING.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and/or the Underlying Warrants, and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
and/or Underlying Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and the Underlying Warrants to be listed and quoted (subject to
official notice of issuance) on all securities Exchanges and Systems on which
the Common Stock and/or the Public Warrants may then be listed and/or quoted,
including Nasdaq.
12. NOTICES TO WARRANT HOLDERS.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
earnings, as indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or
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merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. UNDERLYING WARRANTS.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $7.50 during the five (5)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such
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Underlying Warrant in his name or in such name as may be directed by him,
certificates for the number of shares of Common Stock so purchased. Except as
otherwise provided herein and in this Agreement, the Underlying Warrants shall
be governed in all respects by the terms of the Warrant Agreement. The
Underlying Warrants shall be transferrable in the manner provided in the Warrant
Agreement, and upon any such transfer, a new Underlying Warrant certificate
shall be issued promptly to the transferee. The Company covenants to send to
each Holder, irrespective of whether or not the Warrants have been exercised,
any and all notices required by the Warrant Agreement to be sent to holders of
Underlying Warrants.
14. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the Registrable
Securities, to the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth below or to such
other address as the Company may designate by notice to the Holders.
Pedro Pablo Errazuriz, President
Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
With a copy to: Charles B. Pearlman, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
15. ENTIRE AGREEMENT: MODIFICATION.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a writing
executed by the Company and the Holders of at least a majority of Registrable
Securities (based on underlying numbers of shares of Common Stock). Notice of
any modification, waiver or amendment shall be promptly provided to any Holder
not consenting to such modification, waiver or amendment.
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16. SUCCESSORS.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. TERMINATION.
This Agreement shall terminate at the close of business on
____________, 2003. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination.
18. GOVERNING LAW; SUBMISSION TO JURISDICTION.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
19. SEVERABILITY.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. CAPTIONS.
The caption headings of the Sections of this Agreement are for
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any
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person or corporation other than the Company and the Representative and any
other registered Holder(s) of the Warrant Certificates or Registrable Securities
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
22. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ANDEAN DEVELOPMENT CORPORATION
By: ________________________________
Pedro Pablo Errazuriz, President
Attest:
________________________________
Jose Luis Yrarrazaval, Secretary
BARRON CHASE SECURITIES, INC.
By: ________________________________
Robert Kirk, President
20
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON __________, 200 _____
NO. W-
______________ Common Stock ____________ Warrant
Representative Representative
Warrants Warrants
or
____________ Underlying
Warrants
This Warrant Certificate certifies that _________________ , or
registered assigns, is the registered holder of __________ Common Stock
Representative Warrants and/or _________ Warrant Representative Warrants and/or
____________ Underlying Warrants of Andean Development Corporation (the
"Company"). Each Common Stock Representative Warrant permits the Holder hereof
to purchase initially, at any time from _______ , 1996 ("Purchase Date") until
5:30 p.m. Eastern Time on _________ , 2001 ("Expiration Date"), one (1) share of
the Company's Common Stock at the initial exercise price, subject to adjustment
in certain events (the "Exercise Price"), of $7.50 per share (150% of the public
offering price). Each Warrant Representative Warrant permits the Holder hereof
to purchase initially, at any time from the Purchase Date until five (5) years
from the Purchase Date, one (1) Underlying Warrant at the Exercise Price of
$.1875 per Underlying Warrant. Each Underlying Warrant permits the Holder
thereof to purchase, at any time from the Purchase Date until five (5) years
from the Purchase Date, one (1) share of the Company's Common Stock at the
Exercise Price of $7.50 per share.
21
<PAGE>
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants and/or Underlying Warrants shall be effected by
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Representative's Warrant Agreement dated as of _________ , 1996,
between the Company and Barron Chase Securities, Inc. (the "Representative's
Warrant Agreement"). Payment of the Exercise Price shall be made by certified
check or official bank check in New York Clearing House funds payable to the
order of the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Representative's Warrant Agreement. The Common Stock
Representative Warrants, the Warrant Representative Warrants, and the Underlying
Warrants are collectively referred to as "Warrants".
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
22
<PAGE>
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of _________________, 1996
ANDEAN DEVELOPMENT CORPORATION
By: ________________________________
Pedro Pablo Errazuriz, President
(Seal)
Attest:
________________________________
Jose Luis Yrarrazaval, Secretary
23
<PAGE>
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
The undersigned, the Holder of Warrant Certificate number ______ (the
"Warrant"), representing ____________Common Stock Representative Warrants and/or
____________ Warrant Representative Warrants and/or ____________Underlying
Warrants of Andean Development Corporation (the "Company"), which Warrant
Certificate is being delivered herewith, hereby irrevocably elects to exercise
the purchase right provided by the Warrant Certificate for, and to purchase
thereunder,____________ Shares and/or ____________ Underlying Warrants of the
Company, and herewith makes payment of $____________ therefor, and requests that
the certificates for such securities be issued in the name of, and delivered
to,_____________________________________ , whose address is____________________
_______________________________________________________, all in accordance with
the Representative's Warrant Agreement and the Warrant Certificate.
Dated: ____________
___________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
___________________________________
___________________________________
(Address)
24
<PAGE>
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
The undersigned, the Holder of Warrant Certificate number ______the
"Warrant"), representing ___________ Common Stock Representative Warrants and/or
____________ Underlying Warrants of Andean Development Corporation (the
"Company"), which Warrant is being delivered herewith, hereby irrevocably elects
the cashless exercise of the purchase right provided by the Representative's
Warrant Agreement and the Warrant Certificate for, and to purchase thereunder,
Shares of the Company in accordance with the formula provided at Section three
(3) of the Representative's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered
to,____________________________________________________________________ , whose
address is,___________________________________________________________________,
all in accordance with the Warrant Certificate.
Dated:________________
__________________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
__________________________________
__________________________________
(Address)
25
<PAGE>
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if
such holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________________________________________________
hereby sells, assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
________________________________________________________ Attorney, to transfer
the within Warrant Certificate on the books of the within-named Company, and
full power of substitution.
Dated: Signature:
__________________________________ ______________________________
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
______________________________
(Insert Social Security or
Other Identifying Number of
Assignee)
26
EXHIBIT 10.28
FINANCIAL ADVISORY AGREEMENT
This Agreement is made and entered into as of the ___________ day of
________________, 1996, between Andean Development Corporation (the "Company")
and Barron Chase Securities, Inc. (the "Financial Advisor").
W I T N E S S E T H :
WHEREAS, The Company has engaged the Financial Advisor to act as the
Underwriter in connection with the public offering of the Company's securities;
and
WHEREAS, the Financial Advisor has experience in providing financial and
business advice to public and private companies; and
WHEREAS, the Company is seeking and the Financial Advisor is willing to
furnish business and financial related advice and services to the Company on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of, and for the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. PURPOSE. The Company hereby engages the Financial Advisor on a
non-exclusive basis for the term specified in this Agreement to render financial
advisory and consulting advice to the Company as an investment banker relating
to financial and similar matters upon the terms and conditions set forth herein.
2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The Financial
Advisor represents and warrants to the Company that (i) it is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD") and
that it is engaged in the securities brokerage business; (ii) in addition to its
securities brokerage business, the Financial Advisor provides consulting
advisory services; and (iii) it is free to enter into this Agreement and the
services to be provided pursuant to this Agreement are not in conflict with any
other contractual or other obligation to which the Financial Advisor is bound.
The Company acknowledges that the Financial Advisor is in the business of
providing financial services and consulting advice (of the type contemplated by
this Agreement) to others and that nothing herein contained shall be construed
to limit or restrict the Financial Advisor in conducting such business with
respect to others, or rendering such advice to others.
3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this Agreement, the
Financial Advisor will provide the Company with consulting advice as specified
below at the request of the Company, provided that the Financial Advisor shall
not be required to undertake duties not reasonably within the scope of the
consulting
1
<PAGE>
advisory service in which the Financial Advisor is engaged generally. In
performance of these duties, the Financial Advisor shall provide the Company
with the benefits of its best judgment and efforts. It is understood and
acknowledged by the parties that the value of the Financial Advisor's advice is
not measurable in any quantitative manner, and that the amount of time spent
rendering such consulting advice shall be determined according to the Financial
Advisor's discretion.
The Financial Advisor's duties may include, but will not necessarily be
limited to:
1) Advice relating to corporate financing activities;
2) Recommendations relating to specific business
operations and investments;
3) Advice relating to financial planning; and
4) Advice regarding future financings involving
securities of the Company or any subsidiary.
4. TERM. The term of this Agreement shall be for thirty-six (36) months
commencing on the first day of the month following the Company's receipt of the
proceeds from the contemplated public offering (the "Commencement Date");
provided, however, that this Agreement may be renewed or extended upon such
terms and conditions as may be mutually agreed upon by the parties hereto.
5. FEE. The Company shall pay the Financial Advisor a fee of $108,000 for
the financial services to be rendered pursuant to this Agreement, all of which
shall be payable at the Closing Date of the Company's proposed public offering.
6. EXPENSES. In addition to the fees payable hereunder, the Company shall
reimburse the Financial Advisor, within five (5) business days of its request,
for any and all reasonable out-of-pocket expenses incurred in connection with
the services performed by the Financial Advisor and its counsel pursuant to this
Agreement, including (i) reasonable hotel, food and associated expenses; (ii)
reasonable charges for travel; (iii) reasonable long-distance telephone calls;
and (iv) other reasonable expenses spent or incurred on the Company's behalf.
All such expenses in excess of $500 shall be pre-approved by the Company.
7. INTRODUCTION OF CUSTOMERS, ORIGINATION OF LINE OF CREDIT AND SIMILAR
TRANSACTIONS. In the event the Financial Advisor originates a line of credit
with a lender or a corporate partner, the Company and the Financial Advisor will
mutually agree on a satisfactory fee and the terms of payment of such fee. In
the event the Financial Advisor introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction, the
Company agrees to pay a fee of five percent (5%) of total sales generated
directly from this introduction during the first two years following the date of
the first sale. Total sales
2
<PAGE>
shall mean cost receipts less any applicable refunds, returns, allowances,
credits and shipping charges and monies paid by the Company by way of settlement
or judgment arising out of claims made by or threatened against the Company.
Commission payments shall be paid on the 15th day of each month following the
receipt of customers' payments. In the event any adjustments are made to the
total sales after the commission has been paid, the Company shall be entitled to
an appropriate refund or credit against future payments under this Agreement.
All fees to be paid pursuant to this paragraph, except as otherwise
specified, are due and payable to the Financial Advisor in cash at the closing
or closings of any transaction specified in this paragraph. In the event that
this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, the Financial Advisor shall
be entitled to a full fee as provided under this paragraph for any transaction
for which the discussions were initiated during the term of this Agreement and
which is consummated within a period of twelve months after non-renewal or
termination of this Agreement. Nothing herein shall impose any obligation on the
part of the Company to enter into any transaction or to use any services of the
Financial Advisor offered pursuant to this paragraph or this Agreement.
8. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S
SECURITIES. The Company acknowledges that all opinions and advice (written or
oral) given by the Financial Advisor to the Company in connection with the
engagement of the Financial Advisor are intended solely for the benefit and use
of the Company in considering the transaction to which they relate, and the
Company agrees that no person or entity other than the Company shall be entitled
to make use of or rely upon the advice of the Financial Advisor to be given
hereunder, and no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor may the Company make any public references to the Financial
Advisor, or use of the Financial Advisor's name in any annual reports or any
other reports or releases of the Company without the prior written consent of
the Financial Advisor.
The Company acknowledges that the Financial Advisor makes no commitment
whatsoever as to making a public trading market in the Company's securities or
to recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by the
Financial Advisor will, when and if prepared, be done solely on the merits or
judgment and analysis of the Financial Advisor or any senior corporate finance
personnel of the Financial Advisor.
9. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and
confirms that, in advising the Company and in fulfilling its engagement
hereunder, the Financial Advisor will use and rely on data, material and other
information furnished to the Financial Advisor by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
the
3
<PAGE>
Financial Advisor may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. In addition, in the performance of its
services, the Financial Advisor may look to such others for such factual
information, economic advice and/or research upon which to base its advice to
the Company hereunder as the Financial Advisor shall in good faith deem
appropriate.
Except as contemplated by the terms hereof or as required by applicable
law, the Financial Advisor shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as the Financial Advisor determines to have a need to
know.
10. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Financial Advisor against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") or any other federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including costs,
expenses, awards and/or judgments) arise out of or are in connection with the
services rendered by the Financial Advisor or any transactions in connection
with this Agreement, except for any liabilities, claims and lawsuits (including
awards and/or judgments), arising out of willful misconduct or willful omissions
of the Financial Advisor. In addition, the Company shall also indemnify and hold
harmless the Financial Advisor against any and all reasonable costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Financial Advisor shall give the Company prompt notice of any such
liability, claim or lawsuit which the Financial Advisor contends is the subject
matter of the Company's indemnification and the Company thereupon shall be
granted the right to take any and all necessary and proper action, at its sole
cost and expense, with respect to such liability, claim and lawsuit, including
the right to settle, compromise and dispose of such liability, claim or lawsuit,
excepting therefrom any and all proceedings or hearings before any regulatory
bodies and/or authorities.
The Financial Advisor shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the 1934
Act or any other federal or state statute, at common law or otherwise, insofar
as said liabilities, claims and lawsuits (including costs, expenses, awards
and/or judgments) arise out of or are based upon willful misconduct or willful
omissions of the Financial Advisor. In addition, the Financial Advisor shall
also indemnify and hold the Company harmless against any and all reasonable
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
4
<PAGE>
The Company shall give the Financial Advisor prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
the Financial Advisor's indemnification and the Financial Advisor thereupon
shall be granted the right to take any and all necessary and proper action, at
its sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
11. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The Financial
Advisor shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof. It is expressly
understood and agreed to by the parties hereto that the Financial Advisor shall
have no authority to act for, represent or bind the Company or any affiliate
thereof in any manner, except as may be agreed to expressly by the Company in
writing from time to time.
12. MISCELLANEOUS.
(a) This Agreement between the Company and the Financial Advisor
constitutes the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings, whether oral or
written, between the parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall be
in writing and shall be deemed sufficiently given if hand-delivered or sent
postage prepaid by certified or registered mail, return receipt requested, to
the respective parties as set forth below, or to such other address as either
party may notify the other in writing:
If to the Company: Pedro Pablo Errazuriz, President
Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
Copy to: Charles B. Pearlman, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.
200 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
If to the
Financial Advisor: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
355 West Palmetto Park Road
Boca Raton, Florida 33432
5
<PAGE>
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal representatives and
assigns.
(d) This Agreement may be executed in any number of counterparts, each of
which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or waived,
except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed by
the laws of the State of Florida, without giving effect to conflict of law
principles. The parties hereby agree that any dispute which may arise between
them arising out of or in connection with this Agreement shall be adjudicated
before a court located in Palm Beach County, Florida, and they hereby submit to
the exclusive jurisdiction of the courts of the State of Florida located in Palm
Beach County, Florida and of the federal courts in the Southern District of
Florida with respect to any action or legal proceeding commenced by any party,
and irrevocably waive any objection they now or hereafter may have respecting
the venue of any such action or proceeding brought in such a court or respecting
the fact that such court is an inconvenient forum, relating to or arising out of
this Agreement, and consent to the service of process in any such action or
legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth in paragraph 12(b) hereof.
(g) This Agreement has been duly authorized, executed and delivered by and
on behalf of the Company and the Financial Advisor.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
Very truly yours,
ANDEAN DEVELOPMENT CORPORATION
BY:________________________________
Pedro Pablo Errazuriz, President
BARRON CHASE SECURITIES, INC.
BY:________________________________
Robert T. Kirk, President
6
EXHIBIT 10.29
_________________, 1996
Pedro Pablo Errazuriz, President
Andean Development Corporation
835 Lakeside Drive
Boca Raton, Florida 33432
RE: MERGER AND ACQUISITION AGREEMENT
Gentlemen:
You have agreed that Barron Chase Securities, Inc., (the "Finder") may
act as a non-exclusive finder or financial consultant for you in various
transactions in which Andean Development Corporation (the "Company") may be
involved, such as mergers, acquisitions, joint ventures, debt or equity
placements and similar or other on-balance or off-balance sheet corporate
finance transactions. The Company hereby agrees that in the event that the
Finder shall first introduce to the Company another party or entity, in writing,
and that as a result of such introduction, a transaction between such entity and
the Company is consummated ("Consummated Transaction"), then the Company shall
pay to the Finder a finder's fee as follows:
a. Five percent (5%) of the first $1,000,000 of the consideration
paid in such transaction;
b. Four percent (4%) of the consideration in excess of $1,000,000 and
up to $2,000,000;
c. Three percent (3%) of the consideration in excess of $2,000,000
and up to $3,000,000;
d. Two percent (2%) of any consideration in excess of $3,000,000 and
up to $4,000,000; and
e. One percent (1%) of any consideration in excess of $4,000,000.
The fee due the Finder shall be paid by the Company in cash and/or in
stock at the closing of the Consummated Transaction as mutually agreed between
the Company and the Finder, without regard to whether the Consummated
Transaction involves payments in cash, in stock, or a combination of stock and
cash, or is made on an installment sale basis. By way of example, if the
Consummated Transaction involves securities of the acquiring entity (whether
securities of the Company, if the Company is the acquiring party, or securities
of another entity, if the Company is the selling party) having a value of
$5,000,000, the consideration to be paid by the Company to the Finder at closing
shall be $150,000.
<PAGE>
In the event that for any reason the Company shall fail to pay to the
Finder all or any portion of the finder's fee payable hereunder when due,
interest shall accrue and be payable on the unpaid balance due hereunder from
the date when first due through and including that date when actually collected
by the Finder, at a rate equal to two (2) points over the prime rate of
Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as
announced from time to time.
This agreement shall be effective on the date hereof and shall expire
on the fifth anniversary of the date hereof.
Notwithstanding anything herein to the contrary, if the Company shall,
within 180 days immediately following the termination of the five year period
provided above, conclude a Consummated Transaction with any party introduced by
the Finder to the Company prior to the termination of said five year period, the
Company shall also pay the Finder the fee determined above.
The Company represents and warrants to the Finder that the engagement
of the Finder hereunder has been duly authorized and approved by the Board of
Directors of the Company and this letter agreement has been duly executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company.
This agreement has been executed and delivered in the State of Florida
and shall be governed by the laws of such state, without giving effect to the
conflicts of laws rules thereunder.
This agreement shall be binding upon, and enforceable against, the
successors and assigns of each of the undersigned.
Please sign this letter at the place indicated below, whereupon it will
constitute our mutually binding agreement with respect to the matters contained
herein.
Very truly yours,
BARRON CHASE SECURITIES, INC.
BY:________________________________
Robert T. Kirk, President
Agreed to and Accepted:
ANDEAN DEVELOPMENT CORPORATION
By: __________________________________
Pedro Pablo Errazuriz, President
2
EXHIBIT 23.2
MUTNICK & ASSOCIATES
Certified Public Accountants
(LETTERHEAD)
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of this Amendment 11 to Form SB-2 being filed under
the Securities Act of 1933 by Andean Development Corporation, of our report
dated March 29, 1996 except for Note 15, to which the date is October 21, 1996,
relating to our examination of the supplemental consolidated financial
statements of Andean Development Corporation and subsidiaries, as at December
31, 1995 and for each of the two years in the period ended December 31, 1995
appearing in the prospectus. We also consent to the reference to our firm
appearing under the caption "Experts" in the Prospectus.
MUTNICK & ASSOCIATES, P.A.
Certified Public Accountants
Pembroke Pines, Florida
October 21, 1996
