<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1996
REGISTRATION NO. 33-91426
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PARAVANT COMPUTER SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
FLORIDA 3571 59-2209179
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
780 SOUTH APOLLO BLVD., ATRIUM ONE
MELBOURNE, FL 32901
(407) 727-3672
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
JAMES MARTIN KAPLAN, ESQ. JAY M. KAPLOWITZ, ESQ.
ZIMET, HAINES, FRIEDMAN & KAPLAN GERSTEN, SAVAGE, KAPLOWITZ & CURTIN, LLP
460 PARK AVENUE 575 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
TELEPHONE NO.: (212) 486-1700 TELEPHONE NO.: (212) 752-9700
FACSIMILE NO.: (212) 223-1151 FACSIMILE NO.: (212) 752-9713
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.045 per share................ 1,150,000(2) $ 5.00 $ 5,750,000 $ 1,982.76
Redeemable Warrants, each to purchase one share of
Common Stock......................................... 1,610,000(3) $ .10 $ 161,000 $ 55.52
Common Stock, par value $.045 per share(4)............. 1,610,000(5) $ 6.00 $ 9,660,000 $ 3,331.03
Underwriter's Warrants to purchase Common Stock and
Redeemable Warrants(6)............................... 240,000 $ .0000416 $ 10 (7)
Common Stock, par value $.045 per share(8)............. 100,000 $ 7.00 $ 700,000 $ 241.38
Redeemable Warrants, each to purchase one share of
Common Stock(8)...................................... 140,000 $ .14 $ 19,600 $ 6.76
Common Stock, par value $.045 per share(9)............. 140,000 $ 6.00 $ 840,000 $ 289.66
Common Stock, par value $.045 per share, to be sold by
Selling Security Holders(10)......................... 360,355 $ 5.00 $ 1,801,775 $ 621.31
Total Registration Fee.......................................................................................... $ 6,528.42(11)
</TABLE>
(footnotes on following page)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
(footnotes from previous page)
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of calculating the registration fee.
(2) Includes 150,000 shares which the Underwriter has an option to purchase
from the Registrant to cover over-allotments, if any.
(3) Includes 210,000 redeemable warrants which the Underwriter has the option
to purchase from the Registrant to cover over-allotments, if any.
(4) Issuable upon exercise of the Redeemable Warrants to be sold to the public
hereunder, together with such indeterminate number of shares of Common
Stock as may be issuable by reason of the anti-dilution provisions
contained therein.
(5) Assumes the Underwriter's option to purchase 210,000 additional redeemable
warrants to cover over-allotments, if any, has been exercised.
(6) To be issued by the Registrant and purchased by the Underwriter upon
consummation of this offering.
(7) No fee due pursuant to Rule 457(g).
(8) Issuable upon exercise of the Underwriter's Warrants.
(9) Issuable upon exercise of the Redeemable Warrants underlying the
Underwriter's Warrants, together with such indeterminate number of shares
of Common Stock as may be issuable by reason of the anti-dilution
provisions contained therein.
(10) Represents shares owned by certain security holders of the Registrant and
registered for offer on a delayed basis pursuant to Rule 415 under the
Securities Act of 1933, as amended.
(11) An aggregate of $6,475.11 of such registration fee has previously been
paid.
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTIONS IN PROSPECTUS
----------------------------------------------------------------------- ------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front Cover of
Prospectus........................................................... Cover Page
2. Inside Front and Outside Back Cover Prospectus......................... Cover Page, Inside Cover of Page,
Outside Back
3. Summary Information and Risk Factors................................... Prospectus Summary, Risk Factors,
Business
4. Use of Proceeds........................................................ Risk Factors, Use of Proceeds,
Business
5. Determination of Offering Price........................................ Cover Page, Underwriting, Risk
Factors
6. Dilution............................................................... Dilution, Risk Factors
7. Selling Security Holders............................................... Inside Cover Page, Concurrent
Registration of Common Stock,
Description of Securities
8. Plan of Distribution................................................... Prospectus Summary, Underwriting
9. Legal Proceedings...................................................... Business
10. Directors, Executive Officers, Promoters and Control Persons........... Management, Principal Stockholders
11. Security Ownership of Certain Beneficial Owners and Management......... Principal Shareholders
12. Description of Securities.............................................. Description of Securities
13. Interest of Named Experts and Counsel.................................. *
14. Disclosure of Commission Position on Indemnification for Securities Act
Liabilities.......................................................... Indemnification for Securities Act
Liabilities
15. Organization within the Last Five Years................................ *
16. Description of Business................................................ Prospectus Summary, The Company,
Risk Factors, Business
17. Management's Discussion and Analysis or Plan of Operation.............. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
18. Description of Company................................................. Summary Prospectus, The Company,
Risk Factors, Business
19. Certain Relationships and Related Transactions......................... Certain Transactions
20. Market for Common Equity and Related Stockholder Matters............... Prospectus Summary, Risk Factors,
Description of Securities
21. Executive Compensation................................................. Management
22. Financial Statements................................................... Financial Statements
23. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. *
</TABLE>
- ------------
* Not Applicable
<PAGE>
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The
first Prospectus will be used in connection with an underwritten offering of
Common Stock and Warrants by the Company (the 'Company Prospectus'). The second
Prospectus will be used in connection with the sale of Common Stock by certain
selling security holders from time to time in open market transactions (the
'Selling Security Holder Prospectus'). The Company Prospectus and the Selling
Security Holder Prospectus are substantially identical, except for the alternate
pages for the Selling Security Holder Prospectus included herein which are
labeled 'Alternate Page for Selling Security Holder Prospectus.' In addition,
what is referred to as the 'Offering' in the Company Prospectus will be changed,
where appropriate, to the 'Company Offering' throughout the Selling Stockholder
Prospectus.
After this Registration Statement becomes effective, both Prospectuses will
be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
<PAGE>
<PAGE>
PRELIMINARY PROSPECTUS DATED MAY 16, 1996
SUBJECT TO COMPLETION
PROSPECTUS
1,000,000 SHARES OF COMMON STOCK AND
1,400,000 REDEEMABLE WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PARAVANT COMPUTER SYSTEMS, INC.
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') hereby
offers 1,000,000 shares of common stock, par value $.045 per share (the 'Common
Stock'), and 1,400,000 redeemable warrants to purchase shares of Common Stock
(the 'Warrants'). Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $6.00 per share, subject to
adjustment, for a period of five years commencing , 1997 [eighteen
months from the date of this Prospectus.] The Common Stock and the Warrants will
be separately tradeable immediately upon issuance and may be purchased
separately in varying amounts. The Warrants are redeemable by the Company at any
time commencing 1997 [eighteen months from the date of this
Prospectus] upon notice of not less than 30 days, at a price of $.05 per
Warrant, provided that the last sale price of the Common Stock on the Nasdaq
National Market has exceeded $8.50 per share (subject to adjustment) for a
period of 30 consecutive trading days during the period in which the Warrants
are exercisable. See 'DESCRIPTION OF SECURITIES'.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants and there can be no assurance that any such market will
develop. The Company has applied for listing of the Common Stock and Warrants on
the Nasdaq National Market and it is anticipated that the Common Stock and
Warrants will be quoted on the Nasdaq National Market under the symbols 'TUFF'
and 'TUFFW'. The offering prices of the Common Stock and Warrants offered
hereby, and the exercise price of the Warrants, were determined pursuant to
negotiations between the Company and the Underwriter and do not necessarily
relate to the Company's book value or any other established criteria of value.
For a discussion of the factors considered in determining the offering prices,
see 'UNDERWRITING'.
Concurrently with this Offering, 360,355 shares of Common Stock (the
'Selling Security Holders' Shares') have been registered by the Company under
the Securities Act of 1933, as amended (the 'Securities Act'), on behalf of
certain of its stockholders (the 'Selling Security Holders'), pursuant to a
Selling Security Holder Prospectus included within the Registration Statement of
which this Prospectus forms a part. The Selling Security Holders' Shares are not
part of this underwritten offering, however, and may not be sold prior to 18
months from the date of this Prospectus without the prior written consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the Selling Security Holders' Shares. See 'SELLING SECURITY HOLDERS'.
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL
DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE
'RISK FACTORS' ON PAGE 7 OF THE PROSPECTUS AND 'DILUTION'.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................................... $5.00 $.50 $4.50
Per Warrant......................................................... $ .10 $.01 $ .09
Total............................................................... $5,140,000 $514,000 $4,626,000
</TABLE>
(1) In addition, the Company has agreed to pay the Underwriter a 3%
non-accountable expense allowance, to sell to the Underwriter warrants to
purchase 100,000 shares of Common Stock and/or 140,000 Warrants (the
'Underwriter's Warrants') and to retain the Underwriter as a financial
consultant. The Company has also agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See 'UNDERWRITING'.
(2) Before deducting expenses, including the Underwriter's nonaccountable
expense allowance in the amount of $154,200 ($177,330, if the Underwriter's
over-allotment option is exercised in full), estimated at $626,000, payable
by the Company.
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the closing of this Offering, to purchase up to 150,000 additional
shares of Common Stock and 210,000 additional Warrants, on the same terms as
set forth above, solely for the purpose of covering over-allotments, if any.
If the Underwriter's over-allotment option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $5,911,000, $591,100 and $5,319,900, respectively. See
'UNDERWRITING'.
The shares of Common Stock and Warrants are being offered, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to the approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock and Warrants
will be made against payment therefor at the offices of the Underwriter, 909
Third Avenue, New York, New York 10022 on or about , 1996.
------------------------------
[LOGO] DUKE & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT 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.
<PAGE>
<PAGE>
REPORTS TO SHAREHOLDERS
Upon completion of this Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith, will be required to file
reports and other information with the Securities and Exchange Commission
('Commission') at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the public reference section of the
Commission, at that address and at prescribed rates. The Company intends to
furnish its shareholders with annual reports containing financial statements
audited by independent auditors and with additional information concerning the
business and affairs of the Company whenever deemed appropriate by the Board of
Directors or as required by law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, in
Washington, D.C., a Registration Statement on Form SB-2, relating to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement, including the exhibits and schedules thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, Washington, D.C. Copies of all or any part of such material may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission.
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND WARRANTS OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by references to the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, all information in this Prospectus has been adjusted
to give effect to a common stock reverse-split effected on the basis of
approximately 4.5 shares to 1 share as of April 12, 1995. Immediately prior to
the date of this Prospectus, the Company's Articles of Incorporation will be
amended to increase its authorized shares of Common Stock from 10,000,000 to
30,000,000 shares.
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS')
designs, manufactures and markets rugged, portable computers and communications
interfaces for outdoor usage. Sold to the military, government and commercial
markets, the Company's hand-held and laptop computers are specially designed and
fabricated to withstand rough operational conditions and the rigors of adverse
environments ranging from scorching, wind-swept deserts to hot, humid jungles to
frozen arctic regions. Accordingly, PCS's products are relatively impervious to
temperature extremes, humidity, fog and moisture, vibration or shocks, as well
as impurities such as sand, dirt, dust and gravel. The Company typically
furnishes both hardware and software elements of its computer/communication
systems to its customers. See 'THE COMPANY', 'BUSINESS -- INDUSTRY BACKGROUND
AND PRODUCTS'.
The hand-held and laptop computers that the Company manufactures perform
tasks and functions of an extensive nature. In military applications, PCS's
computers operate weapon systems, provide radar displays, process incoming
information, communicate with other systems, train personnel in system's
utilization and diagnose and maintain equipment. In Raytheon's Hawk
Anti-Aircraft Missile System, for example, PCS's computers display radar
information indicating the location of potential targets, control the firing of
missiles and serve as communicators of information and orders.
In the government and commercial areas, the Company's products are used to
collect, store, download and process data obtained in the field. They are
specifically utilized in environmental studies and testing, land mapping and
surveys, forestry and logging operations, oil exploration, governmental
inspections, medical testing and support and construction projects. Weyerhauser,
a large forest products company, employs the Company's computers in a
specialized bucking operation performed on site. This application allows the
logger in the forest to maximize the overall economic potential of each tree
harvested by calculating the relative dollar values of various uses for cuts of
timber in light of existing market conditions and to saw the tree accordingly.
In comparison to other companies selling similar products, PCS's Management
believes that it has several competitive advantages. Because it emphasizes
ruggedization of its products from the selection and design of components to
assembly and encasement in sealed containers through the extensive testing at
various phases, the Company believes it has achieved high levels of capability,
performance and reliability for its products. PCS also offers its customers
engineering services that modify its standard products for specialized
applications. Moreover, its capability of incorporating state-of-the-art
communications interfaces into its products allow computers to talk to one
another and provide end-users with solutions to important technical problems.
Finally, the Company specializes in miniaturizing electronic equipment, and,
consequently, it places more computing power or communications capability into
smaller and lighter configurations. See 'RISK FACTORS', generally and 'RISK
FACTORS -- COMPETITION'.
PCS's competition, however, typically does not design for ruggedization
from start to finish but rather purchases off-the-shelf computers or electronics
available in the commercial market and encases them in protective, air-breathing
boxes. These companies also generally neglect to provide customization services,
furnish only limited communication capabilities for their products, if at all,
and do not go beyond the existing miniaturization found in normal commercial
computer applications. Naturally, given the higher levels of performance,
capability and reliability of PCS's computers, its products tend to be
substantially more expensive than those similar items offered by its
competitors. However, the
3
<PAGE>
<PAGE>
Company generally does not manufacture the components for its products. See
'RISK FACTORS -- COMPETITION' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
For the fiscal year ending September 30, 1995, approximately 90% of PCS's
total sales were made, directly or indirectly, to the military market in the
United States and abroad. The remaining 10% of its sales for such period were
made to the government and commercial markets. Approximately 15% of its total
sales for the same period were made by it directly to foreign customers while
additional sales of its products were made abroad by its U.S. customers.
In the military market, the Company's customers include the Armed Forces of
the U.S. government, foreign governments and major aerospace companies and prime
military contractors, such as Raytheon, Lockheed Martin, and Texas Instruments.
In regard to the government marketplace, PCS sells its products to the U.S.
Environmental Protection Agency, state Departments of Transportation, U.S.
Forestry Service and other government agencies. In the commercial market, the
Company's computers have been sold to public utilities, timber and logging
companies, surveyors, civil engineering firms, and railroads. PCS's customers
include: the Canadian Pacific Railroad, Weyerhauser, Westvaco and Geco Prakla.
Current trends in U.S. military procurement and budgeting policies appear
to be favorable to the Company. While the general trend in defense spending is
toward reductions of overall expenditures, the areas in which PCS operate are
either presently unaffected in any material way by such lower funding or are
benefiting from funding increases. In its attempt to economize, the U.S.
military tends to avoid expenditures on new large weapon systems and
special-function computers wherever possible. In contrast, much of the Company's
product emphasis is on upgrading and retro-fitting existing weapon systems in
order to increase their overall capabilities. In its product offerings, PCS also
stresses enhanced support for electronic warfare systems, diagnostics and
maintenance of military equipment as well as battlefield communications and data
processing. All of these areas are important to the U.S. military establishment
in its procurement policies and strategic plans. Finally, PCS's miniaturization
and customization capabilities, which make military electronic systems lighter
and more compact, lend themselves to greater application to military needs in
this age of rapid deployment of forces and equipment. Despite these factors, it
is uncertain whether continued downward trends in military spending may have
material adverse affects on the Company's future business. See 'THE COMPANY',
'RISK FACTORS' and 'BUSINESS', generally.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk and immediate substantial dilution and should not be purchased by investors
who cannot afford the loss of their entire investment. These risks include,
inter alia, substantial dependence upon military sales and government contracts,
reliance on a few major customers, possible technological obsolescence or
failure of its products and their uncertain acceptability in the market place,
special risks involving its foreign sales, the seasonality inherent in its
business, intense competition with larger companies, reliance on key executives,
sub-contractors and suppliers. See 'RISK FACTORS' generally and 'DILUTION'.
THE OFFERING
<TABLE>
<S> <C>
Securities offered........................ 1,000,000 shares of Common Stock and 1,400,000 Warrants to purchase
Common Stock. See 'DESCRIPTION OF SECURITIES'.
Common Stock to be outstanding after the
Offering(1)............................. 2,500,000 shares.
Warrants
Number to be outstanding
after the Offering(2)................... 1,400,000 Warrants.
Exercise terms.......................... Exercisable for a period of five years commencing ,
1997 (eighteen months from the date of this Prospectus), each
Warrant entitles the registered holder thereof to purchase one
share of Common Stock for $6.00,
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
subject to adjustment in certain circumstances. See 'DESCRIPTION OF
SECURITIES -- REDEEMABLE WARRANTS'.
Expiration Date......................... , 2002
Redemption.............................. Redeemable by the Company at any time commencing on ,
1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant,
provided that the last sale price of the Common Stock on the Nasdaq
National Market has exceeded $8.50 per share (subject to
adjustment) for a period of 30 consecutive trading days during the
period in which the Warrants are exercisable. The Warrants will be
exercisable until the close of business on the date fixed for
redemption. See 'DESCRIPTION OF SECURITIES -- REDEEMABLE WARRANTS'.
Use of Proceeds........................... The Company intends to use the net proceeds from this Offering for
research and development of new and existing products, repayment of
stockholder loans, expansion of marketing and sales activities,
purchase and/or lease of new office and production equipment,
repayment of bridge notes and intercompany balances, and working
capital and general corporate purposes. See 'USE OF PROCEEDS'.
Proposed Nasdaq National Market
symbols(3).............................. Common Stock -- 'TUFF' and Warrant -- 'TUFFW'
</TABLE>
- ------------
(1) Does not include (i) 485,000 shares reserved for issuance under the
Company's Incentive Stock Option Plan ('Incentive Plan'); (ii) 15,000 shares
reserved for issuance under the Company's Nonemployee Directors' Stock
Option Plan ('Directors' Plan'); (iii) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan previously
maintained by the Company, which has been cancelled; and (iv) securities
which may be issued upon the exercise of the Warrants offered hereby, the
Underwriter's Warrants, the Underwriter's over-allotment option and warrants
('Bridge Warrants') to purchase an aggregate of 160,000 shares of Common
Stock issuable in connection with a bridge financing in August 1995 ('August
Bridge Financing'). See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN',
' -- NONEMPLOYEE DIRECTORS STOCK OPTION PLAN', 'DESCRIPTION OF
SECURITIES -- BRIDGE FINANCING' and 'UNDERWRITING'.
(2) Does not include any Warrants referred to in clause (iv) of Note 1 above.
(3) The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market. Although the shares of Common Stock and Warrants are
expected to be approved for listing on the Nasdaq National Market, such
listing does not imply that an established public trading market will
develop therefor or, if developed, that such market will be sustained. See
'RISK FACTORS', generally.
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,(3) YEAR ENDED
--------------------------- SEPTEMBER 30,
1996 1995 1995
------------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Statement of Earnings Data:
Revenues........................................................ $ 1,724,882 $1,851,532 $ 8,652,553
Net income (loss)............................................... $ (648,176) $ (304,040) $ 581,415
Earnings (loss) per share(1)(2)................................. $ (.43) $ (.19) $ .39
Supplemental earnings (loss) per share(4)....................... (.37) (.17) .33
Weighted average number of shares outstanding(1)(2)............. 1,500,000 1,580,000 1,500,000
Balance Sheet Data:
Working capital................................................. $ 535,173 $ 749,102 $ 1,350,408
Total assets.................................................... $ 7,425,302 $5,465,271 $ 9,449,715
Total liabilities............................................... $ 6,066,307 $4,343,555 $ 7,442,544
Total stockholders' equity...................................... $ 1,358,995 $1,121,716 $ 2,007,171
</TABLE>
- ------------
(1) The weighted average number of shares outstanding has been determined
assuming shares and options issued subsequent to September 30, 1995 were
outstanding for all periods presented, including periods in which the effect
is anti-dilutive.
(2) As adjusted to give effect to a reverse-split of outstanding Common Stock
effected in April 1995.
(3) Typically, a substantial portion of the Company's revenue is generated in
its fourth fiscal quarter in accordance with U.S. government annual
budgeting and spending patterns. See 'RISK FACTORS -- SEASONALITY, COST
OVERRUNS and LONG SALES CYCLE' and 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS'.
(4) Supplemental earnings (loss) per share has been computed by dividing net
income (loss) by the weighted average number of shares outstanding assuming
that the sale of 240,459 shares offered hereby had occurred at the beginning
of the applicable period and that the proceeds derived therefrom were used
to repay $400,000 in promissory notes issued in August 1995 and $802,294 in
promissory notes issued in April 1996.
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should only be made by investors who can
afford the loss of their entire investment. Prospective investors should give
careful attention to these risk factors, as well as to the other information
described elsewhere in this Prospectus, including the financial statements and
notes thereto, in evaluating the Company, its business and management before
making a decision to purchase the Common Stock and Warrants. In addition to the
risks discussed below, businesses, including the Company's, are often subject to
risks not foreseen, anticipated or appreciated by its management.
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this
Prospectus, including but not limited to the timely introduction and acceptance
of new products by the Company, the length of sales cycles in the military,
government and commercial markets and trends in military procurement and
budgeting policies.
SUBSTANTIAL DEPENDENCE UPON MILITARY SALES
The majority of PCS's sales have historically been to the United States
military, foreign military or military suppliers. The Company's future success,
if any, is highly dependent on the continued purchase by the military of its
portable computers or equipment manufactured by others which contain its
devices. For the fiscal years ending September 30, 1995 and 1994 and for the six
months ended March 31, 1996 and 1995, direct and indirect sales of the Company's
products to the U.S. Department of Defense and foreign governments represented
approximately 96%, 84%, 97% and 84%, respectively, of its sales. Attempts to
reduce military expenditures have commenced for a multitude of reasons,
including budget deficit reduction and a perceived easing of global tensions.
For the past two years, the uncertain defense budget situation has caused
delays in contract awards and reduced funding in various military programs.
Management expects that these downward trends will continue through 1996.
Fortunately for PCS, most of its product sales to the U.S. Military have either
been unaffected by such reductions in military spending or have benefitted from
increases in such funding. Management believes that this has occurred because
its products are often used for upgrades or retrofits of existing military
devices, electronic warfare systems, portable diagnostic and maintenance
equipment, lighter systems for rapid deployment and digitalization of the
battlefield.
However, it is uncertain whether any reductions or delays in military
funding or contract awards may have a material adverse effect on the Company's
business in the future. See 'BUSINESS -- INDUSTRY BACKGROUND' and 'CUSTOMERS'.
Although overall defense spending may stabilize or increase modestly, based
upon recent announcements from the U.S. Congress and Defense Department, it is
extremely difficult to predict the amount or pattern of such spending.
Management believes that in the foreseeable future military spending on new
weapon systems will continue to be restricted to research and development of
military hardware already under development and to limited production of such
systems. During this period, it anticipates that the U.S. military will still
emphasize the upgrading, repair and extended use of older systems.
One example of the U.S. military's deferring expenditures on new weapon
systems involves its handling of the F-16 and F-22 fighter planes. Instead of
replacing F-16's with the newer F-22's, the military has, in its economizing
efforts, sought to continue the F-16's in service for longer periods. As a
consequence, PCS's sales of its portable computers to Lockheed as part of that
company's upgraded electronic maintenance systems for F-16's has actually
increased recently. Should the U.S. military alter this policy and seek
full-scale production of the F-22 planes, sales of the Company's computers for
such maintenance system will, in all likelihood decrease. See
'BUSINESS -- INDUSTRY BACKGROUND AND PRODUCTS'.
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UNCERTAINTY OF ISO-9001 CERTIFICATION
The Company is currently endeavoring to upgrade its own manufacturing and
assembly facilities and procedures to meet the quality management and assurance
standards of ISO-9001, propounded by an international rating agency. These
standards have been adopted by the European Economic Community as their
preferred quality standards and, to some degree, by the U.S. Department of
Defense. As far as its compliance with ISO-9001 is concerned, the Company
envisages a 5 step process: (A) training and selection of a steering committee;
(B) review of existing quality procedures and developing better procedures and
statements of general goals; (C) preparation of specific written quality
procedures; (D) implementation and testing of such procedures; (E) formal audit
by an ISO-9001 certified auditor to determine if the Company's new or modified
procedures are sufficient and official issuance of ISO-9001 certification. Each
phase of this five-step process takes approximately six months. PCS has
completed the first two stages and is currently involved in meeting its goals
for phase three. It is estimated that within 18 months the Company should obtain
ISO-9001 certification although there can be no assurance of such. Any failure
or significant delay on the part of the Company in complying with such standards
could materially and adversely affect its direct and indirect sales to the U.S.
military as well as to certain foreign customers and prevent its expansion in
such markets. See 'BUSINESS -- SUPPLY AND MANUFACTURING'.
GOVERNMENT REGULATION AND CONTRACTS
Commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special risks such as dependence on government appropriations, termination
without cause, contract renegotiation and competition for the available
Department of Defense ('DoD') business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS. See 'RISK
FACTOR -- COMPETITION' and 'BUSINESS -- GOVERNMENT REGULATION AND CONTRACTS' and
'COMPETITION'.
DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is also substantially dependent on a relatively
small number of customers and DoD programs. In the fiscal year ended September
30, 1995, the Company's five largest customers in terms of sales, Raytheon
Company (47%), Lockheed Martin Corporation (29%), STN Atlas Electronics (13%),
TransPacific Technologies (3%) and Nichols Research (2%), accounted for an
aggregate of 90% of total PCS's sales. The loss of Raytheon or Lockheed Martin
as a customer could have a material adverse effect on PCS's results of
operations or financial condition. In fiscal year 1994, the Company's five
largest customers accounted for an aggregate of 89% of its total sales with the
largest customer in such year representing approximately 55% of total PCS's
sales. See 'BUSINESS -- CUSTOMERS'. Effective on May 15, 1995, two of its
largest customers, Lockheed and Martin Marietta merged. The Company is unable at
this early stage to predict what impact, if any, such merger will have on its
business or sales.
As of April 30, 1996, the Company's backlog was $6,100,679, 90% of which
was represented by large orders from three customers, namely -- Lockheed Martin
Corporation (57%), STN Atlas Electronics (23%) and Texas Instruments (10%). The
remaining 10% of such backlog represents orders from approximately 16 other
customers. The loss or diminution of orders from any large customer or group of
customers could have a substantial adverse effect on PCS's business and
prospects. See 'BUSINESS -- BACKLOG'.
TECHNOLOGICAL OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTABILITY
The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. PCS's business requires substantial ongoing
research and development efforts and expenditures, and its future success
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will depend in large measure on its ability to enhance its current products and
develop and introduce new products that keep pace with technological
developments in response to evolving customer requirements. The Company's
failure to anticipate or respond adequately to technological developments and
changing customer requirements or the occurrence of significant delays in new
product development or introduction or the technological failures of its
products or the systems in which they are incorporated, could result in a
material loss of anticipated future revenues and seriously impair PCS's
competitiveness.
In addition, PCS may misgauge market needs and introduce products that fail
to gain the necessary market acceptability due to a variety of factors,
including pricing. Hence, it is also uncertain whether new products or
enhancements of existing products can be successfully marketed and sold by the
Company. See 'BUSINESS -- NEW PRODUCTS, MARKETING AND SALES AND RESEARCH AND
DEVELOPMENT ACTIVITIES'.
RISKS OF FOREIGN SALES
For the six months ended March 31, 1996 and 1995 and the fiscal years ended
September 30, 1995 and 1994, the Company derived approximately 22%, 7%, 19% and
9% of its total sales, respectively, from foreign markets. PCS expects that
foreign sales will continue to represent a significant portion of its future
revenue. Foreign sales are subject to numerous risks, including political and
economic instability in foreign markets, restrictive trade policies of foreign
governments, inconsistent product regulation by foreign agencies or governments,
currency valuation variations, exchange control problems, the imposition of
product tariffs and the burdens of complying with a wide variety of
international and U.S. export laws and differing regulatory requirements. To
date, the Company's foreign sales have been transacted in U.S. dollars and
payments have generally been supported by letters of credit. To the extent,
however, that any future foreign sales are transacted in a foreign currency or
not supported by letters of credit, PCS would also be subject to possible losses
due to foreign currency fluctuations and difficulties associated with collection
of accounts receivable abroad. See 'BUSINESS -- MARKETING AND SALES' and
'GOVERNMENT REGULATIONS AND CONTRACTS'.
SEASONALITY, COST OVERRUNS AND LONG SALES CYCLE
Because so much of its sales are related to the U.S. military and
government procurement, the Company's business is greatly influenced by the
timing of such purchases. Many U.S. military and government purchasing decisions
tend to be effectuated in the last portion of the Federal Government's fiscal
year. As a consequence, a gradual increase of the Company's sales develops
during its first three quarters, but most sales actually occur in its fourth
quarter ending September 30th each year to correspond with such government
purchase decisions. This unevenness in sales generation and development can
exert significant pressure on Management's capabilities and the Company's
resources. At times, PCS has experienced strains on, and shortages of, working
capital resulting from such seasonality.
For the most part, the Company enters into the equivalent of fixed price
contracts with its customers for the sales of its computer products and
engineering services. In the event that PCS has not properly estimated the costs
in advance of such sales or undergoes unforeseen difficulties in developing or
producing the products or services, its costs may exceed the prices previously
agreed upon or may be so great as to narrow significantly its expected
profit-margins. Although the Company has not historically experienced cost
overruns, such cost overruns may in the future have a material adverse impact on
the Company's business and its profitability.
On the military side of its business, the Company often experiences a
lengthy sales cycle that, from beginning to end, may run for as many as five (5)
years in some cases. There are generally a number of crucial points in this
cycle, including the identification of a product need in a military program, the
retention of the prime contractor, retention of subcontractors for each element,
assembly of elements for prototype systems, testing of such systems, funding for
production runs of the systems and execution of the production contracts for the
prime contractor and the sub-contractors. Not only does this cycle take a long
time, but it is also susceptible to failure at each crucial point.
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Consequently, the Company can and does invest heavily in time, money and
manpower to obtain subcontracts for military production runs on its products. In
the final analysis, such investment may yield no business at all or may take so
long to develop that PCS's resources are strained or other more profitable
opportunities are missed. See 'BUSINESS -- INDUSTRY BACKGROUND, MARKETING AND
SALES' and 'GOVERNMENT REGULATIONS AND CONTRACTS'.
COMPETITION
The Company competes in the rugged portable computer business with a wide
variety of computer manufacturers and repackagers, many of which are larger,
better known and have more resources in finance, technology, manufacturing and
marketing. PCS competes on the basis of customization capabilities, price,
performance, delivery and quality. In many situations, the Company is the
highest-priced bidder by a wide margin.
Because a large portion of PCS's business is military-related, a
procurement procedure for militarized computers, namely -- Indefinite Delivery,
Indefinite Quantity ('IDIQ') contracts, could have a material adverse impact on
the Company. IDIQ represents large bulk purchasing of commercial and militarized
computers. With only a small portion of computers purchased being militarized,
these large umbrella contracts offer the U.S. government the lowest prices, but
usually each reaches hundreds of millions of dollars. As a result, only large
companies can afford to bid on these contracts, and smaller companies, like PCS,
can be easily locked out of the process unless they have formed strategic
alliances with a larger successful company or other means to avoid the impact of
IDIQ's are found. Fortunately, for the last five (5) years, the Company has made
military sales of its computers because they fall into product categories not
currently covered by IDIQ requirements. See 'BUSINESS -- GOVERNMENT REGULATION
AND CONTRACTS AND COMPETITION'.
DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL
The Company is highly dependent on the services of Richard P. McNeight, its
President and Chief Operating Officer, and William R. Craven, its Vice President
of Marketing. The Company has entered into a three-year employment contract with
each of them effective through December 31, 1997. The Company has also obtained
'key-man' term insurance in the amount of $1,500,000 on the lives of each of
them. The loss of their services to the Company could materially and adversely
affect its business and operations. See 'MANAGEMENT'.
In recent years, as PCS's business has improved and Messrs. McNeight and
Craven have assumed more management responsibilities, Krishan K. Joshi, its
Chairman and Chief Executive Officer, has spent considerably less of his time
managing the Company's affairs. Management believes that his diminished role has
not had, nor will it have in the future, any adverse effects on the Company's
operations or financial condition. At present, PCS has no plans to appoint a
full-time Chief Executive Officer in the near future.
Competition for qualified employees is intense, and the loss of any such
person or the inability to locate, attract, retain and motivate qualified
personnel required for the expansion of PCS's activities could materially and
adversely affect its business and operations. There can be no assurance that it
will be successful in this regard or, if successful, that the services of such
personnel can be secured on terms deemed favorable to it. See
'BUSINESS -- EMPLOYEES'.
RELIANCE ON SUB-CONTRACTORS AND SUPPLIERS
The Company subcontracts the fabrication of its computer boards to a few
third party manufacturers. It purchases the metal cases, hard disk drives,
brackets, window panels and the keyboards for its portable computers from sole
sources such as Distec, Xcel and HiTech. PCS also licenses its software from
sole sources, including MicroSoft, Phoenix Technology, Magnavox and JFK
Associates. Many of its other components are furnished by outside suppliers.
Except for its software suppliers, it does not have written agreements with any
of these subcontractors or suppliers. This reliance on a few subcontractors,
sole sources and other suppliers can, and has, resulted in some delays in
deliveries as well as several quality control and production problems. Moreover,
the discontinuation
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of a necessary component by a subcontractor or supplier can also be a
significant negative development for the Company. In addition, interference,
suspension or termination of such fabrication or supply sources will cause
greater delays due to the difficulties and time required to find suitable
replacements or substitute sources and may have a material adverse impact on the
Company's business. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
POSSIBLE PRODUCT LIABILITY
The risk that the Company's products may malfunction and cause loss of, or
error in, data, loss of man hours, damage to, or destruction of, equipment or
delays is significant. Consequently, PCS, as a manufacturer of such computers,
may be subject to claims if such malfunctions or breakdowns occur. The Company
is not aware of any past or present claims against it. While PCS presently
maintains product liability insurance of $1,000,000, it cannot be certain that
such coverage will be adequate to satisfy future claims, if any.
POSSIBLE NEED FOR ADDITIONAL FINANCING
It is conceivable that the developments in the Company's business may
require additional funds beyond the net proceeds to be derived from this
Offering during the next several years. The Company expects to generate some of
these funds through its business, bank loans and other sources. There is no
assurance that if such additional funds are necessary, PCS can obtain them on
any basis or on terms deemed favorable to it. See 'USE OF PROCEEDS',
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS; BENEFIT TO INSIDERS
Although the Company intends to apply the net proceeds of this Offering in
the manner described under the caption 'Use of Proceeds' (which includes an
allocation of $710,000 (17.75%) of the estimated net proceeds of this Offering
to working capital and general corporate purposes), it has broad discretion
within such proposed uses as to the precise allocation of the net proceeds, the
timing of expenditures and all other aspects of the use thereof. The Company
reserves the right to reallocate the net proceeds of this Offering among the
various categories set forth under 'Use of Proceeds' as it, in its sole
discretion, deems necessary or advisable. Moreover, upon successful completion
of this Offering, the guarantees of the Company's obligations to its bank by
Krishan K. Joshi, the Company's Chairman, and UES, Inc., a company which
presently indirectly owns 48.7% of PCS's outstanding Common Stock that Mr. Joshi
also controls ('UES'), will be terminated. Accordingly, Mr. Joshi and UES may be
deemed to benefit from the elimination of such guarantees. In addition,
approximately $802,000 (20.05%) of the net proceeds of this Offering will be
used to repay loans made by UES Florida, Inc. (a subsidiary of UES) ('UES
Florida'), Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing and approximately $88,000 (2.20%) of
the net proceeds of this Offering will be used to reimburse UES for certain
health insurance and other expenses paid by UES on the Company's behalf. See
'USE OF PROCEEDS' and 'CERTAIN TRANSACTIONS'.
CONCENTRATION OF OWNERSHIP
Upon completion of this Offering, present stockholders of the Company will
beneficially own approximately 61.5% of the Company's voting shares. In
addition, upon consummation of this Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing, will beneficially own approximately
29.8%, 11.4% and 6.2%, respectively, of the outstanding shares of Common Stock
of the Company. Although such stockholders will not hold, following this
Offering, a majority of the voting securities of the Company, their significant
beneficial holdings enable them to exercise substantial influence over the
Company. See 'PRINCIPAL STOCKHOLDERS'.
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NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY
The Company has no patent or copyright protection on its products. Its
ability to compete effectively with other companies will depend, in part, on its
ability to maintain the proprietary nature of its technologies. PCS intends to
rely substantially on unpatented proprietary information and know-how, and there
can be no assurance that others will not develop such information and know-how
independently or otherwise obtain access to its technology. Also, it is not
certain that the Company's proprietary technology will not infringe patents or
other rights owned by others, and that as a result it may not be in a position
to license such technology at a reasonable cost. See 'BUSINESS -- INTELLECTUAL
PROPERTY'.
LACK OF DIVIDENDS AND DILUTION
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. See
'DIVIDEND POLICY' and 'DESCRIPTION OF SECURITIES'. Upon completion of this
Offering, the net tangible book value per share of the Common Stock of the
Company will be substantially lower than the price paid for the shares of Common
Stock by the public investors pursuant to this Offering. Consequently, there
will be an immediate and substantial dilution of $2.89 or 58% to the investors
purchasing these securities. See 'DILUTION'.
NO PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public market for the Common
Stock or Warrants. Accordingly, there can be no assurance that an active trading
market will develop and be sustained upon the completion of this Offering or
that the market prices of such securities will not decline below the initial
public offering prices. The initial public offering prices of such securities
have been determined by negotiations between the Company and the Underwriter.
See 'UNDERWRITING' for a discussion of the factors to be considered in
determining the initial public offering prices. The stock market has, from time
to time, experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Regulatory
developments and economic and other external factors, as well as
period-to-period fluctuations in financial results, may also have a significant
impact on the market price of such securities.
UNDERWRITER'S WARRANTS
The Company has agreed to sell the Underwriter's Warrants to the
Underwriter for an aggregate price of $10.00 for the 100,000 shares of Common
Stock and Warrants to purchase 140,000 shares of Common Stock covered by the
Underwriter's Warrants. The Underwriter's Warrants entitle the Underwriter to
purchase such securities in an amount equal to 10% of the total number of Common
Stock and Warrants sold in this Offering (excluding the Underwriter's
over-allotment option). The Underwriter's Warrants will be exercisable for a
four-year period commencing one year after the effective date of the
Registration Statement, of which this Prospectus is a part, at exercise prices
equal to 140% of the initial public offering prices set forth on the cover page
of this Prospectus.
For the life of the Underwriter's Warrants the holders thereof are given
the opportunity to profit from a rise in the market price of the Common Stock or
Warrants, which may result in a dilution of the interests of other stockholders.
As a result, the Company may find it more difficult to raise additional equity
capital if it should be needed for its business while the Underwriter's Warrants
are outstanding. See 'UNDERWRITING'.
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only two public offerings. Accordingly,
there can be no assurance that the Underwriter's limited public offering
experience will not affect the Company's offering of the Common Stock and
Warrants and subsequent development of a trading market, if any.
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UNDERWRITER'S INFLUENCE ON THE MARKET
A significant number of shares of Common Stock and Warrants offered hereby
may be sold to customers of the Underwriter. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriter. Although it has no obligation to do so, the Underwriter
intends to engage in market-making activities or solicited brokerage activities
with respect to the purchase or sale of Common Stock or Warrants in the Nasdaq
National Market or other over-the-counter market where such securities will
trade. However, no assurance can be given that the Underwriter will continue to
participate as a market maker in the securities of the Company or that other
broker/dealers will make a market in such securities. The Underwriter has the
right to act as the Company's exclusive agent in connection with certain future
solicitations of holders of the Warrants to exercise their Warrants. Unless
granted an exemption by the Securities and Exchange Commission from Rule 10b-6
under the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the period prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrant based upon a prior
solicitation until the later of the termination of such solicitation activity or
the termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market for the Company's securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Company's securities.
QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET VOLATILITY
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the computer and defense industries have in the
past been, and can in the future be expected to be, especially volatile. Various
factors and events, including future announcements of new product and service
offerings by the Company or its competitors, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market prices of the Company's securities.
Prior to this Offering, there has been no established public trading market
for the Company's securities and there is no assurance that a public trading
market for the Company's securities will develop after the completion of this
Offering. If a trading market does in fact develop for the securities offered
hereby, there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market upon the effective date of this Offering. The Commission
has approved rules imposing criteria for listing of securities on the Nasdaq
National Market, including standards for maintenance of such listing. In order
to qualify for initial quotation of securities on the Nasdaq National Market, a
company, among other things, must have at least $4,000,000 in net tangible
assets, $3,000,000 in market value of the public float and a minimum bid price
of $5.00 per share. For continued listing, a company, among other things, must
have $1,000,000 in net tangible assets, $1,000,000 in market value of securities
in the public float and a minimum bid price of $1.00 per share. If the Company
is unable to satisfy the Nasdaq National Market's maintenance criteria in the
future, its securities may be delisted from the Nasdaq National Market. In such
event, the Company would seek to list its securities on the Nasdaq Small
Capitalization Market. However, if it was unsuccessful, trading, if any, in the
Company's securities would thereafter be conducted in the over-the-counter
market in the so-called 'pink sheets' or the NASD's 'Electronic Bulletin Board'.
As a consequence of such delisting, an investor would likely find it more
difficult to dispose of, or to obtain quotations as to, the price of the
Company's securities.
PENNY STOCK REGULATION
In the event that the Company is unable to satisfy the maintenance
requirements for the Nasdaq National Market and its Common Stock falls below the
minimum bid price of $5.00 per share for the initial quotation, the Company
would seek to list its securities on the Nasdaq Small Capitalization Market. If
it was unsuccessful, trading would be conducted on the 'pink sheets' or the
NASD's
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'Electronic Bulletin Board'. In the absence of the Common Stock being quoted on
Nasdaq, or the Company's having $2,000,000 in stockholders' equity, trading in
the Common Stock would be covered by Rule 15g-9 promulgated under the Exchange
Act, for non-Nasdaq and non-exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of the purchasers in this Offering, to sell their securities in
the secondary market. There is no assurance that trading in the Company's
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
The Warrants are being registered pursuant to a Registration Statement
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of which this Prospectus is a part, and after its
effectiveness the Warrants may be traded, and upon exercise, their underlying
shares of Common Stock may be sold, in the public market that may develop for
the securities for approximately one year thereafter.
However, unless such Registration Statement is kept current by the Company
and measures to qualify or keep qualified such securities in certain states are
taken, investors purchasing the Warrants in this Offering, although immediately
exercisable, will not be able to exercise the Warrants or sell its underlying
shares of Common Stock issuable upon exercise of the Warrants in the public
market. The Company has agreed to use its best efforts to qualify and maintain a
current registration statement covering such shares of Common Stock during the
term of the Warrants. There can be no assurance, however, that PCS will be able
to maintain a current registration statement or to effect appropriate
qualifications under applicable state securities laws, the failure of which may
result in the exercise of the Warrants and the resale or other disposition of
Common Stock issued, upon such exercise, being unlawful. See 'DESCRIPTION OF
SECURITIES -- WARRANTS'.
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock of the Company may be issued by the Board of
Directors, without stockholder approval, on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. For a period of two years from the date of this
Prospectus, the issuance of Common Stock or any warrants, options or other
rights to purchase Common Stock is subject to the Underwriter's prior consent,
which may not be unreasonably withheld. Accordingly, such restriction limits the
ability of the Company to issue shares of Preferred Stock which are, by their
terms, convertible into or exchangeable for shares of Common Stock. Although the
ability to issue Preferred Stock may provide flexibility in connection with
possible acquisitions and other corporate purposes, such issuance may make it
more difficult for a third party to acquire, or may discourage a third party
from acquiring, a majority of the voting stock of the Company. This result could
prevent an increase in the market price of PCS's Common Stock or cause a decline
in such price. PCS has no current plans to issue any shares of its Preferred
Stock. See 'DESCRIPTION OF SECURITIES -- PREFERRED STOCK'.
14
<PAGE>
<PAGE>
POSSIBLE CONTINGENT LIABILITY
In connection with a bridge financing involving certain private investors,
the Company may be deemed to have incurred a technical violation of Section 5 of
the Securities Act of 1933, as amended. Accordingly, there may be a contingent
liability associated with such matter. However, Management believes that there
was no such violation, and the possibility of such related liability is remote.
See 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING' and FOOTNOTE 8 to FINANCIAL
STATEMENTS. See also 'BUSINESS -- LEGAL PROCEEDINGS' for information relating to
a lawsuit filed against the Company by its former counsel.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following this Offering could adversely affect the market price of such
shares. Upon the consummation of this Offering, the Company will have 2,500,000
shares of Common Stock outstanding, of which the 1,000,000 shares of Common
Stock offered hereby by the Company and, subject to certain contractual
restrictions with the Underwriter described below, the 360,355 shares of Common
Stock offered by the Selling Security Holders, will be freely tradeable
without restriction or further registration under the Securities Act. All of the
remaining 1,139,645 shares of Common Stock outstanding are 'restricted
securities,' as that term is defined under Rule 144 promulgated under the
Securities Act, and in the future may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 (including, without limitation, certain volume limitations and
holding period requirements thereof) or pursuant to another exemption under the
Securities Act. In addition, the Company's directors, officers and
securityholders (including the Selling Security Holders) beneficially owning
over 99% of the 1,500,000 shares of Common Stock outstanding as of the date of
this Prospectus have agreed not to dispose of their shares, subject to certain
exceptions, for a period of eighteen months from the date of this Prospectus,
without the prior written consent of the Underwriter. See 'UNDERWRITING'.
THE COMPANY
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') is a
manufacturer of rugged, portable computers and communication interfaces utilized
in outdoor settings. PCS also offers extensive customization services to modify
its standard products to the specific needs of the end-users. The Company's
laptop and hand-held processors are designed and built to function in adverse
environments under harsh weather, climate and operational conditions. Insulated
from temperature extremes, flying debris, shock, vibration, moisture and
humidity, its products have a reputation for high-level performance and
reliability in difficult circumstances.
The Company's products are sold to the U.S. and foreign military
establishments, other government agencies and commercial enterprises. In the
military setting, PCS's products control weapon systems and radar units, test,
diagnose and maintain equipment, train personnel and communicate with other
systems. For government and commercial markets, the Company's portable computers
gather, record, store and process an array of data involving a wide variety of
applications. The customers of PCS entail, among others, the Armed Services of
the U.S. government and various foreign governments, major aerospace companies
and prime military contractors, governmental agencies in environmental, forestry
and transportation areas, public utilities, railroads, timber and logging
companies, and surveying and engineering firms. The Company sells and markets
its products through a small internal sales force, sale representatives in the
U.S. and distributors abroad. See 'BUSINESS -- PRODUCTS, MARKETING AND SALES,
AND CUSTOMERS'.
The Company was organized as a corporation under the laws of the State of
Florida on June 25, 1982. Its principal executive offices are located at 780
South Apollo Boulevard, Atrium One, Melbourne, FL 32901. Its telephone number is
(407) 727-3672.
15
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was
$894,209 or $.60 per share. Net tangible book value is determined by dividing
the tangible net worth of the Company, consisting of tangible assets (total
assets exclusive of capitalized public offering expenses) less total
liabilities, by the number of shares of Common Stock outstanding at March 31,
1996. After giving effect to the sale by the Company of the Common Stock and
Warrants at the initial public offering prices and the receipt of the net
proceeds therefrom (after deduction of estimated public offering expenses and
underwriting discounts and commissions), the pro forma net tangible book value
of the Company at March 31, 1996, would have been $5,262,745 or $2.11 per share,
representing an immediate increase in net book value of $1.51 per share (253%)
to present shareholders and an immediate dilution of $2.89 per share (58%) to
public investors. 'Dilution' means the difference between the public offering
price and the pro forma net tangible book value per share after giving effect to
the Offering. The following table illustrates the dilution of a new investor's
equity as of March 31, 1996 giving effect to such recapitalization.
<TABLE>
<S> <C> <C>
Public offering price per share............................................................... $ 5.00
Net tangible book value per share before Offering................................ $ .60
Increase per share attributable to public investors(2)........................... $1.51
Pro Forma net tangible book value per share after Offering(2)................................. $ 2.11
------
Dilution to public investors.................................................................. $ 2.89
------
------
</TABLE>
The following table summarizes, as of March 31, 1996, the difference
between the existing stockholders and the public investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price per share:
<TABLE>
<CAPTION>
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 1,500,000 60% $1,104,207 18% $ .74
------
------
Public Investors.......................... 1,000,000 40 5,140,000(1) 82
--------- ------- ---------- -------
Total(2)............................. 2,500,000 100% $6,244,207 100%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
- ------------
(1) Public offering price, before deduction of public offering expenses.
(2) Does not take into account: (i) the issuance of up to 240,000 shares of
Common Stock upon the exercise of the Underwriter's Warrants and the
Warrants included therein; (ii) the issuance of up to 360,000 shares of
Common Stock upon the exercise of the Underwriter's over-allotment option
and the Warrants included therein; (iii) 485,000 shares of Common Stock
reserved for issuance under the Incentive Plan and 15,000 shares reserved
for issuance under the Directors' Plan; (iv) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan; (v) the
issuance of up to 160,000 shares of Common Stock upon exercise of the Bridge
Warrants; and (vi) the issuance of up to 1,400,000 shares of Common Stock
upon exercise of the Warrants sold hereby. See 'MANAGEMENT -- INCENTIVE
STOCK OPTION PLAN', ' -- NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN',
'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING,' and 'UNDERWRITING'.
16
<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and
Warrants offered hereby, after deducting underwriting discounts and commissions
and other expenses of this Offering, are estimated to be approximately
$4,000,000 (without giving effect to any exercise of the Underwriter's
over-allotment option). See 'BUSINESS -- LEGAL PROCEEDINGS'. The Company
currently intends to utilize the net proceeds of this Offering substantially as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF
APPLICATIONS AMOUNT(1) TOTAL
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Increased research and development and engineering for improvement of
existing products and development of new products and applications....... $1,000,000 25.00%
Repayment of indebtedness to stockholders(2)............................... 802,000 20.05
Expansion of domestic and international marketing activities, including
hiring additional personnel, increased advertising and trade shows....... 500,000 12.50
Purchase/leasing of new office and production equipment and information
management system........................................................ 500,000 12.50
Repayment of promissory notes to investors(3).............................. 400,000 10.00
Repayment of intercompany balances(4)...................................... 88,000 2.20
Working capital and general corporate purposes............................. 710,000 17.75
----------- -----------
Total................................................................. $4,000,000 100.0%
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) In the event that the Underwriter's over-allotment option is exercised, the
Company will realize additional net proceeds, which will be used for working
capital and general corporate purposes.
(2) Approximately $802,000 of the net proceeds will be used to repay promissory
notes in favor of UES Florida (a subsidiary of UES, of which Krishan K.
Joshi, the Company's Chairman, owns 58% of the shares of its common stock),
Richard P. McNeight, the Company's President, William R. Craven, the
Company's Vice President of Marketing, and another shareholder. Interest on
said notes accrues at the annual rate of 6%. The proceeds from such notes
were used by the Company for working capital and general corporate purposes.
See 'CERTAIN TRANSACTIONS'.
(3) Approximately $400,000 of the net proceeds will be used to pay promissory
notes issued in August 1995 to finance working capital needs. Interest on
said notes accrues at the annual rate of 6%. The promissory notes will be
repaid no later than September 1996 . The proceeds from such notes were
used by the Company for working capital and general corporate purposes.
See 'CERTAIN TRANSACTIONS'.
(4) Approximately $88,000 of the net proceeds will be used to reimburse UES,
which presently indirectly owns 48.7% of PCS's Common Stock and which
Krishan K. Joshi, the Company's Chairman, controls, for certain health
insurance and other expenses paid on the Company's behalf.
------------------------
The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements; any excess will be added
to working capital and any shortage will be deducted from working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in PCS's business. The Company may re-allocate such amounts from
time to time among the categories shown above or to new categories if it
believes such to be in its best interest because of the necessity to expand the
business due to increases in sales volume or changes in the competitive
environment. Pending full utilization of the net proceeds of this Offering, the
Company intends to reduce a portion of the indebtedness that the Company expects
to be outstanding upon completion of this Offering under its secured line of
credit agreement with National City Bank in Dayton, Ohio (resulting in increased
availability under the line of credit agreement for working capital needs and
general corporate purposes) and/or make temporary investments in short-term,
high-grade interest-bearing investments. PCS believes that the net proceeds from
this Offering, estimated working capital from operations and other sources of
funds will be adequate to sustain operations for at least a 24-month period
after this Offering, and it is anticipated that such proceeds will be expended
over the first 18 months after this Offering. See 'CAPITALIZATION' and
'BUSINESS -- SUPPLY AND MANUFACTURING AND SALES AND MARKETING' and 'RESEARCH AND
DEVELOPMENT ACTIVITIES'.
DIVIDEND POLICY
The Company has not paid any dividends on its shares of Common Stock and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, it does not anticipate the payment of
cash dividends in the foreseeable future. However, the payment of dividends, if
any, rests within the discretion of the Board of Directors and will depend upon,
among other things, the Company's earnings, its capital requirements and its
overall financial condition. See 'DESCRIPTION OF SECURITIES'.
17
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and the pro forma capitalization at March 31, 1996 giving effect to an
April 1996 loan of $802,294 to the Company by certain of its shareholders and
such pro forma capitalization adjusted for the issuance and sale of the
securities offered hereby and the repayment of certain indebtedness.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Indebtedness(1):
Short-Term Debt, including current portion of long-term debt and
capital lease obligation....................................... $4,347,283 $5,149,577 $ 3,947,283
---------- ---------- -----------
Long-Term Debt and capital lease obligation...................... 219,804 219,804 219,804
Stockholders' Equity(2)(3):
Preferred Stock, par value $.01 per share; 2,000,000 shares
authorized; none issued........................................ -- -- --
Common Stock, par value $.045 per share; 10,000,000 shares
authorized; 1,500,000 shares issued and outstanding at March 31
1996; 2,500,000 shares issued and outstanding as adjusted for
this Offering.................................................. 67,500 67,500 112,500
Capital in Excess of Par Value................................... 761,265 761,265 4,716,265
Retained Earnings................................................ 530,230 530,230 530,230
---------- ---------- -----------
Total Stockholders' Equity.................................. 1,358,995 1,358,995 5,358,995
---------- ---------- -----------
Total Capitalization........................................ $5,926,082 $6,728,376 $ 9,526,082
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------
(1) Includes $3,775,000 at March 31, 1996 of indebtedness owed to National City
Bank, Dayton, Ohio ('Bank'), under the Company's $4,000,000 secured credit
arrangement with the Bank, which is payable on demand. A portion of the
borrowings under such arrangement may be repaid from the proceeds of this
Offering. The balance is anticipated to be repaid periodically as proceeds
from the collection of its accounts receivable are received. Such
indebtedness is secured by a lien on accounts receivable, inventory and
equipment, and is guaranteed by UES and Mr. Joshi, the Company's Chairman.
Interest is charged at the Bank's prime rate plus 1/2% for secured
borrowings and the prime rate plus 1% for undersecured borrowings. After
this Offering is completed, the guarantees will be eliminated. See 'USE OF
PROCEEDS', 'RISK FACTORS -- MANAGEMENT'S BROAD DISCRETION IN USE OF
PROCEEDS; BENEFIT TO INSIDERS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS', 'BUSINESS -- PROPERTIES AND
FACILITIES', 'CERTAIN TRANSACTIONS' and Notes 7, 8, 9 and 10 of Notes to
Financial Statements for information with respect to the Company's lease
obligations and indebtedness, including bank indebtedness.
(2) Does not include (i) up to 360,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option and the Warrants
included therein; (ii) 485,000 shares of Common Stock reserved for issuance
under the Incentive Plan and 15,000 shares reserved for issuance under the
Directors' Plan; (iii) 85,945 shares of Common Stock reserved for issuance
under a non-qualified stock option plan which has been terminated; (iv) up
to 240,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the Warrants included therein; (v) up to 160,000
shares of Common Stock issuable upon exercise of the Bridge Warrants; and
(vi) 1,400,000 shares of Common Stock issuable upon exercise of the
Warrants. See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN', ' -- NONEMPLOYEE
DIRECTORS' STOCK OPTION PLAN' and 'DESCRIPTION OF SECURITIES -- BRIDGE
FINANCING'.
(3) Immediately prior to the date of this Prospectus, the Company's Articles of
Incorporation will be amended to increase its authorized shares of Common
Stock from 10,000,000 to 30,000,000 shares.
18
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which should
be read in conjunction with the Company's financial statements and related notes
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are included elsewhere in this Prospectus. The data
as of and for the years ended September 30, 1995 and 1994, has been derived from
the Company's financial statements which have been audited by KPMG Peat Marwick
LLP, independent accountants. The data as of and for the six months ended March
31, 1996 has been derived from the Company's unaudited interim financial
statements. In the opinion of Management, such interim financial data reflect
all adjustments necessary for a fair presentation of financial position, results
of operations and cash flows. Operating results for the six month period ended
March 31, 1996 are not necessarily indicative of the results that may be
attained for the entire fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Earnings Data:
Revenues........................................................ $1,724,882 $1,851,532 $8,652,553 $7,809,073
Cost of Revenues................................................ 1,131,911 1,085,801 4,680,661 4,414,745
---------- ---------- ---------- ----------
Gross Profit............................................... 592,971 765,731 3,971,892 3,394,328
Selling and administrative expense.............................. 1,408,657 1,115,007 2,668,320 2,641,393
---------- ---------- ---------- ----------
Income (loss) from operations.............................. (815,686) (349,276) 1,303,572 752,935
Other income (expense):
Interest expense........................................... (222,202) (161,199) (392,589) (242,176)
Miscellaneous income (expense)............................. (1,356) 4,335 (50,711) (6,583)
Gain on sale of assets..................................... -- -- -- 17,215
---------- ---------- ---------- ----------
Income (loss) before income taxes..................... (1,039,244) (506,140) 860,272 521,391
Income tax expense (benefit)............................... (391,068) (202,100) 278,857 154,188
---------- ---------- ---------- ----------
Net income (loss)..................................... (648,176) (304,040) $ 581,415 $ 367,203
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings (loss) per share............................................ $ (.43) (.19) $ 0.39 $ 0.24
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Supplemental earnings (loss) per share(1)............................ (.37) (.17) .33 .24
Balance Sheet Data:
Cash and cash equivalents....................................... $ 3,573 $ 3,500 $ 211,426 $ 4,806
Working Capital................................................. 535,173 749,102 1,350,408 1,043,633
Total assets.................................................... 7,425,302 5,465,271 9,434,715 6,864,603
Long-term obligations, less current portion..................... 219,804 403,327 306,388 430,486
Total Stockholders' equity...................................... $1,358,995 $1,121,716 $1,992,171 $1,425,756
</TABLE>
- ------------
(1) Supplemental earnings (loss) per share has been computed by dividing net
income (loss) by the weighted average number of shares outstanding assuming
that the sale of 240,459 shares offered hereby had occurred at the beginning
of the applicable period and that the proceeds derived therefrom were used
to repay $400,000 in promissory notes issued in August 1995 and $802,294 in
promissory notes issued in April 1996.
19
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996 VS. SIX MONTHS ENDED MARCH 31, 1995
Revenues for the period were $1,724,882 in 1996 compared to $1,851,532 for
the same period in 1995, a decrease of $126,650 or 7%. This difference is not
expected to adversely impact the Company's total anticipated sales or
profitability for fiscal year 1996.
Gross profit was $592,971 for the period in 1996, or 34% of sales, compared
to $765,731 or 41% in 1995, a decrease of $172,760, or 23%. The change in gross
profit is primarily related to lower sales volume and lower production levels
during the 1996 period. However, annual gross profits are expected to be
consistent with that of prior years. Management believes the decrease in gross
profit during the 1996 period is not indicative of a general decrease in overall
profitability at PCS, but instead results primarily from the fact that the
Company experiences fluctuations in its operating results due to its long sales
cycle and the seasonality of its business. Because so much of the Company's
sales are related to U.S. military and government procurement, the Company's
business is greatly influenced by the timing of such purchases, with a gradual
increase in sales developing during its first three fiscal quarters and most
sales typically occurring in the fourth quarter ending September 30 of each
year. As a result of this unevenness in sales generation and development and the
variable nature of the timing of related costs of revenues incurred by the
Company, the gross profit for any of the first three fiscal quarters of a year,
taken individually or in the aggregate, is not necessarily indicative of annual
gross profit and accordingly period-to-period comparisons, other than on full
fiscal year basis, may not be meaningful.
Selling and administrative expenses were $1,408,657 in 1996 or 82% of
sales, compared to $1,115,007 or 60% in 1995, an increase of $293,650 or 22%.
The increase is partly related to an overall increase in personnel costs
associated with the requirements of the anticipated change in PCS's status to a
public company and differences in the timing of various expenditures throughout
the periods. A portion of selling and administrative expenses are commissions
which vary directly with sales volume. Commissions accrue at the time of sale
and are paid upon collection of the related accounts receivable. For the 1996
period, commissions were $152,613, or 8.8% of sales, which was $72,812 greater
than the prior period. Other significant increases include the increased
professional fees of $108,000 and increased insurance costs of $37,000. Selling
and administrative expenses are expected to continue their yearly pattern of
increasing in total, but decreasing as a percentage of sales, as more fully
discussed in the fiscal year comparison below.
Losses from operations increased to $815,686 in the six months ended March
31, 1996 from $349,276 in the same period for 1995 or 47% and 19% of sales,
respectively. This increase is due primarily to the decrease in sales and
increase in selling and administrative expenses described above.
Interest expense increased to $222,202 in the six months ended March 31,
1996 from $161,199 in the 1995 period, or 13% and 9% of sales, respectively, due
primarily to increased balances outstanding under the Company's credit
arrangements.
As a result, a net loss of $648,176 was recorded for the six months ended
March 31, 1996 compared to a $304,040 net loss in 1995, for the same period. As
a percentage of sales, net loss increased to 38% in the six months ended March
31, 1996 from 16% for the same period in 1995. This increase is due primarily to
the decrease in sales, increase in selling and administrative expenses and
increase in interest expense described above.
The operations of PCS have been cyclical, as noted above, and generally
result in a significant increase in deliveries and revenues in the fourth
quarter of each fiscal year as opposed to the first three quarters. The
Company's fourth quarter higher sales levels are due to the lead-time
requirements necessary to procure, manufacture and assemble the components for
fourth quarter deliveries. Accordingly, results of operations for any of the
first three fiscal quarters of the Company's fiscal year are not necessarily
indicative of results expected for the full year. See 'RISK FACTORS --
20
<PAGE>
<PAGE>
SEASONALITY, COST OVERRUNS AND LONG SALES CYCLE', 'BUSINESS -- INDUSTRY
BACKGROUND', ' -- MARKETING AND SALES' and ' -- GOVERNMENT REGULATIONS AND
CONTRACTS'.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 VS. SEPTEMBER 30, 1994
Revenues for fiscal 1995 were $8,652,553, an 11% increase over 1994 sales
of $7,809,073. This increase is primarily due to Paravant's entry into
full-scale production of its customized RLT-88 system for international delivery
in support of the Swiss government's laser-based anti-tank weapon simulator
system and the Company's first production deliveries for the U.S. Marine Corps
Avenger system upgrade.
Gross profit was $3,971,892 in 1995, or 46% of sales, compared to
$3,394,328 or 43% in 1994, an increase of $577,564 or 17%.
Selling and administrative expenses of $2,668,320 in 1995 did not increase
significantly from 1994 expenses of $2,641,393. As a percentage of sales,
selling and administrative expenses declined to 31% in 1995 from 34% in 1994.
This decline, which continued a trend from prior years, is a significant
contributor to increasing the Company's historical operating margins on an
annual basis.
Income from operations grew to $1,303,572 in 1995 from $752,935 in 1994, an
increase of 73%. As a percentage of sales, income from operations increased to
15% in 1995 from 10% in 1994. The increase in income from operations benefited
primarily from increased sales volume and gross margins and declining selling
and administrative expenses as a percentage of sales.
Expenses for interest grew by 62% to $392,589 in 1995 compared to $242,176
in 1994. As a percentage of sales, interest expense increased to 5% in 1995 from
3% in 1994. This reflects additional borrowings by the Company used to finance
higher levels of accounts receivable and inventory resulting in increased
revenues.
As a result, the Company's net income grew by 58% to $581,415 in 1995 when
compared to $367,203 in 1994. Net income as a percentage of sales was 7% in 1995
and 5% in 1994, which is consistent with historical relationships of 4% to 7%.
LIQUIDITY AND CAPITAL RESOURCES
With the net proceeds from this Offering, the Company intends, inter alia,
to make the following acquisitions of equipment at costs ranging from
approximately $150,000 to $200,000 for each category: (a) Management Information
Systems (MIS) with file server and local area network; (b) upgraded computer
workstations for administrative employees; and (c) upgraded computer
workstations for engineering personnel, computer-aided design structure (CAD)
and electronic test equipment. In general, such equipment should help the
Company achieve a higher level of employee productivity, lower costs, shorter
design cycles and quicker market entry for new products.
PCS anticipates investing approximately $1,000,000 in its ongoing research
and development activities. Since the Company is a technology-based company,
Management considers research and development of vital importance to its growth.
In the foreseeable future, the Company expects to concentrate such efforts on
new, low-cost, rugged notebook models. These smaller portable computers will
sell for approximately $10,000 per unit or less, as compared to almost $20,000
per unit for its rugged laptop models. This emphasis on the rugged notebook is
in direct response to a perceived customer need for higher performance,
lower-priced portable computers in the ruggedized category.
High-end rugged notebook models are to be designed for the military market
and will be sold through its existing distribution and sales network. Lower-end
rugged notebook products are targeted for the commercial and industrial markets.
Because the Company's marketing and distribution are weaker in these areas, it
intends to spend additional funds to gain exposure and capture market share. It
estimates that approximately $500,000 will be spent from the net proceeds of
this Offering on such marketing activities. In addition, Paravant intends to
actively pursue the medical markets, which will require additional sales and
marketing expenditures, including for personnel, literature and promotional
activities. See 'USE OF PROCEEDS'.
21
<PAGE>
<PAGE>
In the short term, continuation of profitable operations is not dependent
on such equipment acquisitions, expenditures on product development or
marketing. However, in the longer term, expenditures for such activities could
significantly impact the Company's profitability. PCS expects that current sales
levels will be maintained for the foreseeable future without any significant
increases in such expenditures.
The Company has a secured revolving credit arrangement with National City
Bank in Dayton, Ohio (the 'Bank') for a credit line of up to $4,000,000 that is
due on demand and bears interest at prime rate plus 1/2% for secured borrowings
and prime rate plus 1% for undersecured borrowings. All borrowings are
collateralized by accounts receivable, inventory and equipment. Such arrangement
is subject to a borrowing base formula involving certain accounts receivable and
inventory, and is guaranteed by Krishan K. Joshi, the Company's Chairman, and
UES, Inc., a company controlled by Mr. Joshi which indirectly owns 48.7% of
PCS's Common Stock. After this Offering is completed, such guarantees will be
eliminated. The Company intends to maintain this arrangement with the Bank for
the foreseeable future following consummation of this Offering, although there
can be no assurance that the Bank will not in the future demand repayment of all
amounts then outstanding under its loan arrangement. In March 1996, the Company
combined a $500,000 temporary demand line of credit and a $293,135 secured term
loan provided by the Bank with a $811,469 five year term loan, bearing interest
at a fixed annual rate of 8%, partially guaranteed by the U.S. Small Business
Administration, with all borrowings thereunder secured by a lien on accounts
receivable, inventory and equipment. As of March 31, 1996, there is
approximately $3,775,000 outstanding under the arrangements with the Bank. The
Company also has long term debt and capital lease obligations of approximately
$219,804 in total at March 31, 1996. These long term obligations bear interest
rates of 1.25% to 1.50% over the prime rate and are expected to be satisfied
within 5 years.
In August 1995, the Company borrowed $400,000 pursuant to bridge notes from
a group of private investors at an annual interest rate of 6%. In addition, the
Company sold to the same investors warrants to purchase 160,000 shares of Common
Stock. Such warrants are exercisable until , 2001 at an exercise
price of $6.00 per share. It is anticipated that the principal amount of the
notes will be satisfied from the net proceeds of this Offering no later than
September 1996. See 'DESCRIPTION OF SECURITIES -- Bridge Financing'.
PCS has, and continues to have, a dependence upon a few major customers for
a significant portion of its revenues. This dependence for revenues has not been
responsible for any unusual fluctuations in operating results in the past, and
Management does not believe this concentration will generate fluctuations in
operating results in the future. However, the potential impact of losing a major
customer without securing offsetting and equivalent orders could result in a
significant negative impact to the operating results of PSC. The gross margin
contributions of the Company's major customers are not generally different than
those from its other customers as a whole. See 'RISK FACTORS -- DEPENDENCE ON
MAJOR CUSTOMERS' and Note 17 of the Company's Financial Statements.
PCS's operating cash flow was negative $(374,668) for the six months ended
March 31, 1996. The Company's operating cash flow was negative $(506,389) in
fiscal 1995 and $(562,740) in fiscal 1994. These cash outflows were primarily
associated with general increases in inventory levels and temporary increases
associated with accounts receivable, all in support of the Company's rapid
increase in operations reflected by the growth in revenues from $4,621,527 in
fiscal 1993 to $8,652,553 in fiscal 1995, an increase of almost 87%. In
addition, the Company invested $54,568 for the six months ended March 31, 1996,
$60,350 in fiscal 1995 and $99,547 in fiscal 1994 to acquire manufacturing
equipment also in support of these expanded operating levels. In order to
sustain the operating and investing cash requirements of PCS, borrowings by the
Company, both under its revolving credit arrangements and the bridge notes
referred to above, have been increased by almost $1,277,000 since September 30,
1994. The net proceeds from this Offering will be used for the acquisition of
office and manufacturing equipment, research and development, working capital
and repayment of certain indebtedness. See 'USE OF PROCEEDS'.
Due to the Company's orders related to DoD procurements, the operations of
PCS have been cyclical and generally result in a significant increase in
deliveries and revenues in the fourth quarter of its fiscal year ending on
September 30. Accordingly, a significant increase in inventory occurs late in
the
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third quarter and continues through the fourth quarter of each fiscal year. This
increase in inventory is followed by a corresponding increase in accounts
receivable. Inventory and accounts receivable levels then return to lower levels
in the first and second quarter of the next fiscal year.
The table below reflects select quarterly financial data of the Company and
illustrates increased operation levels in the fourth quarter of its fiscal year.
Revenues in the fourth quarter of each fiscal year is significantly higher than
the first three quarters. Inventory balances are greatest in the third quarter
in support of the significantly increased deliveries related to the Company's
fourth quarter higher sales level due to the lead-time requirements necessary to
procure, manufacture, and assemble the components for fourth quarter deliveries.
As of March 31, 1996, Management believes inventory balances are not in excess
of requirements for deliveries and normal minimum stocking levels.
Generally, accounts receivable at the end of each quarter are collected
within the following quarter. However, it may be the case that the collection of
accounts receivable are delayed due to the delayed finalization of a prime
contractor's contract with the Government, which results in an extended
collection period for the Company. Notwithstanding this condition, the Company
has not been required to write off any significant bad debt in the past, and
Management does not believe that any significant accounts receivable at March
31, 1996 are likely to be uncollectible.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 FISCAL YEAR 1995 FISCAL YEAR 1994
------------------------ --------------------------------------------------- -------------------------
THREE THREE THREE THREE
MONTHS THREE MONTHS MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED MONTHS ENDED ENDED MONTHS ENDED ENDED
MARCH 31, DECEMBER 31, SEPTEMBER 30, ENDED JUNE MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1996 1995 1995 30, 1995 1995 1994 1994 1994
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $1,064,561 $ 660,321 $ 5,572,199 $1,228,822 $1,043,532 $ 808,000 $ 4,274,114 $1,946,618
Cost of revenues...... 825,732 306,179 3,310,650 519,192 559,023 291,796 2,490,010 838,895
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Gross profit.......... $ 238,829 $ 354,142 $ 2,261,549 $ 709,630 $ 484,509 $ 516,204 $ 1,784,104 $1,107,723
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Accounts Receivable... $2,192,109 $2,194,850 $ 5,295,106 $1,557,135 $1,230,558 $1,180,345 $ 3,387,336 $1,278,733
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
Inventory............. $3,495,742 $2,915,203 $ 2,411,834 $3,525,697 $2,706,165 $2,510,575 $ 2,213,309 $2,461,500
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
---------- ------------ ------------- ---------- ---------- ------------ ------------- ----------
<CAPTION>
FISCAL YEAR 1994
----------------
THREE
MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
Revenues.............. $1,184,654 $ 403,687
Cost of revenues...... 821,460 264,380
---------- ------------
Gross profit.......... $ 363,194 $ 139,307
---------- ------------
---------- ------------
Accounts Receivable... $1,227,766 $ 783,726
---------- ------------
---------- ------------
Inventory............. $1,792,159 $1,623,873
---------- ------------
---------- ------------
</TABLE>
This uneven cycle results in severe liquidity pressures during the periods
of increased inventory and accounts receivable balances which Management is
addressing by securing additional bank debt and equity funding through this
Offering.
As of April 30, 1996 and 1995, the Company's backlog was $6,100,679 and
$3,174,287, respectively, consisting of firm fixed price purchase orders. All of
these purchase orders are expected to generate profits within the Company's
historical levels and the Company believes that the completion of the orders
comprising its backlog should not result in additional liquidity pressures which
cannot be addressed in a manner consistent with the Company's past practices.
Management believes that post-offering liquidity will be sufficient to
operate on a short-term and long-term basis. As the Company continues to grow,
additional bank borrowings, other debt placements and equity offerings may be
considered, in part or in combination, as the situation warrants.
BUSINESS
GENERAL
The Company specializes in the development, production and sale of
ruggedized, portable computers with communication features for military,
government and commercial applications in harsh environments and difficult
operational situations. It generally provides its customers with both the
software and hardware elements of its laptop and hand-held processors. In
addition, it offers extensive engineering services to customize its products for
the special requirements of the mission, project or task concerned.
HISTORY
In early 1983, the Company commenced its business operations and only
offered engineering services for computer applications. In this initial period,
PCS modified computer hardware and other
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equipment and developed special software applications for its customers. It also
served as a value-added reseller for a Japanese manufacturer of portable
computers.
In the mid 1980's, the Company began developing its first rugged computer
under a special grant from the U.S. Department of Defense Small Business
Innovative Research Program. By 1987, it was producing its RHC-88 hand-held
computer and selling it to the U.S. Army and the Electric Utility Industry.
Afterwards, the Company designed and produced other computer-related products.
By late 1989, UES, Inc., under the control of Krishan K. Joshi, bought a
51% equity interest in the Company through its wholly owned subsidiary, UES
Florida, Inc. Previously, PCS and UES had worked together on a joint development
project. By mid 1990, four of its original five founders had left PCS's employ
and sold all their equity interest in it. Of this group, only Richard P.
McNeight, its President, remains.
For a while after the acquisition of control of PCS, UES and Mr. Joshi
played an active and substantial role in its day-to-day management and
operations. In the Fall of 1991, William R. Craven joined the Company and became
its Vice President of Marketing. Since that time, UES and Mr. Joshi have devoted
much less time and effort to the management of the Company's affairs. See
'MANAGEMENT'.
INDUSTRY BACKGROUND -- MILITARY MARKET
Traditionally, the U.S. Department of Defense ('DoD') has retained military
contractors to develop computer technology for specific missions that meet
extensive military specifications. This approach has often taken longer from
development through production and tends to be much more expensive than similar
technology available in the commercial sector. Unlike other scientific areas,
the rapid advances made in computer technology in the commercial market have
often exceeded and driven those developed specifically for the military.
Consequently, when the U.S. military has pursued the more costly and
time-consuming procurement procedures, its computers have still lagged behind
the comparable commercial technology in terms of capabilities.
Due to these factors, the U.S. Department of Defense began in the mid
1980's to shift from its over-dependence on computers meeting full military
specifications (Mil-Spec) to acquiring commercially available computers that
have been modified for environmental and operational realities of the military
applications in question. While the U.S. military still procures Mil-Spec
computers, this transition to the more commercially oriented systems has
resulted in its realization of the desired benefits and savings.
Given the dismantling of the former Soviet Union and related budgetary
considerations, there has been a concerted effort on the part of U.S. Congress
since 1990 to downsize the military. Over the same time frame, U.S. military
spending has gradually declined. The Company believes that either further
decreases or stabilized levels of spending will occur during the remaining
portion of this decade.
Such downward trend in overall defense spending has been a positive
development for sales to the U.S. military in recent years of less than full
Mil-Spec militarized computers in general and rugged computers specifically.
This is the case because such computers have produced cost savings and certain
operational benefits in meeting the military's need for computing capabilities.
In one sense, they have proven cheaper and, in some cases, better than the full
Mil-Spec computers. In another sense, they have extended the longevity of older
weapons and related systems while enhancing their technological capabilities. In
this manner, they have played a role in facilitating the upgrading or
retrofitting of existing weapons. Moreover, they have caused the dissemination
and utilization of computer technology throughout the military structure,
especially at the lower echelons. This has resulted in greater tactical usage of
such technology in the battlefield context.
Despite such benefits, certain negative implications in regard to the
market prospects for rugged computers may arise in the longer run as a
consequence of less overall military spending. In any event, lower military
spending may eventually serve as a constraint on the growth of sales of such
computers.
Only a portion of militarized computers consists of their ruggedized
versions. 'Ruggedization' or 'rugged' or 'ruggedized computers' are terms used
to describe computers that are built to withstand certain environmental and
operational hazards with which normal commercial computers functioning
24
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indoors would not typically have to contend. The ruggedization of the computer
is an attempt to protect or insulate it fully from such hazards or at least
minimize their adverse impact so that it functions to accomplish the task at
hand or complete the mission. From a strictly environmental point of view, these
hazards are usually weather-related or climatic in nature and encompass
temperature extremes ranging from -30 to +145 degrees Fahrenheit, severe
moisture and humidity conditions and the infiltration by flying or wind-borne
debris, such as sand, dust or other particles. These adverse circumstances occur
outdoors but more particularly in deserts, jungles, arctic regions or at sea.
In the operational area, the hazards involve strong vibrations and shocks
that result from rapid ascents and descents, rough handling, transportation and
explosions as well as electric interference or internal thermal conditions. In
the former situations, the signals emitted by other electronic equipment may
interfere with and distort the proper functioning of computers. Also, as more
and more computing power is inserted into small spaces and containers, the heat
generated by the computer itself may cause the processor to malfunction or fail.
In military settings these operational hazards are, in all likelihood, greater
than in normal outdoor applications.
Computers are ruggedized by the selection and mounting of certain
components, the design, configuration and fabrication of enclosures and
electronics and the application of special seals and coatings. Computer
components generally fall within three broad categories: Mil-Spec, industrial
and commercial. Mil-Spec components are at the far end of the continuum when it
comes to the degree of ruggedization. This category fulfills the highest
requirements for withstanding adverse factors. Mil-Spec and industrial parts for
computers tend to be of higher quality and composed of better materials than
commercial components. They are usually made on production lines using different
approaches than their commercial counterparts.
Consequently, components made for Mil-Spec and industrial usage tend to be
much more expensive than comparable commercial ones due to the raw materials and
methods employed in their manufacture. Mil-Spec components are even more costly
than similar industrial parts. In addition, because the production runs in
Mil-Spec and industrial applications rarely reach the volume levels of
commercial production, there are no or few economies of scale and concomitant
cost reductions that are achievable.
Commercial components are lower in price initially and tend to cost even
less over time due to economies of scale and production efficiencies. Such
components, however, offer little protection from the adverse effects of harsh
environmental or operational conditions. Cost and pricing differences between
commercial and industrial/Mil-Spec items for both electric and mechanical
components are extremely substantial and Industrial and Mil-Spec products may
cost from three to ten times more than commercial ones.
For most of its requirements, the U.S. Military takes the position that
Mil-Spec standards for computers are too expensive and excessive for the degree
of protection actually needed. Accordingly, if the equipment can survive and
operate satisfactorily under the same conditions that humans can, it will
usually be appropriate for its mission. Mil-Spec items are being gradually
phased out of military procurement programs.
The use of the newer surface mount technology ('SMT') to attach components
to the computer boards enhances its durability and ruggedness over the older
mounting technology. In SMT, the components are glued to the board by means of a
chemical adhesion process and are then soldered instead of being inserted into
holes in the board and soldered. SMT is a more precise manufacturing technique
and offers better insulation against vibration and shock. See
'BUSINESS -- SUPPLY AND MANUFACTURING'.
Parts' selections, board design and proper case and sealing materials can
reduce the ill-effects of electronic-magnetic interference ('EMI') from other
equipment and internal thermal generation. The design and fabrication of the
computer encasement and keyboard with tougher materials, full closure and
special sealants also protect it against moisture, humidity, particles and
temperature extremes.
Typically, the companies that market and sell ruggedized computers are
repackagers having little or no input in the design of their electronics and the
selection and mounting of components on printed circuit boards. They usually
purchase the computer boards and sub-assemblies in an 'as is' condition
25
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<PAGE>
from commercial manufacturers. The major contribution of the repackagers to the
protection of the computer is a tougher box in which the computer is housed.
Because it is usually air-breathing in nature, even this stronger covering fails
to shield the computer from the penetration of rain, snow, fog, dust or other
particles.
In contrast, the Company uses industrial-type or highly selected commercial
components for its computers rather than strictly ordinary commercial ones as do
many of its competitors. This selection allows it to provide better quality and
more rugged parts but at cheaper prices than full Mil-Spec which tend to be much
more costly. It also applies SMT to the fabrication of its computer boards. In
addition, PCS designs such boards, the computer's outer case, keyboards,
sub-assemblies and other elements in order to maximize the ruggedness of its
products, to furnish customization of electronics and software and to give the
customer greater control over configuration and components.
Militarized computers, including rugged computers, are available in many
different types, sizes and configurations. They may also bridge or overlap
product categories in certain instances. One category of such computer is a
dedicated system computer. This type of processor is installed and integrated
into specific command and control systems, weapons or other equipment.
Rack-mounted computers are an example of this type of computer. They are usually
an integral part of such equipment, are not easily detached from it and weigh in
excess of 30 lbs.
Another category involves transportable computers that are not fixed in
place and may be deployed in different applications. Typically, they are
stand-alone units and are characterized by desktop computers and workstations.
These computers weigh between 30 and 60 lbs. and require external power sources.
A third category of militarized computer is the portable computer, which
includes laptops and hand-helds, as well as the newer notebooks. Often carried
and used in the field, these computers are self-contained units that may be
employed in conjunction with other systems or on a stand-alone basis. They
usually operate on battery-power but may, in certain cases, be plugged into an
external power source. Such computers usually weigh less than 20 lbs.
A substantial portion of the market for militarized computers, including
rugged computers, covers the first two categories, namely -- dedicated systems
and transportable computers. The market for portables in the military area is
considerably smaller than either of the first two categories and only a portion
of that market is ruggedized.
In addition, many of the companies that sell these types of computers also
market computers from more than one category as well as standard computer
peripherals such as printers, mass storage devices, communication terminals and
displays. At present, the Company only sells portable computers and
communications interfaces; it does not provide a broad range of standard
computer peripherals. See 'BUSINESS -- COMPETITION'.
PRODUCTS
The Company currently offers its customers a line of rugged, portable
computers that includes two (2) types of hand-held processors and four (4) types
of laptops. In terms of performance, PCS's portables have the computing power
of, and are compatible with, IBM PC's and are designed with an open architecture
configuration for maximum flexibility. All its portable computers possess
substantial memory capabilities for their size. The Company's software is based
on MS-DOS operating systems.
All the Company's computers are battery-powered, contain back-up power
packs and have a longevity of 8 to 16 hours for its hand-held and 3 to 12 hours
for its laptops. However, its computers are also designed to be plugged into
either AC (alternating current) or DC (direct current), external power sources
in vehicles or other systems.
All PCS's computers have expansion capabilities with slots for additional
expansion boards and/or PCMCIA cards (credit card sized memory and interface
cards) and, for most of its laptops, optional removable hard drive and/or floppy
discs are also available. The monitor or display aspects of the Company's
computers offer high-resolution, monochrome LCD (Liquid Crystal Devices)
selected specifically for sunlight visibility and wide temperature ranges. The
standard display also features, as
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optional, a white back-light or secure back-light for use in low ambient light.
In laptops, color displays are offered if desired.
Like other elements of its computers, the Company's keyboards are arranged
for operational ease in hostile environments and under adverse conditions. In
its hand-held computers, the keyboard has tactile feedback keys and
alpha-numeric keypads designed with wide spacing for glove-hand use by non-
typists. As far as its laptops are concerned, the keyboards are either of the
membrane variety or standard, full-travel keyboards, both featuring the regular
QWERTY key arrangement, generally used by typists, word processors and computer
users. Each laptop has a sealed mouse that serves as a pointer to move the
cursor and select functions. Although such a standard keyboard has been
ruggedized to be relatively water and dust-proof, the membrane type offers even
greater impermeability. It may be drenched or hosed with water and still
function adequately. As an option, membrane keypads are also available with
back-lights for use in darkness or low-light circumstances.
In size, PCS's hand-held models are 9.4 and 10 by about 6.5 with
thicknesses varying from 1.5 to 2.6; they weigh either 2.7 lbs. or 4.5 lbs. In
contrast, its laptop range in size from 14 to 17 by 7.5 to 10.5 with thicknesses
varying from 4 to 7.25. Weights of its laptop run from 12 lbs. to 23 lbs.
The Company's computers are designed to meet and exceed certain military
specifications for operation in harsh environments and for insulation from EMI.
The reliability and performance of its products in extreme environmental and
operational situations relate directly to PCS's fundamental electrical and
mechanical designs, its specification and selection of proper components, its
manufacturing techniques and the extensive testing that it employs at various
phases.
Like many of its competitors, the Company's computers are available with
standard serial and parallel communications capabilities. These capabilities
allow PCS's computers to transmit and receive electronic signals and messages to
and from other electronic systems. Its standard communications interfaces may be
made operational in military, governmental and commercial applications.
However, unlike many of its competitors, the Company also offers
specialized communication interfaces for military applications that meet certain
military specifications. These interfaces link up all the electronic devices in
one system so that they can talk to one another and thereby exchange critical
information necessary for the performance and mission of that system. In
addition, PCS has developed a tactical communication interface that connects
different electronics systems operating on the battlefield with one another.
Communication with these various interfaces can be achieved electronically, by
radio or other means. See 'BUSINESS -- NEW PRODUCTS'.
In the military area, typical applications of the Company's computers
entail aircraft and shipboard diagnostic, testing and maintenance systems,
controller and radar displays for missile systems, performance recorders in
training exercises, mission loaders and verifiers of data and field command
control systems.
As of May 14, 1996, the following table represents a substantial portion of
the Company's current military business covering its three primary applications
(Maintenance & Support, Training, and Battlefield Communications), the identity
of its customer, the type of computer involved and the application concerned:
<TABLE>
<CAPTION>
TYPE OF
DESCRIPTION OF PROGRAM NAME OF CUSTOMER COMPUTER APPLICATION
- -------------------------------------- ---------------- --------- ------------------------------------
<S> <C> <C> <C>
HAWK Air Defense Missile System Raytheon Laptop Portable Fire Controller
Phalanx Close-In, Ships' Defense Lockheed Martin Laptop Portable Electronic Maintenance
Weapon System Device
Saudi Army Command Control Mobile Harris Corp. Laptop Communication Controller
System
LANTIRN Low Altitude Navigation System Lockheed Martin Hand-held Maintenance Data Recording Device
HARM Missile System Texas Instrument Laptop Mission Loading and Electronic
Diagnostics
</TABLE>
(table continued on next page)
27
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(table continued from previous page)
<TABLE>
<CAPTION>
TYPE OF
DESCRIPTION OF PROGRAM NAME OF CUSTOMER COMPUTER APPLICATION
- -------------------------------------- ---------------- --------- ------------------------------------
<S> <C> <C> <C>
F-16 Fighter Lockheed Martin Laptop Electronic Diagnostics Check and
Mission Loading
U-2 Aircraft Surveillance Lockheed Martin Hand-held Mission Loading and Electronic
Maintenance
Taiwanese Fighter Program Allied Signal Laptop Engine Diagnostics
Downloader/Uploader
</TABLE>
On the government and commercial sides, PCS's products collect, store,
process and communicate data generally and are used specifically in such
applications as maintenance of nuclear power plant equipment and utility
transmission towers, state highway department surveying, timber and logging
operations, environmental and forestry studies and testing.
CUSTOMIZATION
The Company provides its customers and end-users with engineering services
that modify or adjust its standard portable computers, related software and
communication interfaces to their specific needs and requirements. A substantial
portion of its product sales to the military involve varying degrees of
customization while only a small portion of computers sold to its government and
commercial customers require such engineering modifications.
The range of engineering services furnished by PCS includes special rugged
packaging design, miniaturization of electronics, development of ultra-low power
systems and improvements in communications capabilities. There are many examples
of specific situations where PCS has rendered such services, and the following
modifications of its products are representative only:
-- The development of special communication interface modules and cards
to permit the computer to communicate with aircraft or a weapon
system.
-- The design of special connectors to computers to allow the use of the
customer's existing cable set-up contained in other equipment.
-- The expansion of environmental testing capabilities so that computers
may be made impervious to certain chemicals or wider temperature
ranges in accordance with program requirements.
-- The addition of a fail-safe mechanical switch to a weapon firing
system.
-- The installation of application software package for special data
collection and processing.
The Company typically charges for such customization services on a fixed
price basis. In the early phase of a military program, PCS is often called upon
to design, engineer and fabricate the prototype. Once this is successfully done,
it is generally in a better position to obtain the full production run for that
specific program. The Company also engages in system integration and post-sale
services to assist the customer in attaining operational status for the systems
or in correcting any problems.
Management believes that by providing engineering services, it not only
creates another revenue-generating activity for the Company, but it also
facilitates the marketing of PCS's products especially since most of its
competitors typically do not offer any customization of the electronics. In the
fiscal years ended September 30, 1995 and 1994, and for the six months ended
March 31, 1996 revenue from engineering services represented 11%, 17% and 9% of
the Company's total sales, respectively.
NEW PRODUCTS
Because of its expertise in miniaturization and its endeavors to pack more
computing power into smaller, completely sealed enclosures, the Company has
continually experimented with heat reduction methods. As a result of these
efforts, PCS has recently developed and successfully tested a solid-state,
miniaturized electronic chiller or heat pump. This device will more efficiently
lower temperatures and absorb heat generated by the electronic components of
PCS's computers. Accordingly, this development should allow the placement of
more powerful, higher temperature microprocessors in its sealed containers. The
electronic chiller has been incorporated into the Company's product offering as
a component.
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In conjunction with Magnavox Electronic Systems of Fort Wayne, Indiana,
which has been acquired by Hughes Electronics (the 'former Magnavox division'),
the Company has developed a tactical communication interface that links a wide
variety of electronic equipment on today's battlefield. This device is a part of
a data communication network which sends information back and forth among the
U.S. Army's weapons systems and command structure either by voice radio or
digitally by keyboard.
While the former Magnavox division undertook the necessary software
development and hardware design for this new communication set-up, PCS improved
the existing hardware by miniaturizing and fabricating the electronic circuit
board. For example, such interface will allow tanks on the battlefield to more
effectively communicate their position and other information over radio nets to
their commander and other friendly battlefield units. The tactical communication
interface went into full production in August, 1995.
The Company also has under development a ruggedized notebook that, in terms
of size, weight and capabilities, fits between its current hand-held and laptop
products. This notebook computer is expected to be available for sale by
September, 1996 and to be utilized by military, government and commercial
customers. The ruggedized notebook would be the Company's first product to
utilize commercial electronics. See 'BUSINESS -- RESEARCH AND DEVELOPMENT
ACTIVITIES'.
SUPPLY AND MANUFACTURING
The Company designs and engineers all its portable computers, purchases
their components from third parties and then tests and assembles the final
products. As part of this process, PCS specifically designs the electronic or
printed circuit board, clearly the most important, sophisticated and complex
element of its computers. At times, this board can be composed of as many as
twelve layers. The Company also fabricates the prototype of such board, tests
it, purchases all the necessary components for the board and then provides them
in kit form to specialized board fabricators for both pilot and production runs.
This approach to outsourcing differs from that followed by most other
rugged computer manufacturers which operate on a turn-key basis with their board
fabricators. Those fabricators handle the design, testing, purchase of all
components themselves and then furnish the manufacturer with the completed
boards. In contrast, the Company's approach to board fabrication allows it to
maintain better control of the quality and delivery of such boards, especially
because it is designing the boards and selecting the parts. In addition, its own
personnel serve as on-site inspectors at the plants of the board fabricators.
Each of the fabricators employed by PCS applies surface mount technology in the
fabrication of its printed circuit boards. As previously indicated, such
technology, in terms of ruggedization, is the most secure and
vibration-resistant process.
The Company will continue to outsource board fabrication. Given the rapid
changes in computer technology, PCS is not capable of keeping abreast of the
costly purchase requirements for new production equipment necessary in the
precise placement of electronic components on boards. Outsourcing in this regard
allows the Company's products to receive the benefit of the latest technological
development at an acceptable and modest cost. Once the boards are completed,
they are tested by the fabricator and, upon satisfactory completion of such
tests, are shipped to the Company. When delivered, PCS further tests the
completed boards and other components and then assembles the computers. Apart
from the printed circuit boards, the components that PCS purchases from external
sources include chassis, wire harnesses, computer chips, keyboards, displays and
metal cases.
With the new ruggedized notebook, the Company has selected the commercial
electronics boards of one manufacturer. Certain components will be attached to
the boards in a more secure fashion and some wiring connectors will be replaced
to improve shock and vibration performance. The electronics will be packaged in
a sealed container designed by the Company and, where required, a solid state
miniaturized heat pump will be installed to enhance the operating range of the
commercial electronics.
The Company does not assemble its products on a continuous mass-production
basis. Instead, its computers are usually assembled on a batch basis in which
products move irregularly from station to station. Tests are performed at
various stages of the process according to PCS's standards or as requested by
specific customers. Further testing of products is generally accomplished at the
end of the
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assembly process. The Company's manufacture of computers is done pursuant to
specific purchase orders or for general inventory purposes.
PCS utilizes modern equipment for the design, engineering, assembly and
testing of its products. The Company has allocated a portion of the proceeds of
this Offering to purchase and/or lease additional equipment to enhance its
assembly efficiency and to increase its testing capacity in order to insure
increased production, when and if required, as well as to obtain better control
of quality, inventory and order processing. See 'USE OF PROCEEDS' and
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
Generally, PCS is not a party to any formal written contract regarding the
deliveries of its hardware, supplies and components or their fabrication. It
usually purchases such items pursuant to written purchase orders of both
individual and blanket variety. Blanket purchase orders usually entail the
purchase of a larger amount of items at fixed prices for delivery and payment on
specific dates.
The Company relies on a few board fabricators of different sizes and
capabilities located within the same geographical area as its headquarters.
Certain components used in its computers are obtained from sole sources. PCS has
occasionally experienced delays in deliveries of components and may experience
similar problems in the future. In an attempt to minimize such problems, the
Company has developed and keeps an inventory of parts that are generally more
difficult to obtain. However, any interruption, suspension or termination of
component deliveries from PCS's suppliers could have a material adverse effect
on its business.
Although Management believes that in nearly every case alternate sources of
supply can be located, inevitably a certain amount of time would be required to
find substitutes. During any such interruption in supplies, the Company may have
to curtail the production and sale of its computers for an indefinite period.
The Company's design, engineering and assembly facilities are located in
its Melbourne, Florida headquarters. These facilities comply with certain U.S.
military specifications necessary for the manufacture and assembly of products
supplied to it. PCS is seeking to qualify its facility in order to meet the
quality management and assurance standards of an international rating
organization (ISO-9001) within the next two years. Some measures have been taken
by the Company to qualify under such standards. However, meeting these criteria
involve a long complicated process of new planning, documentation and other
factors. Such qualification should improve the Company's marketing opportunities
in the growing international military markets for rugged computers. However,
there is no assurance that PCS can achieve such standards or that it will match
or increase such sales of its products abroad in the future even if such
standards are met.
The Company has entered into licensing arrangements for certain hardware
and software elements contained in, or used in conjunction with, its computers.
These agreements are usually non-exclusive, provide for minimum fees and
royalties related to sales to be paid by the Company to the particular licensor,
run for a limited term and are subject to other terms, conditions and
restrictions.
PCS receives its basic operating software system MS-DOS with various Window
versions from Microsoft, Inc. pursuant to such licensing arrangements. It also
obtains from Phoenix Technologies, Inc. its BIOS (Basic Input/Output System)
pursuant to a separate license agreement. Under either arrangement, the Company
may modify such software and occasionally alters the BIOS for special
situations. The termination, suspension or curtailment of these or other
licensing arrangements to which the Company is a party may have a material
adverse impact on its business and operations.
WARRANTY AND CUSTOMER SERVICE
The Company usually provides one-year warranties on all its products
covering both parts and labor although extended warranties may be purchased by
customers. At its option, PCS repairs or replaces products that are defective
during the warranty period if the proper usage and preventive maintenance
procedures have been followed by its customers. Repairs that are necessitated by
misuse of such products or are required beyond the warranty period are not
covered by its normal warranty.
In cases of defective products, the customer typically returns them to
PCS's Florida facility. Its service personnel then replace or repair the
defective items and ship them back to the customer. Generally, all servicing is
done at the Company's plant, and it charges its customers a fee for those
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service items that are not covered by warranty. Except for its extended
warranties, it does not offer its customers any formal written service
contracts.
Some personnel in its customer service area often answer technical
questions from customers and offer solutions to their specific applications
problems. In certain instances, other personnel receive and process orders for
product demonstrations, disseminate pricing information and accept purchase
orders for computers.
MARKETING AND SALES
The Company markets and sells its computer products through an internal
sales force of four individuals and several of its officers, approximately 34
manufacturers' representatives in the United States and approximately 23
distributors abroad. Its manufacturers' representatives cover approximately 39
states, including Washington, D.C., and its foreign distributors operate in
nearly 37 countries, including England, France, Japan, Australia and Germany.
PCS's relationship with its manufacturers' representatives are generally
governed by a written contract, terminable on 30 days prior notice. These
contracts usually provide for exclusive territorial and product representation
and commissions of 8% of the net invoice price on standard products. In some
cases, the commission will decline from 8% to 4% on standard products as sales
rise above certain dollar levels. Commissions on non-standard products and
custom engineering are usually subject to negotiation between the parties in
accordance with the terms of the contract. However, they tend to range from 6%
to 8% in practice. The Company lowered the commissions of its manufacturers'
representatives on standard products from 10% to a flat 8% on October 1, 1994.
The Company's manufacturers' representative contracts are subject to certain
other terms and conditions.
PCS's sales representatives do not purchase for their own account, but
merely sell such computer products on PCS's behalf. Seventeen manufacturers'
representatives accounted for an aggregate of approximately 35% of the Company's
1995 annual sales and 60% thereof for the first six months ended March 31, 1996.
The loss of certain of such representatives may have a material negative effect
on PCS's business.
Sales of the Company's products or services to foreign distributors are
also generally made pursuant to written contracts. Under such contracts, the
distributor is granted either an exclusive or non-exclusive territorial and
product representation as well as discounts based on the list price ranging from
20% to 35%, depending on the type or amount of products sold. In some cases,
there are minimum order requirements. Due to the custom nature of PCS's
products, its foreign distributors generally do not keep its computers in their
inventory until specific orders are obtained. The term of these agreements
generally run from 1 to 3 years but are terminable on 60 days' advance notice.
Payment is due in U.S. dollars within 30 days after delivery. These contracts
are subject to other terms and conditions. The Company has a primary distributor
for Asia and another primary distributor for Europe. No one distributor accounts
for more than 5% of its total sales in any period referred to above.
The Company promotes its computer products through the dissemination of
product literature, attendance and exhibition at trade shows, conduct of
seminars and the distribution of news releases on special developments to trade
magazines and newsletters to an extensive customer list. PCS does little
advertising in trade periodicals. Management believes that most of the Company's
sales leads are generated by trade shows and word-of-mouth referrals.
The Company has entered into joint marketing arrangements with several
large companies to promote their respective products in the military
marketplace. These companies include IDP of Gaithersburg, Maryland (involving
the manufacture and distribution of the new ruggedized notebook), and Raytheon
(in regard to its air defense command and control system). These arrangements
allow PCS to gain access to additional proprietary software and to increase its
market exposure under the sponsorship of better-known names in the defense
industry. In turn, these companies utilize the Company's products and its
expertise in ruggedizing computers and miniaturizing their electronics. While
Management believes that the marketing arrangement with IDP may be important in
the future, it is not presently material to the operations of the Company. In
contrast, as Raytheon is a significant customer of the Company, the marketing
program with Raytheon is material. Through the current joint marketing program
with Raytheon, Raytheon is allowed to provide certain consulting services and
assistance to the Company under a defined DoD program, resulting in further
customization of the
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RTU product purchased for the DoD and, the Company believes, the development of
a stronger relationship between the Company and Raytheon's engineers. The
Company is presently in discussions with Raytheon with a view toward replacing
the current arrangement with a broader co-marketing arrangement. However, there
can be no assurance that such arrangement will be finalized or, if finalized,
that it will be a profitable one for the Company, In any event, the termination,
suspension or curtailment of any such arrangement may have material adverse
consequences for the Company's business.
In the military market, the sales cycle for the Company's products usually
entails a number of complicated steps and can take from one year to five years.
The sale cycle in the government and commercial markets is generally not as
complex or time consuming, but still may take as long as two years. Sales to the
military and government markets are greatly influenced by special budgetary and
spending factors pertinent to these organizations and are usually seasonal in
nature.
Utilizing the net proceeds from this Offering, the Company intends to
expand its sales and marketing efforts in all of its markets as follows: (i)
increase advertising in trade magazines; (ii) increase its presence at trade
shows with larger booths and more extensive exhibits; (iii) increase the number
of trade shows in which Company personnel attend and products are presented;
(iv) hold additional seminars at military bases and other prime locations; (v)
hire additional sales personnel and consultants to gather leads and promote
sales; (vi) expand sales and marketing activities in the medical markets; and
(vii) invest in research and development in order to increase its product
offering. See 'USE OF PROCEEDS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- RESEARCH AND
DEVELOPMENT ACTIVITIES'.
CUSTOMERS
The Company sells its products, directly or indirectly, to the U.S. and
foreign military establishments, large aerospace and military contractors
supplying these establishments, government agencies regulating environmental,
geologic and forestry matters, State departments of transportation, public
utilities, forest products companies, surveying and engineering concerns and
railroads.
For the fiscal year ended September 30, 1995 and six months ended March 31,
1996, Raytheon's Missile Systems Division accounted for 47% and 9% of the
Company's total sales, respectively. For those same periods, Lockheed Martin,
STN Atlas Electronics, TransPacific Technologies and Nichols Research accounted
for 29% and 20%, 13% and 19%, 3% and 3%, and 2% and 0% respectively. The loss of
any of these customers could have a material adverse impact on PCS's business.
As a result of a recent merger, Lockheed and Martin Marietta are now part of the
same business organization.
COMPETITION
The Company competes in each of its markets against other concerns, most of
which are larger and have greater financial, technical, marketing, distribution
and other resources than PCS. It competes on the basis of service, performance,
reliability, price, and deliveries.
With respect to its hand-held business, the Company encounters competition
from Litton Data Systems, Group Technologies, Tadiran and Miltope in military
applications; Husky Computer Company in both military and non-military markets;
and CMT, Micro Palm and DAP in non-military applications. As far as its laptops
are concerned, PCS faces competition from SAIC, Miltope, Cyberchron and North
American Industries (CODAR) in the military and non-military areas.
Certain military procurement policies requiring purchases of computers for
the military under Indefinite Delivery, Indefinite Quantity ('IDIQ') contracts
could result in seriously restricting the Company's efforts to sell its
computers to the U.S. military. These IDIQ contracts encourage big purchases of
such computers amounting to many hundreds of millions of dollars. Such
procurement policies clearly favor large companies with resources of that
magnitude. Unless PCS can forge strategic alliances with larger military
contractors having such resources or qualify for certain exceptions to IDIQ
arrangements, it may suffer adverse material consequences in its continuing
quest for military business. See 'RISK FACTORS -- COMPETITION'.
In the military and government markets, the Company will often be engaged,
directly or indirectly, in the process of seeking competitive bid or negotiated
contracts with government departments and
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agencies. These government contracts are subject to specific rules and
regulations with which PCS may have difficulty complying. However, PCS is
occasionally one of only a few companies whose products meet the required
specifications designated by such customers.
In most cases, PCS tends to be the high priced bidder. The reasons for this
situation are numerous. The Company designs its computers on an overall basis to
assure their ruggedness and use in the worst circumstances. Accordingly, it
generally employs more expensive components than its competitors. These
generally more expensive components consist of industrial or higher-level
commercial type instead of ordinary commercially available parts. The Company's
computers are enclosed in sealed containers. Moreover, PCS makes extensive
modifications and refinements of its computers for its customers pursuant to
their specifications and special needs. As a consequence, PCS's products
generally function at a higher level of performance and reliability than its
competitors.
For those applications in which harsh environmental and operational
conditions prevail, customers are often willing to pay higher prices, especially
where few, if any, other companies offer similar devices. In those less
demanding circumstances, the Company's products sell at a severe competitive
disadvantage and often are not purchased because the applications do not justify
its higher prices. Since PCS sells its computer products into segments of the
commercial market and has a history of resale pricing, under DoD regulations
such commercial pricing information may be utilized to support the prices that
it charges in the military marketplace. See 'RISK FACTORS', generally and
'BUSINESS -- GOVERNMENT REGULATIONS AND CONTROLS'.
BACKLOG
As of April 30, 1996, the Company's backlog was $6,100,679, as compared
with backlog of $3,174,287 as of April 30, 1995. Three customers accounted for
approximately 57%, 23% and 10% of such backlog as of April 30, 1996. PCS
presently expects to manufacture and deliver most of the products in backlog
within the next 12 months.
Substantially, all the Company's backlog figures are based on written
purchase orders executed by the customer and involve product deliveries and not
engineering services. All orders are subject to cancellation. However, in that
event, PCS is generally entitled to reimbursement of its cost and negotiated
profits; provided that such contract would have been profitable.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's research and development involves: (i) its sole activities;
(ii) joint efforts between it and another enterprise; and (iii) endeavors of
third party contractors retained by it. A substantial portion of its research
and development is accomplished on an in-house basis. The Company has recently
completed a joint development contract with the former Magnavox division in Fort
Wayne, Indiana on the tactical communications interface and a sole development
contract with JFK Associates, Inc. on a RHC-44E printed circuit board, related
software and documentation.
The Company has designed a new rugged notebook. This product is intended to
fit between its laptops and its hand-held computers in size, weight and price.
Weighing approximately 12 lbs., it will have a full-size display and same type
of keyboard as a laptop, a powerful Pentium processor and expansion
capabilities. Management believes that there is a market for this kind of
ruggedized computer in the military, government and commercial areas. The
Company expects to expend a substantial portion of the funds allocated to
research and development from the net proceeds of this Offering on the expansion
and enhancement of its rugged notebook product line. See 'MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS'.
Research and development expenditures during the fiscal years ended
September 30, 1995 and 1994 were $480,951 and $421,126, respectively, and
represented 5.6% and 5.4% of total sales, respectively. A substantial portion of
such expenditures for those fiscal years were applied to the development of the
rugged notebook, the RLT 410, an Intel 80486 based ruggedized laptop, the RLT
410 Model D, a larger laptop capable of accepting both full-size ISA and PC/104
miniaturized expansion boards, and the early development of a Pentium based main
board for the RLT product line.
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INTELLECTUAL PROPERTY
Proprietary information and know-how are important to the Company's
commercial success. PCS holds no patents or copyrights but has trademark
protection for the Paravant name and logo. There can be no assurance that others
will not either develop independently the same or similar information or obtain
and use proprietary information of the Company. In addition, none of its
employees have signed confidentiality agreements regarding its proprietary
information nor have any employees signed any non-competition agreements other
than Messrs. McNeight and Craven. See 'RISK FACTORS -- NO ASSURANCE AS TO
PROTECTION OF INTELLECTUAL PROPERTY' and 'MANAGEMENT'.
Management believes that its products do not infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against it in the future or be successful in
asserting such claims.
GOVERNMENT REGULATIONS AND CONTRACTS
Due to the nature of the products designed, manufactured and sold by PCS
for military applications, it is subject to certain U.S. Department of Defense
('DoD') regulations. In addition, commercial enterprises engaged primarily in
supplying equipment and services, directly or indirectly, to the United States
government are subject to special risks such as dependence on government
appropriations, termination without cause, contract renegotiation and
competition for the available DoD business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS.
Government contracts governing the Company's products are often subject to
termination, negotiation or modification in the event of changes in the
government's requirements or budgetary constraints. Products sold by PCS for
government applications are primarily sold to companies acting as contractors or
subcontractors and not directly to government entities. Agreements with such
contractors or subcontractors generally are not conditioned upon completion of
the contract by the prime contractor. To the extent that such contracts are so
conditioned, a failure of completion may have a material adverse effect on the
Company's business. Currently, it does not have any contracts so conditioned.
See 'RISK FACTORS -- SUBSTANTIAL DEPENDENCE ON MILITARY SALES', ' -- GOVERNMENT
REGULATION AND CONTRACTS', ' -- SEASONALITY' AND ' -- COMPETITION' and
'BUSINESS -- COMPETITION'.
The contracts for sale of its computers are generally fixed-priced
contracts. This means that the price is set in advance and generally may not be
varied. Such contracts require the Company to properly estimate its costs and
other factors prior to commitment in order to achieve profitability and
compliance. The Company's failure to do so may result in unreimbursable cost
overruns, late deliveries or other events of non-compliance. See 'RISK FACTORS',
generally.
Under certain circumstances, PCS is also subject to certain U.S. State
Department and U.S. Department of Commerce requirements involving prior
clearance of foreign sales. Such export control laws and regulations either ban
the sale of certain equipment to specified countries or require U.S.
manufacturers and others to obtain necessary federal government approvals and
licenses prior to export. As a part of this process, the Company generally
requires its foreign distributors to provide documents which indicate that the
equipment is not being transferred to, or used by, unauthorized parties abroad.
The Company and its agents are also governed by the restrictions of the
Foreign Corrupt Practices Act of 1977, as amended, ('FCPA') which prohibits the
promise or payments of any money, remuneration or other items of value to
foreign government officials, public office holder, political parties and others
with regard to the obtaining or preserving commercial contracts or orders. PCS
has required its foreign distributors to comply with the requirements of FCPA.
All these restrictions may hamper the Company in its marketing efforts abroad.
PCS's manufacturing operations are subject to various federal, state and
local laws, including those restricting or regulating the discharge of materials
into the environment, or otherwise relating to the
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protection of the environment. The Company is not involved in any pending or
threatened proceedings which would require curtailment of, or otherwise restrict
its operations because of such regulations, and compliance with applicable
environmental laws has not had a material effect upon its capital expenditures,
financial condition or results of operations.
Management believes that although compliance with applicable federal laws
and regulations involves certain additional procedures by the Company that would
not otherwise be required, such compliance has not generally inhibited or
limited the Company's ability to enter into material contracts.
EMPLOYEES
As of May 14, 1996, the Company had 57 full time employees including its
officers, of whom 26 were engaged in manufacturing and repair services, 10 in
administration and financial control, 16 in engineering and research and
development, and five in marketing and sales.
None of its employees are covered by a collective bargaining agreement or
are represented by a labor union. PCS considers its relationship with its
employees to be satisfactory.
The design and manufacture of the Company's equipment requires substantial
technical capabilities in many disparate disciplines from mechanics and computer
science to electronics and mathematics. While management believes that the
capability and experience of its technical employees compares favorably with
other similar manufacturers, there can be no assurance that it can retain
existing employees or attract and hire the highly capable technical employees
necessary in the future on terms deemed favorable to it, if at all. See 'RISK
FACTORS -- DEPENDENCE ON KEY PERSONNEL AND ATTRACTION OF QUALIFIED PERSONNEL'.
PROPERTIES AND FACILITIES
The Company leases a 10,466 square foot facility in Melbourne, Florida,
which is used as its principal corporate headquarters and manufacturing plant.
This facility, which is considered adequate for present and anticipated future
needs, is a two-story, modern brick building in a commercial-industrial area.
The lease on this space terminates in November, 1998 and provides for a fixed
annual rent of $109,281 for 1995 and $140,649 for 1996, payable in equal monthly
installments. These amounts include the Company's proportionate cost of
utilities, repairs, cleaning, taxes and insurance. Management believes that this
facility will meet its operational needs for the foreseeable future.
The Company also leases certain automobile, truck, office, production and
testing equipment and expects to purchase or lease additional equipment after
consummation of this Offering. See 'USE OF PROCEEDS'.
LEGAL PROCEEDINGS
In March 1996, the Company's former counsel, Cascone & Cole, rendered an
invoice to the Company in the amount of approximately $365,000 for legal fees
and expenses to which such counsel claimed to be entitled in connection with its
representation of the Company for both general corporate services and services
relating to the Company's initial public offering. As the Company had made prior
payments to such counsel of $130,000, the net amount claimed to be due was
approximately $235,000. The Company has contested the invoice and accrued an
estimate for the settlement, if any, of these fees. On March 27, 1996, Cascone &
Cole filed an action in the Supreme Court of the State of New York, County of
New York, entitled Cascone & Cole v. Paravant Computer Systems, Inc., Victor M.
Wang, Duke & Company, Inc., Dean Petkanas and Eagle Group Incorporated (Index
No. 96601634) against the Company, the Underwriter and certain other defendants,
alleging, among other things, breach of contract, failure to pay attorneys fees,
fraud, copyright infringement and defamation by the Company in connection with
the aforementioned services, as well as claiming a finder's fee with respect to
the Underwriter's relationship with the Company. Plaintiff is seeking damages in
the amount of approximately $28 million from the Company. The Company has filed
an answer denying the allegations made by plaintiff and has asserted defenses
and counterclaims against the plaintiff seeking, among other things, recovery of
amounts paid to plaintiff as well as punitive damages and court costs. The
Company will vigorously defend itself in this matter. Management believes that
the ultimate resolution of this matter will not have a material adverse effect
on the Company.
The Company knows of no other material litigation or proceeding, pending or
threatened, to which it is or may become a party.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Krishan K. Joshi(1)(2).................. 59 Chairman, Chief Executive Officer and Director
Richard P. McNeight(3).................. 46 President, Chief Operating Officer and Director
William R. Craven....................... 48 Vice President of Marketing, Director and Secretary
Kevin J. Bartczak....................... 43 Vice President, Treasurer, and Chief Financial Officer
Lary J. Beaulieu........................ 49 Vice President of Engineering
James E. Clifford(1)(2)(3)(4)........... 59 Director
Michael F. Maguire(3)(4)................ 69 Director
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Trustee for Profit Sharing Plan
(3) Member of Audit Committee
(4) Member of Stock Option Committee
------------------------
All directors hold office until the next annual meeting of shareholders or
until their successors are elected and qualify. Executive officers hold office
until their successors are chosen and qualify, subject to earlier removal by the
Board of Directors.
The biographical information for the Company's officers and directors is as
follows:
Krishan K. Joshi. From 1976 to date, Mr. Joshi has served as founder,
chairman and president of UES, Inc., a technology development company.
Following the acquisition of PCS in December of 1989, he became Chairman,
Chief Executive Officer and President of the Company. However, in April
1994, he resigned as President of PCS and continues to serve as Chairman
and Chief Executive Officer. He spends less than 20% of his time on Company
affairs. He has also been Chairman of Astro Industries, Inc., a
manufacturer and distributor of aerospace wire and cable products, since
August 1980. He holds a Bachelor of Science degree in Mathematics and
Physics from Punjab University in India; a Bachelors degree in Aeronautical
and Astronautical Engineering from Ohio State University and Master of
Science degree in Engineering from the University of Dayton, Ohio; and has
engaged in Doctoral studies in Mechanical Engineering at the University of
Cincinnati.
Richard P. McNeight. From 1984 until June 1994, Mr. McNeight served as
a Vice President and General Manager of the Company. He was appointed
President of PCS in June 1994. From 1982 to 1984, he was employed by
Siemen's Corporation as a senior member of its systems engineering staff.
From 1972 to 1982, he worked for ITT's North Telecommunications Division in
several positions as a software engineering director and manager and
engineer. Mr. McNeight holds a Bachelors degree in Applied
Science/Engineering from the University of Wisconsin and a Masters degree
in Computer Information/Control Engineering from the University of
Michigan.
William R. Craven. Mr. Craven joined the Company in September 1991 as
a Vice President in charge of Marketing and has served in that capacity
continually to the present. From 1990 to 1991, he was employed as a Vice
President of Marketing for Telxon Corp., a manufacturer of hand-held
computers and software systems. From 1982 to 1990, he served as a Vice
President of Mead Corp., a manufacturer of paper products and provider of
electronic services, in a variety of positions, including marketing,
product development and joint ventures. For three years during that period,
he acted as President of Seiko Mead Company, a Japanese-American joint
venture established to manufacture color computer printers and copiers. He
was employed as a Director of Marketing by Gentech Industries, a
manufacturer of packaging materials and systems, from 1979 to 1982. He also
served as Sales and Product Managers for Champion International, a
manufacturer of paper
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products from 1971 until 1979. Mr. Craven holds a Bachelor of Science
degree in Physics and Mathematics from Birmingham Southern College.
Lary J. Beaulieu. Since 1988 Mr. Beaulieu has been employed
continually by the Company in several capacities, including Director of
Engineering, Chief Engineer and Vice President of Engineering. From 1982 to
1988, he served as Manager of Inspection and Service Products, Engineering
Manager and New Product Design Manager for Schlumberger Technologies, a
manufacturer of service/inspection products. He worked in several
engineering positions from 1972 through 1981 for ITT's North
Telecommunications Division. Mr. Beaulieu holds Bachelor and Masters of
Science degrees in electrical engineering from Tufts University.
Kevin J. Bartczak. Mr. Bartczak joined the Company as an officer in
February, 1995. From 1993 to 1995, he served as Chief Financial Officer,
Secretary and Director of Opto Mechanik, Inc. ('OMI'), a manufacturer of
electro optical fire control and assemblies for weapons systems. On October
14, 1994, OMI filed for protection under Chapter 11 of the U.S. Bankruptcy
Code and is still in bankruptcy. He was employed from 1987 to 1993 as a
division controller of Harsco Corporation, a manufacturer of heavy
equipment and land combat systems. From 1984 to 1987, he was also employed
as a division controller of General Defense Corporation, a manufacturer and
developer of ammunition, radar guidance and weapon systems. Mr. Bartczak
served from 1981 to 1984 as a division controller and manager of corporate
accounting of Elkem Metal Company, a producer of metal alloys. From 1979 to
1981, he functioned as senior accountant for the Cyclops Corporation, a
producer of specialty steel, industrial and residential building products
and consumer electronics. As a certified public accountant, he worked as an
audit supervisor for Arthur Young & Co from 1975 to 1979. Mr. Bartczak
holds a Bachelor of Science degree in Business Management from Indiana
University of Pennsylvania.
James E. Clifford. From 1989 to date, Mr. Clifford served as President
and Director of Engineering Development Laboratories, Inc., a manufacturer
of aircraft avionics and flight control electronics and, from 1983 to 1989,
as President of Signal Technology Laboratories, Inc. ('STL'), a
manufacturer and developer of militarized electronic defense systems. Mr.
Clifford still serves as Director of STL. Prior thereto, he served as an
officer in the U.S. Air Force for 23 years, attaining the rank of Colonel
specializing in air lift and aircraft acquisition programs. Mr. Clifford
holds Bachelors and Masters of Science degrees in Electrical Engineering
from Oklahoma State University.
Michael F. Maguire. From 1984 to the present, Mr. Maguire has been
employed as President of Maguire Investment Management, Inc., a small
consulting firm that he founded. From 1973 through 1986, he was an officer
of Harris Corp., a large computer manufacturer, attaining the position of
senior vice president. He was also employed by Perken Elmer, a manufacturer
of analytical instruments and life-science systems, from 1962 through 1973
as an engineering manager, vice president, general manager and group vice
president. From 1950 to 1962, he held various engineering design and
management positions with GE, Pratt Whitney, and Sperry Rand companies. He
currently is director of Harris Computer Systems Corp., Autosight, Inc. and
Opto Mechanik, Inc. On October 14, 1994, OMI filed for protection under
Chapter 11 of the U.S. Bankruptcy Code and is still in bankruptcy. In 1950,
he received a Bachelor of Science degree in electrical engineering from
Rensselair Polytechnic Institute and in 1955 a Masters of Science degree
from the University of Connecticut.
Potential investors should consider the backgrounds of the Company's
officers and directors and whether or not they have the necessary experience and
capabilities to operate the Company and develop its business effectively.
Management's experience and ability are often deemed to be the most significant
factors in the success of any business. PCS's Management believes that it
currently possesses the necessary ability and experience to operate its business
effectively. Should either Messrs. McNeight or Craven leave the Company's
employ, it would be operating at a definite disadvantage. While PCS may be in a
position to replace them with comparable personnel, there is no certainty that
such would be the case, and in any event delays in replacing them are likely.
See 'RISK FACTORS -- DEPENDENCE UPON KEY PERSONNEL AND ATTRACTION OF QUALIFIED
PERSONNEL'.
37
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
to, as well as certain other compensation paid to or earned by, its then
President and three other highest paid executive officers (collectively, the
'Named Executive Officers') in all capacities during the fiscal years ended
September 30, 1993, 1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION BONUSES AWARDS(2)
- --------------------------------------------------------- ------------------- ------- ------------
<S> <C> <C> <C> <C>
Krishan K. Joshi(1) ..................................... 1995 $ 52,000 -- --
President (CEO), Chairman 1994 28,800 -- --
1993 33,000 -- --
Richard P. McNeight(3) .................................. 1995 124,241 -- --
President and Chief Operating Officer 1994 113,895 $3,000 $ 723
1993 86,179 5,000 129
William R. Craven ....................................... 1995 106,616 -- --
Vice President of Marketing 1994 90,963 1,000 832
1993 77,423 4,826 120
Lary J. Beaulieu ........................................ 1995 98,560 -- --
Vice President of Engineering 1994 96,615 9,109 894
1993 79,804 4,818 123
</TABLE>
- ------------
(1) Reflects compensation for his part-time work for the Company.
(2) Includes Company matching funds for 401(k) Profit Sharing Plan.
(3) Excludes personal use of Company automobile and computer equipment estimated
at $5,000 per year.
The following table provides information related to options granted to the
Named Executive Officers during the fiscal year September 30, 1995. No stock
appreciation rights were issued by the Company during fiscal 1995.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
- -------------------------------------------------- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief Executive Officer............ -- -- -- --
Richard P. McNeight, 40,000 21.0 $ 2.37 11/99
President and Chief Operating Officer(1)(2)..... 60,612 31.8 $ 2.15 11/00
William R. Craven,
Vice President -- Marketing(2).................. 5,000 2.6 $ 2.15 11/04
Lary J. Beaulieu,
Vice President -- Engineering(3)................ 5,000 2.6 $ 2.15 11/04
</TABLE>
- ------------
(1) Includes options covering 60,612 shares of Common Stock granted in November
1994 to Mr. McNeight at an exercise price of $2.15 per share under a
non-qualified stock option plan previously maintained by the Company, which
has since been terminated. See 'CERTAIN TRANSACTIONS' AND 'PRINCIPAL
STOCKHOLDERS'.
(footnotes continued on next page)
38
<PAGE>
<PAGE>
(footnotes continued from previous page)
(2) Excludes options for 30,000 shares and 15,000 shares of Common Stock granted
to Messrs. McNeight and Craven, respectively, under the Company's Incentive
Plan at an exercise price of $4.40 and $4.00 per share, respectively, in
November 1995. See 'CERTAIN TRANSACTIONS' and 'PRINCIPAL STOCKHOLDERS'.
(3) Excludes options for 10,000 shares of Common Stock granted to Mr. Beaulieu
under the Company's Incentive Stock Option Plan at an exercise price of
$4.00 per share in November 1995.
AGGREGATED OPTION/SAR EXERCISES DURING FISCAL 1995 AND YEAR END OPTION/SAR
VALUES
The following table provides information related to options exercised by
the Named Executive Officers during the fiscal year ended September 30, 1995 and
the number and value of options and stock appreciation rights held at fiscal
year end which are currently exercisable. No options or stock appreciation
rights were exercised during the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS/SARS
UNDERLYING UNEXERCISED
SHARES OPTIONS/SARS AT FY-END AT FY-END ($)(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Krishan K. Joshi,
Chairman and Chief
Executive Officer................ -- -- 148,616 -0- 728,218 -0-
Richard P. McNeight,
President and Chief
Operating Officer................ -- -- 125,555 56,667 458,969 88,401
William R. Craven, Vice
President -- Marketing........... -- -- 102,421 18,333 495,007 24,499
Lary J. Beaulieu, Vice
President -- Engineering......... -- -- 3,344 13,333 9,530 19,499
</TABLE>
- ------------
(1) Represents the value of options assuming the initial public offering price
set forth on the cover page of this Prospectus.
------------------------
Mr. McNeight is serving as the Company's President pursuant to a written
employment contract for three years commencing January 1, 1995. This agreement
provides for an initial annual compensation of $130,000, unspecified bonuses, an
increase of 10% in compensation in each of the second and third years and a
two-year non-competition covenant covering the rugged computer business that
commences after termination of employment.
Mr. Craven has entered into a three year written employment contract with
the Company commencing January 1, 1995. His initial annual compensation under
such contract is $110,000, and it also provides for unspecified bonuses, a 10%
increase per annum in each of the second and third years, and a similar two-year
non-competition covenant.
Each of the foregoing contracts may be terminated by the Company if it
fails to complete an initial public offering of its securities by September 15,
1996.
In February 1995, the Company entered into a three year employment contract
with Kevin J. Bartczak, which provides for his employment as Vice President and
Chief Financial Officer. This agreement provides for compensation at the initial
rate of $80,000 per year, increasing to $90,000 in the second year and $100,000
in the third year, and provides for discretionary bonuses. In addition, the
agreement provides for the grant to Mr. Bartczak, in March 1995, of options to
purchase 10,000 shares of Common Stock at an exercise price of $2.15. In the
event Mr. Bartczak's employment is terminated by the Company without cause, he
will be entitled to a severance amount equal to 6 months' salary (plus certain
health insurance expense amounts) if termination occurs during the first two
years under the agreement and 90 days' salary if termination occurs during the
third year.
39
<PAGE>
<PAGE>
The Company's outside directors will be paid a fee of $500 for attendance
at each of its Board of Directors meeting plus related expenses.
INCENTIVE STOCK OPTION PLAN
Under the Company's Incentive Stock Option Plan, as amended (the 'Incentive
Plan'), options to purchase a maximum of 485,000 shares of its Common Stock may
be granted to officers and other key employees of PCS. Options granted under the
Incentive Plan are intended to qualify as incentive stock options as defined in
the Internal Revenue Code.
The Incentive Plan is administered by the Board of Directors and a
Committee presently consisting of two members of the Board that determine which
persons are to receive options, the number of options granted and their exercise
prices. In the event an optionee voluntarily terminates his employment with the
Company, the optionee has the right to exercise his accrued options within
thirty (30) days of such termination. However, the Company may redeem any
accrued option held by each optionee by paying him the difference between the
option exercise price and the then fair market value.
If an optionee's employment is involuntarily terminated, other than because
of death, he also has the right to exercise his accrued option, within thirty
(30) days of such termination. Upon death, the optionee's estate or heirs have
one year to exercise said optionee's accrued options. The maximum term of any
option is ten years, and the option price per share may not be less than the
fair market value of the Company's shares at the date the option is granted.
However, options granted to persons owning more than 10% of its voting shares
may not have a term in excess of five years, and the option price per share may
not be less than 110% of fair market value.
If the aggregate fair market value of the shares of Common Stock
(determined at the time the option is granted) with respect to which incentive
stock options are exercisable for the first time by such optionee during any
calendar year (under all such plans) exceeds $100,000, then only the first
$100,000 of such shares so purchased will be treated as incentive options and
any excess over $100,000 so purchased shall be treated as options which are not
incentive stock options. This rule shall be applied by taking options into
account in the order or sequence in which they are granted. Options must be
granted within ten years from the effective date of the Incentive Plan.
Options granted under the Incentive Plan are not transferable other than by
will or by the laws of descent and distribution. Options granted under the
Incentive Plan are protected by anti-dilution provisions increasing the number
of shares issuable thereunder and reducing the exercise price of such option,
under certain conditions. The Incentive Plan will terminate on December 22, 2004
or on such earlier date as the Board of Directors may determine. Any option
outstanding at the termination date will remain outstanding until it expires or
is exercised in full, whichever occurs first. As of May 14, 1996, options to
acquire an aggregate of 250,000 shares of the Company's Common Stock at exercise
prices ranging from $2.15 per share, to $4.40 per share had been granted under
the Incentive Plan to key PCS employees and directors (including options to
purchase 40,000 shares of Common Stock at an exercise price of $2.37 per share,
and options to purchase 30,000 shares of Common Stock at an exercise price of
$4.40 per share, granted to Mr. McNeight; options to purchase 5,000 shares of
Common Stock at an exercise price of $2.15 per share, and options to purchase
15,000 shares of Common Stock at an exercise price of $4.00 per share, granted
to Mr. Craven; and options to purchase 5,000 shares of Common Stock at an
exercise price of $2.15 per share, and 10,000 shares of Common Stock at an
exercise price of $4.00 per share, granted to Mr. Beaulieu). These options may
only be exercised if the holders remain with the Company for at least one year
after their date of grant. In the case of options granted under the Incentive
Plan to employees, such options vest and are exercisable at the rate of 33 1/3%
per year of continuous employment with the Company.
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
In order to attract and retain the services of non-employee members of the
Board of Directors and to provide them with increased motivation and incentive
to exert their best efforts on behalf of the Company by enlarging their personal
stake in the Company, the Company has adopted the Nonemployee Directors' Stock
Option Plan (the 'Director's Plan'), pursuant to which stock options
40
<PAGE>
<PAGE>
covering an aggregate of 15,000 shares of the Company's Common Stock may be
granted to such non-employee directors.
Pursuant to the Directors' Plan, each member of the Board of Directors of
the Company who is not an employee of the Company (or a subsidiary) (a
'Non-employee Director') and who is elected or re-elected as a director of the
Company by the shareholders at any annual meeting of shareholders commencing
with the annual meeting to be held during 1997, will receive, as of the date of
each such election or re-election, options to purchase 2,500 shares of the
Company's Common Stock. In addition, Non-employee Directors each will receive
options to purchase 2,500 shares of Common Stock upon his initial election or
appointment as director. All options granted under the Directors' Plan are to be
non-incentive options. Messrs. Clifford and Maguire, the current Non-employee
Directors, will each be granted, effective as of the date of this Prospectus,
non-incentive options to purchase 2,500 shares of Common Stock, at an exercise
price of $5.00 per share.
401(K) PROFIT SHARING PLAN
The Company's 401(k) Profit Sharing Plan (the 'PSP') is qualified under
Sections 401(a) and 401(k) of the Federal Internal Revenue Code. The effective
date of the PSP is January 1, 1990. This plan is administered under a Trust and
two of the Company's directors are currently serving as its trustees. All
employees of the Company, who are 21 years or older, including its executive
officers, are eligible to participate in this plan after three months of
employment.
Under the PSP, participating employees have the right to elect that their
contributions to this plan be made from deductions from the compensation owed to
them by the Company up to 15% of their compensation per annum not to exceed
$9,240 for 1995 and $9,500 in 1996. In addition, PCS, at its discretion, can
make contributions to this plan of up to 1% of the participant's annual
compensation that will be allocated among them. Participating employees are
entitled to full distribution of their share of the Company's contribution under
this plan upon their death, total disability or when they reach retirement age
(i.e., 65 years of age). If their employment is terminated earlier, their share
of PCS's contributions will depend upon their number of years of employment with
the Company. All employees are entitled to receive 25%, 50%, 75%, and 100%,
respectively, of the Company's contributions upon completion of 2, 3, 4, and 5
years of employment, respectively.
All participating employees have the right to receive 100% of their own
contributions to the PSP upon any termination of employment. Apart from the
Company's and employees' contributions, they may receive investment earnings
relating to the funds in their account under this plan.
CERTAIN TRANSACTIONS
Under the Company's $4,000,000 line of credit with National City Bank,
Dayton Ohio, Krishan K. Joshi, the Company's Chairman, and UES, Inc., a company
which presently indirectly owns 48.7% of PCS's outstanding Common Stock, that
Mr. Joshi also controls ('UES'), have each guaranteed any and all outstanding
amounts of such loan. As of March 31, 1996, the Company's liability to such bank
is approximately $3,775,000, but such sum could increase or decrease in the
future. Similar guarantees involving Mr. Joshi and UES were required for earlier
loan arrangements between the Company and such Bank. Upon successful completion
of this Offering, such guarantees will be terminated. Mr. Joshi and UES may be
deemed to benefit from the elimination or modification of such guarantees. See
'USE OF PROCEEDS', 'CAPITALIZATION' and 'RISK FACTORS -- MANAGEMENT'S BROAD
DISCRETION IN USE OF PROCEEDS; BENEFIT TO INSIDERS'.
The Company is a guarantor of certain debt of a significant shareholder,
UES, through its wholly owned subsidiary. The debt includes a $1,250,000 line of
credit with such Bank that is due on demand and bears interest at the prime
rate. The amount outstanding under the agreement as of September 30, 1995 was
approximately $779,715. The debt also includes a commercial note payable by UES
to such Bank bearing an initial interest rate of 8.75% adjusted monthly to 1.50%
above the prime rate. Interest and principal payments on this note are due in
eighty-four monthly installments of $11,905 each and final payment is due in
September, 2001. The amount outstanding under the note at September 30, 1995 was
$845,235. The guarantee of such UES debt by the Company will terminate upon the
successful completion of this Offering.
41
<PAGE>
<PAGE>
Beaver Creek Enterprises, an Ohio partnership among certain UES employees,
including Mr. Joshi, owns a three (3) bedroom residential condominium in
Melbourne, Florida, consisting of approximately 1,450 square feet. It rents this
apartment to the Company at $750 per month, which includes its apportioned real
estate taxes, pursuant to a month to month lease arrangement. For the fiscal
years ended September 30, 1995 and 1994, the Company paid such partnership
$9,000 and $9,000, respectively, for the use of such condominium. For the six
month period ended March 31, 1996, the Company paid $4,500 for the use of such
condominium. This apartment is used to house PCS's executives, including Messrs.
Craven and Joshi, when they are visiting the Company's headquarters, as well as
select customers.
On December 16, 1991 Messrs. McNeight, Craven and Joshi were granted
options covering 49,539 shares, 99,077 shares and 148,616 shares of PCS's Common
Stock held by UES Florida, Inc., respectively, an affiliate of the Company ('UES
Florida'), each at an adjusted exercise price of $.45 per share. On November 22,
1994, Mr. McNeight was granted 60,612 options to purchase shares of PCS's Common
Stock at an adjusted exercise price of $2.15 per share under a non-qualified
stock option plan previously maintained by the Company, which has since been
terminated. The exercise prices of the foregoing options granted in 1991 and
1994 approximated the estimated market value of the shares of Common Stock on
the date of grant. See 'MANAGEMENT -- EXECUTIVE COMPENSATION' and 'PRINCIPAL
STOCKHOLDERS'.
PCS had an intercompany payable to UES of $188,436 at March 31, 1996 for
reimbursement of expenses paid by UES on the Company's behalf. In April 1996,
the Company paid $100,000 to UES which reduced the balance of the intercompany
payable to $88,436.
PCS advanced $7,600 during 1993 to one of its officers and shareholders.
The advance was repaid in full to it during the year ended September 30, 1994.
Officers, directors of the Company and post offering 5% shareholders or their
affiliates will not borrow funds from it except for bona fide business purposes.
In March 1996, UES Florida and Messrs. McNeight and Craven and another
shareholder sold an aggregate of 308,581 shares of Common Stock to private
investors ('Selling Security Holders') at a purchase price of $4 per share
('March 1996 Stock Purchase'). (Of the shares sold, UES Florida and Messrs.
McNeight and Craven sold 248,581, 30,000, and 10,000 shares, respectively.) In
connection with these transactions, UES Florida, Messrs. McNeight and Craven and
such other shareholder loaned to the Company in April 1996, for working capital
purposes, the sums of $646,294, $78,000, $26,000 and $52,000, respectively, or
an aggregate of $802,294 of the proceeds realized from such sales, at an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable ten days after the consummation of this Offering. A portion
of the proceeds of this Offering will be used to satisfy such obligation. At or
following the time of the March 1996 Stock Purchase, the private investors
purchased an additional 51,774 shares from two other stockholders of the
Company. In order to induce the investors to purchase shares of Common Stock of
the Company and thereby provide UES Florida, Messrs. McNeight and Craven and the
other shareholder lender with funds which they loaned to the Company, the
Company granted to the investors certain 'piggyback' registration rights to have
their Common Stock registered under the Securities Act. Accordingly, all 360,355
shares of Common Stock acquired by the Selling Security Holders have been
included in the Registration Statement of which this Prospectus forms a part.
The shares of Common Stock offered by the Selling Security Holders are not part
of the underwritten offering, however, and may not be sold prior to 18 months
from the date of this Prospectus without the prior written consent of the
Underwriter. See 'CONCURRENT REGISTRATION OF COMMON STOCK'.
During September 1994, the Company was offered an initial bridge financing
involving an offer to sell 200,000 shares of Common Stock at a price of $.50 per
share, which was withdrawn. In lieu thereof, the Company received an offer for a
second bridge financing involving loans in an aggregate principal amount of
$400,000 and the sale of an aggregate of 80,000 shares of Common Stock and
warrants to purchase an additional 80,000 shares. Because the Securities and
Exchange Commission raised significant objections to both such bridge
financings, the bridge financing was revised in August 1995 to provide for the
issuance to a small group of private investors of 6% subordinated convertible
promissory notes in the principal amount of $400,000 and warrants to purchase
160,000 shares of
42
<PAGE>
<PAGE>
Common Stock. A portion of these notes totalling approximately $98,000 were
mandatorily convertible into 40,000 shares of Common Stock at a conversion price
of $2.45 per share in the event the Company completed a public offering of its
Common Stock prior to January 1, 1996. As the Company did not complete the
public offering prior to January 1, 1996, the conversion feature expired. The
promissory notes will be paid no later than September 1996 from a portion of the
proceeds of this Offering. Each warrant represents the right to purchase one
share of Common Stock, commencing on the effective date of this Offering and
until the expiration of five years from the date of this Prospectus. The
exercise price of the warrants is $6.00 per share, until , 2001
and during their term. See 'DESCRIPTION OF SECURITIES -- Bridge Financing'.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Company's
Common Stock owned as of the date of this Prospectus and as adjusted to reflect
the sale of the securities offered by this Prospectus and the Company's April
1995 reverse stock split by (i) each person who is known by it to own
beneficially more than 5% of its outstanding Common Stock, (ii) each director,
and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND OWNED(2)
NATURE OF -------------------------
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING(3)
- ----------------------------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Krishan K. Joshi(4)(5)(6).............................................. 745,156 49.7% 29.8%
Richard P. McNeight(4)(6).............................................. 292,603 18.6 11.4
William R. Craven(4)(6)................................................ 154,550 10.3 6.2
James E. Clifford(4)(6)................................................ 4,500 * *
Michael F. Maguire(4)(6)............................................... 4,500 * *
Pearl View Corporation N.V.(7)......................................... 116,667 7.8 4.7
Silk Valley Corporation N.V.(7)........................................ 116,666 7.8 4.7
Cordiff Corporation N.V.(7)............................................ 116,667 7.8 4.7
All officers and directors as a group (7 persons)(5)(6)................ 1,268,376 79.5 48.9
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise set forth in the footnotes below, all shares are
beneficially owned and the sole voting and investment power is held by the
persons named.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Prospectus have been
exercised. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Assumes no exercise of the Warrants sold in connection with this Offering.
(4) The address of each such person is c/o Paravant Computer Systems, Inc., 780
South Apollo Blvd., Atrium One, Melbourne, Florida 32901.
(5) Includes 730,618 shares of Common Stock held by UES Florida, Inc., a wholly
owned subsidiary of UES, Inc. Mr. Joshi is the Chairman and a director of
UES, Inc., of which he owns 58% of the shares of its common stock and which,
as a result, he controls. With respect to the 730,618 shares held by UES
Florida, Inc., 148,616 of such shares are subject to an option granted by
UES Florida, Inc. to Mr. Joshi. Both UES, Inc. and UES Florida, Inc. have
offices at 4402 Dayton-Xenia Road, Dayton, OH 45432.
(6) Includes options obtained from UES Florida, Inc. covering 49,539 shares for
Mr. McNeight, 99,077 shares for Mr. Craven and 148,616 shares for Mr. Joshi.
Includes options granted under the Incentive
(footnotes on next page)
43
<PAGE>
<PAGE>
(footnotes from previous page)
Plan covering 13,333 shares for Mr. McNeight, 1,667 shares for Mr. Craven,
2,000 shares for each of Messrs. Clifford and Maguire and 4,999 shares for
other officers and directors, options for 62,683 shares of Common Stock
granted to Mr. McNeight, 1,667 shares of Common Stock granted to Mr. Craven
and 1,667 shares of Common Stock granted to other officers and directors
under a non-qualified stock option plan which plan has been terminated and
options granted under the Directors' Plan covering 2,500 shares for each of
Messrs. Clifford and Maguire, all of which options are currently
exercisable. Excludes options granted under the Incentive Plan covering
56,667 shares for Mr. McNeight, 18,333 shares for Mr. Craven and 25,001
shares for other officers and directors, all of which options are not
exercisable within 60 days of the date of this Prospectus. See 'MANAGEMENT'
and 'CERTAIN TRANSACTIONS'.
(7) The address of each such beneficial owner is P.O. Box 837, Curacao,
Netherlands Antilles.
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this Offering, an aggregate of 360,355 shares of Common
Stock ('Selling Security Holders' Shares') are being registered by the Company
under the Securities Act pursuant to a Selling Security Holder Prospectus
included within the Registration Statement of which this Prospectus forms a
part. The holders of all such Selling Security Holders' Shares have agreed not
to sell, transfer or otherwise dispose of these securities for eighteen months
following the date of this Prospectus, without the prior written consent of the
Underwriter. The Company will not receive any of the proceeds from the sale of
the Selling Security Holders' Shares. It is anticipated that when such shares
are eligible for sale free of the contractual restriction described above, they
will be offered and sold from time to time in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions.
DESCRIPTION OF SECURITIES
SECURITIES OFFERED
The 1,000,000 shares of Common Stock and 1,400,000 Warrants to purchase
shares of Common Stock offered hereby are offered separately from one another
and will be traded separately upon the effectiveness of this Offering.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.045 per share; however, immediately prior to the date of this
Prospectus, the Company's Articles of Incorporation will be amended to increase
its authorized shares of Common Stock from 10,000,000 to 30,000,000 shares. The
holders of the Common Stock possess exclusive voting power for the election of
directors and for all other purposes and are entitled to one vote for each share
of Common Stock held of record. The Common Stock does not have cumulative voting
rights. Holders of Common Stock are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of its affairs. The holders of the Common
Stock have no preemptive rights with respect to offerings of shares of Common
Stock.
The outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered hereby, when issued in accordance with
the terms of the Offering, will be fully paid and non-assessable. As of the date
of this Prospectus, there were approximately 30 holders of record of the
Company's Common Stock.
Dividends may be paid on Common Stock out of funds legally available for
such purposes and when declared by the Board of Directors. The Company has not
paid any dividends on its Common Stock, and it currently intends to retain any
earnings for use in its business. Accordingly, it is anticipated that dividends
will not be paid to holders of Common Stock in the foreseeable future. See
'DIVIDEND POLICY'. After this Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the
44
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<PAGE>
Company's President, and William R. Craven, the Company's Vice President of
Marketing, will beneficially own approximately 47.4% of PCS's outstanding
Common Stock. Although such stockholders will not hold, following this
Offering, a majority of the voting securities of the Company, their
significant beneficial holdings enable them to exercise substantial influence
over the Company.
PREFERRED STOCK
PCS is authorized to issue 2,000,000 shares of Preferred Stock, par value
$.01 per share. The Company has no plans to issue or sell shares of Preferred
Stock in the foreseeable future. When and if such shares of Preferred Stock are
issued, the holders of such stock will have certain preferences over the holders
of Common Stock, including the satisfaction of dividends on any outstanding
Preferred Stock. The Board of Directors has the authority to determine the
dividend rights, dividend rates, conversion rights, rights and terms of
redemption and liquidation preferences, and sinking fund terms of any series of
Preferred Stock, the number of shares constituting any such series and the
designation thereof.
Such Preferred Stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
Management. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect, a takeover or otherwise
gain control of the Company by causing shares of Preferred Stock with voting or
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines not to be in the best interest of PCS and its shareholders. In
addition, the Company's ability to issue such shares of Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
For a period of two years from the date of this Prospectus, the issuance of
Common Stock or any warrants, options or other rights to purchase Common Stock
is subject to the Underwriter's prior consent, which may not be unreasonably
withheld. Accordingly, such restriction limits the ability of the Company to
issue shares of Preferred Stock which are, by their terms, convertible into or
exchangeable for Common Stock.
REDEEMABLE WARRANTS
Each Warrant offered hereby entitles the registered holder thereof (the
'Warrant Holders') to purchase one share of Common Stock at a price of $6.00,
subject to adjustment in certain circumstances, for a period of five years
commencing on , 1997 (eighteen months from the date of this
Prospectus) until 5:00 p.m., Eastern Time, on , 2002. The
Warrants will be separately transferable immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing on
, 1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant, provided that
the last sale price of the Common Stock on the Nasdaq National Market has
exceeded $8.50 per share (subject to adjustment) for a period of 30 consecutive
trading days during the period in which the Warrants are exercisable. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the
'Warrant Agreement'). The exercise price and number of shares of Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company. In
addition, the Warrants are subject to adjustment for issuances of Common Stock
at prices below the market price of a share of Common Stock on the Nasdaq
National Market. Reference is made to the Warrant Agreement (which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part) for a complete description of the terms and conditions therein (the
description herein contained being qualified in its entirety by reference
thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the
45
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<PAGE>
Warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by certified check or bank draft payable to the
Company) to the warrant agent for the number of Warrants being exercised. The
Warrant Holders do not have the rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
BRIDGE FINANCING
Pursuant to the August Bridge Financing, the Company borrowed $400,000 from
a group of private investors at an annual interest rate of 6%. It is anticipated
that the principal amount of such notes will be repaid from the proceeds of this
Offering not later than September 1996. In addition, as part of the August
Bridge Financing, the Company sold to the same investors warrants to purchase
160,000 shares of Common Stock. Each warrant represents the right to purchase
one share of Common Stock, commencing on the effective date of this Offering and
until the expiration of five years from the date of this Prospectus. The
exercise price of the warrants is $6.00 per share, until , 2001
and during their term. After expiration, the warrants will be void and of no
value.
The warrants are to be subject to earlier redemption as follows. If the
average of the closing bid prices of the Common Stock (if the Common Stock is
then traded in the over-the-counter market) or the average of the closing prices
of the Common Stock if the Common Stock is then traded on a national securities
exchange or the Nasdaq National Market or Small Cap System) exceeds $6.00 for
any consecutive 20 trading days, then upon at least 30 days' prior written
notice, given within 60 days of the period, the Company will be able to call all
(but not less than all) of the warrants for redemption at a price of $.05 per
warrant.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and number of shares issuable upon
exercise on the occurrence of certain events, such as stock dividends or certain
other changes in the number of outstanding shares except for shares issued
pursuant to any Company stock option plans for the benefit of its employees,
directors and agents, the warrants offered hereby, the Underwriter's Warrants,
the Underwriter's overallotment option, any securities involved in such bridge
financing, and any equity securities for which adequate consideration is
received. The Company is not to be required to issue fractional shares. In lieu
of the issuance of such fractional shares, the Company will pay cash to such
holders of the warrants. In computing the cash payable to such holders, a share
of Common Stock will be valued at its price immediately prior to the close of
business on the expiration date. The holder of a warrant will not possess any
rights as a stockholder of the Company unless he exercises his warrant. See
'RISK FACTORS -- Possible Contingent Liability' and 'USE OF PROCEEDS'.
LIMITATION OF DIRECTORS' LIABILITY
Under provisions of Florida's corporate statutes, a director is not
personally liable for monetary damages to the corporation on whose board of
directors he serves or anyone else for his actions or conduct regarding
corporate management or policy unless: (a) the director breached or failed to
46
<PAGE>
<PAGE>
perform his duties as a director and (b) such director's breach or failure to
perform those duties constitutes:
(1) A violation of criminal laws which the director reasonably
believes to be lawful or not unlawful;
(2) A transaction in which the director, directly or indirectly,
derived an improper personal benefit;
(3) A declaration of an illegal dividend or illegal repurchase of
corporate shares or an illegal distribution of its assets;
(4) Conduct in a legal proceeding for the corporation or its
shareholders that consciously disregards the corporation's best interest or
willful misconduct; or
(5) Conduct in such proceeding by someone else that demonstrates
recklessness or an act or omission in bad faith with malicious purpose or
wanton and willful disregard of human rights, safety or property.
LISTING ON NASDAQ NATIONAL MARKET
Immediately following the Offering, it is anticipated that the Common Stock
and Warrants will be quoted on the Nasdaq National Market under the symbols
'TUFF' and 'TUFFW'. An application to list such securities on Nasdaq National
Market has been filed.
No assurance can be given that the prices of such securities will be so
quoted or that a trading market for the Company's securities will develop or be
sustained, or at what price the securities will trade. In addition, even if such
securities are listed and traded initially on the Nasdaq National Market, the
Company may fail to meet subsequently certain minimum standards for continued
listing. In that event, such securities will consequently be delisted, and their
price will no longer be quoted in such system. In such event, the Company would
seek to list its securities on the Nasdaq Small Capitalization Market. However,
if it was unsuccessful, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called 'pink
sheets' or the NASD's 'Electronic Bulletin Board'. As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's securities. See 'RISK
FACTORS -- QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET
VOLATILITY'.
TRANSFER AND WARRANT AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 is the transfer and warrant agent and registrar for the securities of the
Company.
UNDERWRITING
Duke & Co., Inc. (the 'Underwriter') has agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase 1,000,000 shares
of Common Stock and 1,400,000 Warrants to purchase shares of Common Stock from
the Company. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock for $6.00, subject to adjustment in certain circumstances.
The Underwriter is committed to purchase and pay for all of the Common Stock and
Warrants offered hereby if any of such securities are purchased. The shares of
Common Stock and Warrants are being offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set forth
on the cover page of this Prospectus. The Underwriter may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
(the 'NASD') concessions, not in excess of $ per share of Common Stock and
$
47
<PAGE>
<PAGE>
per Warrant, of which not in excess of $ per share of Common Stock and
$ per Warrant may be reallowed to other dealers who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 30
days from the consummation of this Offering, to purchase up to 150,000
additional shares of Common Stock and/or Warrants to purchase 210,000 shares of
Common Stock at the public offering prices set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter may
exercise this option in whole or, from time to time, in part, solely for the
purpose of covering overallotments, if any, made in connection with the sale of
the shares of Common Stock and Warrants offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this Offering ($154,200). Subject to
certain limitations, the Company has also agreed to pay all expenses in
connection with qualifying the shares of Common Stock and Warrants offered
hereby for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees, for an
aggregate of $10.00, warrants (the 'Underwriter's Warrants') to purchase up to
100,000 shares of Common Stock at an exercise price of $7.00 per share (140% of
the initial public offering price per share) and/or up to 140,000 Warrants (each
to purchase one share of Common Stock at $6.00 per share) at an exercise price
of $.14 per Warrant (140% of the initial public offering price per Warrant). The
Underwriter's Warrants may not be sold, transferred, assigned or hypothecated
for one year from the date of this Prospectus, except to the officers and
partners of the Underwriter, co-underwriters, selling group members and their
officers or partners, and are exercisable during the four-year period commencing
one year from the date of this Prospectus (the 'Warrant Exercise Term'). During
the Warrant Exercise Term, the holders of the Underwriter's Warrants are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock. To the extent that the Underwriter's Warrants are exercised,
dilution to the interests of the Company's shareholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants, the underlying shares of
Common Stock or the underlying Warrants, or the shares of Common Stock issuable
upon any exercise of such underlying Warrants may be deemed additional
underwriting compensation. The exercise price and number of shares of Common
Stock or other securities issuable on exercise of the Underwriter's Warrants are
subject to adjustment in certain circumstances, including in the event of a
stock dividend, subdivision, reclassification, reorganization, merger or
recapitalization. An adjustment shall also be made in the case of a distribution
to holders of Common Stock of evidence of its indebtedness or assets or
subscription rights or warrants. Subject to certain limitations and exclusions,
the Company has agreed, at the request of the holders of a majority of the
Underwriter's Warrants, at the Company's expense, to register the Underwriter's
Warrants, the shares of Common Stock and warrants underlying the Underwriter's
Warrants, and the shares of Common Stock issuable upon exercise of the
underlying Warrants under the Securities Act on one occasion during the
three-year period commencing one year from the date of this Prospectus, and to
include, on one occasion, such Underwriter's Warrants and such underlying
securities in an appropriate registration statement which is filed by the
Company during the Warrant Exercise Term.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this Prospectus),
to pay to the Underwriter a fee of 2.5% of the exercise price for each Warrant
exercised, provided, however, that the Underwriter will not be entitled to
receive such compensation in Warrant exercise transactions in which (i) the
market price of Common Stock at the time of exercise is lower than the exercise
price of the Warrants; (ii) the Warrants are held in any discretionary account;
(iii) disclosure of compensation arrangements is not made, in addition to
disclosure provided in this Prospectus, in documents provided to holders of the
Warrants at the time of exercise; (iv) the exercise of Warrants is unsolicited
by the Underwriter; or (v) the solicitation of exercise of the Warrants was in
violation of Rule 10b-6 promulgated under the Exchange Act.
48
<PAGE>
<PAGE>
The Company has agreed, for a period of three years from the consummation
of this Offering, to engage the designee of the Underwriter as a non-voting
advisor to the Company's Board of Directors or, at the Underwriter's request, to
nominate and use its best efforts to elect a reasonably acceptable designee of
the Underwriter as a director of the Company. The Underwriter has not yet
exercised its right to designate such person.
In addition, the Company has agreed to enter into a consulting agreement to
retain the Underwriter as a financial consultant for a period of two years
following the consummation of this offering at a monthly fee of $3,500 (or an
aggregate of $84,000), the entire $84,000 payable in full immediately upon the
consummation of this Offering. The consulting agreement will not require the
consultant to devote a specific amount of time to the performance of its duties
thereunder. It is anticipated that these consulting services will be provided by
principals of the Underwriter and/or members of the Underwriter's corporate
finance department who, however, have not been designated as of the date hereof.
In the event that the Underwriter originates a financing or a merger,
acquisition, joint venture or other transaction to which the Company is a party,
the Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act.
The Company's officers, directors and securityholders beneficially owning
over 99% of the shares of Common Stock outstanding as of the date of this
Prospectus (including all of the Selling Security Holders) have agreed not to
dispose of any of their shares of Common Stock, subject to certain exceptions,
for a period of eighteen months from the date of this Prospectus, without the
prior written consent of the Underwriter.
Prior to this Offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering prices of
the Common Stock and Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining the initial public offering prices and the
exercise price were the Company's financial condition and prospects, management,
market prices of similar securities of comparable publicly-traded companies,
certain financial and operating information of companies engaged in activities
similar to those of the Company and the general condition of the securities
markets.
Although it has no obligation to do so, the Underwriter intends to engage
in market-making activities or solicited brokerage activities with respect to
the purchase or sale of the Common Stock or Warrants in the Nasdaq National
Market or other over-the-counter market where such securities will trade.
However, no assurance can be given that the Underwriter will continue to
participate as a market maker in the securities of the Company or that other
broker/dealers will make a market in such securities. The Underwriter has the
right to act as the Company's exclusive agent in connection with any future
solicitation of holders of the Warrants to exercise their Warrants. Unless
granted an exemption by the Securities and Exchange Commission from Rule 10b-6
under the Exchange Act, the Underwriter will be prohibited from engaging in any
market-making activities or solicited brokerage activities with regard to the
Company's securities during the period prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Warrant based upon a prior
solicitation until the later of the termination of such solicitation activity or
the termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market for the Company's securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market prices of the Company's securities.
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only two public offerings. Accordingly,
there can be no assurance that the Underwriter's limited public offering
experience will not affect the Company's offering of the Common Stock and
Warrants and subsequent development of a trading market, if any.
49
<PAGE>
<PAGE>
LEGAL MATTERS
The legality of the Common Stock and Warrants offered hereby will be passed
upon for the Company by Zimet, Haines, Friedman & Kaplan, New York, New York.
Gersten, Savage, Kaplowitz & Curtin, LLP, New York, New York has acted as
counsel for the Underwriter in connection with this Offering.
EXPERTS
The financial statements of the Company at September 30, 1995 and 1994
appearing in this Prospectus and Registration Statement have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
In October, 1994, the Board of Directors of the Company retained KPMG Peat
Marwick LLP as the Company's independent auditors following the termination of
Hoyman, Dobson & Company, P.A., the Company's former accountants. There were no
disagreements with such firm on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, and
such firm's report on the Company's financial statements did not contain an
adverse opinion or disclaimer, or qualification as to uncertainty, audit scope
or accounting principles.
50
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<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Financial Statements:
Balance Sheets........................................................................................ F-3
Statements of Income.................................................................................. F-4
Statements of Changes in Stockholders' Equity......................................................... F-5
Statements of Cash Flows.............................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors:
PARAVANT COMPUTER SYSTEMS, INC.:
We have audited the accompanying balance sheets of Paravant Computer
Systems, Inc., as of September 30, 1995 and 1994, and the related statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paravant Computer Systems,
Inc., as of September 30, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Orlando, Florida
February 19, 1996
(except as to Note 18)
which is as of May 15, 1996
F-2
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 211,426 $ 4,806
Accounts receivable (notes 7 and 9).............................................. 5,295,106 3,387,336
Employee receivables and advances................................................ 65,707 34,621
Costs and estimated earnings in excess of billings on uncompleted contracts (note
6).............................................................................. 322,071 226,677
Inventory (notes 2, 7 and 9)..................................................... 2,411,834 2,213,309
Prepaid expenses................................................................. 51,441 82,567
Deferred income taxes............................................................ 128,979 102,678
---------- ----------
Total current assets........................................................ 8,486,564 6,051,994
Property, plant and equipment, net (notes 3, 7 and 9)................................. 462,447 428,758
Intangible assets, net (note 4)....................................................... 117,625 146,125
Demonstration pool and custom mold, net (note 5)...................................... 67,787 153,625
Deferred income taxes, net of valuation allowance of $0 and $15,000 in 1995 and 1994,
respectively........................................................................ 32,150 21,632
Capitalized offering costs............................................................ 257,812 50,000
Other assets.......................................................................... 25,330 12,469
---------- ----------
$9,449,715 $6,864,603
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank (notes 7 and 18)........................................... $3,460,000 $2,898,000
Other notes payable (note 8)..................................................... 400,000 --
Current maturities of long-term debt (note 9).................................... 110,004 110,004
Current maturities of capital lease obligations (note 10)........................ 67,685 50,662
Accounts payable................................................................. 1,334,631 964,628
Amounts due to majority shareholder.............................................. 87,294 --
Accrued commissions.............................................................. 514,240 247,293
Accrued expenses................................................................. 844,637 541,688
Income taxes payable............................................................. 317,665 196,086
---------- ----------
Total current liabilities................................................... 7,136,156 5,008,361
Long-term debt, less current maturities (note 9)...................................... 229,155 339,159
Capital lease obligations, less current maturities (note 10).......................... 77,233 91,327
---------- ----------
Total liabilities........................................................... 7,442,544 5,438,847
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued.......................................................................... -- --
Common stock, par value $.045 per share. Authorized 10,000,000 shares, issued
1,500,000 shares at September 30, 1995 and 1,579,234 shares at September 30,
1994, outstanding 1,500,000 shares at September 30, 1995 and 1994............... 67,500 71,065
Additional paid-in capital....................................................... 761,265 796,498
Retained earnings................................................................ 1,178,406 596,991
Treasury stock, at cost.......................................................... -- (38,798)
---------- ----------
Total stockholders' equity.................................................. 2,007,171 1,425,756
---------- ----------
$9,449,715 $6,864,603
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Revenues.............................................................................. $8,652,553 $7,809,073
Cost of revenues...................................................................... 4,680,661 4,414,745
---------- ----------
Gross profit................................................................ 3,971,892 3,394,328
Selling and administrative expense.................................................... 2,668,320 2,641,393
---------- ----------
Income from operations...................................................... 1,303,572 752,935
Other income (expense):
Interest expense................................................................. (392,589) (242,176)
Gain on sale of assets........................................................... -- 17,215
Miscellaneous expense............................................................ (50,711) (6,583)
---------- ----------
Income before income taxes.................................................. 860,272 521,391
Income tax expense (note 14).......................................................... 278,857 154,188
---------- ----------
Net income.................................................................. $ 581,415 $ 367,203
---------- ----------
---------- ----------
Weighted average number of shares outstanding......................................... 1,500,000 1,493,805
---------- ----------
---------- ----------
Earnings per share.................................................................... $ .39 $ .24
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------- ADDITIONAL RETAINED -------------------- TOTAL
NUMBER PAR PAID-IN EARNINGS NUMBER STOCKHOLDERS'
OF SHARES VALUE CAPITAL (DEFICIT) OF SHARES COST EQUITY
--------- ------- ---------- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1993........ 1,579,234 $71,065 $794,908 $ 229,788 85,944 $(42,098) $ 1,053,663
Sale of treasury stock.............. -- -- 1,590 -- (6,710) 3,300 4,890
Net income for the year ended
September 30, 1994................ -- -- -- 367,203 -- -- 367,203
--------- ------- ---------- ---------- --------- -------- -------------
Balances, September 30, 1994........ 1,579,234 71,065 796,498 596,991 79,234 (38,798) 1,425,756
Retirement of treasury stock........ (79,234) (3,565) (35,233) -- (79,234) 38,798 --
Net income for the year ended
September 30, 1995................ -- -- -- 581,415 -- -- 581,415
--------- ------- ---------- ---------- --------- -------- -------------
Balances, September 30, 1995........ 1,500,000 67,500 $761,265 $1,178,406 -- -- $ 2,007,171
--------- ------- ---------- ---------- --------- -------- -------------
--------- ------- ---------- ---------- --------- -------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 581,415 $ 367,203
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization............................................. 220,005 210,626
Deferred income taxes..................................................... (36,819) 16,475
Gain on sale of property, plant and equipment............................. -- (17,215)
Provision for obsolete inventory.......................................... 2,560 48,000
Increase (decrease) in cash caused by change in:
Accounts receivable.................................................. (1,907,770) (1,107,187)
Employee receivables and advances.................................... (31,086) 22,858
Inventory............................................................ (198,525) (961,115)
Costs and estimated earnings in excess of billings on uncompleted
contracts......................................................... (95,394) 343,920
Prepaid expenses..................................................... 31,126 (51,663)
Other assets......................................................... (220,673) (1,653)
Accounts payable..................................................... 457,297 319,025
Accrued commissions.................................................. 266,947 100,941
Accrued expenses..................................................... 302,949 96,850
Income taxes payable................................................. 121,579 89,375
Billings in excess of costs and estimated earnings on uncompleted
contracts......................................................... -- (39,180)
----------- -----------
Net cash used in operating activities........................... (506,389) (562,740)
----------- -----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment.................................. (60,350) (99,547)
Proceeds from sale of other assets............................................. -- 17,215
Acquisition of rights.......................................................... -- (67,500)
Acquisitions of demonstration pool and custom mold............................. (16,556) (121,844)
----------- -----------
Net cash used in investing activities........................... (76,906) (271,676)
----------- -----------
Cash flows from financing activities:
Repayment on stockholder notes payable......................................... -- (200,000)
Net proceeds from notes payable to bank........................................ 562,000 1,146,511
Proceeds from other notes payable.............................................. 400,000 --
Repayments on long-term debt................................................... (110,004) (102,348)
Repayment on capital lease obligations......................................... (62,081) (20,144)
Proceeds from sale of treasury stock........................................... -- 4,890
----------- -----------
Net cash provided by financing activities....................... 789,915 828,909
----------- -----------
Net increase (decrease) in cash and cash equivalents............ 206,620 (5,507)
Cash and cash equivalents at beginning of year...................................... 4,806 10,313
----------- -----------
Cash and cash equivalents at end of year............................................ $ 211,426 $ 4,806
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $ 365,918 $ 240,989
----------- -----------
----------- -----------
Income taxes.............................................................. $ 182,469 $ 44,000
----------- -----------
----------- -----------
Supplemental disclosure of noncash investing and financing activities:
The Company entered into capital lease agreements for computer equipment
totaling $62,450 for the year ended September 30, 1995.
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
Paravant Computer Systems, Inc., (the 'Company') is engaged in the design,
development, production and sale of computer and communication systems,
specializing in rugged, hand-held and laptop computer products. The work is
performed under general purchase orders, cost-plus-fee contracts, fixed-price
contracts and on a general production basis. The Company is a majority owned
subsidiary of UES Florida, Inc. ('UES Florida'), a wholly-owned subsidiary of
Universal Energy Systems, Inc. ('UES').
(B) INVENTORY
Inventory is stated at the lower of cost or market using the weighted
average cost method. The Company provides for a reserve of obsolete inventory as
it becomes unusable or obsolete.
(C) REVENUE AND COST RECOGNITION
The Company recognizes revenues on product sales when the customer accepts
title which typically occurs on shipment. The Company allows customers to return
defective products for up to one year for repair. The Company accrues a reserve
for future warranty costs at the time of product sales. The warranty reserve was
$99,804 and $77,771 as of September 30, 1995 and 1994, respectively.
The Company recognizes revenues on cost-plus-fee contracts for engineering
services as costs are incurred. The fee on cost-plus-fee contracts is recognized
ratably over total costs as they are incurred. Revenues and costs from
fixed-price contracts for engineering services are recognized on the
percentage-of-completion method, measured by the percentage of total costs
incurred to date to total estimated costs for each contract. This method is used
because management considers total expended costs to be the best available
measure of progress on these contracts. Any losses on fixed-price contracts are
accrued at such time as those losses become determinable. Due to uncertainties
inherent in the estimation process, it is at least reasonably possible that
completion costs will be further revised in the near term. The aggregate of
costs and estimated earnings on uncompleted contracts in excess of related
billings is shown as a current asset, and the aggregate of billings on
uncompleted contracts in excess of related costs and estimated earnings is shown
as a current liability.
Management has not provided an allowance for doubtful accounts receivable.
The Company has historically not incurred material bad debt expense and does not
except to incur any material bad debt expense related to accounts receivable as
of September 30, 1995 and 1994.
(D) DEPRECIATION AND AMORTIZATION
The cost of property, plant and equipment is depreciated over the estimated
useful lives of the related assets ranging from 5 to 7 years using the
straight-line method. Production rights, which are included in intangible assets
and demonstration pool equipment are also amortized using the straight-line
method over their useful lives. The Company also has a custom mold which is
amortized on a units-of-production basis for financial reporting purposes.
(E) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using
F-7
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(F) USE OF ESTIMATES IN FINANCIAL STATEMENT PRESENTATION
The presentation 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.
(G) EARNINGS PER SHARE
Earnings per share have been computed by dividing net income by the
weighted average number of common shares outstanding. The weighted average
number of shares outstanding has been determined assuming shares and options
issued subsequent to September 30, 1995 were outstanding for the periods
presented. When dilutive, stock options are included as share equivalents using
the treasury stock method. Common stock authorized, issued and outstanding as of
September 30, 1995 and 1994 reflects the effects of a 4.5-for-1 reverse common
stock split authorized on April 12, 1995 by the Board of Directors.
(H) CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(2) INVENTORY
The following is a summary of inventory at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Raw materials..................................................... $1,369,675 $1,768,386
Work in process................................................... 930,677 488,072
Finished goods.................................................... 262,042 104,851
---------- ----------
2,562,394 2,361,309
Reserve for obsolete inventory.................................... (150,560) (148,000)
---------- ----------
$2,411,834 $2,213,309
---------- ----------
---------- ----------
</TABLE>
F-8
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(3) PROPERTY, PLANT AND EQUIPMENT
The following is a summary of property, plant and equipment at September
30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Computer equipment.................................................... $394,556 $325,353
Furniture and fixtures................................................ 343,332 297,937
Factory equipment..................................................... 176,053 174,825
Leasehold improvements................................................ 14,267 7,293
-------- --------
Total cost....................................................... 928,208 805,408
Less accumulated depreciation......................................... (465,761) (376,650)
-------- --------
$462,447 $428,758
-------- --------
-------- --------
</TABLE>
Depreciation and amortization expense on these assets amounted to $89,111
and $105,036 for the years ended September 30, 1995 and 1994, respectively.
(4) INTANGIBLE ASSETS
The Company has exclusive rights to a printed circuit board and certain
other software. The rights are being amortized over the estimated economic
useful lives of the technology of five to ten years.
Cost and accumulated amortization of the rights included in intangible
assets at September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost.................................................................. $267,500 $267,500
Accumulated amortization.............................................. 149,875 121,375
-------- --------
$117,625 $146,125
-------- --------
-------- --------
</TABLE>
Total amortization expense on these assets was $28,500 and $27,625 for the
years ended September 30, 1995 and 1994, respectively.
(5) DEMONSTRATION POOL AND CUSTOM MOLD
These assets consist of equipment held in the demonstration pool and a
custom mold. Cost and accumulated amortization of these assets at September 30,
1995 and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost.................................................................. $449,343 $432,787
Accumulated amortization.............................................. 381,556 279,162
-------- --------
$ 67,787 $153,625
-------- --------
</TABLE>
Total amortization expense on these assets was $102,394 and $77,965, for
the years ended September 30, 1995 and 1994, respectively.
F-9
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(6) UNCOMPLETED CONTRACTS
The status of contracts which were incomplete at September 30, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Costs and estimated earnings incurred on uncompleted contracts.... $2,664,923 $2,488,789
Billings on uncompleted contracts................................. (2,342,852) (2,262,112)
---------- ----------
Net.......................................................... $ 322,071 $ 226,677
---------- ----------
---------- ----------
</TABLE>
These balances are included under the caption costs and estimated earnings
in excess of billings on uncompleted contracts in the accompanying balance
sheet.
(7) NOTES PAYABLE TO BANK
The Company has two lines of credit with a bank totaling $3,500,000 which
are due on demand and bear interest at the prime rate plus 1/2% for secured
borrowings under prescribed levels and the prime rate plus 1% for other
borrowings. Secured borrowings are collateralized by accounts receivable,
inventory and equipment. The amount outstanding under these credit agreements at
September 30, 1995 and 1994 was $3,460,000 and $2,498,000, respectively. The
credit agreements do not contain any material financial covenants.
(8) OTHER NOTES PAYABLE
In August 1995, the Company issued subordinated, convertible promissory
notes payable ('Notes') in the principal amount of $400,000 and 160,000 warrants
for $.01 per warrant exercisable at $6.00 per share. A portion of these notes
totaling approximately $98,000 were mandatorily convertible into 40,000 shares
of the Company's common stock at a conversion price of $2.45 in the event the
Company completed a public offering of its common stock prior to January 1,
1996. The Company did not complete the public offering prior to January 1, 1996
and the conversion feature expired. The Notes, which bear interest at 6%, remain
due by September 1996.
In regard to the above financing, the Company may be deemed to have
incurred a technical violation of a provision of the Securities Act of 1933, as
amended. Accordingly, there may be a contingent liability associated with such
matter. The maximum amount of such liabilities is estimated at the amount of
converted debt in such financing of $98,000. However, management believes that
there was no such violation, and the possibility of such related liability is
remote.
(9) LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Note payable to bank bearing an initial interest rate of 7.25%; interest rate
adjusted monthly to 1.25% above the prime rate; interest and principal due
in sixty monthly installments including principal of $9,167 per payment;
final payment due October of 1998, secured by accounts receivable, inventory
and equipment............................................................... $ 339,159 $ 449,163
Less current maturities....................................................... (110,004) (110,004)
--------- ---------
Long-term debt, less current maturities.................................. $ 229,155 $ 339,159
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
Maturities for subsequent periods are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
- -------------
<C> <S> <C>
1996 ................................................................ $110,004
1997 ................................................................ 110,004
1998 ................................................................ 110,004
1999 ................................................................ 9,147
--------
$339,159
--------
--------
</TABLE>
(10) LEASES
The Company is obligated under various capital leases for equipment. At
September 30, 1995 and 1994, respectively, property, plant and equipment
included net capital lease assets of $72,950 and $147,668.
The Company leases office facilities at a rate of $12,365 per month. In
addition, the Company leases a residential unit from a related partnership under
a month-to-month lease at a rate of $750 per month. The Company also leases
automobiles and equipment with lease terms into June of 1999.
The following is a schedule by years of future minimum lease payments under
capital and operating leases together with the present value of the net minimum
lease payments as of September 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
SEPTEMBER 30, LEASES LEASES
- ------------- -------- ---------
<C> <S> <C> <C>
1996 ................................................... $ 85,910 $ 140,457
1997 ................................................... 64,240 138,902
1998 ................................................... 20,042 137,880
1999 ................................................... 2,853 25,908
2000 ................................................... -- 3,310
-------- ---------
Total minimum lease payments.................................. $173,045 $ 446,457
---------
---------
Less amounts representing interest................................. 28,127
--------
Present value of net minimum lease payments................... 144,918
Less current maturities............................................ 67,685
--------
Capital lease obligations.......................................... $ 77,233
--------
--------
</TABLE>
Rent expense under operating lease agreements totaled $143,795 and $121,327
for the years ended September 30, 1995 and 1994, respectively.
(11) STOCKHOLDERS' EQUITY
Common stock authorized, issued and outstanding as of September 30, 1995
and 1994 reflects the effects of a 4.5-for-1 reverse common stock split
authorized on April 12, 1995 by the Board of Directors.
(12) STOCK OPTIONS
On December 22, 1993, the Company granted options under a nonqualified
stock option plan ('nonqualified plan') to employees to purchase 24,939 shares
of the Company's common stock at an exercise price of $.036 per share. The terms
of these options provide that the options may be exercised during a period
beginning December 22, 1994 and ending six years from the date the options were
granted. The Company terminated the nonqualified plan on November 22, 1994.
F-11
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
On November 22, 1994, the Company granted options to a key officer to
purchase 60,612 shares of the Company's common stock at an exercise price of
$2.15 per share. The terms of these options provide that the options are
exercisable through November 22, 2004. The exercise price of these options
approximates the estimated market value of the shares on the issuance date.
On November 22, 1994, the Company reserved 300,000 shares of common stock
for its qualified incentive stock option plan ('qualified plan'). On November
22, 1994 and March 2, 1995, the Company granted options to employees to purchase
115,000 and 15,000 shares, respectively, of the Company's common stock at
exercise prices ranging from $2.15 to $2.37 per share which approximates the
estimated market value of the shares on that date. The terms of these options
provide that the options may be exercised beginning one year after date of grant
for a period of nine years.
(13) RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are included
in selling and administrative expenses. The amounts charged to expense were
$480,951 and $421,126 for the years ended September 30, 1995 and 1994,
respectively.
(14) INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
1995:
Federal....................................................... $266,225 $(38,119) $228,106
State......................................................... 49,451 1,300 50,751
-------- -------- --------
$315,676 $(36,819) $278,857
-------- -------- --------
-------- -------- --------
1994:
Federal....................................................... $105,713 $ 14,068 $119,781
State......................................................... 32,000 2,407 34,407
-------- -------- --------
$137,713 $ 16,475 $154,188
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred income taxes as of September 30, 1995 and 1994 reflect the impact
of 'temporary differences' between amounts of assets and liabilities for
financial statement purposes and such amounts as measured by tax laws. The
temporary differences give rise to deferred tax assets and liabilities, which
are summarized below as of September 30, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Gross deferred tax liabilities:
Accumulated depreciation............................... $(32,271) $(25,430)
-------- --------
Gross deferred tax assets:
Inventory.............................................. 61,927 49,358
Warranty expense....................................... 37,556 29,366
Accrued vacation....................................... 29,496 23,954
Net operating loss carryforwards....................... 14,834 25,402
Research credits....................................... 49,587 49,587
-------- --------
Total gross deferred tax assets................... 193,400 177,667
Less valuation allowance.................................... -- (15,000)
-------- --------
Deferred tax assets......................................... 193,400 162,667
-------- --------
Total net deferred tax assets..................... $161,129 $137,237
-------- --------
-------- --------
</TABLE>
F-12
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
Realization is dependent on sufficient taxable income in future years. A
valuation allowance is provided when it is more likely than not that some
portion of all of the deferred tax assets will not be realized. The Company has
established a valuation allowance primarily for net operating loss
carryforwards. As of September 30, 1995, no valuation allowance has been
recognized in the accompanying financial statements for the deferred tax assets
because the Company believes that sufficient taxable income will be generated in
future years to fully utilize such amounts.
Following is a reconciliation of the expected income tax expense computed
by the U.S. Federal statutory rate of 34% and the actual income tax provision
for the year ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Expected income tax......................................... $292,492 $177,273
Increase (decrease) resulting from:
State income taxes, net of federal benefit............. 31,897 21,496
Nondeductible entertainment expense.................... 5,645 5,557
Research and experimentation credit.................... (14,698) (22,750)
Change in valuation allowance.......................... (15,000) (24,650)
Other.................................................. (21,479) (2,738)
-------- --------
$278,857 $154,188
-------- --------
-------- --------
</TABLE>
The Company has net operating loss carryforwards of approximately $40,000
for federal and state income tax purposes, which are available to offset future
taxable income. These loss carryforwards expire in various years from 1997
through 2009.
(15) RETIREMENT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees. Retirement expense incurred was $10,344 and $10,714
for the years ended September 30, 1995 and 1994, respectively.
(16) RELATED PARTY TRANSACTIONS
The Company was obligated under a note payable to a stockholder at
September 30, 1993. The note was unsecured and bore interest at 7%. The note was
paid in full by the Company during the year ended September 30, 1994.
The Company has an intercompany payable to UES of $87,294 at September 30,
1995 for accrued health insurance costs paid by UES which is included in amounts
due to majority shareholder. There were no intercompany payables at September
30, 1994.
At September 30, 1995 and 1994, the Company was a guarantor of certain debt
of UES. The debt includes a $1,250,000 line of credit with a bank that is due on
demand and bears interest at the prime rate. The amount outstanding under the
agreement at September 30, 1995 and 1994 was $779,715 and $954,566,
respectively. The debt also includes a commercial note payable to the same bank
bearing an initial interest rate of 8.75% adjusted monthly to 1.50% above the
prime rate. Interest and principal payments on this note are due in eighty-four
monthly installments including principal of $11,905 per payment with final
payment due in September 2001. The amount outstanding under the commercial note
payable at September 30, 1995 and 1994 was $845,235 and $988,095, respectively.
F-13
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995 AND 1994
(17) CONCENTRATION OF CREDIT RISK
Sales and accounts receivable to the customers that exceed 10% of sales or
receivables for the years ended September 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
SALES % TOTAL SALES % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $4,055,907 47% $3,846,432 49%
Customer B............................................. 2,502,997 29 1,387,967 18
Customer C............................................. 1,109,825 13 -- --
Customer D............................................. -- -- 976,807 13
</TABLE>
<TABLE>
<CAPTION>
ACCOUNTS ACCOUNTS
RECEIVABLE % TOTAL RECEIVABLE % TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Customer A............................................. $2,912,231 55% $ 860,447 25%
Customer B............................................. 1,079,567 20 1,026,489 30
Customer C............................................. 585,273 11 -- --
Customer D............................................. -- -- 870,663 26
</TABLE>
(18) SUBSEQUENT EVENTS
In February of 1996, the Company entered into an agreement to increase the
maximum borrowing amount under one of its lines of credit from $3,000,000 to
$4,000,000. The other $500,000 line of credit was combined with the long term
debt and is payable over the next 5 years in monthly principal installments of
$16,454 plus interest. The other terms of the agreements remained the same.
On November 16, 1995, the Company granted options to selected employees to
purchase 120,000 shares of the Company's common stock at exercise prices ranging
from $4.00 to $4.40 per share, which approximates the market price of the shares
at the date of issuance.
On March 14, 1996 the Company increased the options reserved under its
qualified stock option plan from 300,000 to 485,000 and also reserved 15,000
shares under a plan to benefit the nonemployee directors under terms similar to
the qualified plan.
In March 1996, the Company's former counsel rendered an invoice to the
Company totaling approximately $365,000 for legal fees and expenses representing
both general corporate services as well as services relating to the Company's
initial public offering. The Company has contested the invoice and accrued an
estimate for the settlement, if any, of these fees. In March 1996, the Company's
former counsel filed an action against the Company, its current underwriter and
certain other defendants, alleging, among other things, breach of contract,
failure to pay attorneys fees, fraud, copyright infringement and defamation by
the Company in connection with the aforementioned services as well as claiming a
finder's fee with respect to the underwriter's relationship with the Company.
Plaintiff is seeking damages of approximately $28,000,000 from the Company. The
Company has filed an answer denying the claims asserted by plaintiff and has
asserted defenses and counterclaims against the plaintiff seeking recovery of
amounts paid to the plaintiff, plus punitive damages and court costs.
Management, after consultation with counsel, is of the opinion that the ultimate
resolution of this matter will not have a material adverse effect on the
Company. If the total payments are less than or more than the amount provided in
the financial statements, such difference will decrease or increase offering
costs or operating expenses, as appropriate.
In March 1996, certain stockholders of the Company sold an aggregate of
308,581 shares of common stock to private investors at a purchase price of $4
per share. A portion of the proceeds from these sales totaling $802,294 was
advanced to the Company in April 1996 pursuant to promissory notes having an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable on the earlier of April 15, 1997 or the date which is ten
days after the consummation of the Company's initial public offering.
F-14
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 3,573 $ 3,500
Accounts receivable.............................................................. 2,192,109 1,230,558
Employee receivables and advances................................................ 57,562 14,400
Costs and estimated earnings in excess of billings on uncompleted contracts...... 140,908 375,856
Inventory (note 2)............................................................... 3,495,742 2,706,165
Prepaid expenses................................................................. 32,400 101,871
Income taxes receivable.......................................................... 330,403 152,240
Deferred income taxes............................................................ 128,979 104,740
---------- ----------
Total current assets........................................................ 6,381,676 4,689,330
Property, plant and equipment, net.................................................... 469,609 477,121
Intangible assets, net................................................................ 96,250 132,543
Demonstration pool and custom mold, net............................................... 37,947 52,888
Deferred income taxes................................................................. 32,150 25,710
Capitalized offering costs............................................................ 368,536 75,000
Other assets.......................................................................... 39,134 12,679
---------- ----------
$7,425,302 $5,465,271
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank............................................................ $3,775,000 $3,084,996
Other notes payable.............................................................. 400,000 --
Current maturities of long-term debt............................................. 110,004 110,004
Current maturities of capital lease obligations.................................. 62,279 44,955
Accounts payable................................................................. 713,958 351,112
Amounts due to majority shareholder.............................................. 188,436 36,477
Accrued commissions.............................................................. 252,314 83,384
Accrued expenses................................................................. 344,512 229,300
---------- ----------
Total current liabilities................................................... 5,846,503 3,940,228
Long-term debt, less current maturities............................................... 173,964 331,293
Capital lease obligations, less current maturities.................................... 45,840 72,034
---------- ----------
Total liabilities........................................................... 6,066,307 4,343,555
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 2,000,000 shares, none
issued.......................................................................... -- --
Common stock, par value $.045 per share. Authorized 10,000,000 shares, issued
1,500,000 shares at March 31, 1996 and 1995, outstanding 1,500,000 shares at
March 31, 1996 and 1995......................................................... 67,500 67,500
Additional paid-in capital....................................................... 761,265 761,265
Retained earnings................................................................ 530,230 292,951
---------- ----------
Total stockholders' equity.................................................. 1,358,995 1,121,716
---------- ----------
$7,425,302 $5,465,271
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................................. $1,724,882 $1,851,532
Cost of revenues...................................................................... 1,131,911 1,085,801
---------- ----------
Gross profit................................................................ 592,971 765,731
Selling and administrative expense.................................................... 1,408,657 1,115,007
---------- ----------
Loss from operations........................................................ (815,686) (349,276)
Other income (expense):
Interest expense................................................................. (222,202) (161,199)
Miscellaneous.................................................................... (1,356) 4,335
---------- ----------
Loss before income taxes.................................................... (1,039,244) (506,140)
Income tax benefit.................................................................... (391,068) (202,100)
---------- ----------
Net loss.................................................................... $ (648,176) $ (304,040)
---------- ----------
---------- ----------
Weighted average number of shares outstanding......................................... 1,500,000 1,580,000
---------- ----------
---------- ----------
Earnings per share.................................................................... $ (.43) $ (.19)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................ $ (648,176) $ (304,040)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.............................................. 100,248 103,568
Increase (decrease) in cash caused by change in:
Accounts receivable................................................... 3,102,997 2,156,778
Employee receivables and advances..................................... 8,145 20,221
Inventory............................................................. (1,083,908) (492,856)
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................... 181,163 (149,179)
Prepaid expenses...................................................... 19,041 (19,304)
Deferred income taxes................................................. -- (43,200)
Income taxes receivable............................................... (330,403) (188,500)
Capitalized offering costs............................................ (110,724) (25,000)
Other assets.......................................................... (13,804) (210)
Income taxes payable.................................................. (280,521) (122,766)
Accounts payable...................................................... (556,675) (897,274)
Accrued commissions................................................... (261,926) 83,384
Accrued expenses...................................................... (500,125) (239,446)
----------- ----------
Net cash used in operating activities............................ (374,668) (117,824)
----------- ----------
Cash flows from investing activities:
Acquisitions of property, plant and equipment................................... (54,568) (37,612)
Acquisitions of demonstration pool and custom mold.............................. (1,627) --
----------- ----------
Net cash used in investing activities............................ (56,195) (37,612)
----------- ----------
Cash flows from financing activities:
Net proceeds from notes payable to bank......................................... 315,000 186,996
Repayments on long-term debt.................................................... 55,191 (7,866)
Repayment on capital lease obligations.......................................... (36,799) (25,000)
----------- ----------
Net cash provided by financing activities........................ 223,010 154,130
----------- ----------
Net decrease in cash and cash equivalents........................ (207,853) (1,306)
Cash and cash equivalents at beginning of the period................................. 211,426 4,806
----------- ----------
Cash and cash equivalents at end of the period....................................... $ 3,573 3,500
----------- ----------
----------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 232,401 $ 161,199
----------- ----------
----------- ----------
Income taxes............................................................... $ 280,521 $ 115,000
----------- ----------
----------- ----------
During the periods ended March 31, 1996 and 1995, the Company entered into capital
leases totaling $0 and $174,942, respectively.
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions and requirements of Regulation S-B and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, such financial statements reflect all adjustments necessary for a
fair statement of financial position, results of operations and cash flows for
the interim periods presented. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
years.
It is suggested that these financial statements and footnotes be read in
conjunction with the Company's audited financial statements for the fiscal years
ending September 30, 1995 and 1994. The accounting principles used in preparing
these financial statements are the same as those described in such statements.
(2) INVENTORY
The following is a summary of inventory at March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials..................................................... $2,148,926 1,906,636
Work in process................................................... 1,303,277 817,029
Finished goods.................................................... 194,099 104,851
---------- ----------
3,646,302 2,828,516
Reserve for obsolete inventory.................................... (150,560) (122,351)
---------- ----------
$3,495,742 2,706,165
---------- ----------
---------- ----------
</TABLE>
(3) EARNINGS PER SHARE
Earnings per share have been computed by dividing net loss by the weighted
average number of shares outstanding. The weighted average number of shares
outstanding have been determined assuming shares and options issued subsequent
to March 31, 1996 were outstanding for the periods presented.
(4) SUBSEQUENT EVENT
In March 1996, certain stockholders of the Company sold an aggregate of
308,581 shares of common stock to private investors at a purchase price of $4
per share. A portion of the proceeds from these sales totaling $802,294 was
advanced to the Company in April 1996 pursuant to promissory notes having an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable on the earlier of April 15, 1997 or the date which is ten
days after the consummation of the Company's initial public offering.
F-18
<PAGE>
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders........................... 2
Additional Information............................ 2
Prospectus Summary................................ 3
Summary Financial Information..................... 6
Risk Factors...................................... 7
The Company....................................... 15
Dilution.......................................... 16
Use of Proceeds................................... 17
Dividend Policy................................... 17
Capitalization.................................... 18
Selected Financial Data........................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 20
Business.......................................... 23
Management........................................ 36
Certain Transactions.............................. 41
Principal Stockholders............................ 43
Concurrent Registration of Common Stock........... 44
Description of Securities......................... 44
Underwriting...................................... 47
Legal Matters..................................... 50
Experts........................................... 50
Index to Financial Statements..................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTION IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN ITS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
__________________________________ __________________________________
<PAGE>
<PAGE>
__________________________________ __________________________________
PARAVANT
COMPUTER
SYSTEMS, INC.
1,000,000 SHARES OF COMMON STOCK
AND
1,400,000 REDEEMABLE WARRANTS TO
PURCHASE SHARES OF COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
[LOGO]
DUKE & CO., INC.
, 1996
__________________________________ __________________________________
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
PRELIMINARY PROSPECTUS DATED MAY 16, 1996
SUBJECT TO COMPLETION
PROSPECTUS
360,355 SHARES OF COMMON STOCK
PARAVANT COMPUTER SYSTEMS, INC.
This Prospectus relates to the offer and sale by certain persons (the
'Selling Security Holders') of up to 360,355 shares of common stock, par value
$.045 per share (the 'Common Stock'), of Paravant Computer Systems, Inc. (the
'Company', 'Paravant' or 'PCS'). The Company will not receive any of the
proceeds from the sale of such shares. It is anticipated that the Common Stock
will be offered and sold from time to time in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. See 'Selling Security
Holders and Plan of Distribution.'
Prior to this Offering, there has been no public market for the Common
Stock of the Company and there can be no assurance that any such market will
develop. The Company has applied for listing of the Common Stock on the Nasdaq
National Market and it is anticipated that the Common Stock will be quoted on
the Nasdaq National Market under the symbol 'TUFF'.
Concurrently with this offering, the Company is offering by separate
prospectus 1,000,000 shares of Common Stock (the 'Company Offered Shares') and
redeemable warrants (the 'Company Offered Warrants') to purchase 1,400,000
shares of Common Stock (the 'Company Offering'). See 'Concurrent Registration of
Securities.'
The Company has agreed to pay certain of the expenses in connection with
the registration and sale of the shares being offered by the Selling Security
Holders (other than brokerage commissions and fees and expenses of counsel).
------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED
BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
'RISK FACTORS' ON PAGE 7 OF THE PROSPECTUS.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
REPORTS TO SHAREHOLDERS
Upon completion of the Company Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the 'Exchange Act'), and in accordance therewith, will be required to file
reports and other information with the Securities and Exchange Commission
('Commission') at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the public reference section of the
Commission, at that address and at prescribed rates. The Company intends to
furnish its shareholders with annual reports containing financial statements
audited by independent auditors and with additional information concerning the
business and affairs of the Company whenever deemed appropriate by the Board of
Directors or as required by law.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, in
Washington, D.C., a Registration Statement on Form SB-2, relating to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement, including the exhibits and schedules thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, Washington, D.C. Copies of all or any part of such material may be
obtained from the Commission upon payment of certain fees prescribed by the
Commission.
2
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
Company generally does not manufacture the components for its products. See
'RISK FACTORS -- COMPETITION' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
For the fiscal year ending September 30, 1995, approximately 90% of PCS's total
sales were made, directly or indirectly, to the military market in the United
States and abroad. The remaining 10% of its sales for such period were made to
the government and commercial markets. Approximately 15% of its total sales for
the same period were made by it directly to foreign customers while additional
sales of its products were made abroad by its U.S. customers.
In the military market, the Company's customers include the Armed Forces of the
U.S. government, foreign governments and major aerospace companies and prime
military contractors, such as Raytheon, Lockheed Martin, and Texas Instruments.
In regard to the government marketplace, PCS sells its products to the U.S.
Environmental Protection Agency, state Departments of Transportation, U.S.
Forestry Service and other government agencies. In the commercial market, the
Company's computers have been sold to public utilities, timber and logging
companies, surveyors, civil engineering firms, and railroads. PCS's customers
include: the Canadian Pacific Railroad, Weyerhauser, Westvaco and Geco Prakla.
Current trends in U.S. military procurement and budgeting policies appear to be
favorable to the Company. While the general trend in defense spending is toward
reductions of overall expenditures, the areas in which PCS operate are either
presently unaffected in any material way by such lower funding or are benefiting
from funding increases. In its attempt to economize, the U.S. military tends to
avoid expenditures on new large weapon systems and special-function computers
wherever possible. In contrast, much of the Company's product emphasis is on
upgrading and retro-fitting existing weapon systems in order to increase their
overall capabilities. In its product offerings, PCS also stresses enhanced
support for electronic warfare systems, diagnostics and maintenance of military
equipment as well as battlefield communications and data processing. All of
these areas are important to the U.S. military establishment in its procurement
policies and strategic plans. Finally, PCS's miniaturization and customization
capabilities, which make military electronic systems lighter and more compact,
lend themselves to greater application to military needs in this age of rapid
deployment of forces and equipment. Despite these factors, it is uncertain
whether continued downward trends in military spending may have material adverse
affects on the Company's future business. See 'THE COMPANY', 'RISK FACTORS' and
'BUSINESS', generally.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk and should not be purchased by investors who cannot afford the loss of
their entire investment. These risks include, inter alia, substantial dependence
upon military sales and government contracts, reliance on a few major customers,
possible technological obsolescence or failure of its products and their
uncertain acceptability in the market place, special risks involving its foreign
sales, the seasonality inherent in its business, intense competition with larger
companies, reliance on key executives, sub-contractors and suppliers. See 'RISK
FACTORS' generally.
THE OFFERING
<TABLE>
<S> <C>
Securities offered........................ 360,355 shares of Common Stock. See 'DESCRIPTION OF SECURITIES'.
Common Stock to be outstanding after the
Company Offering(1)..................... 2,500,000 shares.
Use of Proceeds........................... The Company will not receive any of the proceeds from this Offering.
Proposed Nasdaq National Market
symbol(2)............................... Common Stock -- 'TUFF'
</TABLE>
4
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
(footnotes from previous page)
(1) Does not include (i) 485,000 shares reserved for issuance under the
Company's Incentive Stock Option Plan ('Incentive Plan'); (ii) 15,000 shares
reserved for issuance under the Company's Nonemployee Directors' Stock
Option Plan ('Directors' Plan'); (iii) 85,945 shares of Common Stock
reserved for issuance under a non-qualified stock option plan previously
maintained by the Company, which has been cancelled; and (iv) securities
which may be issued upon the exercise of the Warrants offered in the Company
Offering, the Underwriter's Warrants and the Underwriter's over-allotment
option relating to the Company Offering and warrants ('Bridge Warrants') to
purchase an aggregate of 160,000 shares of Common Stock issuable in
connection with a bridge financing in August 1995 ('August Bridge
Financing'). See 'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN',
' -- NONEMPLOYEE DIRECTORS STOCK OPTION PLAN', 'DESCRIPTION OF
SECURITIES -- BRIDGE FINANCING' and 'UNDERWRITING'.
(2) The Company has applied for listing of the Common Stock on the Nasdaq
National Market. Although the shares of Common Stock are expected to be
approved for listing on the Nasdaq National Market, such listing does not
imply that an established public trading market will develop therefor or, if
developed, that such market will be sustained. See 'RISK FACTORS',
generally.
5
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk and should only be made by investors who can afford the loss of
their entire investment. Prospective investors should give careful attention to
these risk factors, as well as to the other information described elsewhere in
this Prospectus, including the financial statements and notes thereto, in
evaluating the Company, its business and management before making a decision to
purchase the securities offered hereby. In addition to the risks discussed
below, businesses, including the Company's, are often subject to risks not
foreseen, anticipated or appreciated by its management.
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this
Prospectus, including but not limited to the timely introduction and acceptance
of new products by the Company, the length of sales cycles in the military,
government and commercial markets and trends in military procurement and
budgeting policies.
SUBSTANTIAL DEPENDENCE UPON MILITARY SALES
The majority of PCS's sales have historically been to the United States
military, foreign military or military suppliers. The Company's future success,
if any, is highly dependent on the continued purchase by the military of its
portable computers or equipment manufactured by others which contain its
devices. For the fiscal years ending September 30, 1995 and 1994 and for the six
months ended March 31, 1996 and 1995, direct and indirect sales of the Company's
products to the U.S. Department of Defense and foreign governments represented
approximately 96%, 84%, 97% and 84%, respectively, of its sales. Attempts to
reduce military expenditures have commenced for a multitude of reasons,
including budget deficit reduction and a perceived easing of global tensions.
For the past two years, the uncertain defense budget situation has caused
delays in contract awards and reduced funding in various military programs.
Management expects that these downward trends will continue through 1996.
Fortunately for PCS, most of its product sales to the U.S. Military have either
been unaffected by such reductions in military spending or have benefitted from
increases in such funding. Management believes that this has occurred because
its products are often used for upgrades or retrofits of existing military
devices, electronic warfare systems, portable diagnostic and maintenance
equipment, lighter systems for rapid deployment and digitalization of the
battlefield.
However, it is uncertain whether any reductions or delays in military
funding or contract awards may have a material adverse effect on the Company's
business in the future. See 'BUSINESS -- INDUSTRY BACKGROUND' and 'CUSTOMERS'.
Although overall defense spending may stabilize or increase modestly, based
upon recent announcements from the U.S. Congress and Defense Department, it is
extremely difficult to predict the amount or pattern of such spending.
Management believes that in the foreseeable future military spending on new
weapon systems will continue to be restricted to research and development of
military hardware already under development and to limited production of such
systems. During this period, it anticipates that the U.S. military will still
emphasize the upgrading, repair and extended use of older systems.
One example of the U.S. military's deferring expenditures on new weapon
systems involves its handling of the F-16 and F-22 fighter planes. Instead of
replacing F-16's with the newer F-22's, the military has, in its economizing
efforts, sought to continue the F-16's in service for longer periods. As a
consequence, PCS's sales of its portable computers to Lockheed as part of that
company's upgraded electronic maintenance systems for F-16's has actually
increased recently. Should the U.S. military alter this policy and seek
full-scale production of the F-22 planes, sales of the Company's computers for
such maintenance system will, in all likelihood decrease. See
'BUSINESS -- INDUSTRY BACKGROUND AND PRODUCTS'.
7
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
UNCERTAINTY OF ISO-9001 CERTIFICATION
The Company is currently endeavoring to upgrade its own manufacturing and
assembly facilities and procedures to meet the quality management and assurance
standards of ISO-9001, propounded by an international rating agency. These
standards have been adopted by the European Economic Community as their
preferred quality standards and, to some degree, by the U.S. Department of
Defense. As far as its compliance with ISO-9001 is concerned, the Company
envisages a 5 step process: (A) training and selection of a steering committee;
(B) review of existing quality procedures and developing better procedures and
statements of general goals; (C) preparation of specific written quality
procedures; (D) implementation and testing of such procedures; (E) formal audit
by an ISO-9001 certified auditor to determine if the Company's new or modified
procedures are sufficient and official issuance of ISO-9001 certification. Each
phase of this five-step process takes approximately six months. PCS has
completed the first two stages and is currently involved in meeting its goals
for phase three. It is estimated that within 18 months the Company should obtain
ISO-9001 certification although there can be no assurance of such. Any failure
or significant delay on the part of the Company in complying with such standards
could materially and adversely affect its direct and indirect sales to the U.S.
military as well as to certain foreign customers and prevent its expansion in
such markets. See 'BUSINESS -- SUPPLY AND MANUFACTURING'.
GOVERNMENT REGULATION AND CONTRACTS
Commercial enterprises engaged primarily in supplying equipment and
services, directly or indirectly, to the United States government are subject to
special risks such as dependence on government appropriations, termination
without cause, contract renegotiation and competition for the available
Department of Defense ('DoD') business. PCS has no material DoD contracts,
however, that are subject to renegotiation in the foreseeable future and is not
aware of any proceeding to terminate material DoD contracts in which it may be
indirectly involved. In addition, many of the Company's contracts provide for
the right to audit its cost records and are subject to regulations providing for
price reductions if inaccurate cost information was submitted by PCS. See 'RISK
FACTOR -- COMPETITION' and 'BUSINESS -- GOVERNMENT REGULATION AND CONTRACTS' and
'COMPETITION'.
DEPENDENCE ON MAJOR CUSTOMERS
The Company's business is also substantially dependent on a relatively
small number of customers and DoD programs. In the fiscal year ended September
30, 1995, the Company's five largest customers in terms of sales, Raytheon
Company (47%), Lockheed Martin Corporation (29%), STN Atlas Electronics (13%),
TransPacific Technologies (3%) and Nichols Research (2%), accounted for an
aggregate of 90% of total PCS's sales. The loss of Raytheon or Lockheed Martin
as a customer could have a material adverse effect on PCS's results of
operations or financial condition. In fiscal year 1994, the Company's five
largest customers accounted for an aggregate of 89% of its total sales with the
largest customer in such year representing approximately 55% of total PCS's
sales. See 'BUSINESS -- CUSTOMERS'. Effective on May 15, 1995, two of its
largest customers, Lockheed and Martin Marietta merged. The Company is unable at
this early stage to predict what impact, if any, such merger will have on its
business or sales.
As of April 30, 1996, the Company's backlog was $6,100,679, 90% of which
was represented by large orders from three customers, namely -- Lockheed Martin
Corporation (57%), STN Atlas Electronics (23%) and Texas Instruments (10%). The
remaining 10% of such backlog represents orders from approximately 16 other
customers. The loss or diminution of orders from any large customer or group of
customers could have a substantial adverse effect on PCS's business and
prospects. See 'BUSINESS -- BACKLOG'.
TECHNOLOGICAL OBSOLESCENCE OR FAILURE AND UNCERTAIN MARKET ACCEPTABILITY
The markets served by the Company are characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. PCS's business requires substantial ongoing
research and development efforts and expenditures, and its future success
8
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
of a necessary component by a subcontractor or supplier can also be a
significant negative development for the Company. In addition, interference,
suspension or termination of such fabrication or supply sources will cause
greater delays due to the difficulties and time required to find suitable
replacements or substitute sources and may have a material adverse impact on the
Company's business. See 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS' and 'BUSINESS -- SUPPLY AND MANUFACTURING'.
POSSIBLE PRODUCT LIABILITY
The risk that the Company's products may malfunction and cause loss of, or
error in, data, loss of man hours, damage to, or destruction of, equipment or
delays is significant. Consequently, PCS, as a manufacturer of such computers,
may be subject to claims if such malfunctions or breakdowns occur. The Company
is not aware of any past or present claims against it. While PCS presently
maintains product liability insurance of $1,000,000, it cannot be certain that
such coverage will be adequate to satisfy future claims, if any.
POSSIBLE NEED FOR ADDITIONAL FINANCING
It is conceivable that the developments in the Company's business may
require additional funds beyond the net proceeds to be derived from the Company
Offering during the next several years. The Company expects to generate some of
these funds through its business, bank loans and other sources. There is no
assurance that if such additional funds are necessary, PCS can obtain them on
any basis or on terms deemed favorable to it. See 'USE OF PROCEEDS',
'MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS'.
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS; BENEFIT TO INSIDERS
Although the Company intends to apply the net proceeds of the Company
Offering in the manner described under the caption 'Use of Proceeds' (which
includes an allocation of $710,000 (17.75%) of the estimated net proceeds of the
Company Offering to working capital and general corporate purposes), it has
broad discretion within such proposed uses as to the precise allocation of the
net proceeds, the timing of expenditures and all other aspects of the use
thereof. The Company reserves the right to reallocate the net proceeds of the
Company Offering among the various categories set forth under 'Use of Proceeds'
in the prospectus relating to the Company Offering ('Company Offering
Prospectus') as it, in its sole discretion, deems necessary or advisable.
Moreover, upon successful completion of the Company Offering, the guarantees of
the Company's obligations to its bank by Krishan K. Joshi, the Company's
Chairman, and UES, Inc., a company which presently indirectly owns 48.7% of
PCS's outstanding Common Stock that Mr. Joshi also controls ('UES'), will be
terminated. Accordingly, Mr. Joshi and UES may be deemed to benefit from the
elimination of such guarantees. In addition, approximately $802,000 (20.05%) of
the net proceeds of the Company Offering will be used to repay loans made by UES
Florida, Inc. (a subsidiary of UES )('UES Florida'), Richard P. McNeight, the
Company's President, and William R. Craven, the Company's Vice President of
Marketing, and approximately $88,000 (2.20%) of the net proceeds of the Company
Offering will be used to reimburse UES for certain health insurance and other
expenses paid by UES on the Company's behalf. See 'USE OF PROCEEDS' and 'CERTAIN
TRANSACTIONS'.
CONCENTRATION OF OWNERSHIP
Upon completion of the Company Offering, present stockholders of the
Company will beneficially own approximately 61.5% of the Company's voting
shares. In addition, upon consummation of the Company Offering, Krishan K.
Joshi, the Company's Chairman, Richard P. McNeight, the Company's President, and
William R. Craven, the Company's Vice President of Marketing, will beneficially
own approximately 29.8%, 11.4% and 6.2%, respectively, of the outstanding shares
of Common Stock of the Company. Although such stockholders will not hold,
following the Company Offering, a majority of the voting securities of the
Company, their significant beneficial holdings enable them to exercise
substantial influence over the Company. See 'PRINCIPAL STOCKHOLDERS'.
11
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
NO ASSURANCE AS TO PROTECTION OF INTELLECTUAL PROPERTY; DEPENDENCE ON
INTELLECTUAL PROPERTY
The Company has no patent or copyright protection on its products. Its
ability to compete effectively with other companies will depend, in part, on its
ability to maintain the proprietary nature of its technologies. PCS intends to
rely substantially on unpatented proprietary information and know-how, and there
can be no assurance that others will not develop such information and know-how
independently or otherwise obtain access to its technology. Also, it is not
certain that the Company's proprietary technology will not infringe patents or
other rights owned by others, and that as a result it may not be in a position
to license such technology at a reasonable cost. See 'BUSINESS -- INTELLECTUAL
PROPERTY'.
LACK OF DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future. See
'DIVIDEND POLICY' and 'DESCRIPTION OF SECURITIES'.
NO PRIOR PUBLIC MARKET
Prior to the Company Offering, there has been no public market for the
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop and be sustained upon the completion of the Company Offering
or that the market prices of such securities will not decline below the initial
public offering prices. The initial public offering prices of such securities
have been determined by negotiations between the Company and the Underwriter.
The stock market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. Regulatory developments and economic and other external
factors, as well as period-to-period fluctuations in financial results, may also
have a significant impact on the market price of such securities.
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE
While certain of the officers of the Underwriter of the Company Offering
have significant experience in corporate financing and the underwriting of
securities, the Underwriter has previously underwritten only two public
offerings. Accordingly, there can be no assurance that the Underwriter's limited
public offering experience will not affect the Company's securities and
subsequent development of a trading market, if any.
12
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UNDERWRITER'S INFLUENCE ON THE MARKET
A significant number of shares of Common Stock and Warrants offered by the
Company Prospectus may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although it has no obligation to do
so, the Underwriter intends to engage in market-making activities or solicited
brokerage activities with respect to the purchase or sale of the Company's
securities in the Nasdaq National Market or other over-the-counter market where
such securities will trade. However, no assurance can be given that the
Underwriter will continue to participate as a market maker in the securities of
the Company or that other broker/dealers will make a market in such securities.
The Underwriter has the right to act as the Company's exclusive agent in
connection with certain future solicitations of holders of the Company Offered
Warrants to exercise their Warrants. Unless granted an exemption by the
Securities and Exchange Commission from Rule 10b-6 under the Exchange Act, the
Underwriter will be prohibited from engaging in any market-making activities or
solicited brokerage activities with regard to the Company's securities during
the period prescribed by exemption (xi) to Rule 10b-6 before the solicitation of
the exercise of any Company Offered Warrant based upon a prior solicitation
until the later of the termination of such solicitation activity or the
termination by waiver or otherwise of any right the Underwriter may have to
receive a fee for the exercise of the Company Offered Warrants following such
solicitation. As a result, the Underwriter and soliciting broker/dealers may be
unable to continue to make a market for the Company's securities during certain
periods while the Company Offered Warrants are exercisable. Such a limitation,
while in effect, could impair the liquidity and market price of the Company's
securities.
QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET VOLATILITY
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the computer and defense industries have in the
past been, and can in the future be expected to be, especially volatile. Various
factors and events, including future announcements of new product and service
offerings by the Company or its competitors, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market prices of the Company's securities.
Prior to the Company Offering, there has been no established public trading
market for the Company's securities and there is no assurance that a public
trading market for the Company's securities will develop after the completion of
the Company Offering. If a trading market does in fact develop for the
securities offered hereby, there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq National Market upon the effective date of the Company Offering. The
Commission has approved rules imposing criteria for listing of securities on the
Nasdaq National Market, including standards for maintenance of such listing. In
order to qualify for initial quotation of securities on the Nasdaq National
Market, a company, among other things, must have at least $4,000,000 in net
tangible assets, $3,000,000 in market value of the public float and a minimum
bid price of $5.00 per share. For continued listing, a company, among other
things, must have $1,000,000 in net tangible assets, $1,000,000 in market value
of securities in the public float and a minimum bid price of $1.00 per share. If
the Company is unable to satisfy the Nasdaq National Market's maintenance
criteria in the future, its securities may be delisted from the Nasdaq National
Market. In such event, the Company would seek to list its securities on the
Nasdaq Small Capitalization Market. However, if it was unsuccessful, trading, if
any, in the Company's securities would thereafter be conducted in the
over-the-counter market in the so-called 'pink sheets' or the NASD's 'Electronic
Bulletin Board'. As a consequence of such delisting, an investor would likely
find it more difficult to dispose of, or to obtain quotations as to, the price
of the Company's securities.
PENNY STOCK REGULATION
In the event that the Company is unable to satisfy the maintenance
requirements for the Nasdaq National Market and its Common Stock falls below the
minimum bid price of $5.00 per share for the initial quotation, the Company
would seek to list its securities on the Nasdaq Small Capitalization Market. If
it was unsuccessful, trading would be conducted on the 'pink sheets' or the
NASD's
13
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'Electronic Bulletin Board'. In the absence of the Common Stock being quoted on
Nasdaq, or the Company's having $2,000,000 in stockholders' equity, trading in
the Common Stock would be covered by Rule 15g-9 promulgated under the Exchange
Act, for non-Nasdaq and non-exchange listed securities. Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of the purchasers in this Offering, to sell their securities in
the secondary market. There is no assurance that trading in the Company's
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
POSSIBLE ISSUANCES OF PREFERRED STOCK
Shares of Preferred Stock of the Company may be issued by the Board of
Directors, without stockholder approval, on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. For a period of two years from the date of this
Prospectus, the issuance of Common Stock or any warrants, options or other
rights to purchase Common Stock is subject to the Underwriter's prior consent,
which may not be unreasonably withheld. Accordingly, such restriction limits the
ability of the Company to issue shares of Preferred Stock which are, by their
terms, convertible into or exchangeable for shares of Common Stock. Although the
ability to issue Preferred Stock may provide flexibility in connection with
possible acquisitions and other corporate purposes, such issuance may make it
more difficult for a third party to acquire, or may discourage a third party
from acquiring, a majority of the voting stock of the Company. This result could
prevent an increase in the market price of PCS's Common Stock or cause a decline
in such price. PCS has no current plans to issue any shares of its Preferred
Stock. See 'DESCRIPTION OF SECURITIES -- PREFERRED STOCK'.
14
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POSSIBLE CONTINGENT LIABILITY
In connection with a bridge financing involving certain private investors,
the Company may be deemed to have incurred a technical violation of Section 5 of
the Securities Act of 1933, as amended. Accordingly, there may be a contingent
liability associated with such matter. However, Management believes that there
was no such violation, and the possibility of such related liability is remote.
See 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING' and FOOTNOTE 8 to FINANCIAL
STATEMENTS. See also 'BUSINESS -- LEGAL PROCEEDINGS' for information relating to
a lawsuit filed against the Company by its former counsel.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Company Offering could adversely affect the market price of
such shares. Upon the consummation of the Company Offering, the Company will
have 2,500,000 shares of Common Stock outstanding, of which the 1,000,000 shares
of Common Stock offered by the Company and, subject to certain contractual
restrictions with the Underwriter described below, the 360,355 shares of Common
Stock offered hereby, will be freely tradeable without restriction or further
registration under the Securities Act. All of the remaining 1,139,645 shares of
Common Stock outstanding are 'restricted securities', as that term is defined
under Rule 144 promulgated under the Securities Act, and in the future may only
be sold pursuant to a registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 (including, without
limitation, certain volume limitations and holding period requirements thereof)
or pursuant to another exemption under the Securities Act. The Company's
directors, officers and securityholders (including the Selling Security Holders)
beneficially owning over 99% of the 1,500,000 shares of Common Stock outstanding
as of the date of this Prospectus have agreed not to dispose of their shares,
subject to certain exceptions, for a period of eighteen months from the date of
the Company Prospectus, without the prior written consent of the Underwriter.
THE COMPANY
Paravant Computer Systems, Inc. (the 'Company', 'Paravant' or 'PCS') is a
manufacturer of rugged, portable computers and communication interfaces utilized
in outdoor settings. PCS also offers extensive customization services to modify
its standard products to the specific needs of the end-users. The Company's
laptop and hand-held processors are designed and built to function in adverse
environments under harsh weather, climate and operational conditions. Insulated
from temperature extremes, flying debris, shock, vibration, moisture and
humidity, its products have a reputation for high-level performance and
reliability in difficult circumstances.
The Company's products are sold to the U.S. and foreign military
establishments, other government agencies and commercial enterprises. In the
military setting, PCS's products control weapon systems and radar units, test,
diagnose and maintain equipment, train personnel and communicate with other
systems. For government and commercial markets, the Company's portable computers
gather, record, store and process an array of data involving a wide variety of
applications. The customers of PCS entail, among others, the Armed Services of
the U.S. government and various foreign governments, major aerospace companies
and prime military contractors, governmental agencies in environmental, forestry
and transportation areas, public utilities, railroads, timber and logging
companies, and surveying and engineering firms. The Company sells and markets
its products through a small internal sales force, sale representatives in the
U.S. and distributors abroad. See 'BUSINESS -- PRODUCTS, MARKETING AND SALES,
AND CUSTOMERS'.
The Company was organized as a corporation under the laws of the State of
Florida on June 25, 1982. Its principal executive offices are located at 780
South Apollo Boulevard, Atrium One, Melbourne, FL 32901. Its telephone number is
(407) 727-3672.
15
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock by the Selling Security Holders. The net proceeds to the
Company from the sale of the Company Offered Shares and Company Offered Warrants
offered pursuant to the Company Offering, after deducting underwriting discounts
and commissions and other expenses of the Company Offering, are estimated to be
approximately $4,000,000 (without giving effect to any exercise of the
Underwriter's over-allotment option). See 'BUSINESS -- LEGAL PROCEEDINGS'. The
Company currently intends to utilize the net proceeds of the Company Offering
substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENT OF
APPLICATIONS AMOUNT(1) TOTAL
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Increased research and development and engineering for improvement of
existing products and development of new products and applications....... $1,000,000 25.00%
Repayment of indebtedness to stockholders(2)............................... 802,000 20.05
Expansion of domestic and international marketing activities, including
hiring additional personnel, increased advertising and trade shows....... 500,000 12.50
Purchase/leasing of new office and production equipment and information
management system........................................................ 500,000 12.50
Repayment of promissory notes to investors(3).............................. 400,000 10.00
Repayment of intercompany balances(4)...................................... 88,000 2.20
Working capital and general corporate purposes............................. 710,000 17.75
----------- -----------
Total................................................................. $4,000,000 100.0%
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) In the event that the Underwriter's over-allotment option relating to the
Company Offering is exercised, the Company will realize additional net
proceeds, which will be used for working capital and general corporate
purposes.
(2) Approximately $802,000 of the net proceeds of the Company Offering will be
used to repay promissory notes in favor of UES Florida (a subsidiary of UES,
of which Krishan K. Joshi, the Company's Chairman, owns 58% of the shares of
its common stock), Richard P. McNeight, the Company's President, William R.
Craven, the Company's Vice President of Marketing, and another shareholder.
Interest on said notes accrues at the annual rate of 6%. The proceeds from
such notes were used by the Company for working capital and general
corporate purposes. See 'CERTAIN TRANSACTIONS'.
(3) Approximately $400,000 of the net proceeds of the Company Offering will be
used to pay promissory notes issued in August 1995 to finance working
capital needs. Interest on said notes accrues at the annual rate of 6%. The
promissory notes will be repaid no later than September 1996. The proceeds
from such notes were used by the Company for working capital and general
corporate purposes. See 'CERTAIN TRANSACTIONS'.
(4) Approximately $88,000 of the net proceeds of the Company Offering will be
used to reimburse UES which presently indirectly owns 48.7% of PCS's Common
Stock and which Krishan K. Joshi, the Company's Chairman, controls, for
certain health insurance and other expenses paid by UES on the Company's
behalf.
------------------------
The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements; any excess will be added
to working capital and any shortage will be deducted from working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in PCS's business. The Company may re-allocate such amounts from
time to time among the categories shown above or to new categories if it
believes such to be in its best interest because of the necessity to expand the
business due to increases in sales volume or changes in the competitive
environment. Pending full utilization of the net proceeds of the Company
Offering, the Company intends to reduce a portion of the indebtedness that the
Company expects to be outstanding upon completion of the Company Offering under
its secured line of credit agreement with National City Bank in Dayton, Ohio
(resulting in increased availability under the line of credit agreement for
working capital needs and general corporate purposes) and/or make temporary
investments in short-term, high-grade interest-bearing investments. PCS believes
that the net proceeds from the Company Offering, estimated working capital from
operations and other sources of funds will be adequate to sustain operations for
at least a 24-month period after the Company Offering, and it is anticipated
that such proceeds will be expended over the first 18 months after the Company
Offering. See 'CAPITALIZATION' and 'BUSINESS -- SUPPLY AND MANUFACTURING AND
SALES AND MARKETING' and 'RESEARCH AND DEVELOPMENT ACTIVITIES'.
17
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DIVIDEND POLICY
The Company has not paid any dividends on its shares of Common Stock and
intends to follow a policy of retaining any earnings to finance the development
and growth of its business. Accordingly, it does not anticipate the payment of
cash dividends in the foreseeable future. However, the payment of dividends, if
any, rests within the discretion of the Board of Directors and will depend upon,
among other things, the Company's earnings, its capital requirements and its
overall financial condition. See 'DESCRIPTION OF SECURITIES'.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, and the pro forma capitalization at March 31, 1996 giving effect to an
April 1996 loan of $802,294 to the Company by certain of its shareholders and
such pro forma capitalization adjusted for the issuance and sale of the
securities offered pursuant to the Company Offering and the repayment of certain
indebtedness.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Indebtedness(1):
Short-Term Debt, including current portion of long-term debt and
capital lease obligation....................................... $4,347,283 $5,149,577 $ 3,947,283
---------- ---------- -----------
Long-Term Debt and capital lease obligation...................... 219,804 219,804 219,804
Stockholders' Equity(2)(3):
Preferred Stock, par value $.01 per share; 2,000,000 shares
authorized; none issued........................................ -- -- --
Common Stock, par value $.045 per share; 10,000,000 shares
authorized; 1,500,000 shares issued and outstanding at March
31, 1996; 2,500,000 shares issued and outstanding as adjusted
for this Offering.............................................. 67,500 67,500 112,500
Capital in Excess of Par Value................................... 761,265 761,265 4,716,265
Retained Earnings................................................ 530,230 530,230 530,230
---------- ---------- -----------
Total Stockholders' Equity.................................. 1,358,995 1,358,995 5,358,995
---------- ---------- -----------
Total Capitalization........................................ $5,926,082 $6,728,376 $ 9,526,082
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------
(1) Includes $3,775,000 at March 31, 1996 of indebtedness owed to National City
Bank, Dayton, Ohio ('Bank'), under the Company's $4,000,000 secured credit
arrangement with the Bank, which is payable on demand. A portion of the
borrowings under such arrangement may be repaid from the proceeds of the
Company Offering. The balance is anticipated to be repaid periodically as
proceeds from the collection of its accounts receivable are received. Such
indebtedness is secured by a lien on accounts receivable, inventory and
equipment, and is guaranteed by UES and Mr. Joshi, the Company's Chairman.
Interest is charged at the Bank's prime rate plus 1/2% for secured
borrowings and the prime rate plus 1% for undersecured borrowings. After the
Company Offering is completed, the guarantees will be eliminated. See 'USE
OF PROCEEDS', 'RISK FACTORS -- MANAGEMENT'S BROAD DISCRETION IN USE OF
PROCEEDS; BENEFIT TO INSIDERS', 'MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS', 'BUSINESS -- PROPERTIES AND
FACILITIES', 'CERTAIN TRANSACTIONS' and Notes 7, 8, 9 and 10 of Notes to
Financial Statements for information with respect to the Company's lease
obligations and indebtedness, including bank indebtedness.
(2) Does not include (i) up to 360,000 shares of Common Stock issuable upon
exercise of the Underwriters' over-allotment option and the Warrants
included therein; (ii) 485,000 shares of Common Stock reserved for issuance
under the Incentive Plan and 15,000 shares reserved for issuance under the
Directors' Plan; (iii) 85,945 shares of Common Stock reserved for issuance
under a non-qualified stock option plan previously maintained by the Company
which has been terminated; (iv) up to 240,000 shares of Common Stock
issuable upon exercise of the Underwriter's Warrants and the Warrants
included therein relating to the Company Offering; (v) up to 160,000 shares
of Common Stock issuable upon exercise of the Bridge Warrants; and (vi)
1,400,000 shares of Common Stock issuable upon exercise of the Warrants. See
'MANAGEMENT -- INCENTIVE STOCK OPTION PLAN', ' -- NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN', and 'DESCRIPTION OF SECURITIES -- BRIDGE FINANCING'.
(3) Immediately prior to the date of this Prospectus, the Company's Articles of
Incorporation will be amended to increase its authorized shares of Common
Stock from 10,000,000 to 30,000,000 shares.
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Bank bearing an initial interest rate of 8.75% adjusted monthly to 1.50% above
the prime rate. Interest and principal payments on this note are due in
eighty-four monthly installments of $11,905 each and final payment is due in
September, 2001. The amount outstanding under the note at September 30, 1995 was
$845,235. The guarantee of such UES debt by the Company will terminate upon the
successful completion of the Company Offering.
Beaver Creek Enterprises, an Ohio partnership among certain UES employees,
including Mr. Joshi, owns a three (3) bedroom residential condominium in
Melbourne, Florida, consisting of approximately 1,450 square feet. It rents this
apartment to the Company at $750 per month, which includes its apportioned real
estate taxes, pursuant to a month to month lease arrangement. For the fiscal
years ended September 30, 1995 and 1994, the Company paid such partnership
$9,000 and $9,000, respectively, for the use of such condominium. For the six
month period ended March 31, 1996, the Company paid $4,500 for the use of such
condominium. This apartment is used to house PCS's executives, including Messrs.
Craven and Joshi, when they are visiting the Company's headquarters, as well as
select customers.
On December 16, 1991 Messrs. McNeight, Craven and Joshi were granted
options covering 49,539 shares, 99,077 shares and 148,616 shares of PCS's Common
Stock held by UES Florida, Inc., respectively, an affiliate of the Company ('UES
Florida'), each at an adjusted exercise price of $.45 per share. On November 22,
1994, Mr. McNeight was granted 60,612 options to purchase shares of PCS's Common
Stock at an adjusted exercise price of $2.15 per share under a non-qualified
stock option plan previously maintained by the Company, which has since been
terminated. The exercise prices of the foregoing options granted in 1991 and
1994 approximated the estimated market value of the shares of Common Stock on
the date of grant. See 'MANAGEMENT -- EXECUTIVE COMPENSATION' and 'PRINCIPAL
STOCKHOLDERS'.
PCS had an intercompany payable to UES of $188,436 at March 31, 1996 for
reimbursement of expenses paid by UES on the Company's behalf. In April 1996,
the Company paid $100,000 to UES which reduced the balance of the intercompany
payable to $88,436.
PCS advanced $7,600 during 1993 to one of its officers and shareholders.
The advance was repaid in full to it during the year ended September 30, 1994.
Officers, directors of the Company and post offering 5% shareholders or their
affiliates will not borrow funds from it except for bona fide business purposes.
In March 1996, UES Florida and Messrs. McNeight and Craven and another
shareholder sold an aggregate of 308,581 shares of Common Stock to private
investors ('Selling Security Holders') at a purchase price of $4 per share
('March 1996 Stock Purchase'). (Of the shares sold, UES Florida and Messrs.
McNeight and Craven sold 248,581, 30,000, and 10,000 shares, respectively.) In
connection with these transactions, UES Florida, Messrs. McNeight and Craven and
such other shareholder loaned to the Company in April 1996, for working capital
purposes, the sums of $646,294, $78,000, $26,000 and $52,000, respectively, or
an aggregate of $802,294 of the proceeds realized from such sales, at an
interest rate of 6% per annum. Such amounts, plus accrued interest thereon, will
be due and payable ten days after the consummation of the Company Offering. A
portion of the proceeds of the Company Offering will be used to satisfy such
obligation. At or following the time of the March 1996 Stock Purchase, the
private investors purchased an additional 51,774 shares from two other
stockholders of the Company. In order to induce the investors to purchase shares
of Common Stock of the Company and thereby provide UES Florida, Messrs. McNeight
and Craven and the other shareholder lender with funds which they loaned to the
Company, the Company granted to the investors certain 'piggyback' registration
rights to have their Common Stock registered under the Securities Act.
Accordingly, all 360,355 shares of Common Stock acquired by the Selling Security
Holders have been included in the Registration Statement of which this
Prospectus forms a part. The shares of Common Stock offered by the Selling
Security Holders are not part of the underwritten offering, however, and may not
be sold prior to 18 months from the date of this Prospectus without the prior
written consent of the Underwriter. See 'SELLING SECURITY HOLDERS'.
During September 1994, the Company was offered an initial bridge financing
involving an offer to sell 200,000 shares of Common Stock at a price of $.50 per
share, which was withdrawn. In lieu thereof, the Company received an offer for a
second bridge financing involving loans in an aggregate principal amount of
$400,000 and the sale of an aggregate of 80,000 shares of Common Stock and
warrants to
42
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purchase an additional 80,000 shares. Because the Securities and Exchange
Commission raised significant objections to both such bridge financings, the
bridge financing was revised in August 1995 to provide for the issuance to a
small group of private investors of 6% subordinated convertible promissory notes
in the principal amount of $400,000 and warrants to purchase 160,000 shares of
Common Stock. A portion of these notes totalling approximately $98,000 were
mandatorily convertible into 40,000 shares of Common Stock at a conversion
price of $2.45 per share in the event the Company completed a public offering
of its Common Stock prior to January 1, 1996. As the Company did not complete
the public offering prior to January 1, 1996, the conversion feature expired.
The promissory notes will be paid no later than September 1996 from a portion of
the proceeds of the Company Offering. Each warrant represents the right to
purchase one share of Common Stock, commencing on the effective date of the
Company Offering and until the expiration of five years from the date of the
Company Prospectus. The exercise price of the warrants is $6.00 per share,
until , 2001 and during their term. See 'DESCRIPTION OF
SECURITIES -- Bridge Financing'.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the Company's
Common Stock owned as of the date of this Prospectus and as adjusted to reflect
the sale of the securities offered by the Company Prospectus and the Company's
April 1995 reverse stock split by (i) each person who is known by it to own
beneficially more than 5% of its outstanding Common Stock, (ii) each director,
and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND OWNED(2)
NATURE OF -------------------------
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING(3)
- ----------------------------------------------------------------------- ------------- ---------- -----------
<S> <C> <C> <C>
Krishan K. Joshi(4)(5)(6).............................................. 745,156 49.7% 29.8%
Richard P. McNeight(4)(6).............................................. 292,603 18.6 11.4
William R. Craven(4)(6)................................................ 154,550 10.3 6.2
James E. Clifford(4)(6)................................................ 4,500 * *
Michael F. Maguire(4)(6)............................................... 4,500 * *
Pearl View Corporation N.V.(7)......................................... 116,667 7.8 4.7
Silk Valley Corporation N.V.(7)........................................ 116,666 7.8 4.7
Cordiff Corporation N.V.(7)............................................ 116,667 7.8 4.7
All officers and directors as a group (7 persons)(5)(6)................ 1,268,376 79.5 48.9
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise set forth in the footnotes below, all shares are
beneficially owned and the sole voting and investment power is held by the
persons named.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Prospectus have been
exercised. Unless otherwise noted, the Company believes that all persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(3) Assumes no exercise of the Company Offered Warrants sold in connection with
the Company Offering.
(4) The address of each such person is c/o Paravant Computer Systems, Inc., 780
South Apollo Blvd., Atrium One, Melbourne, Florida 32901.
(5) Includes 730,618 shares of Common Stock held by UES Florida, Inc., a wholly
owned subsidiary of UES, Inc. Mr. Joshi is the Chairman and a director of
UES, Inc., of which he owns 58% of the
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(footnotes from previous page)
shares of its common stock and which, as a result, he controls. With respect
to the 730,618 shares held by UES Florida, Inc., 148,616 of such shares
are subject to an option granted by UES Florida, Inc. to Mr. Joshi. Both
UES, Inc. and UES Florida, Inc. have offices at 4402 Dayton-Xenia Road,
Dayton, OH 45432.
(6) Includes options obtained from UES Florida, Inc. covering 49,539 shares for
Mr. McNeight, 99,077 shares for Mr. Craven and 148,616 shares for Mr. Joshi.
Includes options granted under the Incentive Plan covering 13,333 shares for
Mr. McNeight, 1,667 shares for Mr. Craven, 2,000 shares for each of Messrs.
Clifford and Maguire and 4,999 shares for other officers and directors,
options for 62,683 shares of Common Stock granted to Mr. McNeight, 1,667
shares of Common Stock granted to Mr. Craven and 1,667 shares of Common
Stock granted to other officers and directors under a non-qualified stock
option plan which plan has been terminated and options granted under the
Directors' Plan covering 2,500 shares for each of Messrs. Clifford and
Maguire, all of which options are currently exercisable. Excludes options
granted under the Incentive Plan covering 56,667 shares for Mr. McNeight,
18,333 shares for Mr. Craven and 25,001 shares for other officers and
directors, all of which options are not exercisable within 60 days of the
date of this Prospectus. See 'MANAGEMENT' and 'CERTAIN TRANSACTIONS'.
(7) The address of each such beneficial owner is P.O. Box 837, Curacao,
Netherlands Antilles.
44
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 360,355 shares of Common Stock acquired as part of
the March 1996 Stock Purchase and related transactions ('Selling Security
Holders' Shares') may be offered and sold pursuant to this Prospectus by the
Selling Security Holders who purchased the Selling Security Holders' Shares in
connection therewith. The Company has agreed to register the public offering of
the Selling Security Holders' Shares under the Securities Act concurrently with
the Company Offering and to pay certain expenses in connection therewith. The
Selling Security Holders' Shares have been included in the Registration
Statement of which this Prospectus forms a part. See 'Certain Transactions'.
None of the Selling Security Holders' Shares may be sold by the Selling
Stockholders prior to 18 months after the date of this Prospectus, without the
prior written consent of the Underwriter. None of the Selling Security Holders
has ever held any position or office with the Company or had any other material
relationship with the Company. The Company will not receive any of the proceeds
from the sale of the Selling Security Holders' Shares by the Selling Security
Holders. The following table sets forth certain information with respect to the
Selling Security Holders:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF OF
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
SELLING SECURITY HOLDERS PRIOR TO SALE(1) AFTER SALE(2)
- ---------------------------------------------------- ---------------------- ----------------------
<S> <C> <C>
Pearl View Corporation N.V.......................... 116,667 -0-
Silk Valley Corporation N.V......................... 116,666 -0-
Cordiff Corporation N.V............................. 116,667 -0-
Jasminville Corporation, N.V........................ 10,355 -0-
--
----------
Total..................................... 360,355 -0-
--
--
----------
----------
</TABLE>
- ------------
(1) Assumes no additional shares are acquired.
(2) Assumes all of the Selling Security Holders' Shares offered hereby are sold
by the Selling Security Holders.
The Selling Security Holders' Shares may be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. The Selling Security Holders'
Shares may be sold by one or more of the following methods without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchases; and (d) face-to-face transactions between sellers and
purchasers without a broker/dealer. In effecting sales, brokers or dealers
engaged by the Selling Security Holders may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissions or discounts
from Selling Security Holders in amounts to be negotiated. Such brokers and
dealers and any other participating brokers or dealers may be deemed to be
'underwriters' within the meaning of the Securities Act, in connection with such
sales.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, an aggregate of 1,000,000 Company Offered
Shares and Company Offered Warrants to purchase an additional 1,400,000 shares
of Common Stock are being offered by the Company in connection with the Company
Offering underwritten by Duke & Co., Inc. (the 'Underwriter') on a 'firm
commitment' basis. The Company Offered Shares and Company Offered Warrants have
been registered by the Company under the Securities Act pursuant to a Company
Prospectus included within the Registration Statement of which this Prospectus
forms a part.
The Company's officers, directors and securityholders (including all of the
Selling Security Holders) beneficially owning over 99% of the shares of Common
Stock outstanding as of the date of this Prospectus have agreed not to dispose
of their shares of Common Stock, subject to certain exceptions, for eighteen
months following the date of this Prospectus, without the prior written consent
of the Underwriter of the Company Offering.
45
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.045 per share; however, immediately prior to the date of this
Prospectus, the Company's Articles of Incorporation will be amended to increase
its authorized shares of Common Stock from 10,000,000 to 30,000,000 shares. The
holders of the Common Stock possess exclusive voting power for the election of
directors and for all other purposes and are entitled to one vote for each share
of Common Stock held of record. The Common Stock does not have cumulative voting
rights. Holders of Common Stock are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of its affairs. The holders of the Common
Stock have no preemptive rights with respect to offerings of shares of Common
Stock.
The outstanding shares of Common Stock are fully paid and non-assessable,
and the shares of Common Stock offered hereby, when issued in accordance with
the terms of the Company Offering, will be fully paid and non-assessable. As of
the date of the Company Prospectus, there were approximately 30 holders of
record of the Company's Common Stock.
Dividends may be paid on Common Stock out of funds legally available for
such purposes and when declared by the Board of Directors. The Company has not
paid any dividends on its Common Stock, and it currently intends to retain any
earnings for use in its business. Accordingly, it is anticipated that dividends
will not be paid to holders of Common Stock in the foreseeable future. See
'DIVIDEND POLICY'. After the Company Offering, Krishan K. Joshi, the Company's
Chairman, Richard P. McNeight, the Company's President, and William R. Craven,
the Company's Vice President of Marketing, will beneficially own approximately
47.4% of PCS's outstanding Common Stock. Although such stockholders will not
hold, following the Company Offering, a majority of the voting securities of the
Company, their significant beneficial holdings enable them to exercise
substantial influence over the Company.
PREFERRED STOCK
PCS is authorized to issue 2,000,000 shares of Preferred Stock, par value
$.01 per share. The Company has no plans to issue or sell shares of Preferred
Stock in the foreseeable future. When and if such shares of Preferred Stock are
issued, the holders of such stock will have certain preferences over the holders
of Common Stock, including the satisfaction of dividends on any outstanding
Preferred Stock. The Board of Directors has the authority to determine the
dividend rights, dividend rates, conversion rights, rights and terms of
redemption and liquidation preferences, and sinking fund terms of any series of
Preferred Stock, the number of shares constituting any such series and the
designation thereof.
Such Preferred Stock could also be used to delay, defer or prevent a change
in control of the Company or be used to resist takeover offers opposed by
Management. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect, a takeover or otherwise
gain control of the Company by causing shares of Preferred Stock with voting or
conversion rights to be issued to a holder or holders who might side with the
Board of Directors in opposing a takeover bid that the Board of Directors
determines not to be in the best interest of PCS and its shareholders. In
addition, the Company's ability to issue such shares of Preferred Stock with
voting or conversion rights could dilute the stock ownership of such person or
entity.
For a period of two years from the date of this Prospectus, the issuance of
Common Stock or any warrants, options or other rights to purchase Common Stock
is subject to the Underwriter's prior consent, which may not be unreasonably
withheld. Accordingly, such restriction limits the ability of the Company to
issue shares of Preferred Stock which are, by their terms, convertible into or
exchangeable for Common Stock.
46
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<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
REDEEMABLE WARRANTS
Each Company Offered Warrant (the 'Warrants') offered pursuant to the
Company Offering entitles the registered holder thereof (the 'Warrant Holders')
to purchase one share of Common Stock at a price of $6.00, subject to adjustment
in certain circumstances, for a period of five years commencing on
, 1997 (eighteen months from the date of this Prospectus) until
5:00 p.m., Eastern Time, on , 2002. The Warrants will be
separately transferable immediately upon issuance.
The Warrants are redeemable by the Company at any time commencing on
, 1997 (eighteen months from the date of this Prospectus), upon
notice of not less than 30 days, at a price of $.05 per Warrant, provided that
the last sale price of the Common Stock on the Nasdaq National Market has
exceeded $8.50 per share (subject to adjustment) for a period of 30 consecutive
trading days during the period in which the Warrants are exercisable. The
Warrant Holders shall have the right to exercise their Warrants until the close
of business on the date fixed for redemption. The Warrants will be issued in
registered form under a warrant agreement by and among the Company, Continental
Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the
'Warrant Agreement'). The exercise price and number of shares of Common Stock or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company. In
addition, the Warrants are subject to adjustment for issuances of Common Stock
at prices below the market price of a share of Common Stock on the Nasdaq
National Market. Reference is made to the Warrant Agreement (which has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part) for a complete description of the terms and conditions therein (the
description herein contained being qualified in its entirety by reference
thereto).
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the Warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the warrant agent for
the number of Warrants being exercised. The Warrant Holders do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified on or before the exercise date and to maintain a
current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to do so, there can be no assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a Warrant Holder exercises all Warrants then owned of record by him, the
Company will pay to such Warrant Holder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
BRIDGE FINANCING
Pursuant to the August Bridge Financing, the Company borrowed $400,000 from
a group of private investors at an annual interest rate of 6%. It is anticipated
that the principal amount of such notes will be repaid from the proceeds of this
Offering no later than September 1996. In addition, as part of the August Bridge
Financing, the Company sold to the same investors warrants to purchase 160,000
shares of Common Stock. Each warrant represents the right to purchase one share
of Common Stock, commencing on the effective date of this Offering and until the
expiration of five years from the date of this Prospectus. The exercise price of
the warrants is $6.00 per share, until , 2001 and during their
term. After expiration, the warrants will be void and of no value.
The warrants are to be subject to earlier redemption as follows. If the
average of the closing bid prices of the Common Stock (if the Common Stock is
then traded in the over-the-counter market) or the average of the closing prices
of the Common Stock if the Common Stock is then traded on a
national securities exchange or the Nasdaq National Market or Small Cap System)
exceeds $6.00 for
47
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
any consecutive 20 trading days, then upon at least 30 days' prior written
notice, given within 60 days of the period, the Company will be able to
call all (but not less than all) of the warrants for redemption at a price
of $.05 per warrant.
The warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and number of shares issuable upon
exercise on the occurrence of certain events, such as stock dividends or certain
other changes in the number of outstanding shares except for shares issued
pursuant to any Company stock option plans for the benefit of its employees,
directors and agents, the warrants offered hereby, the Underwriter's Warrants,
the Underwriter's overallotment option, any securities involved in such bridge
financing, and any equity securities for which adequate consideration is
received. The Company is not to be required to issue fractional shares. In lieu
of the issuance of such fractional shares, the Company will pay cash to such
holders of the warrants. In computing the cash payable to such holders, a share
of Common Stock will be valued at its price immediately prior to the close of
business on the expiration date. The holder of a warrant will not possess any
rights as a stockholder of the Company unless he exercises his warrant. See
'RISK FACTORS -- Possible Contingent Liability' and 'USE OF PROCEEDS'.
LIMITATION OF DIRECTORS' LIABILITY
Under provisions of Florida's corporate statutes, a director is not
personally liable for monetary damages to the corporation on whose board of
directors he serves or anyone else for his actions or conduct regarding
corporate management or policy unless: (a) the director breached or failed to
perform his duties as a director and (b) such director's breach or failure to
perform those duties constitutes:
(1) A violation of criminal laws which the director reasonably
believes to be lawful or not unlawful;
(2) A transaction in which the director, directly or indirectly,
derived an improper personal benefit;
(3) A declaration of an illegal dividend or illegal repurchase of
corporate shares or an illegal distribution of its assets;
(4) Conduct in a legal proceeding for the corporation or its
shareholders that consciously disregards the corporation's best interest or
willful misconduct; or
(5) Conduct in such proceeding by someone else that demonstrates
recklessness or an act or omission in bad faith with malicious purpose or
wanton and willful disregard of human rights, safety or property.
LISTING ON NASDAQ NATIONAL MARKET
Immediately following the Company Offering, it is anticipated that the
Common Stock and Company Offered Warrants will be quoted on the Nasdaq National
Market under the symbols 'TUFF' and 'TUFFW'. An application to list such
securities on Nasdaq National Market has been filed.
No assurance can be given that the prices of such securities will be so
quoted or that a trading market for the Company's securities will develop or be
sustained, or at what price the securities will trade. In addition, even if such
securities are listed and traded initially on the Nasdaq National Market, the
Company may fail to meet subsequently certain minimum standards for continued
listing. In that event, such securities will consequently be delisted, and their
price will no longer be quoted in such system. In such event, the Company would
seek to list its securities on the Nasdaq Small Capitalization Market. However,
if it was unsuccessful, trading, if any, in the Company's securities would
thereafter be conducted in the over-the-counter market in the so-called 'pink
sheets' or the NASD's 'Electronic Bulletin Board'. As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's securities. See 'RISK
FACTORS -- QUALIFICATION AND MAINTENANCE REQUIREMENTS FOR NASDAQ LISTING; MARKET
VOLATILITY'.
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
TRANSFER AND WARRANT AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004 is the transfer and warrant agent and registrar for the securities of the
Company.
48
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[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
[THIS PAGE INTENTIONALLY LEFT BLANK]
49
<PAGE>
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Zimet, Haines, Friedman & Kaplan, New York, New York.
EXPERTS
The financial statements of the Company at September 30, 1995 and 1994
appearing in this Prospectus and Registration Statement have been included
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
In October, 1994, the Board of Directors of the Company retained KPMG Peat
Marwick LLP as the Company's independent auditors following the termination of
Hoyman, Dobson & Company, P.A., the Company's former accountants. There were no
disagreements with such firm on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, and
such firm's report on the Company's financial statements did not contain an
adverse opinion or disclaimer, or qualification as to uncertainty, audit scope
or accounting principles.
50
<PAGE>
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Shareholders........................... 2
Additional Information............................ 2
Prospectus Summary................................ 3
Summary Financial Information..................... 6
Risk Factors...................................... 7
The Company....................................... 15
Use of Proceeds................................... 17
Dividend Policy................................... 18
Capitalization.................................... 18
Selected Financial Data........................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 20
Business.......................................... 23
Management........................................ 36
Certain Transactions.............................. 41
Principal Stockholders............................ 43
Selling Security Holders and Plan of
Distribution.................................... 45
Concurrent Registration of Securities............. 45
Description of Securities......................... 46
Legal Matters..................................... 50
Experts........................................... 50
Index to Financial Statements..................... F-1
</TABLE>
[ALTERNATE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]
__________________________________ __________________________________
PARAVANT
COMPUTER
SYSTEMS, INC.
360,355 SHARES OF COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
, 1996
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Board of Directors has authorized it to provide a general
indemnification to its officers, directors and employees regarding any claims or
liabilities incurred in the course of their employment.
The Florida Business Corporation Act ('FBCA') provides that each officer
and director of the Company shall be indemnified by the Registrant against
certain costs, expenses and liabilities which he or she may incur in his or her
capacity as such.
Section # 607.0850 of the FBCA 'Indemnification of officers, directors,
employees and agents,' provides:
(1) A corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of,
the corporation), by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against liability incurred in connection with such proceeding, including
any appeal thereof, if he acted in good faith and in a manner he 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 reasonable
cause not to believe that his conduct was unlawful. The termination of any
proceeding by judgment, order, settlement, or conviction or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in, or not opposed to, the best interests of
the corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person, who was or
is a party to any proceeding by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, or
other enterprise, against expenses and amounts paid in settlement not
exceeding, in the judgment of the board of directors, the estimated expense
of litigating and the proceeding to conclusion, actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. Such indemnification shall be authorized if
such person acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation, except
that no indemnification shall be made under this subsection in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but
in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of
any proceeding referred to in subsection (1) or subsection (2), or in
defense of any claim, issue, or matter therein, he shall be indemnified
against expenses actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under subsection (1) or subsection (2), unless
pursuant to a determination by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subsection (1) or subsection (2). Such determination shall be
made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
II-1
<PAGE>
<PAGE>
(b) If such a quorum is not obtainable, or even if obtainable, by
majority vote of a committee duly designated by the board of directors
(in which directors who are parties may participate) consisting solely
of two or more directors not at the time parties to the proceeding;
(c) By independent legal counsel;
1. Selected by the board of directors prescribed in paragraph
(a) or the committee prescribed in paragraph (b); or
2. If a quorum of the directors cannot be obtainable for
paragraph (a) and the committee cannot be designated under paragraph
(b), selected by majority vote of the full board of directors (in
which directors who are parties may participate); or
(d) By the shareholders by a majority vote of a quorum consisting
of shareholders who were not parties to such proceeding or, if no such
quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of
permissibility is made by independent legal counsel, persons specified by
paragraph (4)(c) shall evaluate the reasonableness of expenses and may
authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil
or criminal proceeding may be paid by the corporation in advance of the
final disposition of such proceeding upon receipt of an undertaking by or
on behalf of such director or officer to repay such amount if he is
ultimately found not to be entitled to indemnification by the corporation
pursuant to this section. Expenses incurred by other employees and agents
may be paid in advance upon such terms or conditions that the board of
directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and a corporation may make any other or
further indemnification or advancement or expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
such office. However, indemnification or advancement of expenses shall not
be made to or on behalf of any director, officer, employee, or agent if a
judgment or or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action so adjudicated and
constitute:
(a) A violation of the criminal law, unless the director, officer,
employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee, or
agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of s.607.0834 are applicable; or
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or
in the right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee,
or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person unless otherwise provided when authorized
or ratified.
(9) Unless the corporation's articles of incorporation provide
otherwise, notwithstanding the failure of a corporation to provide
indemnification, and despite any contrary determination of the board or of
the shareholders in the specific case, a director, officer, employee, or
agent of the corporation who is or was a party to a proceeding may apply
for indemnification or advancement of expenses, or both, to the court
conducting the proceeding, to the circuit court, or to another court of
competent jurisdiction. On receipt of an application, the court, after
giving any notice that it
II-2
<PAGE>
<PAGE>
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent is entitled to
mandatory indemnification or advancement under subsection (3), in which
case the court shall also order the corporation to pay the director
reasonable expenses incurred in obtaining court-ordered indemnification
or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the
exercise by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or
both, in view of all the relevant circumstances, regardless of whether
such person met the standard of conduct set forth in subsection (1),
subsection (2), or subsection (7).
(10) For purposes of this section, the term 'corporation' includes, in
addition the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or a merger,
so that any person who is or was a director, officer, employee or agent of
a constituent corporation, or is or was serving at the request of a
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, is in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(11) For purposes of this section:
(a) The term 'other enterprises' includes employee benefit plans;
(b) The term 'expenses' includes counsel fees, including those for
appeal;
(c) The term 'liability' includes obligations to pay a judgment,
settlement, penalty, fine, (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and
reasonably incurred with respect to a proceeding;
(d) The term 'proceeding' includes any threatened, pending, or
completed action, suit, or other type of proceeding, whether civil,
criminal, administrative, or investigative and whether formal or
informal;
(e) The term 'agent' includes a volunteer;
(f) The term 'serving at the request of the corporation' includes
any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties
relating to an employee benefit plan and its participants or
beneficiaries; and
(g) The term 'not opposed to the best interest of the corporation'
describes the actions of a person who acts in good faith and in a manner
he reasonably believes to be in the best interest of the participants
and beneficiaries of an employee benefit plan.
(12) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against any such liability under the
provisions of this section.
II-3
<PAGE>
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Registration fee............................................................................ $ 6,528
NASD filing fee............................................................................. 2,378
Blue Sky fees and expenses.................................................................. 5,000
Nasdaq National Market fees................................................................. 24,500
Non-accountable expense allowance........................................................... 154,200
Underwriter's consulting fee................................................................ 84,000
Legal fees and expenses..................................................................... 185,000*
Accounting fees and expenses................................................................ 55,000
Printing and engraving...................................................................... 80,000
Registrar and transfer agent fees........................................................... 5,000
Miscellaneous............................................................................... 24,394
--------
$626,000
--------
--------
</TABLE>
- ------------
* The legal fees referred to herein include an estimate of fees payable to the
Registrant's current counsel, Zimet, Haines, Friedman & Kaplan, and an
estimate of fees to which its former counsel, Cascone & Cole, may be
entitled. However, the amount does not include additional compensation of
approximately $150,000 to which Cascone & Cole claims to be entitled. Based
upon its current knowledge of matters relating to such claim, the Registrant
believes its former counsel is not entitled to such additional compensation.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
As of August 21, 1995 the Registrant sold to certain private investors 6%
promissory notes in the aggregate principal amount of $400,000, together with
warrants to purchase 160,000 shares of Common Stock. It is anticipated that such
notes will be repaid from a portion of the proceeds of this offering not later
than September 1996.
The sales of the aforementioned securities were made in reliance upon the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Section 4(2) thereof and/or Regulation D promulgated
thereunder, as transactions by an issuer not involving a public offering. The
Company believes that the purchasers of the securities described above acquired
them with an acknowledgement or representation that the purchase of the
securities was speculative and involved a high degree of risk, the purchasers
had the opportunity to obtain information as desired or requested, the
purchasers could bear the economic risk of a complete loss of their investment
without materially affecting their financial condition, the purchasers were
sophisticated investors, there are substantial restrictions on the
transferability of the securities, there was no public market for the Company's
securities at the time of the offering and that the purchasers might be required
to hold the securities indefinitely and that it may not be possible for a
purchaser to liquidate such investment.
ITEM 27. EXHIBITS
The following is a list of exhibits filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ----------- ------------------------------------------------------------------------------------- ------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement between Registrant and Duke & Co., Inc.
(revised).......................................................................... *
1.4 -- Form of Financial Advisory and Investment Banking Agreement (revised)............. *
3.1 -- Articles of Incorporation of the Registrant, as amended........................... Previously Filed
3.1A -- Form of Articles of Amendment of Articles of Incorporation........................ Previously Filed
3.2 -- Restated and Amended By-laws of the Registrant.................................... Previously Filed
3.2A -- Amendment to the By-Laws.......................................................... Previously Filed
4.1 -- Specimen Common Stock Certificate of Registrant................................... *
4.2 -- Specimen Warrant of Registrant.................................................... *
4.3 -- Form of Warrant Agreement between Registrant, Duke & Co., Inc. and Warrant Agent
(revised).......................................................................... *
</TABLE>
(table continued on next page)
II-4
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ----------- ------------------------------------------------------------------------------------- ------------------
<C> <S> <C>
4.4 -- Form of Lock-Up Agreement (revised)............................................... Previously Filed
4.5 -- Form of Underwriter's Warrant (revised)........................................... *
5.1 -- Opinion re: legality (revised).................................................... Previously Filed
10.1 -- Employment Agreement between the Registrant and Richard P. McNeight............... Previously Filed
10.2 -- Employment Agreement between the Registrant and William R. Craven................. Previously Filed
10.3 -- Incentive Stock Option Plan and form of Stock Option Agreement.................... Previously Filed
10.3A -- Amendment No. 1 to the Incentive Stock Option Plan................................ Previously Filed
10.4 -- Original Office Lease and Amendment between the Registrant and Atrium Professional
Centre............................................................................. Previously Filed
10.5 -- Form of Registrant's Manufacturer's Representative Agreement...................... Previously Filed
10.6 -- Form of Registrant's Distributor's Agreement...................................... Previously Filed
10.7 -- Amended Licensing Agreement between the Registrant and MicroSoft Corporation...... Previously Filed
10.8 -- Licensing Agreement between the Registrant and Phoenix Technologies, Ltd.......... Previously Filed
10.9 -- Joint Development Agreement between the Registrant and MES, Inc................... Previously Filed
10.10 -- Joint Marketing Agreement between the Registrant and Texas Instrument
Corporation........................................................................ Previously Filed
10.11 -- Joint Marketing Agreement between the Registrant and Raytheon Company............. Previously Filed
10.12 -- Licensing Agreement between Registrant and Grid Systems Corporation............... Previously Filed
10.13 -- Forms of (Revised) Subscription Agreement and Subordinated Convertible Promissory
Note............................................................................... Previously Filed
10.14 -- Nonemployee Directors' Stock Option Plan.......................................... Previously Filed
10.15 -- Employment Agreement between the Registrant and Kevin J. Bartczak................. Previously Filed
10.16 -- Letter agreements between the Registrant and National City Bank................... Previously Filed
10.17 -- Commercial demand note by Registrant in favor of National City Bank............... Previously Filed
10.18 -- Security agreement (accounts receivable) by Registrant in favor of National City
Bank............................................................................... Previously Filed
10.19 -- Security agreement (equipment) by Registrant in favor of National City Bank....... Previously Filed
10.20 -- Form of promissory note of Registrant issued in connection with stockholder loans
made in April 1996................................................................. *
10.21 -- Option Agreements dated as of December 16, 1991 between UES Florida, Inc. and each
of Krishan K. Joshi, Richard P. McNeight and William R. Craven..................... *
10.22 -- Option Agreement dated as of November 23, 1994 with Richard P. McNeight........... *
16. -- Letter re change in Certifying Accountants........................................ Previously Filed
23.1 -- Consent of Accountants (See page II-8)............................................ *
23.3 -- Consent of Counsel (included in its opinion filed as Exhibit 5.1)................. Previously Filed
27 -- Financial Data Schedule........................................................... *
</TABLE>
- ------------
* Filed with this Amendment.
II-5
<PAGE>
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) 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 set forth in the Registration Statement, and
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the offering of the securities at that time to be the initial bona fide
offering; and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (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 of 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.
II-6
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all the requirements of filing on Form SB-2 and has authorized this
Amendment No. 4 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Melbourne, Florida, on May 16, 1996.
PARAVANT COMPUTER SYSTEMS, INC.
By: KRISHAN K. JOSHI
...
KRISHAN K. JOSHI
CHAIRMAN
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:
<TABLE>
<CAPTION>
DATE SIGNATURES TITLE
- ----------------------- ------------------------------------ ------------------------------------
<S> <C> <C>
May 16, 1996 KRISHAN K. JOSHI Chairman, Chief Executive Officer
.................................... and Director (Principal Executive
KRISHAN K. JOSHI Officer)
May 16, 1996 RICHARD P. MCNEIGHT President and Director
....................................
RICHARD P. MCNEIGHT
May 16, 1996 WILLIAM R. CRAVEN Vice President, Director and
.................................... Secretary
WILLIAM R. CRAVEN
May 16, 1996 KEVIN BARTCZAK Treasurer, Vice President and Chief
.................................... Financial Officer (Principal
KEVIN BARTCZAK Financial Officer and Principal
Accounting Officer)
May 16, 1996 JAMES E. CLIFFORD Director
....................................
JAMES E. CLIFFORD
May 16, 1996 MICHAEL MAGUIRE Director
....................................
MICHAEL MAGUIRE
</TABLE>
II-7
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
PARAVANT COMPUTER SYSTEMS, INC.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 33-91426) of our report dated February 19, 1996 (except as to Note 18
which is as of May 15, 1996) on our audits of the financial statements of
Paravant Computer Systems, Inc. We also consent to the reference to our firm
under the headings 'Experts' and 'Selected Financial Data' in the prospectus.
KPMG PEAT MARWICK LLP
Orlando, Florida
May 16, 1996
II-8
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD
NUMBER DESCRIPTION OF DOCUMENT OF FILING
- ----------- ------------------------------------------------------------------------------------- ------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement between Registrant and Duke & Co., Inc.
(revised).......................................................................... *
1.4 -- Form of Financial Advisory and Investment Banking Agreement (revised)............. *
3.1 -- Articles of Incorporation of the Registrant, as amended........................... Previously Filed
3.1A -- Form of Articles of Amendment of Articles of Incorporation........................ Previously Filed
3.2 -- Restated and Amended By-laws of the Registrant.................................... Previously Filed
3.2A -- Amendment to the By-Laws.......................................................... Previously Filed
4.1 -- Specimen Common Stock Certificate of Registrant................................... *
4.2 -- Specimen Warrant of Registrant.................................................... *
4.3 -- Form of Warrant Agreement between Registrant, Duke & Co., Inc. and Warrant Agent
(revised).......................................................................... *
4.4 -- Form of Lock-Up Agreement (revised)............................................... Previously Filed
4.5 -- Form of Underwriter's Warrant (revised)........................................... *
5.1 -- Opinion re: legality (revised).................................................... Previously Filed
10.1 -- Employment Agreement between the Registrant and Richard P. McNeight............... Previously Filed
10.2 -- Employment Agreement between the Registrant and William R. Craven................. Previously Filed
10.3 -- Incentive Stock Option Plan and form of Stock Option Agreement.................... Previously Filed
10.3A -- Amendment No. 1 to the Incentive Stock Option Plan................................ Previously Filed
10.4 -- Original Office Lease and Amendment between the Registrant and Atrium Professional
Centre............................................................................. Previously Filed
10.5 -- Form of Registrant's Manufacturer's Representative Agreement...................... Previously Filed
10.6 -- Form of Registrant's Distributor's Agreement...................................... Previously Filed
10.7 -- Amended Licensing Agreement between the Registrant and MicroSoft Corporation...... Previously Filed
10.8 -- Licensing Agreement between the Registrant and Phoenix Technologies, Ltd.......... Previously Filed
10.9 -- Joint Development Agreement between the Registrant and MES, Inc................... Previously Filed
10.10 -- Joint Marketing Agreement between the Registrant and Texas Instrument
Corporation........................................................................ Previously Filed
10.11 -- Joint Marketing Agreement between the Registrant and Raytheon Company............. Previously Filed
10.12 -- Licensing Agreement between Registrant and Grid Systems Corporation............... Previously Filed
10.13 -- Forms of (Revised) Subscription Agreement and Subordinated Convertible Promissory
Note............................................................................... Previously Filed
10.14 -- Nonemployee Directors' Stock Option Plan.......................................... Previously Filed
10.15 -- Employment Agreement between the Registrant and Kevin J. Bartczak................. Previously Filed
10.16 -- Letter agreements between the Registrant and National City Bank................... Previously Filed
10.17 -- Commercial demand note by Registrant in favor of National City Bank............... Previously Filed
10.18 -- Security agreement (accounts receivable) by Registrant in favor of National City
Bank............................................................................... Previously Filed
10.19 -- Security agreement (equipment) by Registrant in favor of National City Bank....... Previously Filed
10.20 -- Form of promissory note of Registrant issued in connection with stockholder loans
made in April 1996................................................................. *
10.21 -- Option Agreements dated as of December 16, 1991 between UES Florida, Inc. and each
of Krishan K. Joshi, Richard P. McNeight and William R. Craven..................... *
10.22 -- Option Agreement dated as of November 23, 1994 with Richard P. McNeight........... *
16. -- Letter re change in Certifying Accountants........................................ Previously Filed
23.1 -- Consent of Accountants (See page II-8)............................................ *
23.3 -- Consent of Counsel (included in its opinion filed as Exhibit 5.1)................. Previously Filed
27 -- Financial Data Schedule........................................................... *
</TABLE>
- ------------
* Filed with this Amendment.
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1996
Duke & Co., Inc.
909 Third Avenue
New York, New York 10022
Dear Sirs:
The undersigned, Paravant Computer Systems, a Florida corporation
(the "Company"), hereby confirms its agreement with Duke & Co., Inc. (the
"Underwriter" or "You"), as follows:
1. INTRODUCTION. The Company proposes to issue and sell to the
Underwriter an aggregate of 1,000,000 shares of Common Stock, $.045 per value
(the "Shares"), of the Company and 1,400,000 redeemable common stock purchase
warrants, each exercisable to purchase one share of Common Stock (the
"Redeemable Warrants"). The Common Stock and the Redeemable Warrants are
collectively referred to as the "Securities." Each Redeemable Warrant shall be
exercisable for a period of five (5) years commencing eighteen months from the
Effective Date (as defined below), for one share of Common Stock at a price
equal to $6.00 per share. The Company may call for redemption of the Redeemable
Warrants commencing eighteen months from the date that the Securities and
Exchange Commission (the "Commission") declares the registration statement (the
"Registration Statement") with respect to the Securities effective (the
"Effective Date") at $.05 per Redeemable Warrant, provided the last sale price
of the Common Stock for 30 consecutive trading days, during the period in which
said warrants are exercisable, exceeds $8.50 per Share, subject to adjustment.
It is contemplated that the Shares and the Redeemable Warrants constituting the
Securities will trade separately and be purchasable separately immediately upon
issuance.
<PAGE>
<PAGE>
These Shares and Redeemable Warrants are hereinafter referred to
as the "Firm Securities." Upon your request, as provided in Section 3 of this
Agreement, the Company shall also issue and sell to you up to an additional
150,000 shares of Common Stock and/or 210,000 Redeemable Warrants for the
purpose of covering over-allotments in the sale of the Firm Securities (the
"Over-allotment Option"). Such additional Securities are hereinafter referred to
as the "Option Securities." The Firm Securities and the Option Securities are
hereinafter sometimes referred to as the "Securities." The Company also proposes
to issue and sell to you, pursuant to the terms of the warrant agreement, dated
as of the Effective Date between you and the Company (the "Underwriter's Warrant
Agreement"), warrants (the "Underwriter's Warrants") to purchase up to 100,000
shares of Common Stock and/or 140,000 Redeemable Warrants. The Underwriter's
Warrants shall be exercisable during the four-year period commencing 12 months
from the Effective Date, at $6.00 per Share and $.12 per Redeemable Warrant,
subject to adjustment in certain events to protect against dilution. The
Securities issuable upon exercise of the Underwriter's Warrants are hereinafter
sometimes referred to as the "Underwriter's Securities." The Securities, the
Underwriter's Warrants and the Underwriter's Securities are more fully described
in the Registration Statement and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriter as of the date hereof that:
a. The Company has filed with the Commission a
registration statement and an amendment or amendments thereto, on Form SB-2 (No.
33-91426), including any related preliminary prospectus (the "Preliminary
Prospectus"), for the registration of the Securities and the Underwriter's
Securities, under the Securities Act of 1933 (the "Act"), which registration
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the rules and regulations (the
"Regulations") of the Commission promulgated under the Act. Before the
registration statement becomes effective, the Company will not file any
amendment to such registration statement to which you shall have reasonably
objected after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus, in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations (or
3
<PAGE>
<PAGE>
included in the Registration Statement, if no filing under Rule 424 is
required), is hereinafter called the "Prospectus."
b. On the Effective Date and at all times subsequent
thereto up to Closing Date I and Closing Date II, if any (as such terms are
defined in Section 3(d) hereof), the Registration Statement and the Prospectus
will comply in all material respects with the applicable provisions of the Act
and the Regulations; neither the Registration Statement nor the Prospectus, nor
any amendment or supplement thereto, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
c. This Agreement, the Underwriter's Warrant Agreement and
the Consulting Agreement (as defined in Section 5(a) hereof), have been duly and
validly authorized by the Company, and this Agreement constitutes, and the
public warrant agreement dated as of the Effective Date between the Company and
the transfer agent identified in Section 5(j) hereof (the "Public Warrant
Agreement), the Underwriter's Warrant Agreement and the Consulting Agreement,
when executed and delivered pursuant to this Agreement (assuming due execution
by the Underwriter and/or the appropriate parties to such agreements), will each
constitute a valid and binding agreement of the Company, enforceable against the
Company in accordance with its respective terms, except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification, contribution or
exculpation provision may be limited under applicable Federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Securities and the Underwriter's Warrants to be issued and
sold by the Company pursuant to this Agreement and the Underwriter's Securities
issuable upon payment therefor, have been duly authorized and, when issued and
paid for, will be validly issued, fully paid and non-assessable; the holders
thereof are not and will not be subject to personal liability by reason of being
such holders; the Securities, the shares of Common Stock issuable upon the
exercise of the Redeemable Warrants (the "Warrant Shares"), the Underwriter's
Warrants and the Underwriter's Securities are not and will not be subject to the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company; and all corporate action required to
be taken for the authorization, issuance and sale of the Securities, the Warrant
Shares, the Underwriter's Warrants and the Underwriter's Securities has been
duly and validly taken. The Redeemable Warrants and Underwriter's Warrants
constitute valid and binding obligations of
4
<PAGE>
<PAGE>
the Company, enforceable in accordance with their respective terms, to issue and
sell, upon exercise in accordance with the terms thereof, the number and type of
the Company's securities called for thereby; except (i) as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification, contribution or exculpation provision may
be limited under applicable Federal and state securities laws, and (iii) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
d. All issued and outstanding Common Stock of the Company
have been duly authorized and validly issued and are 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 with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company.
e. Except as set forth in the Registration Statement and
the Prospectus, the Company has good and marketable title to, all material items
of real and/or personal property stated in the Prospectus to be owned by it,
respectively, free and clear of all liens, encumbrances, claims, security
interests, defects and restrictions of a material nature, other than those
referred to in the Prospectus and liens for taxes not yet due and payable or
being contested in good faith.
f. There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding pending or to the knowledge
of the Company, threatened, against or involving the properties or business of
the Company which, if adversely determined, could reasonably be expected to
materially and adversely affect the financial position, or prospects, or
business of the Company, except as referred to in the Prospectus.
g. All contracts and other documents required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement have been described in the Registration
Statement or the Prospectus or filed with the Commission as Exhibits to the
Registration Statement, as required.
h. The financial statements of the Company, together with
the related notes, included in the Registration Statement and Prospectus fairly
present the financial position and the results of operations of the Company, at
the dates and for the periods to which they apply; and such financial statements
have
5
<PAGE>
<PAGE>
been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. There has been no material
adverse change in financial condition or results of operations of the Company,
or to the knowledge of the Company, any development involving a prospective
change in the condition or prospects of the Company, financial or otherwise,
since the date of the financial statements included in the Prospectus, except as
disclosed therein.
i. KPMG Peat Marwick LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are independent accountants
as required by the Act and the Regulations.
j. Except as otherwise set forth in the Prospectus, the
Company does not own, directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity. The Company is duly
incorporated and in good standing in its jurisdiction of incorporation and
qualified and licensed and in good standing as a foreign corporation in each
jurisdiction in which operations require such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material
adverse affect on the Company. The Company has all requisite corporate power and
authority, and all necessary material authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies, to own or lease its properties and conduct its business as
described in the Prospectus. The Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates and permits and with all applicable Federal, state and local laws,
rules and regulations, including but not limited to laws and regulations
relating to environmental matters and employee health and safety matters, except
where non-compliance would not have a material adverse effect on the Company and
none of the aforementioned authorizations, approvals, orders, licenses,
certificates or permits have been suspended or revoked, nor to the knowledge of
the Company are there any proceedings pending or threatened which could
reasonably be expected to result in a suspension or revocation thereof. The
Company has all requisite corporate power and authority to enter into this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement and
to carry out the provisions and conditions hereof and thereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained. No consent, authorization or order of, and no filing with, any court,
government agency or other body is required for the issuance of the Securities,
the Warrant Shares and the Underwriter's Securities, pursuant to this Agreement,
the Public Warrant Agreement and the Underwriter's Warrant Agreement, and as
contemplated by the Prospectus, except with respect to applicable Federal and
state securities laws.
6
<PAGE>
<PAGE>
k. The outstanding debt, the property and the business of
the Company conform in all material respects to the descriptions thereof
contained in the Registration Statement and Prospectus.
l. The Securities, the Warrant Shares, the Underwriter's
Warrants, the Underwriter's Securities and any other securities issued or to be
issued by the Company on or before the Closing Dates (as defined in Section 3(d)
hereof) described herein conform, or will conform when issued, in all material
respects to all statements with respect thereto contained in the Registration
Statement and the Prospectus.
m. Except as set forth in the Prospectus, no material
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company are subject which default would reasonably be
expected to have a materially adverse effect on the financial condition or
business of the Company.
n. The Company is not in violation of any term or
provision of its Certificates of Incorporation or By-Laws. Neither the execution
and delivery of this Agreement, nor the issuance and sale of the shares of
Common Stock, the Redeemable Warrants, the Warrant Shares, the Underwriter's
Warrants and the Underwriter's Securities, nor the consummation of any of the
transactions contem plated herein, nor the compliance by the Company with the
terms and provisions hereof has materially conflicted with or will materially
conflict with, or has resulted in or will result in a material breach of, any of
the terms and provisions of, or has constituted or will constitute a material
default under, or has resulted in or will result in the creation or imposition
of any material lien, charge or encumbrance upon the property or assets of the
Company pursuant to the terms of any indenture, mortgage, deed of trust, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party, or by which the Company is or may be bound, or to which any
of the property or assets of the Company is subject; nor will such action result
in any material violation of the provisions of the Certificates of Incorporation
or the By-Laws of the Company or of any contract or agreement, or of any statute
or any order, rule or regulation applicable to the Company (assuming compliance
with all pertinent blue sky laws in this Offering) or the Subsidiary or of any
other regulatory authority or other governmental body having jurisdiction over
the Company, except where such violation would not have a material adverse
effect on the Company.
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o. Except as disclosed in the Prospectus, all taxes which
are due from the Company have been paid in full, unless being contested in good
faith by the Company and the Company has no tax deficiency or claim outstanding,
proposed or assessed against it, except where the failure to so pay would not
have a material adverse effect on the Company.
p. Subsequent to the respective dates as of which
information is given in the Prospectus included as a part of the Registration
Statement, and except as may otherwise be indicated or contemplated herein or
therein, (i) the Company has not issued any securities; (ii) declared or paid
any dividend or made any other distribution on or in respect to its capital
stock; (iii) incurred any material liability or obligation, direct or
contingent, for borrowed money; or (iv) entered into any transaction other than
in the ordinary course of business.
q. To the Company's knowledge, the Commission has not
issued any order preventing or suspending the use of any Preliminary Prospectus
or part thereof.
r. On the Effective Date, (i) the authorized capital stock
of the Company will be as set forth in the Registration Statement, and (ii) not
more than an aggregate of shares of Common Stock shall be issued and
outstanding, not including: (A) 1,000,000 shares of Common Stock contained
within the Securities and the 1,400,000 shares of Common Stock issuable upon the
exercise of the Redeemable Warrants; (B) up to an additional 150,000 shares of
Common Stock issuable upon the exercise of the Over-allotment Option and the
210,000 shares issuable upon the exercise of the Redeemable Warrants issuable
upon the exercise of the Over-allotment Option; (C) the 100,000 shares of Common
Stock issuable upon exercise of the Underwriter's Warrants and the 140,000
shares issuable upon exercise of the Redeemable Warrants issuable upon the
exercise of the Underwriter's Warrants (which warrants are identical to the
Redeemable Warrants); (D) up to 86,000 shares of Common Stock reserved for
issuance upon exercise of options available for grant to be granted, as of the
Effective Date, under the Company's Non-Qualified Stock Option Plan (the
"Non-Qualified Plan"); and (E) up to 500,000 shares of Common Stock reserved for
issuance pursuant to the Company's qualified stock option plan (the "Qualified
Stock Option Plan"). Other than the shares of Common Stock already issued
(within the meaning of the immediately preceding sentence), the Securities, the
Warrant Shares, the Underwriter's Warrants and the Underwriter's Securities to
be offered in or in connection with the public offering, no other shares of
capital stock or securities convertible into capital stock shall be outstanding
or reserved for issuance at the completion of the proposed public offering
without the consent of the Underwriter, except as contemplated by the
Registration Statement.
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s. Except for the registration rights granted under the
Underwriter's Warrant Agreement and those to the Selling Stockholders, as
defined herein, no holders of any securities of the Company or of any options,
warrants or convertible or exchangeable securities of the Company exercisable
for or convertible or exchangeable for securities of the Company have the right
to include any securities issued by the Company in the Registration Statement or
any registration statement to be filed by the Company.
t. Assuming that there will be two "market makers" for the
Common Stock, at least 500 beneficial owners of the Common Stock and a
sufficient "public float" of the Shares, and that the Company's registration of
the Common Stock pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") becomes effective (all as contemplated by the requirements of the National
Association of Securities Dealers, Inc. (the "NASD")), the Common Stock and the
Redeemable Warrants are eligible for quotation on The NASDAQ National Market
System ("NASDAQ"). The Company has filed a registration statement with the
Commission pursuant to Sections 12(g) and 12(b) of the Exchange Act, and has
used its best efforts to have same declared effective by the Commission on an
accelerated basis on the Effective Date.
u. Except as described in the Prospectus, to the knowledge
of the Company, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, commitments, payments or issuances of securities
with respect to the Company that may affect the Underwriter's compensation, as
determined by the NASD, except as previously disclosed to the Underwriter
concerning the $50,000 previously paid to S.D. Cohen & Company.
v. Neither the Company, nor, to the knowledge of the
Company, any of its employees or officers or directors, agents or any other
person acting on behalf of the Company has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer, supplier, or official or governmental
agency or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist it in connection with any actual or proposed transaction)
which (i) could reasonably be expected to subject the Company to any material
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) could reasonably be expected to have had a materially adverse
effect on the assets, business or operations of the Company as reflected in any
of the financial
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statements contained in the Prospectus, or (iii) if not continued in the future,
could reasonably be expected to materially adversely affect the assets,
business, operations or prospects of the Company.
w. Except as set forth in the Registration Statement, the
Company owns or possesses the requisite licenses or rights to use all
trademarks, service marks, service names, trade names, patents and patent
applications, copyrights, methods, protocols, techniques, technologies,
procedures and other rights (collectively the "Intangibles") described as owned
or used by the Company in the Registration Statement. To the knowledge of the
Company, there is no claim, action or proceeding by any person pending or,
threatened, which pertains to or challenges the rights of the Company with
respect to any Intangibles used in the conduct of the business of the Company,
except as described in the Prospectus and that the Company's former counsel's
claim that he has a copyright on the contents of the Registration Statement. To
the knowledge of the Company, current products, services and processes of the
Company do not infringe on any Intangibles held by any third party, except as
set forth in the Registration Statement.
x. Except as set forth in the Registration Statement or
the exhibits thereto, the Company is not under any obligation to pay royalties
or fees of any kind whatsoever to any third party with respect to Intangibles
they have developed, use, employ or intend to use or employ, except any
obligation that it might have to its former counsel.
y. The Company has generally enjoyed satisfactory
employer/employee relationships with its employees and is in compliance in all
material respects with all Federal, state and local laws and regulations
respecting the employment of their respective employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the knowledge of the Company, there are no pending or threatened
investigations involving the Company by the U.S. Department of Labor or
corresponding foreign agency, or any other governmental agency responsible for
the enforcement of such Federal, state or local laws and regulations. To the
knowledge of the Company, there are no unfair labor practice charges or
complaints against the Company pending before the National Labor Relations Board
or corresponding foreign agency or any strikes, picketing, boycotts, disputes,
slowdowns or stoppages pending or threatened against or involving the Company,
or any predecessor entity, and none has occurred. No representation question
exists respecting the employees of the Company. No collective bargaining
agreements or modifications thereof are currently in effect or being negotiated
by the Company and its employees. No grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements of the
Company.
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z. Neither the Company, nor, to the Company's knowledge,
any of its officers or directors or any of its employees or stockholders, have
taken, directly or indirectly, any action designed to or which has constituted
or which could reasonably be expected to cause or result in, under the Exchange
Act or otherwise, stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities.
aa. The Company does not: (i) maintain nor has it
maintained, sponsored or contributed to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan" or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plans"), except for the Stock Option Plan and the Directors'
Plan described in the Prospectus; (ii) presently maintain or contribute nor at
any time in the past, have they maintained or contributed to a defined benefit
plan, as defined in Section 3(35) of ERISA; or (iii) has ever completely or
partially withdrawn from a "multiemployer plan."
ab. Except as set forth in the Prospectus under
"MANAGEMENT" or "CERTAIN TRANSACTIONS," the Company is not a party to any
agreement with any officer, director or stockholder of the Company or any
affiliate or associate of any such person or entity which is required to be
disclosed in the Prospectus pursuant to Regulation SB. Except as set forth in
the Prospectus, to the knowledge of the Company, no officer, director or
stockholder of the Company or any "affiliate" or "associate" (as these terms are
defined in Rule 405 promulgated under the Regulations) of any such person or
entity or the Company, has or has had, either directly or indirectly, (i) an
interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected.
ac. The minute books of the Company have been made
available to counsel to the Underwriter and contain a complete summary of all
meetings and actions by unanimous consent of directors and stockholders since
the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
ad. The statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions are correct in all
material aspects.
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3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND
UNDERWRITER'S WARRANTS.
a. On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter, 1,000,000 shares of Common Stock and
1,400,000 Redeemable Warrants, and the Underwriter, agrees to purchase such
Securities from the Company on a firm commitment basis at a purchase price of
$4.50 per Share and $.09 per Redeemable Warrant, to be sold by the Underwriter
at an initial public offering price of $5.00 per Share and $.10 per Redeemable
Warrant.
b. In addition, upon not less than two (2) days' notice
from the Underwriter to the Company, for a period of thirty (30) calendar days
from the date of the Prospectus, the Company agrees to sell to the Underwriter
at a purchase price of $4.50 per Share and/or $.09 per Redeemable Warrant, all
or any part of the Option Securities, to be sold by the Underwriter hereunder at
an initial public offering price of $5.00 per Share and $.10 per Redeemable
Warrant. Delivery of the Option Securities shall be made concurrently with
tender of payment therefor. Option Securities may be purchased by the
Underwriter only for the purpose of covering over-allotments in the sale of the
Firm Securities, and the Underwriter shall have no obligation to make any
over-allotments. No Option Securities shall be delivered and paid for unless the
Firm Securities shall be simultaneously delivered or shall theretofore have been
delivered and paid for as herein provided.
c. On Closing Date I (defined below in Section 3(d)), the
Company shall issue and sell to the Underwriter the Underwriter's Warrants,
which warrants shall entitle the holders thereof to purchase up to an aggregate
of 100,000 shares and/or 140,000 Redeemable Warrants. The total purchase price
of the Underwriter's Warrants shall be $10. The Underwriter's Warrants shall be
exercisable in whole or in part to purchase up to such 100,000 Shares and/or
140,000 Redeemable Warrants for a period of 48 months commencing 12 months from
the date of the Prospectus, at a price of $6.00 per Share and $.12 per
Redeemable Warrant (120% of the initial public offering price of the
Securities). The Underwriter's Warrant Agreement and form of Underwriter's
Warrant Certificate shall be substantially in the form filed as Exhibit 4.5 to
the Registration Statement.
d. Payment for the Underwriter's Warrants shall be made on
Closing Date I. Payment for the Firm Securities and the Option Securities shall
be made on each of Closing Date I and Closing Date II, respectively, by
certified or bank cashier's check in New York Clearing House funds, payable to
the order of the Company, or by wire transfer, at the offices of the
Underwriter, or at such other place as agreed upon by the Underwriter and the
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Company, upon delivery of certificates (in form and substance reasonably
satisfactory to the Underwriter) representing the Securities to be sold at such
closing or by confirmation of electronic transfer of the Securities to the
Underwriter for the accounts of the Underwriter. Delivery and payment for the
Firm Securities shall be made at 10:00 A.M. New York time, on or before the
fifth business day following the public offering or at such earlier time as the
Underwriter shall determine or as required by law, or at such other time as
shall be agreed upon by the Underwriter and the Company. The hour and date of
delivery and payment for the Firm Securities are called "Closing Date I." The
Firm Securities shall be registered in such name or names and in such authorized
denominations as the Underwriter may request in writing at least two (2) full
business days prior to Closing Date I. The Company will permit the Underwriter
to examine and package any certificates representing the Firm Securities for
delivery, at least one (1) full business day prior to Closing Date I. Delivery
for each of the Option Securities as provided above shall be made within the two
(2) business day period after notice of exercise to the Company, and against
payment therefor, as provided above. The hour and date of such delivery and
payment made subsequent to Closing Date I for Option Securities is referred to
as "Closing Date II." The Option Securities shall be registered in such name or
names and in such denominations as the Underwriter may request in writing at the
time of exercise of the Over-allotment Option.
e. The Company shall not be obligated to sell or deliver
any Firm Securities except upon tender of payment by the Underwriter for all the
Firm Securities.
4. PUBLIC OFFERING. The Underwriter is to make a public offering
of the Firm Securities and such of the Option Securities as it may determine.
The Securities are to be initially offered to the public at the offering price
set forth on the cover page of the Prospectus (such price being hereinafter
called the "Public Offering Price"). The Underwriter may, at its own expense,
enter into one or more agreements as the Underwriter, in its sole discretion,
deems advisable with one or more broker-dealers who shall act as dealers or
co-underwriters in connection with such public offering.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees
that it will:
a. Use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately, and
confirm the notice in writing if requested by Underwriter, (i) when the
Registration Statement and any post-effective amendment thereto becomes
effective, (ii) of the issuance by the Commission of any stop order or of the
initiation, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension
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of the qualification of the Securities and the Underwriter's Securities for
offering or sale in any jurisdiction or of the initiation of any proceeding for
that purpose, and (iv) of the receipt of any comments from the Commission. If
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
b. File the Prospectus (in form and substance reasonably
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission in accordance with
Rule 424, if the Prospectus is required to be so filed.
c. During the time when a prospectus is required to be
delivered under the Act, use its reasonable best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Securities
and the Underwriter's Securities in accordance with the provisions hereof and
the Prospectus. If at any time when a prospectus relating to the Securities or
the Underwriter's Securities is required to be delivered under the Act, any
event shall have occurred as a result of which, in the opinion of counsel for
the Company, the Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Registration Statement to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act.
d. Deliver to the Underwriter, without charge, such number
of copies of each Preliminary Prospectus and the Prospectus as the Underwriter
may reasonably request and, as soon as the Registration Statement or any
amendment or supplement thereto becomes effective, deliver to the Underwriter
two (2) signed copies of the Registration Statement, including exhibits, and all
post-effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and signed copies of all consents of certified
experts.
e. Endeavor in good faith, in cooperation with the
Underwriter and Gersten, Savage, Kaplowitz & Curtin, LLP, counsel to the
Underwriters, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities and the Underwriter's Securities for
offering and sale under the securities laws of such jurisdictions as the
Underwriter may reasonably designate, provided that no such qualification shall
be required in
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any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction. In each jurisdiction where such
qualification shall be effected, the Company will, unless the Underwriter agrees
that such action is not at the time necessary or advisable, use its reasonable
best efforts to file and make such statements or reports at such times as are or
may reasonably be required by the laws of such jurisdiction.
f. Make generally available to its security holders as
soon as practicable, but not later than the first day of the fifteenth full
calendar month following the Effective Date, an earnings statement (which need
not be certified by independent public or independent certified public
accountants unless required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act) covering a period of at
least twelve (12) consecutive months beginning after the Effective Date.
g. For a period of three (3) years from the Effective
Date, furnish to the Underwriter copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to the
Underwriter (i) a copy of each periodic report the Company shall file with the
Commission, (ii) a copy of every press release and every news item and article
with respect to the Company or its affairs, which was released by the Company,
(iii) a copy of each Form 8-K or Schedule 13D, 13G, 14D-1 or 13E-4 received or
prepared by the Company, and (iv) such additional documents and information with
respect to the Company or any future subsidiaries or affiliates of the Company
as the Underwriter may from time to time reasonably request; provided, the
Underwriter agrees to execute a confidentiality agreement with respect to any
non-public information.
h. Apply the net proceeds from the offering received by it
in a manner consistent in all material respects with the caption "USE OF
PROCEEDS" in the Prospectus.
i. Deliver to the Underwriter, prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date and not file unless otherwise required by law
any such amendment or supplement to which the Underwriter shall reasonably and
promptly object, after being furnished such copy, in writing with reasonable
specificity as to the nature and extent of any objection.
j. For a period of two (2) years from Closing Date I,
provide the Underwriter, upon its request, at the Company's sole expense, (i)
with access to daily consolidated financial transfer sheets relating to the
Common Stock and
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designate Continental Stock Transfer & Trust Company as transfer agent for the
Company's securities or such other transfer agent mutually agreeable to the
Company and the Underwriter and (ii) to cause the Company's depository to fax a
"special security position report" to the Underwriter on a weekly basis.
k. For a period of three (3) years after Closing Date I,
nominate and use its best efforts to engage a reasonably acceptable designee of
the Underwriter as a nonvoting advisor to the Company's Board of Directors (the
"Advisor") or, in lieu thereof, to designate a reasonably acceptable individual
for election as a director, in which case the Company shall use its best efforts
to have such individual elected as a director. The designee may be a director,
officer, partner, employee or affiliate of the Underwriter, and the Underwriter
shall designate such person in writing to the Board. In the event the
Underwriter shall not have designated such individual at the time of any meeting
of the Board or such person is unavailable to serve, the Company shall notify
the Underwriter of each meeting of the Board. An individual, if any, designated
by the Underwriter shall receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such Advisor or
director, as the case may be shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging, and transportation. In addition, such Advisor or Director
shall be entitled to the same compensation as the Company gives to other
non-employee directors for acting in such capacity. The Company further agrees
that, during said three (3) year period, it shall schedule no less than two (2)
formal and "in person" meetings of its Board of Directors in each such year at
which meetings such Advisor shall be permitted to attend as set forth herein;
said meetings shall be held quarterly each year and advance notice of such
meetings shall be given to the Advisor. Further, during such three (3) year
period, the Company shall give notice to the Underwriter with respect to any
proposed acquisitions, mergers, reorganizations or other similar transactions
and the Underwriter shall agree to keep such information confidential.
The Company agrees to indemnify and hold the Underwriter
harmless and such Advisor against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein, except for
gross negligence or willful misconduct with respect to any confidential
information provided to such Advisor. In the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, it agrees, if possible, to include the Advisor as an insured under
such policy.
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l. For a period of five (5) years from the Effective Date,
use its best efforts to maintain the quotation of the Securities by NASDAQ.
m. Supply the Underwriter with one (1), and Gersten,
Savage, Kaplowitz & Curtin, counsel to the Underwriter, with three (3), bound
volumes of the underwriting materials within a reasonable time after the latest
Closing Date.
n. For a period of two (2) years from the Effective Date,
not issue any other shares of Common Stock or without the prior written consent
of the Underwriter, which consent shall not be unreasonably withheld or delayed.
In the event that the Company requests the Underwriter's consent for any of the
above, the Underwriter shall have five days from the date of such request to
indicate its approval or disapproval. If the Underwriter does not respond within
such five day period, its consent will be assumed. Notwithstanding the
foregoing, the Company may issue securities (A) upon (i) the exercise of any
warrants or options outstanding on the date hereof or contemplated in the
Prospectus pursuant to the terms thereof; (ii) pursuant to the exercise of the
Over-allotment Option; and (iii) the exercise of the Underwriter's Warrant, and
(B) pursuant to any of the Stock Option Plans described in the Prospectus or
plans subsequently adopted.
o. So long as the Securities or the Underwriter's
Securities are registered under the Exchange Act, hold an annual meeting of
stockholders for the election of directors, 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 Exchange Act and shall be included in an annual
report pursuant to the requirements of such Rule.
p. For a period of two years from the Effective Date, the
Company will not file a form S-8 registration statement without the consent of
the Underwriter, which consent will not be unreasonably withheld.
q. Enter into the Underwriter's Warrant Agreement and the
Financial Advisory and Investment Banking Agreement (the "Consulting Agreement")
in substantially the form filed as Exhibits
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4.5 and 10.10, respectively, to the Registration Statement.
r. As soon as possible after Closing Date I, take all
necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions or other equivalent Manual and to maintain its listing
therein for a period of five (5) years from the Effective Date.
s. Cause all of the Company's officers and directors and
stockholders, to enter into written agreements (the "Lock-up Agreements") that,
for a period of 18 months from the Effective Date, they will not, without the
consent of the Underwriter, (i) publicly sell any securities of the Company
owned directly or indirectly by them or owned beneficially by them (as defined
in the Exchange Act), or (ii) otherwise sell, or transfer such securities unless
the transferee agrees in writing to be bound by an identical lock-up for the
remainder of the Lock-up Period.
t. Use its best efforts to obtain key-man life insurance
in the amount of $1,000,000 per policy on the lives of such executive officers
of the Company as the Underwriter shall request, with the Company named as
beneficiary of such policies.
u. Use its best efforts to qualify its Common Stock and
Redeemable Warrants for quotation on NASDAQ.
v. For a period of two years from the Effective Date, the
Company shall not issue any of its securities in any offering pursuant to
Regulation S under the 1933 Act, without the prior written consent of the
Underwriter, which consent shall not be unreasonably withheld.
w. Designate the Underwriter as the Company's exclusive
Warrant Solicitation Agent in the event of any solicitation commencing one year
after the Effective Date of the exercise of the Redeemable Warrants, in
connection with a redemption of the Redeemable Warrants or otherwise, and shall
pay to the Underwriter a Warrant Solicitation fee of two and a half (2.5%)
percent of the exercise price of all solicited Redeemable Warrants, subject to
the rules and regulations of the NASD with regard to such fees.
x. Neither the Company nor any representative of the
Company has made or shall make any written or oral representation in connection
with the Offering and sale of the Securities or the Underwriter's Warrant which
is not contained in the Prospectus, which is otherwise inconsistent with or in
contravention of anything contained in the Prospectus, or which shall constitute
a violation of the Act, the Rules and Regulations, the Exchange Act or the rules
and regulations promulgated under the Exchange Act.
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y. For so long as any Redeemable Warrant is outstanding,
the Company shall, at its own expense: (i) use its reasonable best efforts to
cause post-effective amendments to the Registration Statement, or new
registration statements relating to the Redeemable Warrants and the Common Stock
underlying the Redeemable Warrants to become effective in compliance with the
Act and without any lapse of time between the effectiveness of the Registration
Statement and of any such post-effective amendment or new registration
statement; provided, however, that the Company shall have no obligation to
maintain the effectiveness of such Registration Statement or file a new
Registration Statement, or to keep available a prospectus at any time at which
such registration or prospectus is not then required; (ii) furnish to the
Underwriters and dealers as many copies of each such Prospectus as the
Underwriter or dealers may reasonably request; and (iii) use its reasonable best
efforts to maintain the "blue sky" qualification or registration of the
Redeemable Warrants and the Common Stock underlying the Redeemable Warrants, or
have a currently available exemption therefrom, in each jurisdiction in which
the Securities were so qualified or registered for purposes of the Offering.
6. PAYMENT OF EXPENSES.
a. The Company hereby agrees to pay all expenses (other
than fees of counsel to the Underwriter) in connection with the offering,
including but not limited to, (i) the preparation, printing, filing and mailing
(including the payment of postage and overnight delivery with respect to such
mailing) of the Registration Statement and the Prospectus and the printing and
mailing of this Agreement and related documents, including the cost of all
copies thereof and of the Preliminary Prospectus and of the Prospectus and any
amendments or supplements thereto supplied to the Underwriter in quantities as
hereinabove stated, (ii) the printing, engraving, issuance and delivery of the
shares of Common Stock, the Redeemable Warrants, and the Underwriter's Warrants,
including any transfer or other taxes payable thereon, (iii) the qualification
of the Securities, the Underwriter's Warrants and the Underwriter's Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," and "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, and the fees and
disbursements of counsel for the Underwriter relating to Blue Sky matters (which
fees shall be payable by the Company in an amount not to exceed $5,000, $2,500
of which shall be payable upon the commencement of filing the Registration
Statement) unless the Company does not qualify for NASDAQ/NMS in which case the
fee will be $35,000, (iv) advertising costs and expenses including but not
limited to the reasonable costs and expenses in connection with the "road show,"
information meetings and presentations, "tombstones" in publications selected by
the Underwriter provided that such cost
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does not exceed $10,000 and prospectus memorabilia, (v) fees and expenses of the
transfer agent and warrant agent, (vi) application and listing fees for
inclusion in Moody's OTC Manual or Standard and Poor's Corporation Descriptions
or other equivalent manuals, and (vii) the fees payable to the NASD and NASDAQ.
Payments with regard to items (i), (iii), (iv) and (v) shall be made on each of
Closing Date I and Closing Date II.
b. The Company shall pay to the Underwriter an aggregate
non-accountable expense allowance, in addition to the expenses payable pursuant
to Section 6(a), equal to three (3%) percent of the gross proceeds received by
the Company from the sale of the Securities. In the event that the Underwriter
terminates the offering or is unable to consummate the offering within ten (10)
business days of the date hereof, the advances toward the non-accountable
expense allowance shall become accountable and shall be returnable to the
Company to the extent its out-of-pocket expenses are less than the amount
advanced to the Underwriter, so that the Underwriter is reimbursed only for its
actual accountable out-of-pocket expenses, which expenses shall not exceed the
amount previously advanced.
7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy in all material respects of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Dates, to the accuracy in all material respects of the
statements of officers of the Company made pursuant to the provisions hereof and
to the performance by the Company of its obligations hereunder in all material
respects and to the following conditions:
a. The Registration Statement shall have become effective
not later than 5:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by you, and, at each of
the Closing Dates, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or to the knowledge of
the Company be contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Gersten, Savage, Kaplowitz & Curtin, counsel to the
Underwriter.
b. At Closing Date I, the Underwriter shall have received
the favorable opinion of Zimet, Haines, Friedman & Kaplan, counsel to the
Company, dated Closing Date I, addressed to the Underwriter and in form and
substance mutually satisfactory to Gersten, Savage, Kaplowitz & Curtin, counsel
to the Underwriter, and Zimet, Haines, Friedman & Kaplan.
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c. On or prior to each of Closing Date I and Closing Date
II, counsel for the Underwriter shall have been furnished such documents,
certificates and opinions as it may reasonably require for the purpose of
enabling it to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
d. Prior to each of Closing Date I and Closing Date II,
(i) there shall have been no material adverse change, or development involving a
material adverse prospective change, in the conditions or prospects of the
business activities, financial or otherwise, of the Company from the latest
dates as of which such conditions are set forth in the Registration Statement
and Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company from the latest date as of which
their respective financial conditions are set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in default under any provision of any instrument relating
to any outstanding indebtedness which default would have a material adverse
effect on the Company; (iv) no amount of the assets of the Company shall have
been pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus; (v) no action, suit or proceeding, at law or in equity, shall be
pending or to the knowledge of the Company threatened against the Company before
or by any court or Federal or state commission, board or other administrative
agency wherein an unfavorable result, decision, ruling or finding would
materially adversely affect the business, prospects, operations, or financial
condition or income of the Company, as a whole, except as set forth in the
Registration Statement and Prospectus and except where such a result is deemed
remote by counsel to the Company with respect to such action or proceeding; (vi)
no stop order shall have been issued under the Act and no proceedings with
respect thereto shall have been initiated or to the knowledge of the Company
threatened by the Commission; (vii) the market for securities in general or
political, financial or economic conditions shall not have materially adversely
changed from those reasonably foreseeable as of the date hereof as to render it
impracticable in the Underwriter's reasonable judgment to make a public offering
of the Securities, and there has not been a material adverse change in market
levels for securities in general or financial or economic conditions which
render it inadvisable in the Underwriter's judgment to proceed; and (viii) there
shall not have commenced or occurred a war or Act of God or other calamity which
would have a material adverse effect on, or result in a material loss to, the
Company.
The Company agrees and acknowledges that the Underwriter
shall be the sole determining party as to the presence of any such conditions,
events, occurrences and provisions set forth in this Section 7(d).
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e. At each of Closing Date I and Closing Date II, the
Underwriter shall have received a certificate of the Company signed by the
Chairman of the Board or the President and the Secretary of the Company, dated
Closing Date I and Closing Date II, respectively, to the effect that the
conditions set forth in section 7(d)(i) through (vi) above have been satisfied
and that, as of Closing Date I and Closing Date II, respectively, the
representations and warranties of the Company set forth in Section 2 hereof are
true and correct in all material respects.
f. By the Effective Date, the Underwriter shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriter, as described in the Registration Statement.
g. At the time this Agreement is executed, and at each of
Closing Date I and Closing Date II, the Underwriter shall have received a
letter, addressed to the Underwriter and in form and substance reasonably
satisfactory in all respects (including the nonmaterial nature of the changes or
decreases, if any, referred to in clause (3) below) to the Underwriter and to
Gersten, Savage, Kaplowitz & Curtin, counsel for the Underwriter, from KPMG Peat
Marwick, LLP, dated as of the date of this Agreement and as of each of Closing
Date I and Closing Date II:
(1) confirming that they are independent
accountants with respect to the Company within the meaning of the
Act and the applicable Regulations;
(2) stating that in their opinions the finan cial
statements of the Company included in the Registration Statement
and Prospectus comply as to form in all material respects with
the applicable accounting requirements of the Act and the
published Regulations thereunder;
(3) stating that, on the basis of a reading of the
latest available minutes of the stockholders and boards of
directors and the various committees of the boards of directors
of the Company and any current or former subsidiaries of the
Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters, a
reading of the latest interim financial statements of the Company
and other specified procedures and inquiries, nothing has come to
their attention which would lead them to believe that (A) either
the audited financial statements in the Registration Statement
for the Company for the year ended September 30, 1995 do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally
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accepted accounting principles applied on a basis substantially
consistent with that of the respective audited and unaudited
financial statements of the Company included in the Registration
Statement, (B) as of the end of the Company's last fiscal
quarter, there was any change in the capital stock or long-term
debt of the Company, as compared with amounts shown in the
September 30, 1995 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any decrease, setting
forth the amount of such decrease, and (C) during the period from
March 31, 1996 to a specified date not more than five (5) days
prior to the Effective Date there was any decrease in net sales,
other than as set forth in or contemplated by the Registration
Statement, or, if there was any such increase or decrease,
setting forth the amount of such increase or decrease;
(4) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the
Company set forth in the Prospectus in each case to the extent
that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records,
including worksheets, 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
(5) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter may
reasonably request.
h. All proceedings taken in connection with the
authorization, issuance or sale of the Securities, the Underwriter's Warrants
and the Underwriter's Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Underwriter and to Gersten, Savage,
Kaplowitz & Curtin, LLP counsel to the Underwriter.
i. On each of Closing Date I and Closing Date II, there
shall have been duly tendered to you for your account the appropriate number of
Securities and the Underwriter's Warrants.
j. No order suspending the sale of the Securities in any
jurisdiction designated by you pursuant to Section 5(e)
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hereof shall have been issued on either Closing Date I or Closing Date II, and
no proceedings for that purpose shall have been instituted or, to the knowledge
of the Underwriter or the Company, shall be contemplated.
k. Prior to each of Closing Date I and Closing Date II
there shall not have been received or provided by the Company's independent
public accountants or attorneys, qualifications to the effect of either
difficulties in furnishing certifications as to material items including,
without limitation, information contained within the footnotes to the financial
statements, or as affecting matters incident to the issuance and sale of the
Securities or as to corporate proceedings or other matters.
l. On or prior to Closing Date I, the Underwriter's
Warrant Agreement and the Consulting Agreement shall have been executed and
delivered by the Company, and the Lock-Up Agreements shall have been executed
and delivered by all of the Company's officers, directors and stockholders.
Any certificate signed by any officer of the Company and
delivered to the Underwriter or to counsel to the Underwriter shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein. If any condition to the Underwriter's obligations
hereunder to be fulfilled prior to or at any Closing Date is not so fulfilled,
the Underwriter may terminate this Agreement or, if the Underwriter so elects,
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
8. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Underwriter, and each controlling person, if any, who controls the Underwriter
(within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act), against any and all liabilities, claims and lawsuits, including any and
all awards and/or judgments to which either or both may become subject under the
Act, the Exchange Act or any other Federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including awards
and/or judgments) arise out of or are in connection with any material
misstatements or omissions in the Registration Statement, Prospectus and related
Exhibits filed under the Act, except for any liabilities, claims and lawsuits
(including awards and/or judgments), arising out of acts or omissions of the
Underwriter; provided that the indemnity provided in this Section 8 (a) with
respect to any preliminary prospectus shall not inure to the benefit of the
Underwriter from whom the person asserting any losses, claims, charges,
liabilities or lawsuits based upon any untrue statement or alleged untrue
statement of material fact or omission or alleged omission to state therein a
material fact
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purchased Securities, if a copy of the Prospectus in which such untrue statement
or alleged untrue statement or omission or alleged omission was corrected is
found not to have been sent or given to such person within the time required by
the Act and the Regulations. In addition, the Company shall also indemnify and
hold harmless the Underwriter against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing liabilities,
claims and lawsuits to which the indemnity applies.
The Underwriter shall give the Company prompt notice of
any such liability, claim or lawsuit which the Underwriter contends is the
subject matter of the indemnification by the Company, 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 Underwriter shall indemnify and hold harmless the
Company, and each controlling person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all liabilities, claims and lawsuits, including any and all
awards and/or judgments to which it may become subject under the Act, the
Exchange Act or any other Federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including awards and/or
judgments) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact required to be stated or necessary to make the
statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
the Underwriter for inclusion in the Registration Statement or Prospectus or any
amendment or supplement thereto. In addition, the Underwriter, shall also
indemnify and hold harmless the Company against any and all costs and expenses,
including reasonable counsel fees, incurred or relating to the foregoing
liabilities, claims and lawsuits to which the indemnity applies.
The Company shall give to the Underwriter prompt notice of
any such liability, claim or lawsuit, which the Company contends is the subject
matter of the Underwriter's indemnification and the Underwriter thereupon shall
be granted the right to take any and all necessary and proper action, at its
sole cost and expense; provided, that counsel selected by the Underwriter shall
be acceptable to the Company, which consent shall not be unreasonably withheld,
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
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authorities and provided that no such settlement shall be made without the prior
consent of the Company.
b. In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Section 8 makes claim for indemnification pursuant hereto 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 this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 8, then, and in each such case, the Company and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after any contribution from others) in such proportion taking
into consideration the relative benefits received by each party from the
offering covered by the Prospectus (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
assessed, the opportunity to correct and prevent any statement or omission and
other equitable considerations appropriate under the circumstances; provided,
however that notwithstanding the above in no event shall the Underwriter, be
required to contribute any amount in excess of 10% of the initial public
offering price of the Securities; and provided, that, in any such case, no
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party (the "contributing party"),
notify the contributing party of the commencement thereof, but the omission so
to notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The indemnification provisions
contained in this Section 8 are in addition to any other rights or
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remedies which either party hereto may have with respect to the other or
hereunder.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE Delivery. Except as
the context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates, and such representations, warranties and
agreements of the Underwriter and the Company, including the indemnity
agreements contained in Section 8 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Underwriter, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriter until the earlier of the expiration of any applicable statute of
limitations and the seventh anniversary of Closing Date II, at which time the
representations, warranties and agreements shall terminate and be of no further
force and effect.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.
a. This Agreement shall become effective at 9:30 a.m., New
York time, on the first full business day following the day on which the
Registration Statement becomes effective or at the time of the initial public
offering by the Underwriter of the Securities, whichever is earlier. The time of
the initial public offering, for the purpose of this Section 10, shall mean the
time, after the Registration Statement becomes effective, of the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities or the time, after the
Registration Statement becomes effective, when the Securities are first released
by the Under writer for offering by the Underwriter or dealers by letter or
telegram, whichever shall first occur. The Underwriter may prevent this
Agreement from becoming effective without liability to any other party, except
as noted below, by giving the notice indicated below in this Section 10 before
the time this Agreement becomes effective. The Underwriter agrees to give the
undersigned notice of the commencement of the offering described herein.
b. The Underwriter shall have the right, in its sole
discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities, by notice given to the Company prior
to delivery and payment for all the Firm Securities, if any of the conditions
enumerated in Section 7 are not either fulfilled or waived by the Underwriter on
or before any Closing Date.
c. If the Underwriter elects to prevent this Agreement
from becoming effective or to terminate this Agreement as provided in this
Section 10, the Company shall be notified on the
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same day as such election is made by the Underwriter by telephone or telegram,
confirmed by letter.
d. Anything herein to the contrary notwithstanding, if
this Agreement shall not be carried out within the time specified herein, or any
extensions thereof granted by the Underwriter, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied then, in addition to the
obligations assumed by the Company pursuant to Section 6(a) hereof, the
Underwriter shall provide the Company with a statement of the Underwriter's
accountable expenses.
e. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
f. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 8 shall not be in any way affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
11. NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to the
Underwriter, shall be mailed, delivered or telegraphed and confirmed to Duke &
Co., Inc., 909 Third Avenue, New York, New York 10022, Attention: President,
with a copy to Gersten, Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue,
New York, New York 10022, Attention: Jay Kaplowitz, Esq., and if to the Company,
shall be mailed, delivered or telegraphed and confirmed to Paravant Computer
Systems, Inc., 780 South Apollo Blvd., Atrium One, Melbourne, Florida 32901,
Attention: Richard McNeight, with a copy to Zimet, Haines, Friedman & Kaplan,
460 Park Avenue, New York, New York 10022, Attention: James Martin Kaplan, Esq.
12. PARTIES. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
13. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole
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tribunals in which any parties may institute and maintain a legal proceeding
against the other party arising from any dispute in respect of this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 13.
14. ENTIRE AGREEMENT. This Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement contain the entire agreement between the
parties hereto in connection with the subject matter hereof and thereof. This
Agreement is intended to supersede the letter of intent. In the event of any
conflict between any of the above mentioned documents and the letter of intent
the referenced agreements shall govern.
If the foregoing correctly sets forth the understanding between
the Underwriter and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
PARAVANT COMPUTER SYSTEMS, INC.
By: _______________________________
Name:
Title:
Accepted as of the date first above written.
New York, New York
DUKE & CO., INC.
By: _______________________________
Name:
Title:
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FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the day
of , 1996 by and between Duke & Co., Inc., a Florida corporation
("Duke"), and Paravant Computer Systems, Inc., a Florida corporation (the
"Company").
In consideration of the mutual promises made herein and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURPOSE: The Company hereby engages Duke for the term
specified in Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the terms and
conditions set forth herein.
2. TERM: Except as otherwise specified in Paragraph 4 hereof,
this Agreement shall be effective for a two (2) year period commencing
, 1996 and ending , 1998.
3. DUTIES OF DUKE: During the term of this Agreement, Duke shall
seek out Transactions (as hereinafter defined) on behalf of the Company and
shall furnish advice to the Company in connection with any such Transactions.
4. COMPENSATION: In consideration for the services rendered by
Duke to the Company pursuant to this Agreement (and in
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addition to the expenses provided for in Paragraph 5 hereof), the Company shall
compensate Duke as follows:
(a) The Company shall pay Duke a fee of $3,500 per month
for the term of this Agreement. The aggregate sum of $84,000 shall be due and
payable upon the execution of this Agreement.
(b) In the event that any Transaction occurs during the
term of this Agreement, the Company shall pay fees to Duke as follows:
<TABLE>
<CAPTION>
CONSIDERATION FEE
------------- ---
<S> <C>
$ -0 - to $ 500,000 $25,000
Above $ 500,000 to $5,000,000 5% of Consideration
Above $5,000,000 $250,000 plus 1% of the
Consideration in excess of
$5,000,000
</TABLE>
For the purposes of this Agreement, "Consideration" shall
mean the total market value, as determined by the Company's Board of Directors
on the day of the closing of the Transaction, of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or indirectly,
by the Company or any of its security holders in connection with any
Transaction. Any co- broker retained by Duke shall be paid by Duke.
(c) For the purposes of the Agreement, a "Transaction"
shall mean (i) any transaction introduced to the Company by Duke, other than in
the ordinary course of trade or business of the Company, whereby, directly or
indirectly, control of, or a material interest
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in, the Company or any of its businesses or substantially all of its assets, is
transferred for Consideration, or (ii) any transaction introduced to the Company
by Duke whereby the Company acquires any other unaffiliated company or
substantially all of the assets of any other unaffiliated company or a
controlling interest in any other company (an "Acquisition").
In the event Duke originates, at the Company's request, a
line of credit with a lender or a corporate partner, the Company and Duke will
mutually agree on a satisfactory fee and the terms of payment of such fee. In
the event Duke 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 two percent (2%) of total sales generated directly from this introduction
during the first two years following the date of the first sale. Total sales
shall mean gross receipts less any applicable refunds, returns, allowances,
credits, taxes 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 third 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, at its option, to an appropriate refund or credit against future
payments under this Agreement.
(d) All fees to be paid pursuant to this Agreement, except
as otherwise specified, are due and payable to Duke in cash or
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<PAGE>
company check at the closing or closings of any Transaction specified in
Paragraph 4. In the event that the Consideration is paid out over a period of
time, Duke shall be paid its pro-rata portion of such Consideration as the
Company is paid. In the event that this Agreement shall not be renewed or if
terminated for any reason, notwithstanding any such non-renewal or termination,
Duke shall be entitled to a full fee as provided under Paragraphs 4 and 5
hereof, for any Transaction for which the discussions were initiated with a
third party at the request of the Company 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.
5. EXPENSES OF DUKE: In addition to the fees payable hereunder
and regardless of whether any Transaction set forth in Paragraph 4 hereof is
proposed or consummated, the Company shall reimburse Duke for Duke's reasonable
travel and out-of-pocket expenses incurred in connection with the services
performed by Duke pursuant to this Agreement and at the request of the Company,
including without limitation, hotels, food and associated expenses and
long-distance telephone calls, except that all expenses exceeding $100 must be
pre-approved in writing by the Company and that total expenses may not exceed
$1,000.
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<PAGE>
6. LIABILITY OF DUKE:
(1) The Company acknowledges that all opinions and advice
(written or oral) given by Duke to the Company in connection with Duke's
engagement 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 Duke 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 Duke, or use Duke's name in any annual reports or
any other reports or releases of the Company without Duke's prior written
consent or as required by law.
(2) The Company acknowledges that Duke makes no commitment
whatsoever as to making a 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 Duke will, when and if
prepared, be done solely on the merits or judgment of analysis of Duke or any
senior corporate finance personnel of Duke.
7. DUKE'S SERVICES TO OTHERS: The Company acknowledges that Duke
or its affiliates are in the business of providing financial services and
consulting advice to others. Nothing herein contained
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<PAGE>
<PAGE>
shall be construed to limit or restrict Duke in conducting such business with
respect to others, or in rendering such advice to others, except that Duke will
not provide services to others when such services may materially and adversely
affect the Company.
8. COMPANY INFORMATION:
(a) The Company recognizes and confirms that, in advising
the Company and in fulfilling its engagement hereunder, Duke will use and rely
on data, material and other information furnished to Duke by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, Duke may rely upon the data, material and other information supplied
by the Company without independently verifying the accuracy, completeness or
veracity of same.
(b) Except as required by applicable law, Duke 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 Duke
reasonably determines to have a need to know, provided, that Duke shall instruct
such employees and advisors to keep such information confidential and Duke shall
be liable for any breach of such confidentiality. In the event that Duke is
required by subpoena to disclose such information, the Company shall be afforded
an opportunity to seek an order preserving the confidentiality of such
information.
-7-
<PAGE>
<PAGE>
9. INDEMNIFICATION:
(a) The Company shall indemnify and hold Duke harmless
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, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "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 Duke or any transactions in connection with this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of acts or omissions of Duke. In addition, the Company
shall also indemnify and hold Duke harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
Duke shall give the Company prompt notice of any such
liability, claim or lawsuit which Duke 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 and provided that no such settlement shall be made without
the prior consent of Duke.
-8-
<PAGE>
<PAGE>
Duke 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 1933 Act, the 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 Duke
or any transactions in connection with this Agreement. In addition, Duke shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Company shall give Duke prompt notice of any such
liability, claim or lawsuit which the Company contends is the subject matter of
Duke's indemnification and Duke 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 and
provided that no such settlement shall be made without the prior consent of the
Company.
(b) In order to provide for just and equitable
contribution under the Act in any case in which (i) any person entitled to
indemnification under this Paragraph 9 makes claim for indemnification pursuant
hereto but it is judicially determined (by
-9-
<PAGE>
<PAGE>
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 this Paragraph 9 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of any such person in
circumstances for which indemnification is provided under this Paragraph 9,
then, and in each such case, the Company and Duke shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after any contribution from others) in such proportion taking into
consideration the relative benefits received by each party from the transactions
undertaken in connection with this Agreement (taking into account the portion of
the proceeds realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was assessed,
the opportunity to correct and prevent any statement or omission and other
equitable considerations appropriate under the circumstances; and provided,
that, in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within fifteen (15) days after receipt by any party to
this Agreement (or its representative) of notice of the commencement of any
action, suit or proceeding, such party will, if a claim for contribution in
respect thereof is to be made against another party
-10-
<PAGE>
<PAGE>
(the "Contributing Party"), notify the Contributing Party of the commencement
thereof, but the omission so to notify the Contributing Party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a Contributing Party or his or its
representative of the commencement thereof within the aforesaid fifteen (15)
days, the Contributing Party will be entitled to participate therein with the
notifying party and any other Contributing Party similarly notified. Any such
Contributing Party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of the Contributing
Party. The indemnification provisions contained in this Paragraph 9 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
10. DUKE AN INDEPENDENT CONTRACTOR: Duke shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. The parties hereto expressly understand and
agree that Duke 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.
-11-
<PAGE>
<PAGE>
11. MISCELLANEOUS:
(1) This Agreement between the Company and Duke
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.
(2) All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Duke, shall
be mailed, delivered or telegraphed and confirmed to Duke & Co., Inc., 909 Third
Avenue, New York, New York 10022, Attention: President, with a copy to Gersten,
Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue, New York, New York 10022,
Attention: Jay Kaplowitz, Esq., and if to the Company, shall be mailed,
delivered or telegraphed and confirmed to Paravant Computer Systems, Inc., 780
South Apollo Boulevard, Atrium One, Melbourne, Florida 32901, Attention: Richard
McNeight, with a copy to Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New
York, New York 10022, Attention: James Martin Kaplan, Esq.
(3) 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.
(4) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
-12-
<PAGE>
<PAGE>
(5) No provision of this Agreement may be amended,
modified or waived, except in a writing signed by all of the parties hereto.
(6) This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to its
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 New York City, and they hereby submit to
the exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts in the Southern District of New York
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 11(2) hereof.
-13-
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
DUKE & CO., INC.
By:________________________________
Name:
Title:
PARAVANT COMPUTER SYSTEMS, INC.
By:____________________________________
-14-
<PAGE>
<PAGE>
COUNTERSIGNED AND REGISTERED
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City NJ) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
PARAVANT COMPUTER SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP 699376 10 9
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.045 PER
SHARE, OF PARAVANT COMPUTER SYSTEMS, INC.
The shares evidenced by this Certificate are transferable only on the books
of the Corporation by the holder hereof, in person or by duly authorized
attorney or legal representative, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are subject to all
the provisions of the Articles of Incorporation and Bylaws of the Corporation
and any and all amendments thereto (copies of which are on file with the
Transfer Agent). The shares represented by this Certificate are not deposits or
accounts and are not federally insured or guaranteed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused its facsimile seal to be affixed hereto.
DATED:
WILLIAM R. CRAVEN KRISHAN K. JOSHI
Secretary [SEAL] Chairman and Chief Executive Officer
<PAGE>
<PAGE>
PARAVANT COMPUTER SYSTEMS, INC.
THE CORPORATION WILL FURNISH TO EACH SHAREHOLDER UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED AND, IF THE
CORPORATION IS AUTHORIZED TO ISSUE ANY CLASS OF PREFERRED SHARES IN SERIES, THE
DESIGNATION, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF EACH SUCH SERIES SO
FAR AS THE SAME HAVE BEEN FIXED AND THE AUTHORITY OF THE BOARD TO DESIGNATE AND
FIX THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF OTHER SERIES.
--------------------------
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT LOST, STOLEN OR
DESTROYED, THE CORPORATION MAY, IN ACCORDANCE WITH THE
CORPORATIION'S RESTATED AND AMENDED BY-LAWS, REQUIRE A BOND OF
INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT
CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common UNIF GIFT MIN ACT--_____Custodian______
TEN ENT-- as tenants by the entireties (Cust) (Minor)
JT TEN-- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act___________________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------Shares
of the common stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------, Attorney
to transfer the said shares on the books of the Corporation with full power of
substitution.
Dated____________________________
------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
Signature Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17ad-15.
<PAGE>
<PAGE>
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ) as Warrant Agent
By
Authorized Officer
WARRANTS
No. W- NOT EXERCISABLE AFTER , 2002
WARRANT CERTIFICATE
CUSIP 699376 11 7
PARAVANT COMPUTER SYSTEMS, INC.
THIS CERTIFIES that
, or registered assigns, (the 'Registered Holder') is the owner of the number of
Redeemable Warrants (each a 'Warrant') specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate and the Warrant Agreement (as hereinafter
defined, one fully paid and nonassessable share of Common Stock, par value $0.45
per share ('Common Stock'), of Paravant Computer Systems, Inc., a Florida
corporation (the 'Company'), at any time between , 1997 and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Continental Stock Transfer & Trust Company,
as Warrant Agent, or its successor (the 'Warrant Agent') accompanied by payment
of $6.00 per share (the 'Purchase Price'), in lawful money of the United States
in cash or by official bank or certified check payable to the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement ('Warrant Agreement') dated as of ,
1996, by and among the Company, the Warrant Agent and Duke & Co., Inc. (the
'Underwriter').
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of exercise of less than all of the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificate of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term 'Expiration Date' shall mean 5:00 p.m. (Eastern time) on
, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m.
(Eastern time) the next day which in the State of New York is not a holiday or a
day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted that it will use its reasonable best
efforts to have all such securities registered, subject to the terms of the
Warrant Agreement. This Warrant shall not be exercisable by a Registered Holder
in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment, together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in said Warrant Agreement.
Commencing , 1997 this Warrant may be redeemed at the option of
the Company, at a Redemption Price of $.05 per Warrant, provided the closing bid
price of the Common Stock on the NASDAQ Stock Market, as reported by the
National Quotation Bureau, Incorporated (or the last sale price, if quoted on a
national securities exchange) exceeds $8.50 per share (subject to adjustment as
set forth in the Warrant Agreement) for a period of 30 consecutive trading days
during the period in which the Warrants are exercisable. Notice of redemption
shall be given not later than the thirtieth (30th) day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive $.05 per Warrant upon surrender of this Warrant
Certificate.
Prior to the due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notation of ownership or other writing hereon made by anyone other than a
duly authorized officer of the Company or the Warrant Agent), for all purposes
and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 2.5% of the Purchase Price to the
Underwriter upon certain conditions as specified in the Warrant Agreement upon
the exercise of this Warrant.
This Warrant Certificate and each Warrant represented hereby shall be
construed in accordance with and governed by the laws of the State of New York.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused its facsimile corporate seal and
the facsimile signatures of its duly authorized officers to be hereunto affixed.
Dated:
PARAVANT COMPUTER SYSTEMS, INC.
ATTEST: By:
WILLIAM R. CRAVEN KRISHAN K. JOSHI
Secretary [SEAL] Chairman and Chief Executive Officer
<PAGE>
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________ (____________) Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(please print or type name and address)
and be delivered to:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
('NASD'). If not solicited by an NASD member, please write 'unsolicited' in the
space below. Please indicate the name of the NASD member firm which solicited
the exercise of the Warrant.
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
Name of soliciting NASD member
Dated:
--------------------- ---------------------------------------------------------------------------------
SIGNATURE: THE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
---------------------------------------------------------------------------------
Street Address
---------------------------------------------------------------------------------
City, State and Zip Code
---------------------------------------------------------------------------------
Taxpayer ID Number
</TABLE>
________________________________________________________________________________
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(please print or type name and address)
_______________ (_________________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
________________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the promises.
Dated: _______________
NOTICE: ____________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature Guaranteed:
_________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of , 1996, by and among
PARAVANT COMPUTER SYSTEMS, INC., a Florida corporation (the "Company"),
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant
Agent (the "Warrant Agent") and DUKE & CO., INC., a Florida corporation (the
"Underwriter").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering pursuant to a
registration statement (the "Registration Statement") on Form SB-2 declared
effective by the Securities and Exchange Commission on ,
1996, of up to 1,000,000 shares of Common stock, par value $.045 (the "Shares"),
and 1,400,000 Redeemable Common Stock Purchase Warrants (each, a "Warrant") (and
up to 150,000 shares of Common Stock and 210,000 Warrants covered by an
over-allotment option granted by the Company to the Underwriter), and pursuant
to an underwriting agreement (the "Underwriting Agreement") dated
, 1996 between the Company and the Underwriter, (ii) the
issuance to the Underwriter or its designees of warrants to purchase up to an
aggregate of 100,000 shares of Common Stock and 140,000 Warrants (the
"Underwriter's Warrant"), the Company will issue up to an aggregate of 1,750,000
Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf
of the Company, and the Warrant Agent is willing to so act, in connection with
the issuance, registration, transfer, exchange and redemption of the Warrants,
the issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized, which has the right
to participate in the distribution of earnings
<PAGE>
<PAGE>
and assets of the Company without limit as to amount or percentage, which at the
date hereof consists of shares of Common Stock, $.01 par value per
share.
(b) "Corporate Office" shall mean the office of the
Warrant Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date hereof at 2
Broadway, 19th Floor, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the
date on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Warrant Agent, of an amount in lawful money of the United States
of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to each
Warrant, , 1997 (18 months from the effective date of the
Registration Statement).
(e) "Purchase Price" shall mean the price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price shall
be $6.00 per share, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price upon notice to all Warrant Holders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $.05 per Warrant.
(g) "Registered Holder" shall mean the person in whose
name any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer
& Trust Company, as the Company's transfer agent, or its authorized successor,
as such.
(i) "Warrant Expiration Date" shall mean, with respect to
each Warrant, 5:00 p.m. (Eastern time) on , 2002, or the
Redemption Date as defined in Section 8, whichever is earlier; provided that if
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (Eastern time) on the next following day
which in the State of New York is not a holiday nor a day on which banks are
3
<PAGE>
<PAGE>
authorized to close. Upon notice to all Warrant Holders, the Company shall have
the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase one (1)
share of Common Stock upon the exercise thereof, in accordance with the terms
hereof, subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent
as part of the Units.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,750,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except to (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued to certain officers of the
Company or affiliates thereof, upon the conversion of certain loans; (vi) those
issued pursuant to the Underwriter's Warrant; (vii) those issued to the investor
who provided a bridge loan to the Company as a result of the automatic
conversion of the Bridge Warrants; and (viii) at the option of the Company, in
such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common Stock
purchasable upon exercise of the Warrants or the Redemption Price therefor made
pursuant to Section 9.
4
<PAGE>
<PAGE>
(e) Pursuant to the terms of the Underwriter's Warrant,
the Underwriter and its designees may purchase up to an aggregate of 140,000
Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A, and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement or
as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Warrants may be listed, or to conform to usage. The Warrant Certificates
shall be dated the date of issuance thereof (whether upon initial issuance,
transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrants shall be numbered serially
with the letter W on the Warrants.
(b) Warrant Certificates shall be executed on behalf of
the Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates or before countersignature by
the Warrant Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be such officer of the Company. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a).
SECTION 4. Exercise
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder upon exercise
thereof as of the close of business on the
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Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the cash, bank or certified check received from the exercise
of a Warrant in an account for the benefit of the Company and shall notify the
Company in writing of the exercise of the Warrants. Promptly following, and in
any event within five (5) days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a Warrant Certificate for any remaining unexercised Warrants of
the Registered Holder) unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant to the Company or as the Company may direct in
writing.
(b) If, on the Exercise Date in respect of the exercise of
any Warrant at any time on or after the first anniversary of the date hereof (i)
the market price of the Company's Common Stock is greater than the then Purchase
Price of the Warrant, (ii) the exercise of the Warrant was solicited by the
Underwriter, (iii) the Warrant was not held in a discretionary account, (iv)
disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise, and (v) the solicitation of the
exercise of the Warrant was not in violation of Rule 10b-6 (as such rule or any
successor rule as may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of proceeds to the Company received upon
exercise of the Warrant(s) so exercised shall, on behalf of the Company, pay
from the proceeds received upon exercise of the Warrant(s), a fee of two and one
half percent (2.5%) of the Purchase Price to the Underwriter. Within five days
after the exercise, the Warrant Agent shall send to the Underwriter a copy of
the reverse side of each Warrant exercised. The Underwriter shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this Section 4(b). In addition, the Underwriter and the Company may at any
time during business hours, examine the records of the Warrant Agent, including
its ledger of original Warrant certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this paragraph may not be modified,
amended or deleted without the prior written consent of the Underwriter and the
Company.
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SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Warrants shall, at the time of delivery, be duly and
validly issued, fully paid, nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (other than those which the Company
shall promptly pay or discharge) and that upon issuance such shares shall be
listed on each national securities exchange, if any, on which the other shares
of outstanding Common Stock of the Company are then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval. The Company will use
reasonable effort to obtain appropriate approvals or registrations under state
"blue sky" securities laws with respect to any such securities. However,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or
similar taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requiring the same had paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Warrants, unless the Warrant Agent
and the Transfer Agent are the same entity.
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SECTION 6. Exchange and Registration of Transfer
(a) Warrant Certificates may be exchanged for other
Warrant Certificates representing an equal aggregate number of Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants
of the same class.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement or resignation as Warrant Agent, or, with
the prior written consent of the Underwriter, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by
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any notice to the contrary. The Warrants, which are being publicly offered with
shares of Common Stock pursuant to the Underwriting Agreement, may be purchased
separately for the shares and will be transferable separately from the Common
Stock immediately.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
the Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption
(a) Commencing , 1997, on not less than
thirty (30) days prior written notice, the Warrants may be redeemed, at the
option of the Company, at a redemption price of $0.05 per Warrant, provided the
closing bid price of the Company's Common Stock on The Nasdaq National Market
exceeds $8.50 per share, subject to adjustment, for 30 consecutive trading days
during the period in which the Warrants are exercisable. All Warrants must be
redeemed if any of the Warrants are redeemed.
(b) In case the Company shall desire to exercise its right
to so redeem the Warrants, it shall request the Warrant Agent, or the
Underwriter, to mail a notice of redemption to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth (30th) day before the date fixed for redemption, at their last address
as shall appear on the records of the Warrant Agent. Any notice mailed in the
manner provided herein shall be conclusively presumed to have been duly given
whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, (iv) that
Duke & Co., Inc. will assist each Registered Holder of a Warrant in connection
with the exercise thereof (if Duke & Co., Inc. has conducted, or caused to be
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conducted, the mailing) and (v) that the right to exercise the Warrant shall
terminate at 5:00 p.m. (Eastern time) on the business day immediately preceding
the date fixed for redemption (the "Redemption Date"). No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a holder (a) to
whom notice was not mailed or (b) whose notice was defective. An affidavit of
the Warrant Agent or of the Secretary or an Assistant Secretary of Duke & Co.,
Inc. or the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been called
for redemption shall terminate at 5:00 p.m. (Eastern time) on the business day
immediately preceding the Redemption Date. On and after the Redemption Date,
Holders of the redeemed Warrants shall have no further rights except to receive,
upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Holder a sum in cash equal to the
Redemption Price of each such Warrant. From and after the date fixed for
redemption and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
SECTION 9. Adjustment of Exercise Price and Number of Shares of
Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(h),
in the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the market price of a share of Common Stock as quoted on NASDAQ or issue any
shares of Common Stock as a stock dividend to the holders of Common Stock, or
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the applicable Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of (a) the total number of shares of Common Stock outstanding
immediately prior to such Change
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of Shares and (b) the number of shares of Common Stock which the aggregate
consideration received by the Company upon such sale, issuance, subdivision or
combination (determined in accordance with subsection g(vi) below) could have
purchased at the then current Purchase Price, and the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
Change of Shares.
(b) Upon each adjustment of the applicable Purchase Price
pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each Warrant shall (subject to the provisions
contained in Section 9(c)) be such number of shares (calculated to the nearest
tenth) purchasable at the applicable Purchase Price immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
applicable Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment.
(c) The Company may elect, upon any adjustment of the
applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so that
each Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become that number of Warrants
(calculated to the nearest tenth) determined by multiplying the number one by a
fraction, the numerator of which shall be the applicable Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the applicable Purchase Price in effect immediately after such adjustment.
Upon each such adjustment of the number of Warrants, the Redemption Price in
effect immediately prior to such adjustment also shall be adjusted by
multiplying such Redemption Price by a fraction, the numerator of which shall be
the Purchase Price in effect immediately after such adjustment and the
denominator of which shall be the Purchase Price in effect immediately prior to
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10, the
number of additional Warrants, if any, to which such Holder shall be entitled as
a result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
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(d) In case of any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable upon such consolidation, merger, sale or conveyance
by a holder of the number of shares of Common Stock that might have been
purchased upon exercise of such Warrant, immediately prior to such
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The foregoing
provisions shall similarly apply to successive consolidations, mergers, sales or
conveyances.
(e) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon exercise
of the Warrants, the Warrant Certificates theretofore and thereafter issued
shall, unless the Company shall exercise its option to issue new Warrant
Certificates, continue to express the applicable Purchase Price per share, the
number of shares purchasable thereunder and the Redemption Price therefor as
were expressed in the Warrant Certificates when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant
to this Section 9, the Company will promptly after the fiscal quarter in which
such adjustment was triggered prepare a certificate signed by the Chairman or
President, and by the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the applicable Purchase Price as so adjusted, (ii) the number
of shares of Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to the Underwriter and to each registered holder of Warrants at his last address
as it shall appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective.
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The affidavit of an officer of the Warrant Agent or the Secretary or an
Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(g) For purposes of Section 9(a) and 9(c) hereof, the
following provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by or for
the account of the Company and the sale or issuance of such treasury shares or
the distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$0.05 in such price; provided that any adjustments which by reason of this
clause (ii) are not required 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(s) so carried forward, shall require an increase or
decrease of at least $0.05 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company solely
for cash of any rights or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further consideration
other than cash, if any (such convertible or exchangeable securities being
herein called "Convertible Securities"), or (2) the issuance by the Company,
without the receipt by the Company of any consideration therefor, of any rights
or warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, in each case, if (and only if) the
consideration payable to the Company upon the exercise of such rights, warrants
or options shall consist solely of cash, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants or options, plus the consideration received by the
Company for the issuance or sale of such rights, warrants or options, plus, in
the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or
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exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the then current Purchase Price
immediately prior to the date of the issuance or sale of such rights, warrants
or options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(c) hereof and shall be deemed
to have been sold for cash in an amount equal to such price per share.
(iv) If the exercise or purchase price provided for
in any right, warrant or option referred to in clause (iii) above, or the rate
at which any Convertible Securities referred to in clause (ii) or (iii) above
are convertible into or exchangeable for Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution) then the Purchase Price in effect at the time of such change will be
readjusted to the Purchase Price that would have been in effect at such time had
such rights, warrants, options or Convertible Securities still outstanding
provided for such changed exercise or purchase price or rate, as the case may
be, at the time initially granted, issued, or sold; such adjustment of the
Purchase Price will be made whether the result thereof is to increase or reduce
the Purchase Price then in effect hereunder. Upon the expiration of any such
right, warrant or option, or the termination of any right to convert or exchange
any Convertible Security, without the exercise of such right, warrant or option,
the Purchase Price then in effect hereunder will be adjusted to the Purchase
Price that would have been in effect at the time of such expiration or
termination had such right, warrant or option or Convertible Security never been
issued, but such subsequent adjustment shall not affect the number of shares of
Common Stock issued upon any exercise of this Warrant prior to the date such
adjustment is made. Except as otherwise provided in this paragraph (iv), no
adjustment of the Purchase Price will be made when securities are actually
issued upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities.
(v) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
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(h) No adjustment to the Purchase Price or to the number
of shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however:
(i) upon the grant or exercise of any other options
which may hereafter be granted or exercised under any employee benefit plan or
director plan of the Company as described in the Registration Statement; or
(ii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants
underlying the Underwriter's Warrants; or
(iii) upon the sale of any shares of Common Stock in
the public offering pursuant to the Registration Statement, including, without
limitation, shares sold upon the exercise of any over-allotment option granted
to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities outstanding on the date of the original sale of the Warrants, or upon
the issuance or sale of any securities of the Company referred to in the
Registration Statement; or
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities outstanding on the date of
the original sale of the Warrants; or
(vi) upon the issuance of any securities in a bona
fide public offering.
(i) As used in this Section 9, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the date of the
original issuance of the Shares or (i), in the case of any consolidation,
merger, sale or conveyance of the character referred to in Section 9(d) hereof,
the stock, securities or property provided for in such section or (ii), in the
case of any change in the outstanding shares of Common Stock issuable upon
exercise of the Warrants as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or from
no par value to par value, such shares of Common Stock as so changed.
(j) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
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(k) If and whenever the Company shall grant to the holders
of Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each of the then
Registered Holders of the Warrants all of such rights, warrants or options to
which each such holder would have been entitled if, on the date of determination
of stockholders entitled to the rights, warrants or options being granted by the
Company, such holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise (assuming, for purposes of this Section
9(j), that the exercise of Warrants is permissible during periods prior to the
Initial Warrant Exercise Date) of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustment which otherwise might
be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company shall nevertheless not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called for
upon any exercise hereof, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq National Market, the current value shall be the last
reported sale price of the Common Stock on NASDAQ or such exchange on the last
business day prior to the date of exercise of the Warrant, or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc. on
the last business day prior to the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
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SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect
to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the Warrant
Agent or of the holder of any other Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provided in the Warrant
Certificates and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as the holder and
as the absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
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<PAGE>
SECTION 14. Cancellation of Warrant Certificates. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and cancelled by it and retired.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions of this Agreement. The Warrant
Agent shall not, by issuing and delivering Warrant Certificates or by any other
act hereunder be deemed to make many representations as to the validity, value
or authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the Underwriter)
and shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
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<PAGE>
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or willful misconduct.
In the event of a dispute under this Agreement between the
Company and the Underwriter regarding proceeds received by the Warrant Agent
from the exercise of the Warrants, the Warrant Agent shall have the right, but
not the obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court shall be a bank or trust company having a capital
and surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed; but if for any reason it shall be necessary or expedient to execute and
deliver any further assurance, conveyance, act or deed, the same shall be done
at the expense of the Company and shall be legally and validly executed and
delivered by the resigning Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation
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resulting from any consolidation to which the Warrant Agent or any new warrant
agent shall be a party or any corporation succeeding to the trust business of
the Warrant Agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions
of Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; or (ii) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect except
with the consent in writing of the Registered Holders of Warrant Certificates
representing not less than 50% of the Warrants then outstanding; and provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made three days after such is mailed first class registered or certified mail,
postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 780 South Apollo
Boulevard, Atrium One, Melbourne, Florida 32901, Attention: Richard McNeight, or
at such other address as may have been furnished to the Warrant Agent in writing
by the Company, with a copy sent to Zimet, Haines, Friedman & Kaplan, 460 Park
Avenue, New
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<PAGE>
York, New York 10022, Attention: James Martin Kaplan, Esq.; if to the Warrant
Agent, at Continental Stock Transfer & Trust Company, 2 Broadway, 19th Floor,
New York, New York 10004; if to Duke & Co., Inc., at 909 Third Avenue, 7th
Floor, New York, New York 10022, Attention: President.
SECTION 18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Company, the Warrant Agent and the Underwriter,
and their respective successors and assigns, and the holders from time to time
of the Warrant Certificates. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or claim, in equity
or at law, or to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the
close of business on the Warrant Expiration Date of all the Warrants of such
earlier date upon which all Warrants have been exercised, except that the
Warrant Agent shall account to the Company for cash held by it and the
provisions of Section 15 hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
several counterparts, which taken together shall constitute a single document.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the date first above written.
PARAVANT COMPUTER SYSTEMS, INC.
By:
-------------------------------------
Authorized Officer
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:
-------------------------------------
Authorized Officer
DUKE & CO., INC.
By:
-------------------------------------
Authorized Officer
22
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<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
23
<PAGE>
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
__________________ (________________) Warrants represented by this Warrant
Certificate, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Please
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<PAGE>
indicate the name of the NASD member firm, which solicited the exercise of the
Warrant.
- --------------------------------
Name of soliciting NASD Member
Dated: _________________________
- -------------------------------- Signature
- -------------------------------- Street Address
- -------------------------------- City, State and Zip Code
- -------------------------------- Taxpayer ID Number
Signature Guaranteed:
- --------------------------------
25
<PAGE>
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: ______________________
- --------------------------------
Signature Guaranteed:
--------------------------------
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
26
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<PAGE>
HIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT, UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION
IS NOT THEN REQUIRED.
UNDERWRITER'S WARRANT
Dated: ______________, 1996
W-001
THIS CERTIFIES THAT DUKE & CO., INC. (the "Holder") is entitled to
purchase from PARAVANT COMPUTER SYSTEMS, INC., a Florida corporation (the
"Company"), 100,000 shares of Common Stock, $.045 per value per share at a price
of $6.00 per share and/or 140,000 Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants") at a price of $.12 per Redeemable Warrant, subject to
adjustment as provided in paragraph 8 hereof, at any time during the 48 month
period commencing , 1997 (one year from the Effective Date).
Each Redeemable Warrant entitles the holder thereof to purchase one share of
Common Stock at $6.00 per share for a period of five years, commencing 18 months
from the date of this Underwriter's Warrant. This Underwriter's Warrant (the
"Underwriter's Warrant") is issued pursuant to an Underwriting Agreement dated
, 1996, between the Company and Duke & Co., Inc. (the
"Underwriter"), in connection with a public offering, through the Underwriter,
of 1,000,000 shares of Common stock and 1,400,000 Redeemable Warrants as therein
described (and up to an additional 150,000 shares and/or 210,000 Redeemable
Warrants covered by an over-allotment option granted by the Company to the
Underwriter, hereinafter referred to together with the 1,000,000 shares and
1,400,000 Redeemable Warrants, as the "Public Securities") and in consideration
of $10.00 received by the Company for the Underwriter's Warrant. Except as
specifically otherwise provided herein, the shares of Common Stock and
Redeemable Warrants issuable pursuant to the Underwriter's Warrant shall have
the same terms and conditions as the, the Common Stock and the Redeemable
Warrants, respectively, as described under the caption "Description of
Securities" in the Company's Registration Statement on Form SB-2, File No.
33-91426 (the "Registration Statement"), except that the Holder shall have
registration rights under the Securities Act of 1933 (the "Act"), for the
Underwriter's Warrant, the Common Stock and Redeemable Warrants and the Common
Stock purchasable upon exercise of the Redeemable Warrants, as more fully
described in paragraph 6 herein. The 100,000 shares of Common Stock and 140,000
Redeemable Warrants issuable upon exercise of this Underwriter's Warrant shall
be collectively referred to as the "Underwriter's Securities."
1. The rights represented by this Underwriter's Warrant shall be
exercised at the price, subject to adjustment in accordance with paragraph 8
hereof, and during the periods as follows:
<PAGE>
<PAGE>
(a) During the period from the date hereof to ,
1997 [one year from the effective date of the Registration
Statement] (the "Initial Period"), inclusive, the Holder shall
have no right to purchase any Underwriter's hereunder, except
that in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety
during the Initial Period, the Holder shall have the right to
exercise the Underwriter's Warrant at such time and into the
kind and amount of shares of stock and other securities and
property (including cash) receivable by a holder of the number
of shares of Common Stock and Redeemable Warrants into which the
Underwriter's Warrant might have been exercisable immediately
prior thereto.
(b) Between , 1997 and , 2001
[five years from the effective date of the Registration
Statement] (the "Expiration Date") inclusive, the Holder shall
have the option to purchase Common Stock hereunder at a price of
$6.00 per Share and Redeemable Warrants at $.12 per Redeemable
Warrant (120% of the initial public offering price), subject to
adjustment as provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holder shall have no right to
purchase any Underwriter's hereunder.
2. (a) The rights represented by this Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the exercise price then in effect for
the number of Underwriter's Securities specified in the above-mentioned purchase
form together with applicable stock transfer taxes, if any; and (iii) delivery
to the Company of a duly executed agreement signed by the person(s) designated
in the purchase form to the effect that such person(s) agree(s) to be bound by
the provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Underwriter's Warrant shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date the Underwriter's Warrant is surrendered and payment is
made in accordance with the foregoing provisions of this paragraph 2, and the
person or persons in whose name or names the certificates for shares of Common
Stock and Redeemable Warrants shall be issuable upon such exercise shall become
the holder or holders of record of such Common Stock and Redeemable Warrants at
that time and date. Certificates representing the Common Stock and Redeemable
Warrants so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) days, after the rights represented by this Underwriter's
Warrant shall have been so exercised.
3
<PAGE>
<PAGE>
(b) Notwithstanding anything to the contrary contained in subparagraph
(a) of paragraph 2, the Holder may elect to exercise this Underwriter's Warrant
in whole or in part by receiving Units equal to the value (as determined below)
of this Underwriter's Warrant at the principal office of the Company together
with notice of such election in which event the Company shall issue to the
Holder a number of shares of Common Stock or Redeemable Warrants computed using
the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock
and/or Redeemable Warrants to be issued
to the Holder;
Y = the number of Shares to be exercised
under this Underwriter's Warrant;
A = the current fair market value of one
Share (calculated as described below);
and
B = the Exercise Price.
As used herein, the current fair market value of one Share shall mean
(I) the greater of (x) the average of the closing price per share of the
Company's Common Stock sold on all securities exchanges on which the Common
Stock may at the time be listed and the NASDAQ National Market, or, if there
have been no sales on any such exchange or the NASDAQ National Market on such
day, the average of the highest bid and lowest asked price per share on such day
on The Nasdaq Stock Market or otherwise in the domestic over-the- counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization (the "Market Price"), on the trading day immediately
preceding the date notice of exercise of this Underwriter's Warrant is given or
(y) the average of the Market Price per share of Common Stock for the five
trading days immediately preceding the date notice of exercise of this
Underwriter's Warrant is given. If on any date for which the Market Price per
share of Common Stock or per Redeemable Warrant is to be determined, the Common
Stock or the Redeemable Warrants, as the case may be, are not listed on any
securities exchange or quoted on the NASDAQ National Market or on The Nasdaq
Stock Market or otherwise in the over-the-counter market, the Market Price per
share of Common Stock or per Redeemable Warrant shall be the highest price per
share or per warrant, as the case may be, which the Company could then obtain
from a willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares or for Redeemable
Warrants, as determined in good faith by the Board of Directors of the Company,
unless prior to such date the Company has become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the Market Price per share of Common Stock or
Redeemable Warrant shall be deemed to be the value received by the holders
4
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<PAGE>
of the Company's Common Stock and the Redeemable Warrants for each share or
warrant, as the case may be, pursuant to the Company's acquisition.
3. The Underwriter's Warrant shall not be transferred, sold, assigned,
or hypothecated during the Initial Period except that it may be transferred to
successors of the Holder, and may be assigned in whole or in part to any person
who is an officer or partner of the Holder or to any co-underwriter or member of
the selling group and their officers or partners during such period. Any such
assignment shall be effected by the Holder by (i) executing the form of
assignment at the end hereof and (ii) surrendering the Underwriter's Warrant for
cancellation at the office or agency of the Company referred to in paragraph 2
hereof, accompanied by a certificate (signed by an officer of the Holder if the
Holder is a corporation), stating that each transferee is a permitted transferee
under this paragraph 3; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Underwriter's Warrant of
like tenor and representing in the aggregate rights to purchase the same number
of shares of Common Stock and Redeemable Warrants as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock
which may be purchased hereunder or upon exercise of the Redeemable Warrants
will, upon issuance against payment of the purchase price therefor, be duly and
validly issued, fully paid and nonassessable, and no personal liability will
attach to the holder thereof. The Company further covenants and agrees that,
during the periods within which the Underwriter's Warrant may be exercised, the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock to provide for the exercise of the Underwriter's
Warrant and the Redeemable Warrants.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i) The Company shall advise the Holder or its transferees,
whether the Holder holds the Underwriter's Warrant or has exercised the
Underwriter's Warrant and holds shares of Common Stock and/or Redeemable
Warrants by written notice at least two weeks prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others, except for any registration statement filed on Form S-3, S-4 or S-8
or other inappropriate form, and will, for a period of four years commencing one
year from the Effective Date, upon the request of the Holder, which request
shall be made within 10 days of the receipt of the Company's notice, and subject
to subparagraph (a)(ii) of this paragraph 6, include in one such post-effective
amendment to the Registration Statement or in one new registration statement
such information as may be required to permit a public offering of the
Underwriter's Warrant, the Common Stock issuable upon the exercise thereof, the
Redeemable Warrants issuable upon exercise of the Underwriter's Warrant and the
Common Stock issuable upon exercise of the Redeemable Warrants which are
issuable upon exercise of the Underwriter's Warrant
5
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(collectively, the "Registrable Securities"). Notwithstanding anything to the
contrary contained herein, a security is not a Registrable Security for purposes
of this Agreement if (i) such security has been effectively registered and
disposed of and (ii) registration is no longer required for the immediate public
distribution of all or any portion of the Registrable Securities. The Company
shall supply prospectuses and such other document as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its reasonable best efforts to register and qualify
any of the Registrable Securities for sale in such states as the Holder
reasonably designates and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities, except that no such
qualification shall be required in any jurisdiction where, as a result thereof,
the Company would be subject to service of general process or to taxation or
qualification as a foreign corporation doing business in such jurisdiction, all
at no expense to the Holder, except for the expenses of Holder's counsel or any
commissions or underwriting discounts relating to the disposition of the
Registrable Securities, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7.
(ii) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holder as a part of the written notice given pursuant to subparagraph
(a)(i) of this paragraph 6. If the managing underwriter determines that a
limitation of the number of shares to be underwritten is required, the
underwriter may exclude some or all Registrable Securities from such
registration (the "Excluded Registrable Securities"); provided, however, that
any other securityholder may only include the same pro-rata portion of any
such securities in such Registration Statement.
(b) If any 50% Holder (as defined below) shall give written notice to
the Company at any time to the effect that such Holder desires to register under
the Act any or all of the Registrable Securities under such circumstances that a
public distribution (within the meaning of the Act) of any such securities will
be involved, unless delayed by failure of Holder to promptly furnish requested
information, then the Company will promptly, but no later than four weeks after
receipt of such written notice, file a post-effective amendment to the current
Registration Statement or a new registration statement pursuant to the Act, so
that such designated Registrable Securities may be publicly sold under the Act
as promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective (including the taking
of such steps as are necessary to obtain the removal of any stop order) within
90 days after the receipt of such notice, provided, that such Holder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request in writing. The 50% Holder may, at its option,
request the filing of a post-effective amendment to the current Registration
Statement or a new registration statement under the Act on one occasion during
the three-year period beginning one year from the Effective Date. The 50% Holder
may, at its option, request the registration of the Registrable Securities
6
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<PAGE>
in a registration statement made by the Company as contemplated by subparagraph
(a) of this paragraph 6 or in connection with a request made pursuant to this
subparagraph (b) of paragraph 6 prior to acquisition of the shares of Common
Stock and Redeemable Warrants issuable upon exercise of the Underwriter's
Warrant. The 50% Holder may, at its option, request such post-effective
amendment or new registration statement during the described period with respect
to the Underwriter's Warrant, or separately as to the Common Stock and
Redeemable Warrants issuable upon the exercise of the Underwriter's Warrant, and
such registration rights may be exercised by the 50% Holder prior to or
subsequent to the exercise of the Underwriter's Warrant, except that such Holder
shall have no right to demand registration of the Registrable Securities if the
Company's counsel and the Holder's counsel mutually agreed that such securities
may be sold without registration under the Act. Within ten days after receiving
any such notice pursuant to this subparagraph (b) of paragraph 6, the Company
shall give notice to any other Holder of the Underwriter's Warrant, advising
that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
that part of the Underwriter's Warrant held by the other Holder, provided that
they shall furnish the Company with such appropriate information (relating to
the intentions of such Holder) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the first
post-effective amendment or new registration statement shall be borne by the
Company, except that the Holder(s) shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them. All costs and expenses of the second such post-effective amendment
or new registration statement shall be borne by the Holder(s). The Company will
maintain such registration statement or post- effective amendment current under
the Act for a period of at least six months (and for up to an additional three
months if requested by the Holder(s)) from the effective date thereof or until
all of the Registrable Securities have been sold or registration is no longer
required. The Company shall provide prospectuses, and such other documents as
the Holder(s) may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its reasonable best efforts
to register and qualify any of the Registrable Securities for sale in such
states as such Holder(s) designate, except that no such qualification shall be
required in any jurisdiction where, as a result thereof, the Company would be
subject to service of general process or to taxation or qualification as a
foreign corporation doing business in such jurisdiction, and furnish
indemnification in the manner provided in paragraph 7 hereof. Notwithstanding
anything to the contrary contained herein, the Company would not be required to
file a registration statement if audited financial statements other than those
normally required to be produced would be necessary unless the Holder(s) agree
to pay any reasonable costs of any such special audit. In the event that
securities of any affiliate of the Company are included in such registration
statement the costs of the special audit will be pro-rated.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common Stock
underlying the Underwriter's Warrant and the Redeemable Warrants and shall
include any owner or combination of owners of such securities, which ownership
shall be calculated by determining the number of shares of Common Stock held by
such owner or owners as well as the number of shares then issuable upon exercise
of the Underwriter's Warrant and the Redeemable
7
<PAGE>
<PAGE>
Warrants.
(d) If at any time prior to the effectiveness of the registration
statement filed in connection with an offering pursuant to this paragraph 6 the
50% Holder shall determine not to proceed with the registration, upon notice to
the Company and the payment to the Company by the 50% Holder of the Company's
expenses, if any, theretofore incurred in connection with the registration
statement, the 50% Holder may terminate its participation in the offering, and
the registration statement previously filed shall not be counted against the
number of demand registrations permitted under this paragraph 6. The 50% Holder
need not pay to the Company its expenses incurred in connection with the
registration statement, however, if such 50% Holder shall have reasonably
determined not to proceed because of material adverse developments on the part
of the Company of which such 50% Holder obtained knowledge subsequent to the
giving to the Company of the written request to register Registrable Securities
pursuant to this paragraph 6. The 50% Holder agrees that if its Registrable
Securities are included in a registration statement with respect to an
underwritten offering that the 50% Holder will enter into an underwriting
agreement with such managing underwriter.
(e) Notwithstanding the foregoing, if the Company shall furnish to such
50% Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future containing the disclosure of material information
required to be included therein by reason of the federal securities laws, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period during which such disclosure would be
seriously detrimental, provided that this period will not exceed 60 days and
provided further, that the Company shall not defer its obligation in this matter
more than once in any 12 month period.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Underwriter's Warrant or any Common Stock issued or issuable
upon the exercise of the Underwriter's Warrant or the Redeemable Warrants, or
any Redeemable Warrants is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the securities covered
by such registration statement, amendment or supplement (such Holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities, or actions in respect thereof, arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement or any preliminary prospectus or
final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading and will reimburse the Distributing
Holder or such controlling person or
8
<PAGE>
<PAGE>
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arises out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under this paragraph
7 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof, but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notified an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to settle,
9
<PAGE>
<PAGE>
compromise or dispose of such liability, claim or lawsuit, excepting therefrom
any and all proceedings or hearings before any regulatory bodies and/or
authorities and provided that no such settlement shall be made without the prior
written consent of the indemnifying party.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of each Underwriter's Warrant shall be
subject to adjustment from time to time upon the happening of certain events
hereinafter described; provided, however, that no adjustment shall be required
in respect of the Redeemable Warrants.
(a) In case the Company shall, (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, or (iv) the outstanding
shares of Common Stock of the Company are at any time changed into or exchanged
for a different number or kind of shares or other security of the Company or of
another corporation through reorganization, merger, consolidation, liquidation
or recapitalization, then appropriate adjustments in the number and kind of such
securities subject to this Underwriter's Warrant shall be made and the Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization shall be
proportionately adjusted so that the Holder of this Underwriter's Warrant
exercised after such date shall be entitled to receive the aggregate number and
kind of securities which, if this Underwriter's Warrant had been exercised by
such Holder immediately prior to such date, they would have owned upon such
exercise and been entitled to receive upon such dividend, distribution,
subdivision, combination, reclassification, reorganization, merger,
consolidation, liquidation or recapitalization. For example, if the Company
declares a 2 for 1 stock distribution and the Exercise Price immediately prior
to such event was $6.00 per Share [120% of the initial public offering price of
the Public Shares] and the number of Shares purchasable upon exercise of this
Warrant was 100,000, the adjusted Exercise Price immediately after such event
would be $3.00 per Share and the adjusted number of Units purchasable upon
exercise of this Warrant would be 200,000. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall hereafter distribute without
consideration to all holders of its Common Stock evidence of its indebtedness or
assets (excluding cash dividends or distributions and dividends or distributions
referred to in subparagraph (a) of this paragraph 8), or subscription rights or
warrants, then in each such case the Exercise Price in effect thereafter shall
be determined by multiplying the number of Shares issuable upon exercise of the
Underwriter's Warrant by the Exercise Price in effect immediately prior thereto,
multiplied by a fraction, the numerator of which shall be the total number of
shares of Common Stock then outstanding multiplied by the current Exercise
Price, less the fair market value (as determined by the Company's Board of
Directors) of said assets, or evidence of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by the current Exercise Price.
Such
10
<PAGE>
<PAGE>
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(c) Whenever the Exercise Price payable upon exercise of the
Underwriter's Warrant is adjusted pursuant to subparagraphs (a) or (b) of
paragraph 8, the number of shares of Common Stock purchasable upon exercise of
this Underwriter's Warrant shall simultaneously be adjusted by multiplying the
number of shares of Common Stock issuable upon exercise of this Underwriter's
Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(d) No adjustment in the Exercise Price shall be required (i) in the
event of the sale of the Company's securities in a future bona fide underwritten
public offering; or (ii) unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price; provided, however, that
any adjustments which by reason of this subparagraph (d) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this paragraph
8 shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be. Anything in this Section 8 to the contrary notwithstanding,
the Company shall be entitled, but shall not be required, to make such changes
in the Exercise Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the Company
shall not result in any federal income tax liability to the holders of Common
Stock or securities convertible into Common Stock (including the Redeemable
Warrants issuable upon exercise of the Underwriter's Warrant).
(e) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of shares of Common Stock or other securities purchasable
upon exercise of the Underwriter's Warrant to be mailed to the Holder, at the
addresses listed on the books of the Company, and shall cause a certified copy
thereof to be mailed to the Company's transfer agent, if any. The Company may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company) to
make any computation required by this paragraph 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(f) In the event that at any time, as a result of an adjustment made
pursuant to the provisions of this paragraph 8, the Holder of the Underwriter's
Warrant thereafter shall become entitled to receive any securities of the
Company, other than Common Stock and the Redeemable Warrants, thereafter the
number of such other securities so receivable upon exercise of the Underwriter's
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subparagraphs (a) to (f), inclusive of this paragraph
(f).
11
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<PAGE>
9. The Company shall not be required to issue any fractional shares upon
the exercise of this Underwriter's Warrant.
10. Notices. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Holders, shall be
mailed, delivered or telegraphed and confirmed c/o Duke & Co., Inc., 909 Third
Avenue, New York, New York 10022, Attention: President, with a copy to Gersten,
Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue, New York, New York 10022,
Attention: Jay Kaplowitz, Esq., and if to the Company, shall be mailed,
delivered or telegraphed and confirmed to Paravant Computer Systems, Inc., 780
South Apollo Blvd., Atrium One, Melbourne, Florida 32901, Attention: Richard
McNeight, with a copy to Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New
York, New York 10022, Attention: James Martin Kaplan, Esq.
11. In case the certificate or certificates evidencing the Warrant shall
be mutilated, lost, stolen or destroyed, the Company shall, at the request of
the Warrantholder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant certificate or certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of such Warrant and of bond of
indemnity, if requested, also satisfactory in form and amount, at the
applicant's cost. Applicants for such substitute Warrant certificate shall also
comply with such other reasonable requirements and pay such other reasonable
charges as the Company may prescribe.
12. This Agreement shall be governed by and in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, PARAVANT COMPUTER SYSTEMS, INC. has caused this
Underwriter's Warrant to be signed by its duly authorized officer, and this
Underwriter's Warrant to be dated ___________________, 1996.
PARAVANT COMPUTER SYSTEMS, INC.
By: ______________________________
Name:
Title:
12
<PAGE>
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by such
Underwriter's Warrant for, and to purchase thereunder, ______________ shares of
Common Stock and/or__________________ Redeemable Warrants of PARAVANT COMPUTER
SYSTEMS, INC., and herewith makes payment of $_____________________ therefor (or
hereby surrenders and delivers that portion of the Underwriter's Warrant having
equivalent value (as determined in accordance with the provisions of
subparagraph (b) of paragraph 2 of the Underwriter's Warrant)), and requests
that the certificates for shares of Common Stock and Redeemable Warrants be
issued in the name(s) of, and delivered to _____________________, whose
address(es) is (are):
Dated: __________________________ ___________________________________
Signature
_________________________________
Signature Guarantee
___________________________________
(Print name under signature)
(Signature must conform in all
respects to the name of holders
specified on the face of the
Underwriter's Warrant).
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Underwriter's Warrant)
FOR VALUE RECEIVED __________________________________________________
hereby sells, assigns and transfers unto _______________________________________
(Please print name and address of transferee)
this Underwriter's Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________
Attorney, to transfer the within Underwriter's Warrant on the books of PARAVANT
COMPUTER SYSTEMS, INC. with full power of substitution.
Dated: ______________________ ___________________________________
Signature
______________________________
Signature Guarantee
___________________________________
(Print name under signature)
(Signature must conform in all
respects to the name of holder as
specified on the face of the
Underwriter's Warrant).
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
<PAGE>
This Promissory Note has not been registered under the Securities Act of
1933, as amended, and may not be sold, exchanged, pledged, hypothecated or
transferred in any manner in the absence of such registration or an exemption
therefrom. Transfer of this Promissory Note is also subject to the terms and
conditions hereof.
PROMISSORY NOTE
$ ( Dollars) April 15, 1996
FOR VALUE RECEIVED, PARAVANT COMPUTER SYSTEMS, INC., a Florida corporation
(hereinafter called the 'Maker'), with offices at 780 South Apollo Boulevard,
Atrium One, Melbourne, Florida 32901, promises to pay to the order of
('Lender'), on the earlier to occur of April 15, 1997 or the date which is 10
days after the closing of an initial public offering of securities of Maker
(such date hereinafter referred to as the 'Due Date') at such place as the
holder of this Note shall designate to Maker in writing, the principal sum of
$ , together with interest thereon from the date hereof through and
including the Due Date at a rate of 6% per annum.
If any of the following events (each, an 'Event of Default') shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise) then the Lender may, at his or its option, by notice in writing to
the Maker, declare this Note to be, and this Note shall thereupon be and become,
forthwith due and payable together with interest thereon:
(i) if the Maker defaults for more than 10 days in the payment of the
principal of, or interest on, this Note; or
(ii) the Maker makes an assignment for the benefit of creditor or admits in
writing its inability to pay its debt generally as they become due; or
(iii) the Maker petitions or applies to any tribunal for the appointment of
a trustee or receiver of the Maker, or of any substantial part of the assets of
the Maker, or commences any proceedings relating to the Maker under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect; or
<PAGE>
<PAGE>
(iv) any such petition or application is filed, or any such proceedings are
commenced, against the Maker, and the Maker by any act indicates its approval
thereof, consent thereto or acquiescence therein, or an order, judgment or
decree is entered appointing any such trustee or receiver, or adjudicating the
Maker bankrupt or insolvent, or approving the petition in any such proceedings
and such order, judgment or decree remains unstayed and in effect for more than
60 days; or
(v) any order, judgment or decree is entered in any proceeding, against the
Maker decreeing the dissolution of the Maker and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(vi) any order, judgment or decree is entered in any proceedings against
the Maker decreeing a split-up of the Maker which requires the divestiture of a
substantial part of the assets of the Maker, and such order, judgment or decree
remains unstayed and in effect for more than 60 days.
The Maker shall have the right and privilege of prepaying this Note, in
whole or in part, at any time, without penalty.
This Note shall be governed by and construed under the laws of the State of
Florida applicable to obligation made and to be performed entirely within such
State. This Note may not be altered or amended except by a writing duly executed
by the Maker and the holder of this Note and physically attached to this Note.
All payments hereunder shall be made in United States dollars.
If any provision of this Note shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof and this Note shall be construed as if such invalid or
unenforceable provision had never been contained herein.
The Maker shall be liable for all expenses, including but not limited to
reasonable attorneys' fees, incurred by Lender in connection with enforcement of
any rights of Lender hereunder. No failure to exercise any right hereunder shall
operate as a waiver of any right hereunder, and no waiver, consent or agreement
in any instance shall adversely affect the rights of Lender in any other
instance.
The Maker expressly waives, to the extent permitted by applicable law,
demand and presentment for payment, notice of non-payment, protest, notice of
protest, notice of dishonor, bringing of suit, and diligence in taking any
action to collect amounts called for hereunder, and shall be directly and
primarily liable for the payment of all sums owing and to be owing herein,
regardless of and without any notice, diligence, act or omission with respect to
the collection of any amount called for hereunder, except as otherwise provided
in this Note.
<PAGE>
<PAGE>
This Note is binding on the Maker, its successors and assigns, and shall
inure to the benefit of the Lender, and the Lender's successors and permitted
assigns. Any assignment shall be made in accordance with applicable law and the
provisions of this Note, it being agreed that the Lender may not assign this
Note without the consent of the Maker, except such consent shall not be required
if an Event of Default hereunder shall have occurred and be continuing. In
connection with any permitted assignment, the Note shall be duly endorsed or
accompanied by a duly executed written instruction of transfer in form
reasonably satisfactory to the Maker.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed on
the date first above written.
PARAVANT COMPUTER SYSTEMS INC.
By
-----------------------------
Richard McNeight
President
<PAGE>
<PAGE>
OPTION AGREEMENT
RELATING TO
PARAVANT COMPUTER SYSTEMS, INC.
OPTION AGREEMENT (the 'Agreement') made as of this 16th day of December,
1991 between:
(1) UES FLORIDA, INC., a Florida corporation (hereinafter called 'UES' or
the 'Company'), with its principal place of business at 780 South Apollo
Boulevard, Atrium One, Melbourne, Florida 32901; and
(2) KRISHAN K. JOSHI (hereinafter called the 'Employee'), at c/o UES, INC.
4402 Dayon-Xenia Road, Dayton, Ohio 45432 and also being an officer and employee
of PARAVANT COMPUTER SYSTEMS, INC. (hereinafter called 'PARAVANT'), a Florida
corporation with its principal place of business at 780 South Apollo Boulevard,
Atrium One, Melbourne, Florida 32901.
WHEREAS, UES is the owner of 4,378,000 shares of Common Stock, par value
$.01 per share, of PARAVANT, said 4,378,000 shares representing 65% of all the
issued and outstanding shares of common stock of PARAVANT as of September 30,
1991 and also as of the date hereof; and
WHEREAS, each share of common stock of PARAVANT had a book value of $.10
per share as of September 30, 1991, the last day of PARAVANT's fiscal year
ending on that date; and
WHEREAS, the Board of Directors of UES and the Board of Directors of
PARAVANT have fixed the following 'performance goals' for PARAVANT for its next
3 fiscal years:
<TABLE>
<CAPTION>
Gross Profit
Fiscal Year Ended Revenues Margins
- ----------------- ------- -------------
<S> <C> <C>
9/30/92 $3.5+ million 40%
9/30/93 $4.0+ million 40%
9/30/94 $7.0+ million 40%
</TABLE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to provide an incentive to attract, motivate,
reward and retain certain officers and key employees of PARAVANT in order to
achieve a high level of profitability for PARAVANT by working more efficiently,
reducing costs, improving product quality, increasing profit margins, motivating
employees, and serving and pleasing customers; and
-1-
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<PAGE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to achieve these goals by granting options to
certain officers and key employees of PARAVANT, subject to certain conditions,
including, but not limited to, the achievement of the 1993 and 1994 'performance
goals' for both 'revenues' and 'gross profit margins' as set forth above; and
WHEREAS, the Board of Directors of UES and the Employee have consented and
agreed that UES shall hereby grant, and the Employee shall hereby accept, this
Agreement and the option to purchase an aggregate of 664,463 shares of common
stock of PARAVANT upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements herein, it is agreed by and between the parties hereto as follows:
1. Grant of 1993 and 1994 Options.
(a) 1993 Option. If PARAVANT achieves its goals (hereinafter called the
'1993 PERFORMANCE GOALS') of $4.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1993, then and in such event, UES
grants the Employee the right, privilege and option to purchase 332,231 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
(b) 1994 Option. If PARAVANT achieves its goals (hereinafter called the
'1994 PERFORMANCE GOALS') of $7.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1994, then and in such event, UES
grants the Employee the right, privilege and option to purchase 332,232 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
2. Time of Exercise.
(a) 1993 Option. If the '1993 PERFORMANCE GOALS' have been achieved, then
the 1993 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing on January 1, 1994 and ending on December 31, 1998.
(b) 1994 Option. If the '1994 PERFORMANCE GOALS' have been achieved, then
the 1994 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing on January 1, 1995 and ending on December 31, 1999.
-2-
<PAGE>
<PAGE>
3. Method of Exercise.
Each of the 1993 and 1994 Options shall be exercised by delivering a
written notice to the President or any Vice President or any other officer of
UES at its principal offices, accompanied by the Employee's personal check in
the appropriate amount payable to the order of 'UES FLORIDA, INC.' in payment of
the exercise price for the number of shares of Common Stock of PARAVANT
specified to be purchased in the Employee's notice.
The Employee's written notice shall indicate the number of optioned shares
to be purchased and whether such optioned shares are being purchased under the
1993 Option of the 1994 Option, and the total exercise price applicable thereto.
Within 30 days of receipt of such notice and the Employee's check in payment of
the exercise price, UES shall deliver the stock certificate(s) to the Employee
for the number of shares specified in said notice and purchased by the Employee.
The date of delivery of such stock certificate(s) may be extended by mutual
agreement of UES and the Employee or due to any law or regulation which may
require UES to take action with respect to the shares covered by such notice
prior to issuance thereof.
4. Termination Of Option.
Except as otherwise stated herein, both of the 1993 and 1994 Options,
shall, to the extent that each has not been exercised, terminate upon the date
(the 'Termination Date') on which any of the following events occurs:
(a) 30 days after the employee voluntarily terminates his employment with
PARAVANT;
(b) 30 days after the employment of the Employee by PARAVANT was terminated
on a non-voluntary basis (other than death);
(c) One (1) year from the date of death of the Employee, in which event
exercise of the options shall be by the Employee's executor(s), administrator(s)
or personal representative(s);
(d) December 31, 1999, representing the expiration of the last date for
exercise of the 1994 Option.
Any exercise of the 1993 and 1994 Options in the period subsequent to the
termination of employment of the Employee shall be allowed and permitted only to
the extent that either or both of the 1993 or 1994 Options was exercisable prior
to such termination of employment.
-3-
<PAGE>
<PAGE>
5. Stock Dividends, Reclassification, Consolidation, Merger or
Recapitalization.
In the event of the payment of any dividend payable in or the making of any
distribution of stock of PARAVANT to holders of record of shares of common stock
of PARAVANT at any time between the date hereof and December 31, 1999, or in the
event of any stock split, reverse split, combination of shares, recapitalization
or other similar change in the issued and outstanding Common Stock of PARAVANT
during such period or in the event of the merger or consolidation of PARAVANT
into or with any other corporation or the reorganization, dissolution,
liquidation or winding-up of PARAVANT, during such period, the Employee shall be
entitled, upon the exercise of any unexercised options held by him, to receive
such new, additional, fewer or other shares of stock of any class, or other
property (including cash), as he would have been entitled to receive as a matter
of law or otherwise in connection with such payment, distribution, stock split,
reverse split, combination, recapitalization, change, merger, consolidation,
reorganization, dissolution or liquidation, as the case may be, had he held the
shares of Common stock being purchased upon exercise of such option on the
record date set for such payment or distribution or on the date of such stock
split, reverse split, combination, recapitalization, change, merger,
consolidation, reorganization, dissolution or liquidation, and the Option Price
hereof shall be appropriately adjusted.
The decision of the Board of Directors of PARAVANT with respect to any and
all such adjustments shall be conclusive.
6. Non-Assignability and Non-Transferability of Options.
This Option is non-assignable and non-transferable by the Employee, except
in the event of his or her death as specified in Section 4 above and is
exercisable during the Employee's lifetime only by him or her. The Employee
shall have no rights as a stockholder of PARAVANT merely because he or she has
been granted this option. Such rights as a stockholder of PARAVANT only accrue
upon exercise of the option, in whole or in part, payment of the appropriate
exercise price in full, and the issuance and delivery of the underlying shares
as provided for in this Agreement.
7. Issuance and Delivery of Shares; Restrictions on Dispositions; Legend on
Shares.
UES and PARAVANT may postpone the issuance and delivery of shares purchased
upon exercise of any option until they shall have received the requisite
approval or consent, if any is required, of any governmental authority having
jurisdiction over the exercise of options or the issuance and sale of shares of
Common Stock of PARAVANT.
-4-
<PAGE>
<PAGE>
If the shares are not registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form) filed with the Securities
and Exchange Commission, then all shares acquired by the Employee shall be
deemed restricted securities as that term is defined under the Securities Act of
1993, as amended, and may not be sold or transferred unless certain conditions
are met.
It is understood that, if the shares are not registered, they are to be
purchased for investment only and not with a view to, or for sale in connection
with, any public offering or distribution.
If requested by UES and PARAVANT, the Employee shall, at the time of each
purchase of shares of common stock of PARAVANT pursuant to the exercise of his
option, in whole or in part, deliver to UES and PARAVANT his or her written
representation that the shares are being purchased solely for investment and not
with a view to their distribution or resale.
PARAVANT may, at its sole option, issue the certificates for such shares
with a legend on the face of the certificates in substantially the following
form:
'These shares of Common Stock have not been registered under the
Securities Act of 1933, as amended (the 'Act'). They have been
acquired for investment and not with a view to the distribution
thereof within the meaning of the Act and the rules and regulations
thereunder and may not be distributed in the absence of an effective
registration statement under the Act or an opinion of Counsel
satisfactory to the Company that registration is not required under
the Act.'
If the shares are registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form), and the Employee is deemed
to be an 'affiliate' as that term is defined under the Securities Act of 1933,
as amended, the Employee may sell the shares pursuant to Rule 144 under the
Securities Act of 1933 or pursuant to any other appropriate exemption under the
Act. Because the shares were or are covered by the Registration Statement, the
Employee need not meet the two-year holding period requirement of Rule 144 with
respect to such shares. However, regardless of whether the holding period
requirements of the Rule must be met, the Employee, if he or she is deemed an
affiliate of the Company, must comply with all other provisions of Rule 144,
which relate to, among other things, the availability of adequate current public
information concerning the Company, the number of shares that may be sold in any
period of three months, the manner of sale and notice filing requirements.
-5-
<PAGE>
<PAGE>
8. Binding Effect.
This agreement shall inure to the benefit of and be binding upon the
parties hereto ad their respective heirs, executors, administrators and assigns.
The laws of the State of Florida shall govern the interpretation and
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
UES FLORIDA, INC.
By ROSS L. MORGAN
----------------------
President
AGREED AND ACCEPTED:
KRISHAN K. JOSHI
- -----------------------
KRISHAN K. JOSHI
Employee
<PAGE>
<PAGE>
OPTION AGREEMENT
RELATING TO
PARAVANT COMPUTER SYSTEMS, INC.
OPTION AGREEMENT (the 'Agreement') made as of this 16th day of December,
1991 between:
(1) UES FLORIDA, INC., a Florida corporation (hereinafter called 'UES' or
the 'Company'), with its principal place of business at 780 South Apollo
Boulevard, Atrium One, Melbourne, Florida 32901; and
(2) WILLIAM R. CRAVEN (hereinafter called the 'Employee'), at 26 Normandy
Court, Basking Ridge, New Jersey 07920 and also being an officer and employee of
PARAVANT COMPUTER SYSTEMS, INC. (hereinafter called 'PARAVANT'), a Florida
corporation with its principal place of business at 780 South Apollo Boulevard,
Atrium One, Melbourne, Florida 32901.
WHEREAS, UES is the owner of 4,378,000 shares of Common Stock, par value
$.01 per share, of PARAVANT, said 4,378,000 shares representing 65% of all the
issued and outstanding shares of common stock of PARAVANT as of September 30,
1991 and also as of the date hereof; and
WHEREAS, each share of common stock of PARAVANT had a book value of $.10
per share as of September 30, 1991, the last day of PARAVANT's fiscal year
ending on that date; and
WHEREAS, the Board of Directors of UES and the Board of Directors of
PARAVANT have fixed the following 'performance goals' for PARAVANT for its next
3 fiscal years:
<TABLE>
<CAPTION>
Gross Profit
Fiscal Year Ended Revenues Margins
- ----------------- ------- -------------
<S> <C> <C>
9/30/92 $3.5+ million 40%
9/30/93 $4.0+ million 40%
9/30/94 $7.0+ million 40%
</TABLE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to provide an incentive to attract, motivate,
reward and retain certain officers and key employees of PARAVANT in order to
achieve a high level of profitability for PARAVANT by working more efficiently,
reducing costs, improving product quality, increasing profit margins, motivating
employees, and serving and pleasing customers; and
-1-
<PAGE>
<PAGE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to achieve these goals by granting options to
certain officers and key employees of PARAVANT, subject to certain conditions,
including, but not limited to, the achievement of the 1993 and 1994 'performance
goals' for both 'revenues' and 'gross profit margins' as set forth above; and
WHEREAS, the Board of Directors of UES and the Employee have consented and
agreed that UES shall hereby grant, and the Employee shall hereby accept, this
Agreement and the option to purchase an aggregate of 442,975 shares of common
stock of PARAVANT upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements herein, it is agreed by and between the parties hereto as follows:
1. Grant of 1993 and 1994 Options.
(a) 1993 Option. If PARAVANT achieves its goals (hereinafter called the
'1993 PERFORMANCE GOALS') of $4.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1993, then and in such event, UES
grants the Employee the right, privilege and option to purchase 221,487 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
(b) 1994 Option. If PARAVANT achieves its goals (hereinafter called the
'1994 PERFORMANCE GOALS') of $7.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1994, then and in such event, UES
grants the Employee the right, privilege and option to purchase 221,488 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
2. Time of Exercise.
(a) 1993 Option. If the '1993 PERFORMANCE GOALS' have been achieved, then
the 1993 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing on January 1, 1994 and ending on December 31, 1998.
(b) 1994 Option. If the '1994 PERFORMANCE GOALS' have been achieved, then
the 1994 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing on January 1, 1995 and ending on December 31, 1999.
-2-
<PAGE>
<PAGE>
3. Method of Exercise.
Each of the 1993 and 1994 Options shall be exercised by delivering a
written notice to the President or any Vice President or any other officer of
UES at its principal offices, accompanied by the Employee's personal check in
the appropriate amount payable to the order of 'UES FLORIDA, INC.' in payment of
the exercise price for the number of shares of Common Stock of PARAVANT
specified to be purchased in the Employee's notice.
The Employee's written notice shall indicate the number of optioned shares
to be purchased and whether such optioned shares are being purchased under the
1993 Option or the 1994 Option, and the total exercise price applicable thereto.
Within 30 days of receipt of such notice and the Employee's check in payment of
the exercise price, UES shall deliver the stock certificate(s) to the Employee
for the number of shares specified in said notice and purchased by the Employee.
The date of delivery of such stock certificate(s) may be extended by mutual
agreement of UES and the Employee or due to any law or regulation which may
require UES to take action with respect to the shares covered by such notice
prior to issuance thereof.
4. Termination of Option.
Except as otherwise stated herein, both of the 1993 and 1994 Options,
shall, to the extent that each has not been exercised, terminate upon the date
(the 'Termination Date') on which any of the following events occurs:
(a) 30 days after the Employee voluntarily terminates his employment with
PARAVANT;
(b) 30 days after the employment of the Employee by PARAVANT was terminated
on a non-voluntary basis (other than death);
(c) One (1) year from the date of death of the Employee, in which event
exercise of the options shall be by the Employee's executor(s), administrator(s)
or personal representative(s);
(d) December 31, 1999, representing the expiration of the last date for
exercise of the 1994 Option.
Any exercise of the 1993 and 1994 Options in the period subsequent to the
termination of employment of the Employee shall be allowed and permitted only to
the extent that either or both of the 1993 or 1994 Options was exercisable prior
to such termination of employment.
-3-
<PAGE>
<PAGE>
5. Stock Dividends, Reclassification, Consolidation, Merger or
Recapitalization.
In the event of the payment of any dividend payable in or the making of any
distribution of stock of PARAVANT to holders of record of shares of common stock
of PARAVANT at any time between the date hereof and December 31, 1999, or in the
event of any stock split, reverse split, combination of shares, recapitalization
or other similar change in the issued and outstanding Common Stock of PARAVANT
during such period or in the event of the merger or consolidation of PARAVANT
into or with any other corporation or the reorganization, dissolution,
liquidation or winding-up of PARAVANT, during such period, the Employee shall be
entitled, upon the exercise of any unexercised options held by him, to receive
such new, additional, fewer or other shares of stock of any class, or other
property (including cash), as he would have been entitled to receive as a matter
of law or otherwise in connection with such payment, distribution, stock split,
reverse split, combination, recapitalization, change, merger, consolidation,
reorganization, dissolution or liquidation, as the case may be, had he held the
shares of Common Stock being purchased upon exercise of such option on the
record date of such stock split, reverse split, combination, recapitalization,
change, merger, consolidation, reorganization, dissolution or liquidation, and
the Option Price hereof shall be appropriately adjusted.
The decision of the Board of Directors of PARAVANT with respect to any and
all such adjustments shall be conclusive.
6. Non-Assignability and Non-Transferability of Option.
This Option is non-assignable and non-transferable by the Employee, except
in the event of his or her death as specified in Section 4 above and is
exercisable during the Employee's lifetime only by him or her. The Employee
shall have no rights as a stockholder of PARAVANT merely because he or she has
been granted this option. Such rights as a stockholder of PARAVANT only accrue
upon exercise of the option, in whole or in part, payment of the appropriate
exercise price in full, and the issuance and delivery of the underlying shares
as provided for in this Agreement.
7. Issuance and Delivery of Shares; Restrictions on Dispositions; Legend on
Shares.
UES and PARAVANT may postpone the issuance and delivery of shares purchased
upon exercise of any option until they shall have received the requisite
approval or consent, if any is required, of any governmental authority having
jurisdiction over the exercise of options or the issuance and sale of shares of
Common Stock of PARAVANT.
-4-
<PAGE>
<PAGE>
If the shares are not registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form) filed with the Securities
and Exchange Commission, then all shares acquired by the Employee shall be
deemed restricted securities as that term is defined under the Securities Act of
1933, as amended, and may not be sold or transferred unless certain conditions
are met.
It is understood that, if the shares are not registered, they are to be
purchased for investment only and not with a view to, or for sale in connection
with, any public offering or distribution.
If requested by UES and PARAVANT, the Employee shall, at the time of each
purchase of shares of common stock of PARAVANT pursuant to the exercise of his
option, in whole or in part, deliver to UES and PARAVANT his or her written
representation that the shares are being purchased solely for investment and not
with a view to their distribution or resale.
PARAVANT may, at its sole option, issue the certificates for such shares
with a legend on the face of the certificates in substantially the following
form:
'These shares of Common Stock have not been registered
under the Securities Act of 1933, as amended (the 'Act').
They have been acquired for investment and not with a view
to the distribution thereof within the meaning of the Act and
the rules and regulations thereunder and may not be distributed
in the absence of an effective registration statement under the
Act or an opinion of Counsel satisfactory to the Company that
registration is not required under the Act.'
If the shares are registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form), and the Employee is deemed
to be an 'affiliate' as that term is defined under the Securities Act of 1933,
as amended, the Employee may sell the shares pursuant to Rule 144 under the
Securities Act of 1933 or pursuant to any other appropriate exemption under the
Act. Because the shares were or are covered by the Registration Statement, the
Employee need not meet the two-year holding period requirement of Rule 144 with
respect to such shares. However, regardless of whether the holding period
requirements of the Rule must be met, the Employee, if he or she is deemed an
affiliate of the Company, must comply with all other provisions of Rule 144,
which relate to, among other things, the availability of adequate current public
information concerning the Company, the number of shares that may be sold in any
period of three months, the manner of sale and notice filing requirements.
-5-
<PAGE>
<PAGE>
8. Binding Effect.
This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
assigns. The laws of the State of Florida shall govern the interpretation and
enforceability of this Agreement.
IN WITNESS WHEREOF, parties hereto have caused this Agreement to be
executed on the day and year first above written.
UES FLORIDA, INC.
By ROSS L. MORGAN
...................................
President
AGREED AND ACCEPTED:
WILLIAM R. CRAVEN
....................................
WILLIAM R. CRAVEN
Employee
-6-
<PAGE>
<PAGE>
OPTION AGREEMENT
RELATING TO
PARAVANT COMPUTER SYSTEMS, INC.
OPTION AGREEMENT (the 'Agreement') made as of this 16th day of December,
1991 between:
(1) UES FLORIDA, INC., a Florida corporation (hereinafter called 'UES' or
the 'Company'), with its principal place of business at 780 South Apollo
Boulevard, Atrium One, Melbourne, Florida 32901; and
(2) RICHARD P. McNEIGHT (hereinafter called the 'Employee'), at 780 South
Apollo Boulevard, Atrium One, Melbourne, Florida 32901 and also being an officer
and employee of PARAVANT COMPUTER SYSTEMS, INC. (hereinafter called 'PARAVANT'),
a Florida corporation with its principal place of business at 780 South Apollo
Boulevard, Atrium One, Melbourne, Florida 32901.
WHEREAS, UES is the owner of 4,378,000 shares of Common Stock, par value
$.01 per share, of PARAVANT, said 4,378,000 shares representing 65% of all the
issued and outstanding shares of common stock of PARAVANT as of September 30,
1991 and also as of the date hereof; and
WHEREAS, each share of common stock of PARAVANT had a book value of $.10
per share as of September 30, 1991, the last day of PARAVANT's fiscal year
ending on that date; and
WHEREAS, the Board of Directors of UES and the Board of Directors of
PARAVANT have fixed the following 'performance goals' for PARAVANT for its next
3 fiscal years:
<TABLE>
<CAPTION>
Gross Profit
Fiscal Year Ended Revenues Margins
- ----------------- ------- -------------
<S> <C> <C>
9/30/92 $3.5+ million 40%
9/30/93 $4.0+ million 40%
9/30/94 $7.0+ million 40%
</TABLE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to provide an incentive to attract, motivate,
reward and retain certain officers and key employees of PARAVANT in order to
achieve a high level of profitability for PARAVANT by working more efficiently,
reducing costs, improving product quality, increasing profit margins, motivating
employees, and serving and pleasing customers; and
-1-
<PAGE>
<PAGE>
WHEREAS, the Board of Directors of UES has determined that it is in the
best interests of UES and PARAVANT to achieve these goals by granting options to
certain officers and key employees of PARAVANT, subject to certain conditions,
including, but not limited to, the achievement of the 1993 and 1994 'performance
goals' for both 'revenues' and 'gross profit margins' as set forth above; and
WHEREAS, the Board of Directors of UES and the Employee have consented and
agreed that UES shall hereby grant, and the Employee shall hereby accept, this
Agreement and the option to purchase an aggregate of 221,488 shares of Common
Stock of PARAVANT upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements herein, it is agreed by and between the parties hereto as follows:
1. Grant of 1993 and 1994 Options.
(a) 1993 Option. If PARAVANT achieves its goals (hereinafter called the
'1993 PERFORMANCE GOALS') of $4.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1993, then and in such event, UES
grants the Employee the right, privilege and option to purchase 110,744 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
(b) 1994 Option. If PARAVANT achieves its goals (hereinafter called the
'1994 PERFORMANCE GOALS') of $7.0 million in sales and a gross profit margin of
40% in its fiscal year ending September 30, 1994, then and in such event, UES
grants the Employee the right, privilege and option to purchase 110,744 shares
of Common Stock of PARAVANT now owned by UES (or such lesser amount as may be
elected by the Employee) at an exercise price of $.10 per share in the manner
and subject to the other terms and conditions provided for in this Agreement.
2. Time of Exercise.
(a) 1993 Option. If the '1993 PERFORMANCE GOALS' have been achieved, then
the 1993 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing commencing on January 1, 1994 and ending on December 31, 1998.
(b) 1994 Option. If the '1994 PERFORMANCE GOALS' have been achieved, then
the 1994 Option provided for in this Agreement may be exercised by the Employee,
in whole or in part, and at any time and from time to time, during the 5-year
period commencing commencing on January 1, 1995 and ending on December 31, 1999.
-2-
<PAGE>
<PAGE>
3. Method of Exercise.
Each of the 1993 and 1994 Options shall be exercised by delivering a
written notice to the President or any Vice President or any other officer of
UES at its principal offices, accompanied by the Employee's personal check in
the appropriate amount payable to the order of 'UES FLORIDA, INC.' in payment of
the exercise price for the number of shares of Common Stock of PARAVANT
specified to be purchased in the Employee's notice.
The Employee's written notice shall indicate the number of optioned shares
to be purchased and whether such optioned shares are being purchased under the
1993 Option of the 1994 Option, and the total exercise price applicable thereto.
Within 30 days of receipt of such notice and the Employee's check in payment of
the exercise price, UES shall deliver the stock certificate(s) to the Employee
for the number of shares specified in said notice and purchased by the Employee.
The date of delivery of such stock certificate(s) may be extended by mutual
agreement of UES and the Employee or due to any law or regulation which may
require UES to take action with respect to the shares covered by such notice
prior to issuance thereof.
4. Termination of Option.
Except as otherwise stated herein, both of the 1993 and 1994 Options,
shall, to the extent that each has not been exercised, terminate upon the date
(the 'Termination Date') on which any of the following events occurs:
(a) 30 days after the Employee voluntarily terminates his employment with
PARAVANT;
(b) 30 days after the employment of the Employee by PARAVANT was terminated
on a non-voluntary basis (other than death);
(c) One (1) year from the date of death of the Employee, in which event
exercise of the options shall be by the Employee's executor(s), administrator(s)
or personal representative(s);
(d) December 31, 1999, representing the expiration of the last date for
exercise of the 1994 Option.
Any exercise of the 1993 and 1994 Options in the period subsequent to the
termination of employment of the Employee shall be allowed and permitted only to
the extent that either or both of the 1993 or 1994 Options was exercisable prior
to such termination of employment.
-3-
<PAGE>
<PAGE>
5. Stock Dividends, Reclassification, Consolidation, Merger or
Recapitalization.
In the event of the payment of any dividend payable in or the making of any
distribution of stock of PARAVANT to holders of record of shares of common stock
of PARAVANT at any time between the date hereof and December 31, 1999, or in the
event of any stock split, reverse split, combination of shares, recapitalization
or other similar change in the issued and outstanding Common Stock of PARAVANT
during such period or in the event of the merger or consolidation of PARAVANT
into or with any other corporation or the reorganization, dissolution,
liquidation or winding-up of PARAVANT, during such period, the Employee shall be
entitled, upon the exercise of any unexercised options held by him, to receive
such new, additional, fewer or other shares of stock of any class, or other
property (including cash), as he would have been entitled to receive as a matter
of law or otherwise in connection with such payment, distribution, stock split,
reverse split, combination, recapitalization, change, merger, consolidation,
reorganization, dissolution or liquidation, as the case may be, had he held the
shares of Common Stock being purchased upon exercise of such option on the
record date set for such payment or distribution or on the date of such stock
split, reverse split, combination, recapitalization, change, merger,
consolidation, reorganization, dissolution or liquidation, and the Option Price
hereof shall be appropriately adjusted.
The decision of the Board of Directors of PARAVANT with respect to any and
all such adjustments shall be conclusive.
6. Non-Assignability and Non-Transferability of Option.
This Option is non-assignable and non-transferable by the Employee, except
in the event of his or her death as specified in Section 4 above and is
exercisable during the Employee's lifetime only by him or her. The Employee
shall have no rights as a stockholder of PARAVANT merely because he or she has
been granted this option. Such rights as a stockholder of PARAVANT only accrue
upon exercise of the option, in whole or in part, payment of the appropriate
exercise price in full, and the issuance and delivery of the underlying shares
as provided for in this Agreement.
7. Issuance and Delivery of Shares; Restrictions on Dispositions; Legend on
Shares.
UES and PARAVANT may postpone the issuance and delivery of shares purchased
upon exercise of any option until they shall have received the requisite
approval or consent, if any is required, of any governmental authority having
jurisdiction over the exercise of options or the issuance and sale of shares of
Common Stock of PARAVANT.
-4-
<PAGE>
<PAGE>
If the shares are not registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form) filed with the Securities
and Exchange Commission, then all shares acquired by the Employee shall be
deemed restricted securities as that term is defined under the Securities Act of
1993, as amended, and may not be sold or transferred unless certain conditions
are met.
It is understood that, if the shares are not registered, they are to be
purchased for investment only and not with a view to, or for sale in connection
with, any public offering or distribution.
If requested by UES and PARAVANT, the Employee shall, at the time of each
purchase of shares of common stock of PARAVANT pursuant to the exercise of his
option, in whole or in part, deliver to UES and PARAVANT his or her written
representation that the shares are being purchased solely for investment and not
with a view to their distribution or resale.
PARAVANT may, at its sole option, issue the certificates for such shares
with a legend on the face of the certificates in substantially the following
form:
'These shares of Common Stock have not been registered under the
Securities Act of 1933, as amended (the 'Act'). They have been
acquired for investment and not with a view to the distribution
thereof within the meaning of the Act and the rules and regulations
thereunder and may not be distributed in the absence of an effective
registration statement under the Act or an opinion of Counsel
satisfactory to the Company that registration is not required under
the Act.'
If the shares are registered pursuant to an effective registration
statement on Form S-1 (or any other applicable form), and the Employee is deemed
to be an 'affiliate' as that term is defined under the Securities Act of 1933,
as amended, the Employee may sell the shares pursuant to Rule 144 under the
Securities Act of 1933 or pursuant to any other appropriate exemption under the
Act. Because the shares were or are covered by the Registration Statement, the
Employee need not meet the two-year holding period requirement of Rule 144 with
respect to such shares. However, regardless of whether the holding period
requirements of the Rule must be met, the Employee, if he or she is deemed an
affiliate of the Company, must comply with all other provisions of Rule 144,
which relate to, among other things, the availability of adequate current public
information concerning the Company, the number of shares that may be sold in any
period of three months, the manner of sale and notice filing requirement.
-5-
<PAGE>
<PAGE>
8. Binding Effect.
This agreement shall inure to the benefit of and be binding upon the
parties hereto ad their respective heirs, executors, administrators and assigns.
The laws of the State of Florida shall govern the interpretation and
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
UES FLORIDA, INC.
By ROSS L. MORGAN
----------------------
President
AGREED AND ACCEPTED:
RICHARD P. McNEIGHT
- -----------------------
RICHARD P. McNEIGHT
Employee
-6-
<PAGE>
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT (PLAN 1-NQ)
THIS AGREEMENT dated as of the 23 day of November, 1994, the ('Grant Date')
by and between PARAVANT COMPUTER SYSTEMS, INC., with its principal office at 780
S. Apollo Boulevard, Atrium One, Melbourne, Florida 32901, (the 'Company') and
Richard P. McNeight , (the 'Optionee').
W I T N E S S E T H:
WHEREAS, the Company has adopted a Non-Qualified Stock Option Plan (the
'Plan 1-NQ') to permit options to purchase shares of the Company's common stock
to be granted to certain key employees of the Company; and
WHEREAS, the Optionee is a key employee of the Company and the Company
desires him/her to so remain by providing him/her with a means to acquire or to
increase his/her proprietary interest in the Company's success;
NOW, THEREFORE, in consideration of the promises and of the covenants and
agreement herein set forth, the parties hereby mutually covenant and agree as
follows:
1. Subject to the terms and conditions of the Plan 1-NQ, a copy of
which is attached hereto as Exhibit 'A' and made a part hereof, and this
Agreement, the Company grants to the Optionee the option to purchase from
the Company all or any part of an aggregate number of 272,758 shares of
common stock of the Company, (hereinafter such shares of stock are referred
to as the 'Optioned
<PAGE>
<PAGE>
Shares' and the option to purchase the Optioned Shares is referred to
as the 'Option').
2. The price to be paid for the Optioned Shares shall be $.20 (twenty
cents) per share.
3. Subject to the terms and conditions of the Plan 1-NQ and this
Agreement, stock may be purchased pursuant to this Option at any time and
from time to time during a period of six (6) years from the date hereof,in
whole or in part, provided, however, that no shares of the stock may be
purchased during the first twelve (12) month period following the date
hereof. All options to purchase stock subject to this Agreement must be
exercised on or before November 23, 2000 at which time all unexercised
options will expire.
4. The Option may be exercised only by written notice, delivered or
mailed by postpaid registered or certified mail addressed to the Secretary
of the Company at the corporate headquarters, specifying the number of
Optioned Shares being purchased in cash or its equivalent. Within five (5)
business days following the date of exercise, payment shall be made in full
or by such other payment means as shall be mutually agreeable. Such
purchased shares shall be forthwith delivered to Optionee.
5. (a) if the Optionee's position and/or employment with the Company
is terminated for good cause, this Option shall terminate simultaneously
therewith and Optionee shall have no further right to exercise an Option
thereafter. For purposes of this paragraph, 'good cause' shall be
determined by the Committee
2
<PAGE>
<PAGE>
of the Board of Directors of the Company and any such determination
shall be final, binding and conclusive.
(b) If the Optionee's position and/or employment with the Company
ceases for any reason other than (i) termination for good cause as set
forth in paragraph 5(a) above; or, (ii) death or disability, the term of
this Option shall expire on a date not later than sixty (60) days after
termination.
(c) If the Optionee's relationship with the Company ceases by reason
of disability or death within the meaning of Section 37(c)(3) of the
Internal Revenue Code of 1986, as amended, the term of the Option shall
expire on a date which is the earlier of (i) not later than twelve (12)
months following the date of death or disability; or (ii) November 23,
2000.
6. The Option herein granted shall not be transferrable by the
Optionee otherwise than by will (or trust) or the laws of descent and
distribution, and may be exercised during the life of the Optionee only by
the Optionee, except as set forth in 5(c) above.
7. Concurrently with entering into this Agreement, Optionee agrees to
immediately enter into the Stock Redemption Plan 1-NQ, incorporated herein
as Exhibit 'B'. The Optionee agrees for himself/herself and his/her heirs,
legatees, and legal representatives, with respect to all shares of stock
acquired pursuant to the terms and conditions of this Agreement (or any
shares of stock issued pursuant to a stock dividend or stock split thereon
or any securities issued in lieu thereof or in substitution
3
<PAGE>
<PAGE>
or exchange therefor) that he/she and his/her heirs, legatees, and legal
representatives will not sell or otherwise dispose of such shares except
pursuant to the terms and conditions of the Stock Redemption Agreement Plan 1-NQ
(Exhibit 'B').
8. If any change is made in the shares subject to Plan 1-NQ or any Option
granted thereunder (through merger, consolidation, reorganization,
recapitalization, or change in capital structure), appropriate adjustment shall
be made by the Committee in the number of shares and kind of common stock for
which Options may be or may have been granted under the Plan 1-NQ, to the end
that the proportional interest shall be maintained as before the occurrence of
such an event.
9. Optionee hereby acknowledges and represents the following:
(a) Optionee acknowledges and understands that the Optioned Shares
have not been registered with the Security and Exchange Commission under
the Security Act of 1933, as amended, in reliance upon the exemption
from registration provided in Regulation D of the Act, nor with any
state security regulatory authority in reliance upon particular
statutory transactional exemptions. As such, the shares purchased under
this Option Agreement, if exercised, cannot be sold subsequently or
otherwise transferred without prior (i) registration under the Act and
under applicable state law or (ii) receipt of an opinion of counsel for
the issuer to the effect that such proposed sale or other transfer does
not effect the exempt status of the original issuance and sale
4
<PAGE>
<PAGE>
of these shares and is in compliance with all applicable state and
federal security laws.
(b) That the Optionee acknowledges that the Optioned Shares being
sold to him/her under this Agreement shall be subject to the Stock
Redemption Agreement Plan 1-NQ.
(c) That Optionee will be acquiring the stock for his/her own
investment and personal interest in the Company and not for the account
of any other person, with no intention on his/her party of affecting a
redistribution of such stock or any part thereof.
(d) That Optionee has asked questions and received all answers to
information he/she considers pertinent to form a knowledgeable opinion
about this investment.
(e) That the Optionee understands and acknowledges that he/she
shall not be deemed for any purpose to be a shareholder of the Company
with respect to any of the Optioned Shares, except to the extent that
the Option herein granted shall have been exercised with respect thereto
and a stock certificate issued therefor.
(f) That the existence of the Option herein granted shall not
affect in any way the right or power of the Company or its shareholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in the Company's capital structure or
its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of
or affecting the common stock of the Company or the rights thereof, or
dissolution
5
<PAGE>
<PAGE>
or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business or any other corporate act or
proceeding, whether of a similar character or otherwise.
(g) That as a condition of the granting of the Option herein
granted, the Optionee agrees, for himself/herself, and his/her Personal
Representative, that any dispute or disagreements which may arise under
or as a result of or pursuant to this Agreement shall be determined by
the Committee in its sole discretion, and that any interpretation by the
Committee of the terms of this Agreement shall be final, binding and
conclusive.
10. This Option shall not confer upon the Optionee any right with
respect to the continuance of the relationship between Optionee and the
Company, nor shall it interfere in any way with the right of the Company to
terminate the Optionee's relationship with the Company.
11. This Agreement shall be governed and interpreted by the laws of
the State of Florida.
12. As used in this Agreement, the masculine, feminine or neuter
gender and the singular or plural number shall be deemed to include the
others whenever the context so indicates or requires.
13. This Agreement and the Exhibits hereto constitute the entire
agreement between the parties with respect to the subject matter hereof,
and no change or modification shall be valid unless made in writing and
signed by the party against whom such change or modification is sought to
be enforced.
6
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officers and its corporate seal hereunto affixed, and the
Optionee has hereunto affixed his/her hand the day and year first above written.
PARAVANT COMPUTER SYSTEMS. INC.
ATTEST BY: KRISHAN K. JOSHI
____________________________________
President
WILLIAM R. CRAVEN
________________________________
Secretary (Seal) 'Company'
SUSAN BACEZMORE BY: RICHARD MCNEIGHT
________________________________ ____________________________________
Witness
MARION ROSARIO
________________________________
Witness 'Optionee'
7
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
PARAVANT COMPUTER SYSTEMS, INC.
We consent to the inclusion in this Registration Statement on Form SB-2
(File No. 33-91426) of our report dated February 19, 1996 (except as to Note 18
which is as of May 15, 1996) on our audits of the financial statements of
Paravant Computer Systems, Inc. We also consent to the reference to our firm
under the headings 'Experts' and 'Selected Financial Data' in the prospectus.
KPMG PEAT MARWICK LLP
Orlando, Florida
May 19, 1996
II-8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY OF PARAVANT COMPUTER
SYSTEMS, INC. AS OF SEPTEMBER 30, 1995 AND MARCH 31, 1996 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR AND THE SIX MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996
<PERIOD-START> OCT-01-1994 OCT-01-1995
<PERIOD-END> SEP-30-1995 MAR-31-1996
<PERIOD-TYPE> YEAR 6-MOS
<CASH> 211,426 3,573
<SECURITIES> 0 0
<RECEIVABLES> 5,295,106 2,192,109
<ALLOWANCES> 0 0
<INVENTORY> 2,733,905 3,636,650
<CURRENT-ASSETS> 8,486,564 6,381,676
<PP&E> 928,208 982,776
<DEPRECIATION> 465,761 469,609
<TOTAL-ASSETS> 9,449,715 7,425,302
<CURRENT-LIABILITIES> 7,136,156 5,846,503
<BONDS> 306,388 219,804
<COMMON> 67,500 67,500
0 0
0 0
<OTHER-SE> 1,939,671 1,291,495
<TOTAL-LIABILITY-AND-EQUITY> 9,449,715 7,425,302
<SALES> 8,652,553 1,724,882
<TOTAL-REVENUES> 8,652,553 1,724,882
<CGS> 4,680,661 1,131,911
<TOTAL-COSTS> 4,680,661 1,131,911
<OTHER-EXPENSES> 2,668,320 1,408,657
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 392,589 222,202
<INCOME-PRETAX> 860,272 (1,039,244)
<INCOME-TAX> 278,857 (391,068)
<INCOME-CONTINUING> 581,415 (648,176)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 581,415 (648,176)
<EPS-PRIMARY> .39 (.43)
<EPS-DILUTED> .39 (.43)
<PAGE>
