-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AdhMWDtjJNMwgh2tN/9rtgWGg3x5Hv1KT+VgYgXtFb0Swy6ZrhttCcqVxFHj/yYr Dqqg/kibCLIeidIpBwQLxQ== 0000950170-96-000861.txt : 19960926 0000950170-96-000861.hdr.sgml : 19960926 ACCESSION NUMBER: 0000950170-96-000861 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19960925 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANSUR INDUSTRIES INC CENTRAL INDEX KEY: 0000934851 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 650226813 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-08657 FILM NUMBER: 96634214 BUSINESS ADDRESS: STREET 1: 8425 SW 129 TERRACE CITY: MIAMI STATE: FL ZIP: 33156 BUSINESS PHONE: 3052326768 MAIL ADDRESS: STREET 1: 8425 SW 129TH TERRACE CITY: MIAMI STATE: FL ZIP: 33156 S-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1996 REGISTRATION STATEMENT NO. 333-08657 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - ----------------------------------------------------------------------------- AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 - ----------------------------------------------------------------------------- MANSUR INDUSTRIES INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 3599 65-0226813 (STATE OR OTHER JURISDICTION OF (Primary Standard Industrial (I.R.S. Employer INCORPORATION OR ORGANIZATION) Classification Code Number) Identification No.) PAUL I. MANSUR CHIEF EXECUTIVE OFFICER 8425 S.W. 129TH TERRACE MANSUR INDUSTRIES, INC. MIAMI, FLORIDA 33156 8425 S.W. 129TH TERRACE (305) 232-6768 MIAMI, FLORIDA 33156 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (305) 232-6768 NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND INCLUDING AREA CODE, OF REGISTRANT'S PRIN- TELEPHONE NUMBER, CIPAL EXECUTIVE OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE) - ----------------------------------------------------------------------------- WITH COPIES TO: - ----------------------------------------------------------------------------- GARY M. EPSTEIN, ESQ. LAWRENCE B. FISHER, ESQ. GREENBERG, TRAURIG, HOFFMAN, ORRICK, HERRINGTON & SUTCLIFFE LLP LIPOFF, ROSEN & QUENTEL, P.A. 666 FIFTH AVENUE 1221 BRICKELL AVENUE NEW YORK, NEW YORK 10103 MIAMI, FLORIDA 33131 (212) 506-5000 (305) 579-0500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE Common Stock, $.001 par value 977,500 shares(2) $8.00 per share $ 7,820,000 $ 2,696.55 Common Stock, $.001 par value 150,000 Shares(3) $8.00 per Share $ 1,200,000 $ 413.79 Representative's Warrants 85,000 Warrants(4) $.001 per Warrant $ 85 (5) Common Stock, $.001 par value 85,000 Shares(6) $9.60 per Share $ 816,000 $ 281.38 Total Registration Fee $ 3,391.72(7)
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. (2) Includes 127,500 Shares subject to the Underwriters' over-allotment option. (3) Shares of Common Stock being registered for the account of certain stockholders of the Registrant, which shares, as of the closing of this offering, will be automatically issued upon conversion of $1,012,500 in principal amount of Convertible Redeemable Notes due June 10, 1997. (4) To be issued to the Representative, as set forth on the cover page of the Prospectus comprising a portion of this Registration Statement. (5) No fee due pursuant to Rule 457(g). (6) Issuable upon exercise of the Underwriter's Warrants, together with such indeterminate number of shares of Common Stock as may be issuable by reason of the anti-dilution provisions contained therein. (7) $3,327.07 of such amount was previously paid. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
MANSUR INDUSTRIES INC. CROSS-REFERENCE SHEET Pursuant to Item 501(b) of Regulation S-K Showing Location in Prospectus of Information Required by Items of Form S-1. ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT Location in Prospectus - ----------------------------------------------------------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover of Prospectus Page 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges Prospectus Summary; Risk Factors 4. Use of Proceeds Prospectus Summary; Use of Proceeds; Management's Discussion and Analysis of Financial Condition and Results of Operations 5. Determination of Offering Price Outside Front Cover Page; Underwriting 6. Dilution Risk Factors; Dilution 7. Selling Security Holders Not Applicable Outside Front Cover Page; Inside Front Cover 8. Plan of Distribution Page; Underwriting 9. Description of Securities to be Registered Prospectus Summary; Capitalization; Dividend Policy; Description of Capital Stock; Shares Eligible for Future Sale 10. Interests of Named Experts and Counsel Not Applicable 11. Information with Respect to the Registrant Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Shareholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Not Applicable
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1996 PROSPECTUS 850,000 SHARES [MANSUR INDUSTRIES LOGO] Common Stock The shares of Common Stock, $.001 par value ("Common Stock"), offered hereby are offered by Mansur Industries Inc. (the "Company"). Prior to this offering, there has been no public market for the Common Stock and there can be no assurance that any such market will develop. It is anticipated that the initial public offering price will be between $7.00 and $8.00 per share. For information regarding the factors considered in determining the initial public offering price of the Common Stock, see "Underwriting." The Company has made an application to include the Common Stock on the Nasdaq Small Cap Market under the symbol "MANS." - ----------------------------------------------------------------------------- SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. - ----------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO Underwriting Proceeds to PUBLIC Discounts(1) Company(2) Per Share $ $ $ Total(3) $ $ $
(1) Does not include compensation payable to the Representative in the form of a nonaccountable expense allowance equal to 3% of the gross proceeds of this offering. In addition, see "Underwriting" for information concerning indemnification and contribution arrangements with and other compensation payable to the Underwriters. (2) Before deducting estimated expenses of $465,750 payable by the Company, which includes the nonaccountable expense allowance payable to the Representative. (3) The Company has granted the Underwriters a 45-day option to purchase up to 127,500 additional shares of Common Stock upon the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such over-allotment option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------------------------------------------------------- The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by their counsel and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify this offering and to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock offered hereby will be made against payment on or about , 1996 at the offices of First Allied Securities Inc., New York, New York. - ----------------------------------------------------------------------------- [FIRST ALLIED SECURITIES INC. LOGO] , 1996 [PHOTOS/ART] The following text appears as a caption: MANSUR. The Company's line of self-contained, recycling industrial parts washers incorporate innovative, proprietary and patented waste minimization technologies and represent a significant advance over currently available machinery and processes. Artistic depictions of the following appear here: The Company's Series 500 SystemOne Washers, the Company's Multiprocess Jet and Immersion Washers and the Company's Series 300 SystemOne Mini Washers. THE FOLLOWING TEXT APPEARS AS A CAPTION: MANSUR VERSUS INDUSTRY An artistic depiction of the Company's Series 500 SystemOne Washer appears here. An artistic depiction of a large recycling plant and the recycling process employed by the Company's competitors appears here. The following text appears in a caption: The Company's products allow the use and re-use of the cleaning solvent by removing all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer on demand, without the costly and dangerous storage and transportation of hazardous waste. The following text appears as a caption: Under the most common current practice, the cleaning solvent becomes contaminated (and less effective) with repeated use and it must be stored until pick-up, when pure solvent is delivered and the contaminated solvent is generally shipped to regional refining facilities (typically on four to sixteen week cycles). IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. - ----------------------------------------------------------------------------- THE COMPANY WILL FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS CERTIFIED BY AN INDEPENDENT AUDITING FIRM. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS ASSUMES (I) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION (THE "OVER-ALLOTMENT OPTION") TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS NOT BEEN EXERCISED, (II) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000 SHARES OF COMMON STOCK HAVE NOT BEEN EXERCISED, AND (III) THAT $1,012,500 IN PRINCIPAL AMOUNT OF CONVERTIBLE NOTES (THE "CONVERTIBLE NOTES") ISSUED IN A PRIVATE FINANCING COMPLETED BY THE COMPANY IN JUNE 1996 HAS BEEN CONVERTED INTO 150,000 SHARES OF COMMON STOCK SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "UNDERWRITING." THE COMPANY Mansur Industries Inc. (the "Company") has developed and obtained patent protection with respect to a full line of self-contained, recycling industrial parts washers that incorporate innovative, proprietary waste minimization technologies and represent a significant advance over currently available machinery and processes. Focusing on waste minimization rather than its removal and recovery, the Company believes that its equipment will have a major impact on the industrial parts cleaning industry and will have a broad appeal to customers, because its equipment, unlike the machines now in use, facilitates efficient and economical compliance with environmental regulations, minimizes waste disposal requirements, enhances cleaning solution utilization, and increases worker safety and productivity. Most machinery and equipment require oil lubrication to function properly. Removal of lubrication oils from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations is typically effected through the use of mineral spirit solvents which become contaminated in the cleaning process. Under the most common current practice, the solvent becomes more contaminated (and less effective) with repeated use, and, when it is saturated with oil, sludge and other contaminants as a result of the cleaning process (and frequently classified as a hazardous waste under federal and state regulations), it must be stored on site until pick-up, when pure solvent is delivered and the contaminated solvent is, generally, shipped to regional refining facilities. This off-site recycling program is typically scheduled on four to sixteen week cycles and involves both the utilization of progressively more contaminated solvent for cleaning operations until the solvent is too contaminated for use, and thereafter, the on-site storage of the hazardous solution until the periodic waste recovery service. By contrast, the Company's products allow the use and re-use of the solvent by removing all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer on demand, without the costly and dangerous storage and transportation of hazardous waste. Moreover, the small amount of waste by-product yielded in the distillation process utilized by the Company's products can typically be recycled and/or disposed of together with the customer's used motor oil, which is generally not classified as a hazardous waste. The Company believes that substantially all of the Company's target customers have established systems for the handling, transportation, recycling and disposal of used motor oil. The effectiveness of the Company's products in accomplishing the distillation of contaminated solvent to yield pure solvent and a by-product comparable to used oil has been extensively tested by the laboratory of a division of Valvoline Oil Company and the independent engineering concern of Law Engineering and Environmental Services, Inc. While the Company intends to exploit its current full line of industrial washers, and to continue its research and development of new products, it has initially focused its attention on its General Parts Washer, marketed as SystemOne(Trademark) (the "SystemOne(Trademark) Washer"). The SystemOne(Trademark) Washer consists of a washing sink mounted on top of a metal cabinet in which the distillation and recovery apparatus is contained. The equipment allows the solvent to be used, treated and re-used, on demand, without 3 requiring off-site processing. The Company has concluded extensive testing by independent laboratories and at various commercial sites and is currently conducting test marketing in a local area within close proximity to its facilities. Demonstrator models were placed in 38 selected automotive repair facilities of national, fleet, industrial and commercial accounts. Notwithstanding the absence of a formal marketing program during the test period, the Company has, as of the date of this Prospectus, received firm purchase orders from a number of facilities in which the machines were placed, including Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company and Pantropic Power Products, South Florida Caterpillar dealers (48 Units); United States Postal Service (2 Units); Southern Sanitation, a subsidiary of Waste Management, Inc. (5 Units); Broward County Mass Transit (25 Units); Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile dealerships (an aggregate of 60 Units). The Company finances its SystemOne/trademark/ Washers through a third party leasing program with Oakmont Financial Services. The Company commenced commercial sales and delivery of units in July 1996 at an approximate price per unit of $2,700, and expects to deliver substantially all units ordered to date prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. The initial market for the Company's industrial cleaning product line includes automotive, aviation, marine and general industrial maintenance, service and repair operations. The Company believes that domestic expenditures in connection with industrial parts cleaning machines exceeds $1.0 billion annually, and that the anticipated monthly cost to the customer for the Company's products typically will not exceed, and is intended to be well below, the monthly cost of the non-recycling machines now in use. Additional competitive advantages provided by the Company's products include practical and cost effective compliance with demanding regulations of the Environmental Protection Agency; elimination of routine waste disposal costs; significant improvements in cleaning productivity; minimized cleaning solution purchases; and reduction of equipment down time for routine machine maintenance. The Company has retained experienced executives to head and develop its sales and marketing organization. In addition to its regional office in Miami, the Company expects to open four additional service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida during 1996. The Company expects to pursue a national expansion program, through internal growth utilizing a network of regional distribution and service centers, as in Florida, through a strategic alliance with a national distributor, if one is available on favorable terms, or through a combination of the two. In August, the Company commenced a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Inc., a multinational oil refiner and distributor of automotive related products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of mineral spirits solvent used in the Company's SystemOne/trademark/ Washer. Under the pilot program, First Recovery is the exclusive distributor of the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The initial term of the program is one year. If the arrangement proves successful, the Company expects to negotiate a broader agreement, possibly including a national distribution program. The Company has manufactured all its prototype and test models at its 10,000 square foot research and development ("R&D") facility. The Company's current manufacturing capabilities include advanced Computer Aided Design/Computer Aided Manufacturing technology and state of the art manufacturing machinery. Because the Company's R&D facility can be utilized to manufacture up to 200 units of the SystemOne(Trademark) Washer per month, all manufacturing operations, including design, metal fabrication, robotic welding, painting and assembly, can be performed in the Company's R&D facility during the Company's initial roll-out phase. At present, the Company plans to continue to use its own facility for existing and new product R&D activities and to use contract manufacturers when a product achieves commercial sales levels. In order to accommodate increased demand for the SystemOne(Trademark) Washer, the Company has entered into an agreement with a contract manufacturer with respect to the manufacture of at least 3,000 units during the first year thereof. In addition, the Company has entered into negotiations with a major contract manufacturer with a 2 million square foot facility and 75 years of experience to provide the manufacturing capacity needed to meet anticipated future customer demand. 4
THE OFFERING Common Stock Offered .............................850,000 shares Common Stock Outstanding After Offering ..........4,351,309(1) Use of Proceeds by the Company ...................The Company intends to apply the net proceeds of the offering for the: development of manufacturing capacity; development of marketing, sales and service centers and a fleet of service vehicles; development of corporate headquarters and research and development facilities; purchase of raw materials and inventory; and working capital and general corporate purposes. See "Use of Proceeds." Risk Factors ......................................This offering involves a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution." Proposed Nasdaq SmallCap Symbol ..................MANS
- ----------------------------------------------------------------------------- (1) Does not include an aggregate of 375,000 shares of Common Stock reserved for issuance upon exercise of options available for future grant and future restricted stock awards under the Company's Incentive Compensation Plan. See "Underwriting" and "Management--Incentive Compensation Plan." Mansur Industries Inc. was incorporated in Florida in 1990. The Company's principal executive office is located at 8425 S.W. 129th Terrace, Miami, Florida 33156, and its telephone number is (305) 232-6768. 5 SUMMARY FINANCIAL DATA The summary financial information set forth below should be read in conjunction with financial statements appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1991(1) 1992 1993 1994 ------------- ------------ ------------- ------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development .......... 128,439 31,924 69,256 178,146 ------------- ------------ ------------- ------------- Total operating expenses ......... 136,941 40,895 151,142 446,560 ------------- ------------ ------------- ------------- Interest (expense), net ............ -- (16,299) (16,360) (46,312) Exchange (expense) on redeemable preferred stock .................. -- -- -- -- Loss on disposition of property and equipment ........................ -- (39,560) (18,000) -- ------------- ------------ ------------- ------------- Net (loss) ......................... (136,941) (96,754) (185,502) (492,872) Dividends on redeemable preferred stock ............................ -- -- (8,328) (53,929) Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801) ============= ============ ============= ============= Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27) ============= ============ ============= ============= Weighted average shares outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SIX MONTHS ENDED JUNE 30, ------------------------------ 1995 1995 1996 --------------- ------------- --------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ....... $ 907,393 $ 418,079 $ 622,641 Research and development .......... 393,874 162,732 365,435 --------------- ------------- --------------- Total operating expenses ......... 1,301,267 580,811 988,076 --------------- ------------- --------------- Interest (expense), net ............ (17,878) (26,462) (13,094) Exchange (expense) on redeemable preferred stock .................. -- -- (344,631) Loss on disposition of property and equipment ........................ -- -- -- --------------- ------------- --------------- Net (loss) ......................... (1,319,145) (607,273) (1,345,801) Dividends on redeemable preferred stock ............................ (222,067) (75,066) (147,000) Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801) =============== ============= =============== Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53) =============== ============= =============== Weighted average shares outstanding(2) ................... 2,335,140 2,000,000 2,799,071
DECEMBER 31, JUNE 30, 1996 ----------------------------------------------------------- ------------------------- 1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3) ------------ ---------- ---------- ----------- ------------ ---------- -------------- BALANCE SHEET DATA: WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188) $ (216,966) $5,921,034 TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212 CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914 LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014 TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928 TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
- ----------------------------------------------------------------------------- (1) Information provided for the period from November 13, 1990 (inception) to December 31, 1991. (2) See Note 1 to Notes to Financial Statements for information concerning the computation of net loss per share. (3) The information provided has been adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as a result of the conversion of the Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share and the initial application of the estimated net proceeds therefrom. See "Capitalization" and "Use of Proceeds." The information provided has not been adjusted to reflect that the Company issued $500,000 in principal amount of Short Term Notes as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 6 RISK FACTORS THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT DECISION. LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The Company was formed in November 1990 and was a development stage company through June 30, 1996. Since its inception in November 1990, the Company has devoted substantially all of its resources to research and development programs relating to its full line of self contained, recycling industrial parts washers. As a result of such efforts, from inception until June 30, 1996, the Company accumulated a deficit of $3,577,015. It has only recently commenced the marketing and sale of one of its product lines on a limited basis, and has a limited operating history upon which an evaluation of the Company's performance and prospects can be made. The Company's prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business in an industry characterized by vigorous competition and regulatory requirements. Since inception, the Company has incurred significant losses, including losses of $492,872 and $1,319,145, for the years ended December 31, 1994 and 1995, respectively, and a loss of $1,345,801 for the six months ended June 30, 1996. Losses are continuing through the date of this Prospectus. Inasmuch as the Company's operating expenses have increased and can be expected to continue to increase significantly in connection with the Company's proposed expansion, including the development of manufacturing capabilities, the development and establishment of regional sales, service and technological support centers and a service fleet, the development of a larger corporate headquarters and research and development facility, and the purchase of raw materials and inventory, the Company anticipates that losses and negative operating cash flow will continue until such time, if ever, as the Company is able to generate sufficient revenues to offset its operating costs and the costs of continuing expansion. There can be no assurance that the Company will generate significant revenues or ever achieve profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Financial Statements. UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have been marketed in limited geographic areas and for a limited period of time and, thus, have achieved only limited market acceptance. As of the date of this Prospectus, the Company has received firm purchase orders for 196 SystemOne/trademark/ Washers and anticipates delivering substantially all of the ordered units prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. The Company is attempting to market a new product which relies on a fundamental change in the way parts and tools are cleaned and solvent utilized, an activity pattern which has been relatively consistent within the target industries in the past. As is typically the case with an emerging business concept, demand and market acceptance for newly introduced products and services are subject to a high level of uncertainty. The Company has limited marketing experience and limited financial, marketing, personnel and other resources to undertake extensive marketing activities. The Company's success will be largely dependent on the Company's ability to position its products as a preferred method for cleaning parts. The Company believes that substantially all its target customers currently utilize competitive parts cleaning equipment. Potential customers may elect to utilize devices or methods with which they are more familiar or which they believe to be more efficient or have other advantages over the Company's system. Accordingly, achieving market acceptance for the Company's products will require substantial marketing efforts and expenditure of significant funds to educate automotive dealership and repair facilities and other potential users of the products of the distinctive characteristics and benefits of the Company's products as well as their environmental and cost savings advantages. There can be no assurance that the Company's efforts will result in significant initial or continued market acceptance for the Company's products or that the Company will succeed in positioning its products as a preferred method for cleaning parts. See "Business--Marketing and Servicing Strategy." INDUSTRY COMPETITION. The parts cleaning industry is characterized by intense competition, and the industry is dominated by Safety-Kleen, Inc. A number of other companies provide parts cleaning 7 equipment and services. While the Company believes that none of its competitors offer a product with the same features as the Company's products, many customers may view the products as functionally equivalent, and there can be no assurance that functionally equivalent products will not become available in the near future. In addition, there are numerous companies involved in the waste management industry, including waste hauling companies and companies engaged in waste separation, recovery and recycling, which may have the expertise and resources that would encourage them to attempt to develop and market products which would compete with the Company's products or render them obsolete or less marketable. Safety-Kleen, Inc., as well as most of the companies marketing such waste disposal services or products or with the potential to do so, are well established, have substantially greater financial and other resources than the Company, and have established reputations relating to product design, development, marketing and support. There can be no assurance that the Company's financial performance and prospects will not be negatively affected if Safety-Kleen, Inc. materially lowers the price to customers of its parts washers, or that the Company will be able to compete successfully. See "Business--Competition." RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited growth to date and has limited experience in effectuating rapid expansion or in managing operations which are geographically dispersed. Expansion of the Company's operations will be dependent on, among other things, the Company's ability to achieve significant market acceptance for its products, successfully locate, establish and operate Service Centers, hire and retain skilled management, marketing, technical and other personnel, secure adequate sources of supply on a timely basis and on commercially reasonable terms, successfully manage growth (including monitoring operations, controlling costs and maintaining effective quality controls), and maintain a third party leasing program capable of financing the customer's acquisition of the Company's products in a timely manner. To date, a substantial portion of the Company's products have been installed on a test basis in automotive dealership and repair facilities concentrated in limited geographic markets near the Company's headquarters. The Company's growth prospects will be largely dependent upon its ability to achieve greater penetration in these markets as well as significant penetration in new geographic markets. The Company's prospects could be adversely affected by declines in the automotive sales, maintenance or service industries or the economy generally, which could result in reduction or deferral of capital expenditures by prospective customers. The Company's future growth will also be dependent upon the Company's ability to achieve a sufficient installed base of its products. The Company may also seek to expand its operations through the acquisition of existing companies with customer bases that would appear to have needs for the Company's product line. There can be no assurance that the Company will be able to successfully expand its operations. See "Business--Marketing and Servicing Strategy." DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have been and will continue to be significant. The Company is dependent on and intends to use a substantial portion of the proceeds of this offering to implement its proposed expansion. The Company anticipates, based on currently proposed plans and assumptions relating to its operations (including the anticipated costs associated with, and timetable for, its proposed expansion), that the proceeds of this offering, together with cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change, its third party lease financing arrangement does not function as anticipated, its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow otherwise prove to be insufficient to fund expansion (due to unanticipated expenses, delays, problems, difficulties or otherwise), the Company has plans to restructure its operations to minimize cash expenditures and/or obtain additional financing in order to support its plan of operations. The Company has no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. Although the Company believes that available third party lease financing may help offset the Company's cost structure for product rollout, a significant level of demand for the Company's products will, in all likelihood, initially result in significant up-front capital expenditures without corresponding cash flow. Any additional equity financing may involve 8 dilution to the interests of the Company's then existing shareholders. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. See "Use of Proceeds." RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into a third party lease financing arrangement (the "Product Financing Agreement") with Oakmont Financial Services ("Oakmont"), pursuant to which Oakmont has agreed to provide third party leasing services. If the Company breaches certain warranties, Oakmont has the right to require the Company to repurchase the leased unit from Oakmont. Specifically, the Company has agreed to make the following warranties upon each sale to Oakmont, which warranties provide Oakmont with a basis for recourse against the Company for certain customer failures: (i) to the best of the Company's knowledge, the customer will use the SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the best of the Company's knowledge, the lease and related documents have been duly executed and delivered; (iii) the lease incorporates all of the representations and warranties made by the Company to the lessee; (iv) all dealings by the Company with the lessee have been in accordance with all applicable laws and regulations; (v) the conduct of the Company in developing a lease will not subject Oakmont to suit or administrative proceeding; (vi) the lessee has no defense, offset or counterclaims as to the enforcement of the lease arising out of the conduct or failure to perform of the Company; (vii) the Company does not know of any fact which indicates the uncollectibility of the lease; (viii) to the best of the Company's knowledge the information provided by the lessee to the Company and Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed the Company is entitled to retain, the Company has not retained any funds given to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested in Oakmont free and clear of any liens of persons claiming by, through or under the Company. In the event the Company breaches one of the foregoing warranties and fails to cure the breach, the Product Financing Agreement requires the Company to purchase from Oakmont the leased SystemOne/trademark/ Washer and Oakmont's rights under the lease agreement with the customer for an amount equal to the sum of all lease payments then due and owing under the lease, all lease payments payable from the date of default to the end of the lease term and twenty percent of the equipment cost, less any applicable deposit which may be retained by Oakmont. Where required by applicable law, the foregoing amounts are required to be calculated using the discounted present value of the subject lease payments. To the extent that the Company is required to use a portion of the proceeds of this offering to repurchase units from Oakmont, the Company will have less resources available to it for other purposes. Oakmont has the right to review the creditworthiness of proposed lessees and to withhold financing on the basis of its credit review. While the Company may terminate its agreement with Oakmont if Oakmont consistently refuses to approve the credit of the Company's proposed lessees, any such termination, in the absence of alternative financing programs, could have a material adverse effect on the Company. The Company is not likely to utilize third party financing with respect to units leased under its pilot marketing program with First Recovery and Valvoline Oil Company, but will, instead, use a portion of the proceeds of this offering. See "Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Marketing and Servicing Strategy." DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government authorities have adopted extensive regulations regulating the storage, handling, shipment, recycling and/or disposal of hazardous waste, including contaminated solvent used in industrial parts washers. The Company believes that continuing initiatives of federal, state and local government authorities and increasing storage and hauling costs and disposal fees will create incentives for customers to use the Company's products. Failure by government authorities to continue to implement such legislation or significant relaxation of such requirements or enforcement thereof could have a material adverse effect on the Company's business and prospects. Moreover, while the Company believes that the utilization of its products as intended does not constitute the generation, treatment or disposal of hazardous waste and that its products yield pure solvent and a residue that is not classified as hazardous waste, but may, rather, be disposed of or utilized as used motor oil, there can be no assurance that environmental agencies will reach the same conclusion. If the utilization of the Company's products constitutes the generation, treatment or disposal of hazardous waste, if the residue is classified as hazardous waste, or if used motor 9 oil itself is classified as hazardous waste, the Company will lose a significant competitive advantage. The Company believes that certain of its competitors have attempted and are continuing their efforts to have used motor oil classified as a hazardous waste. See "Business--Industry Overview" and "Risk Factors--Potential Warranty Expense and Product Liability." DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will be dependent on a number of third parties for its components and for the manufacture of a large portion of its finished units. Although the Company has entered into a SystemOne/trademark/ Washer supply agreement with a contract manufacturer and believes that several alternative manufacturing sources are readily available, failure by its current manufacturer to continue to supply the Company on commercially reasonable terms, or at all, in the absence of readily available alternative sources, would have a material adverse effect on the Company. The Company is substantially dependent on the ability of its 42 component and raw material suppliers and contract manufacturer, among other things, to satisfy performance and quality specifications and dedicate sufficient production capacity for components and raw materials within scheduled delivery times. See "Business--Manufacturing and Supply." PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four United States patents and has four United States patents pending with respect to the Company's products. Two of the four pending patents have been allowed by the U.S. Patent Office and are awaiting issuance. Other parts washing machines which may not be covered by the Company's patents are currently in commercial distribution by the Company's competitors. The Company has applied for international patents in Canada, Mexico, Europe and Japan and anticipates that it will apply for additional patents as deemed appropriate. The Company believes that patent protection is important to its business and that it could be required to expend significant funds in connection with enforcing or defending its patent rights. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford the Company, that any unissued patent applications will result in issued patents or that patents will not be circumvented or invalidated. It is possible that the Company's existing patent rights may not be valid although the Company believes that neither its products nor processes now infringe or will infringe patents or violate proprietary rights of others. It is possible that infringement of existing or future patents or proprietary rights of others may occur. In the event that the Company's products or processes infringe patents or proprietary rights of others, the Company may be required to modify the design or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. Failure to do any of the foregoing could have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement, proprietary rights violation action or alleged infringement or violation action. Moreover, if the Company's products or processes infringe patents or propriety rights of others, the Company could, under certain circumstances, become the subject of an immediate injunction and be liable for damages, which could have a material adverse effect on the Company. See "Business--Patents, Trademarks and Proprietary Technology." The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation of its proprietary information. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Although the Company has and expects to have confidentiality agreements with its employees, suppliers and appropriate vendors, there can be no assurance that such agreements will adequately protect the Company's trade secrets. Since the Company believes that its proprietary information is important to its business, failure to protect such information could have a material adverse effect on the Company. See "Business--Patents, Trademarks and Proprietary Information." POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company unconditionally warrants its products to be free of material defects for 60 months. In addition the Company warrants to users that if, for any reason, the residue generated by its System One/trademark/ Washer cannot be recycled and/or disposed of as used oil, the Company will pay for any required recovery and disposal services. Accordingly, the 10 Company could incur significant warranty expenses as a result of defects in its products or a change in federal or state regulations pertaining to the disposal of cleaning residue. Since the Company only recently commenced its planned principal operations, the reserve account it will establish for warranty expense will be derived without the benefit of historical figures and actual warranty expenses could exceed the amount which will be established as a reserve. The Company may also be exposed to potential product liability claims by its customers and users of its products. The Company maintains product liability insurance coverage of $5,000,000 in the aggregate and $5,000,000 per occurrence. The Company believes such insurance provides adequate coverage for the types of products currently marketed by the Company. There can be no assurance, however, that such insurance will be sufficient to cover potential claims or that an adequate level of coverage will be available in the future at a reasonable cost. A partially insured or completely uninsured successful claim against the Company could have a material adverse effect on the Company. See "Business--Sales Financing and Service Programs" and "--Product Liability and Insurance." DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely dependent on the personal efforts of Pierre Mansur, its Chairman of the Board and President and the inventor of the Company's products, Paul Mansur, its Chief Executive Officer, and other key personnel. Although the Company has entered into employment agreements with Pierre Mansur and Paul Mansur which expire in September 1997, the loss of the services of either of such individuals or certain other key employees, could have a material adverse effect on the Company's business and prospects. The Company has obtained and is the sole beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in the amount of $1,000,000. The success of the Company is also dependent upon its ability to hire and retain additional qualified marketing, technical and other personnel. There can be no assurance that the Company will be able to hire or retain such personnel. See "Management." CONTROL BY MANAGEMENT. After consummation of this offering, Pierre Mansur will beneficially own approximately 46% of the Company's outstanding Common Stock. Accordingly, Pierre Mansur will be in a position to effectively control the Company, including the election of all of the directors of the Company. See "Management" and "Principal Shareholders." BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from this offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. In addition, the Company may use a portion of the net proceeds allocated to working capital to pay salaries and benefits of executive officers over the 12 months following the consummation of this offering to the extent cash flow is insufficient for such purpose. See "Use of Proceeds." DIVIDENDS. The Company has not paid any cash dividends on its Common Stock and does not expect to declare or pay any cash dividends in the foreseeable future. See "Dividend Policy." DILUTION. The assumed initial offering price of $7.50 is substantially higher than the net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in this offering will incur immediate and substantial dilution of approximately $6.10 (81%) per share of Common Stock from the assumed initial public offering price. See "Dilution." INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker dealer on March 29, 1994. The Representative was relatively inactive for a period of time and was reactivated under its present ownership structure on December 15, 1994. The Representative does not have extensive experience as an underwriter of public offerings of securities, having acted as the managing underwriter for three public offerings. The Representative is a relatively small firm and no assurance can be given that the Representative will participate as a market maker in the Common Stock. In the event the Representative does not participate as a market maker the liquidity in the Company's Common Stock may be adversely affected. See "Underwriting." NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this offering, there has been no public market for the Common Stock, and no assurance can be given that an active trading market 11 will develop or be sustained after this offering. Since there has been no trading market, the initial public offering price of the Common Stock may not bear any relationship to the actual value of the Common Stock. The initial public offering price was established by negotiations between the Company and the Representative, is not necessarily related to the Company's asset value, net worth or other established criteria of value, and may not be indicative of prices that will prevail in the trading market. The stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of particular companies. The market price of the Common Stock, similar to that of securities of other development stage companies, is likely to be highly volatile. Factors such as the results of studies and trials by the Company or its competitors, other evidence of the efficacy of products of the Company or its competitors, announcements of technological innovations or new products by the Company or its competitors, changes in governmental regulation, developments in patent or other proprietary rights of the Company or its competitors, including litigation, fluctuations in the Company's operating results and changes in general market conditions could have a significant impact on the future price of the Common Stock. See "Underwriting." NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET; DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been no public trading market for the Common Stock. The Common Stock has been approved for quotation on Nasdaq SmallCap Market; however, there can be no assurance that a trading market will develop or, if developed, that it will be maintained. In addition, there can be no assurance that the Company will in the future meet the maintenance criteria for continued quotation of the securities on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap Market includes, among other things, $2,000,000 in total assets, $1,000,000 in capital and surplus, a public float of 100,000 shares with a market value equal to $200,000, two market makers and a minimum bid price of $1.00 per share of common stock. If an issuer does not meet the $1.00 minimum bid price standard, it may, however, remain on the Nasdaq SmallCap Market if the market value of its public float is at least $1,000,000 and the issuer has at least $2,000,000 in equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if any, in the Common Stock would thereafter have to be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it more difficult to dispose of, and to obtain accurate quotations as to the value of such securities. In addition, if the Common Stock is delisted from trading on the Nasdaq SmallCap Market and the trading price of the Common Stock is less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who recommend such low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to recent regulations adopted by the Securities and Exchange Commission, any equity security not traded on an exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Such requirements could severely limit the market liquidity of the Common Stock and the ability of purchasers in this offering to sell their securities in the secondary market. There can be no assurance that the Common Stock will not be delisted or treated as a penny stock. EFFECT OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The State of Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certain specified thresholds will not possess any voting rights unless such voting rights are approved by a majority vote of a corporation's disinterested shareholders. Although the Company has elected not to be subject to the provisions of the Florida Control 12 Share Act, the Company may, by amending its by-laws, elect to become subject to the provisions of the Florida Control Share Act in the future. The Florida Affiliated Transactions Act generally requires supermajority approval by disinterested directors or shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). The Company's Articles of Incorporation authorize the issuance of 1,500,000 shares of "blank check" Preferred Stock ("Preferred Stock") with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. The issuance of any series of Preferred Stock having rights superior to those of the Common Stock may result in a decrease in the value or market price of the Common Stock. Holders of Preferred Stock to be issued in the future may have the right to receive dividends and certain preferences in liquidation and conversion rights. The issuance of such Preferred Stock could make the possible takeover of the Company or the removal of management of the Company more difficult, discourage hostile bids for control of the Company in which shareholders may receive premiums for their Common Stock and adversely affect the voting and other rights of the holders of the Common Stock. The Company may in the future issue additional shares of its Preferred Stock. See "Description of Securities." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the consummation of this offering, the Company anticipates that it will have 4,351,309 shares of Common Stock outstanding. Of such shares, 850,000 shares are freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless held by an "affiliate" of the Company. The remaining 3,501,309 shares of Common Stock are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act. Of such remaining shares: (i) 2,656,729 shares are currently eligible for sale under Rule 144; (ii) 150,000 shares are registered for resale pursuant to an effective registration statement; and (iii) the remainder will become eligible for sale under Rule 144 at various times prior to June 1998. No prediction can be made as to the effect, if any, that sales or shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale." FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains forward-looking statements, including statements regarding, among other items (i) the Company's growth strategies, (ii) the impact of the Company's products and anticipated trends in the Company's business, and (iii) the Company's ability to enter into contracts with certain suppliers and strategic partners. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of the factors described herein, including, among others, regulatory or economic influences. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Prospectus will in fact transpire or prove to be accurate. 13 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the shares of Common Stock offered hereby are estimated to be approximately $5,271,750 based on an assumed initial public offering price of $7.50 per share (approximately $6,103,688 if the Underwriters' over-allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
APPROXIMATE APPROXIMATE PERCENTAGE APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS - ------------------------------------------------------- ---------------- ---------------- Development of manufacturing capacity(1) .............. $ 750,000 14% Development of marketing, sales and service centers and service fleet(2) ................................ 1,000,000 19 Development of corporate headquarters and research and development facilities(3) ........................... 700,000 13 Purchase of raw materials and inventory(4) ............ 1,750,000 33 Working capital and general corporate purposes(5) .... 1,071,750 21 ---------------- ---------------- Total ............................................... $5,271,750 100% ================ ================
- -------- (1) Represents the estimated cost of developing the Company's manufacturing capabilities, primarily for research and development, testing and initial pre-commercial manufacturing operations, including certain property, plant and equipment costs, set-up costs, hard and soft tooling costs and custom mold development costs over the next 12 months. See "Business--Manufacturing and Supply" and "--Research and Development." (2) Represents the estimated cost of developing sales, service and technological support centers and a fleet of service vehicles throughout Florida and the eastern United States over the next 12 months. See "Business--Marketing and Servicing Strategy." (3) Represents the estimated cost of developing a larger corporate headquarters and research and development facility, including the cost of a client server computer system, over the next 12 months. See "Business--Research and Development." (4) Represents the estimated cost of raw materials and finished goods inventory that may be held by the Company, as well as the cost of units provided under its pilot marketing program with First Recovery and Valvoline Oil Company for which the Company will not use third party financing. (5) Such figure includes the cost of retiring the Short Term Notes. As of September 9, 1996, the Company issued $500,000 in principal amount of Short Term Notes in a private financing. The Short Term Notes bear interest at a rate of 4% through September 1996 and 12% thereafter. The Short Term Notes are due and payable on September 4, 1997, or, if earlier, upon the consummation of this offering. The Company intends to utilize the proceeds of the Short Term Notes for the same purposes as the proceeds of this offering are to be applied, with the exception that none of the proceeds of the Short Term Notes will be used to develop a corporate headquarters or a research and development facility. The foregoing represents the Company's best estimate of its allocation of the net proceeds of this offering based upon the current status of its business operations, its current plans, and current economic and industry conditions. Future events, as well as changes in economic or competitive conditions or the Company's business and the results of the Company's sales and marketing activities may make shifts in the allocation of funds within or between each of the items referred to above necessary or desirable. If the Underwriters exercise the over-allotment option in full, the Company will realize additional net proceeds of approximately $832,000 which will be added to the Company's working capital. The Company anticipates, based on currently proposed plans and assumptions relating to its operations, that the proceeds of this offering, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow prove to be insufficient (due to unanticipated expenses or otherwise), the Company has plans to restructure its operations to minimize cash expenditures and/or obtain additional financing in order to support its plan of operations. There can be no assurance that additional financing will be available to the Company on commercially reasonable terms, or at all. 14 Proceeds not immediately required for the purposes described above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest-bearing investments. DILUTION The difference between the initial public offering price per share of Common Stock and the pro forma net tangible book value per share after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. At June 30, 1996, the net tangible book value of the Company was $(37,170), or $(.01) per share. After giving effect to the sale of 850,000 shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share and deducting underwriting discounts and commissions and estimated expenses of the offering, and assuming the conversion of the Convertible Notes into 150,000 shares of Common Stock, the pro forma net tangible book value of the Company as of June 30, 1996 would have been $6,100,830, or $1.40 per share. This represents an immediate increase in net tangible book value of $1.41 per share to the existing shareholders and an immediate dilution of $6.10 (81%) per share to new investors. The following table illustrates this dilution, on a per share basis: INITIAL PUBLIC OFFERING PRICE OF COMMON STOCK ... $7.50 Net tangible book value before offering ........ $(.01) Increase attributable to new investors ......... 1.41 Pro forma net tangible book value after offering 1.40 -------- Total dilution to new investors .................. $6.10 ======== If the Underwriters' over-allotment option is exercised in full, the pro forma net tangible book value of the Company as of June 30, 1996 will be $6,932,768, or $1.59 per share. This represents an immediate increase in net tangible book value of $1.60 per share to the existing shareholders and an immediate dilution of $5.90 (79%) per share to new investors. The following table summarizes, as of June 30, 1996, the total number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid (assuming an initial public offering price of $7.50 per share and the conversion of the Convertible Notes) by the existing shareholders and the new investors.
PERCENT PERCENT AVERAGE SHARES OF TOTAL AGGREGATE OF TOTAL PRICE PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE ------------ ----------- ---------------- ---------------- ------------ Existing Shareholders 3,501,309 80.5% $ 4,142,500 39.4% $1.18 New Investors ......... 850,000 19.5% 6,375,000 60.6% $7.50 ------------ ----------- ---------------- ---------------- Total ................. 4,351,309 100.0% 10,517,500 100.0% ============ =========== ================ ================
If the Underwriters' over-allotment option is exercised in full, the new investors will have paid $7,331,250 for 977,500 shares of Common Stock, representing 63.9% of the total consideration for 21.8% of the total number of shares outstanding. DIVIDEND POLICY The Company intends to retain all future earnings for the operation and expansion of its business and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. Any 15 future determination as to the payment of cash dividends will depend on a number of factors, including future earnings, results of operations, capital requirements, the financial condition and prospects of the Company and any restrictions under credit agreements existing from time to time, as well as such other factors as the Board of Directors may deem relevant. No assurance can be given that the Company will pay any dividends in the future. CAPITALIZATION Set forth below is the capitalization of the Company at June 30, 1996, and as adjusted to reflect the Company's issuance of 850,000 shares of Common Stock in this offering at an assumed initial public offering price of $7.50 per share and the automatic conversion of the Convertible Notes. See Note 4(B) of Notes to Financial Statements.
JUNE 30, 1996 ----------------------------- ACTUAL AS ADJUSTED ------------- -------------- DEBT: Short-term debt .................................................... $1,012,500 $ 0(1) Current installments of long-term debt ............................. 48,786 48,786 Long-term debt, excluding current installments ..................... 129,014 129,014 STOCKHOLDERS' EQUITY (DEFICIT): Preferred Stock, $1 par value; 1,500,000 shares authorized; no shares issued and outstanding ................................. 0 0 Common Stock, $.001 par value; 25,000,000 shares authorized; 3,351,309 and 4,351,309 shares issued and outstanding, respectively ..................................................... 3,351 4,351 Additional paid in capital ......................................... 3,560,948 9,697,948 Deficit accumulated during the development stage ................... 3,577,015 3,577,015 ------------- -------------- Total stockholders' equity (deficit) .............................. (12,716) 6,125,284 ------------- -------------- Total capitalization ............................................... $1,177,584 $6,303,084 ============= =============
- ----------- (1) The information provided has not been adjusted to reflect that the Company issued $500,000 in principal amount of Short Term Debt as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations --Liquidity and Capital Resources." 16 SELECTED FINANCIAL DATA The selected financial data set forth below has been derived from the financial statements of the Company. The financial statements as of and for the period from November 13, 1990 (inception) through December 31, 1991 and for the years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. In the opinion of the Company, the financial information for each of the six month periods ended June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of its financial position and results of operations for these periods. The statement of operations data for the six month period ended June 30, 1996 is not necessarily indicative of the results of operations that may be expected for the full year. The selected financial data presented below should be read in conjunction with the Company's financial statements, related notes, and other financial information contained in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1991(1) 1992 1993 1994 ------------- ------------ ------------- ------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development ..... 128,439 31,924 69,256 178,146 ------------- ------------ ------------- ------------- Total operating expenses .... 136,941 40,895 151,142 446,560 ------------- ------------ ------------- ------------- Interest (expense), net ........ -- (16,299) (16,360) (46,312) Exchange (expense) on redeemable preferred stock ... -- -- -- -- Loss on disposition of property and equipment ................ -- (39,560) (18,000) -- ------------- ------------ ------------- ------------- Net (loss) ..................... (136,941) (96,754) (185,502) (492,872) Dividends on redeemable preferred stock .............. -- -- (8,328) (53,929) ------------- ------------ ------------- ------------- Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801) ============= ============ ============= ============= Net (loss) per common share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27) ============= ============ ============= ============= Weighted average shares outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SIX MONTHS ENDED JUNE 30, --------------- ------------------------------ 1995 1995 1996 --------------- ------------- --------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ... $ 907,393 $ 418,079 $ 622,641 Research and development ..... 393,874 162,732 365,435 --------------- ------------- --------------- Total operating expenses .... 1,301,267 580,811 988,076 --------------- ------------- --------------- Interest (expense), net ........ (17,878) (26,462) (13,094) Exchange (expense) on redeemable preferred stock ... -- -- (344,631) Loss on disposition of property and equipment ................ -- -- -- --------------- ------------- --------------- Net (loss) ..................... (1,319,145) (607,273) (1,345,801) Dividends on redeemable preferred stock .............. (222,067) (75,066) (147,000) --------------- ------------- --------------- Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801) =============== ============= =============== Net (loss) per common share(2) ..................... $ (0.66) $ (0.34) $ (0.53) =============== ============= =============== Weighted average shares outstanding(2) ............... 2,335,140 2,000,000 2,799,071
17
DECEMBER 31, JUNE 30, 1996 ------------------------------------------------------------------------- --------------------- 1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3) ----------- --------- ---------- ----------- ----------- ------------- ----------- ---------- BALANCE SHEET DATA: Working capital ................ $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188 $ (216,966) $5,921,034 Total assets ................... 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212 Current liabilities............. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914 Long-term liabilities........... 0 0 0 700,011 154,165 129,014 129,014 Total liabilities .............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928 Stockholders' equity (deficit): Total stockholders' equity (deficit) ................... (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284 - -----------
(1) Information provided for the period from November 13, 1990 (inception) to December 31, 1991. (2) See Note 1 to Notes to Financial Statements for information concerning the computation of net loss per share. (3) The information provided has been adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as a result of the conversion of the Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share and the initial application of the estimated net proceeds therefrom. See "Capitalization" and "Use of Proceeds." The information provided has not been adjusted to reflect the issuance by the Company of $500,000 in principal amount of Short Term Debt as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements, including the notes thereto, contained elsewhere in this Prospectus. GENERAL Since its inception in November 1990 the Company has devoted substantially all of its resources to research and development programs relating to its full line of self contained, recycling industrial parts washers. The Company was a development stage company through June 30, 1996, and commenced its planned principal operations in July 1996. The Company has been unprofitable since its inception and expects that it will incur significant additional losses at least through December 31, 1996. From the period from inception through June 30, 1996, the Company incurred a cumulative net loss of $3,577,015. The Company anticipates that it will incur losses until such time, if ever, as the Company is able to generate sufficient revenues to offset its operating costs and the costs of its continuing expansion. In light of the material uncertainties in connection with the commencement of the Company's operations, the Company cannot reasonably estimate the length of time before the Company may generate net income, if ever. The Company intends to make its SystemOne/trademark/ Washer and services available to the public through a third party leasing program. The Company will recognize the revenue from the sale of a machine at the time that the equipment is delivered either to the third party lessor or directly by the Company to the lessee. A portion of the revenue (currently estimated at 10% of the sale price per machine) will be accounted for as deferred revenue, and recognized as revenue in respect of the service portion of the agreement over the term of the underlying lease. See "Business--Sales Financing and Servicing Programs" for a description of the Product Financing Agreement the Company has entered into with Oakmont Financial Services. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995. The Company did not generate any revenues prior to June 30, 1996. The Company's general and administrative expenses increased by $204,562 to $622,641 for the six months ended June 30, 1996 from $418,079 during the comparable period in 1995. The 49% increase is primarily attributable to the Company's hiring of additional management, sales and marketing staff in anticipation of the Company's commencement of its planned principal operations and the Company's grant of an aggregate of 30,000 shares of Common Stock to three directors of the Company in exchange for certain consulting services. The Company anticipates that its monthly general and administrative expenses will continue to increase over the next twelve months if the Company's operations expand in accordance with its proposed business plan. The Company's research and development expenses for the six months ended June 30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125% increase is primarily a function of the Company's accelerated prototype development during the latter period, as opposed to the basic and applied research conducted during the prior period. During 1996, the Company manufactured and shipped a number of SystemOne(Trademark) Washers to various facilities to test market receptivity. Subject to the availability of financial and personnel resources, the Company intends to spend approximately $400,000 and $500,000 in the years ended December 31, 1996 and 1997, respectively, to complete development and testing of various of its products and to develop new products and concepts. The Company's interest expenses for the six months ended June 30, 1995 and 1996 were $38,259 and $24,179, respectively. The Company's interest expense in the six months ended June 30, 1996 18 decreased by 36% relative to the six months ended June 30, 1995 due to a relative decrease in the indebtedness of the Company. In the six months ended June 30, 1995 and 1996, the Company earned interest income of $11,797 and $11,085 on cash deposits. In the six months ended June 30, 1996, the Company incurred an exchange expense of $344,631 in connection with its efforts to induce all the holders of the Company's Series A Preferred Stock to convert their Series A Preferred Stock to Common Stock. As a result of the foregoing, the Company incurred a net loss of $607,273 and $1,345,801 in the six months ended June 30, 1995 and 1996, respectively. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. The Company's general and administrative expenses for the years ended December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The $638,979 (238%) increase in general and administrative expenses was a function of the Company's hiring of additional management and sales staff, increased use of management consulting, engineering, legal and accounting professionals, purchase of more comprehensive insurance policies and increased executive compensation. For the years ended December 31, 1994 and 1995, the Company's research and development expenses were $178,146 and $393,874, respectively. The $215,728 (121%) increase in research and development expenses was a reflection of the Company's accelerated research and development efforts and an increased focus on developing prototype products during the latter part of 1995. The Company's interest expense was $46,312 and $63,528 for the years ended December 31, 1994 and 1995, respectively. The Company's interest expense increased by $17,216 as a result of additional interest expenses incurred with respect to equipment financing secured in September 1994. In the year ended December 31, 1995, the Company earned interest income of $45,650 on cash deposits. Due to the factors described above, the Company incurred net losses of $492,872 and $1,319,145 in the years ended December 31, 1994 and 1995, respectively. The Company expects that it will incur significant additional losses at least through December 31, 1996. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993. The Company's general and administrative expenses were $81,886 in the year ended December 31, 1993 and $268,414 in the year ended December 31, 1994. General and administrative expenses increased by $186,528 primarily in response to increases in the Company's staff and the Company's increased use of management consulting, engineering, legal and accounting professionals. For the years ended December 31, 1993 and 1994, research and development expenses were $69,256 and $178,146, respectively. The Company's expenses for research and development increased by $108,890 as the Company increased the scope of its research and development efforts to a number of product lines. Interest expense for the Company for the years ended December 31, 1993 and 1994 was $16,360 and $46,312, respectively. The Company's interest expense increased by $29,952 primarily as a result of $10,346 of additional interest expense with respect to equipment financing secured in September 1994 and $11,278 of additional interest expense with respect to notes payable. In the year ended December 31, 1993, the Company recognized a $18,000 loss on the disposal of property and equipment. As a result of the foregoing, the Company incurred net losses of $185,502 and $492,872 in the years ended December 31, 1993 and 1994, respectively. 19 LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had a working capital deficiency of $(216,966) and cash and cash equivalents of $640,592. The Company intends to use the proceeds of this offering and the cash generated from operations, if any, to finance its proposed plan of operations. The capital requirements relating to implementation of the Company's business plan will be significant. Based on the Company's current assumptions relating to implementation of its business plan (including the timetable of and the cost associated with development of manufacturing capabilities, a service fleet, a corporate headquarters, and research and development facilities), the Company will seek to develop at least four service centers during the 12 months immediately following this offering. The Company believes that product sales will commence in the third quarter of 1996 and that the proceeds from the Convertible Notes are sufficient to fund working capital requirements until sales of the Company's products reach levels sufficient to fund working capital requirements. The Company believes that its ability to generate cash from operations is dependent upon, among other things, demand for its products and services and the Company's third party leasing arrangement with Oakmont. If the Company's third party leasing arrangements with Oakmont proves to be unsuccessful, and the Company is unable to locate another third party willing to provide comparable third party leasing services, the Company believes that it will be substantially dependent upon the proceeds of this offering to execute its proposed plan of operations over the next 12 months. If the Company's plans change, its assumptions prove to be inaccurate, the capital resources available to the Company otherwise prove to be insufficient to implement its business plan (as a result of unanticipated expenses, problems or difficulties, or otherwise) or in the event this offering is not completed, the Company has plans to restructure its operations to minimize cash expenditures and/or obtain additional financing in order to support its plan of operations. In order to reduce certain of the Company's up-front capital requirements associated with service center and service fleet development, the Company intends to lease service center sites and may seek to the extent possible, to lease rather than purchase certain equipment and vehicles necessary for service center development. There can be no assurance that the Company will have sufficient capital resources to permit the Company to fully implement its business plan. The Company has no current arrangements with respect to, or sources of, additional financing. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. In addition, any implementation of the Company's business plan subsequent to the 12 month period immediately following this offering will require capital resources substantially greater than the proceeds of this offering or otherwise currently available to the Company. Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the Company's material commitments principally relate to its obligations to pay the contract manufacturers of its SystemOne(Trademark) Washers (currently approximately $745-$905 per SystemOne(Trademark) Washer), make lease payments pursuant to certain real property and equipment leases (currently approximately $7,940 per month), make installment payments pursuant to an equipment purchase finance agreement (currently approximately $5,690 per month) and satisfy its financial obligations under seven employment agreements (currently approximately $38,835 per month). Upon consummation of this offering and the retirement of the Short Term Notes from the proceeds thereof, the Company will not have any outstanding indebtedness. The Company anticipates that its material commitments will increase significantly upon the consummation of this offering as a result of the Company's planned expansion. See "Business--Manufacturing and Supply" and "--Properties" and "Executive Compensation." Additionally, after the expiration or termination of the pilot marketing program with First Recovery and Valvoline Oil Company, if the subject parties do not enter into another agreement for the marketing of SystemOne(Trademark) Washers, the Company could, at First Recovery's sole option, be required to acquire First Recovery's sublessor interest in certain leases entered into by First Recovery under the pilot marketing program. In such an event, the Company would be required to purchase First Recovery's interest for the net present value of First Recovery's expected profit over the remaining term of the equipment sublease assuming a 12% discount rate. Because the Company does not intend to use third-party financing with respect to units 20 leased under the pilot marketing program with First Recovery and Valvoline Oil Company, it will be required to use a portion of the proceeds of this offering to finance those units. See "Business--Marketing and Servicing Strategy." In August 1994, the Company acquired a Trumpf Model 200 TC Computer Numerical Controlled Punch Press (the "Punch Press"). The Company financed the acquisition of the Punch Press pursuant to a finance and security agreement with The CIT Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the finance agreement and security agreement, the Company has agreed to pay CIT an aggregate of $341,397 in equal monthly payments of $5,690 over five years. The Company's obligations to CIT are secured by a security interest in the Punch Press. As indicated in the accompanying financial statements, as of June 30, 1996, the Company's accumulated deficit totalled $3,577,015. Since its inception, the Company has financed its operations through a variety of stock and debt issuances and conversions and the sale of property. In November 1990, the Company obtained from Pierre Mansur, its Chairman and President, all rights to certain ongoing research and development and related patents and patents pending, as well as certain real estate and equipment, in exchange for 2,000,000 shares of Common Stock. In January 1991, the Company issued $300,000 in principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise additional capital and refinance a portion of the Promissory Notes, in September 1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred Stock (the "First Series Preferred Stock") in exchange for $380,000 and the satisfaction of $200,000 in principal amount of the Promissory Notes. In April 1992, the Company sold the commercial property originally contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994, the Company assigned its rights to receive interest with respect to the PMM to satisfy the Company's obligation to pay interest with respect to the remaining outstanding Promissory Note. The principal amount of the PMM was paid to the Company on April 24, 1995. In November 1994, the Company borrowed $500,000 pursuant to a 12% Secured Convertible Promissory Note (the "Secured Note") and in April 1995 the Company issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") in exchange for $1,950,000 in cash and the satisfaction of the Secured Note. To minimize the Company's dividend obligations, in May 1995 the Company issued a notice of redemption with respect to the First Series Preferred Stock and, subsequently, all of the outstanding shares of First Series Preferred Stock and accrued interest thereon were converted into an aggregate 656,729 shares of Common Stock. In May 1996, the Company issued 20,000 shares of Common Stock in satisfaction of the remaining outstanding $100,000 in principal amount of the Promissory Notes. In June 1996, the Company issued 628,180 shares of Common Stock in exchange for all of the Series A Preferred Stock and accrued dividends thereon. Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur advanced the Company an aggregate of $150,000 (the "Debt") between June 1, 1990 and May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest owed with respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding principal balance of and the interest owed with respect to the Debt. In June 1996, the Company issued (the "Private Financing") $1,012,500 in principal amount of Convertible Notes, bearing interest at the rate of 4% per annum through September 30, 1996 and thereafter until maturity at the rate of 12% per annum, and convertible into Common Stock at a 21 conversion price of $6.75 per share. Pursuant to the provisions of the Convertible Notes, the entire outstanding principal amount thereof will be automatically converted into 150,000 shares of Common Stock upon the consummation of this offering. Each of Environmental Technologies BVI, Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias F. Mansur, a director of the Company, acquired Convertible Notes in the principal amount of $101,250, and, upon consummation of this offering, each of them will receive 15,000 shares of the Company's Common Stock pursuant to the automatic conversion thereof. As of September 9, 1996, the Company issued $500,000 in principal amount of Short Term Notes, bearing interest at the rate of 4% through September 1996 and 12% thereafter. The Short Term Notes are due and payable on September 4, 1997, or, if earlier, upon the consummation and out of the proceeds of this offering. 22 BUSINESS GENERAL The Company has developed and obtained patent protection with respect to a full line of self-contained, recycling industrial parts washers that incorporate innovative, proprietary waste minimization technologies and represent a significant advance over currently available machinery and processes. Focusing on waste minimization rather than its removal and recovery, the Company believes that its equipment will have a major impact on the industrial parts cleaning industry and will have a broad appeal to customers, because its equipment, unlike the machines now in use, facilitates efficient and economical compliance with environmental regulations, minimizes waste disposal requirements, enhances cleaning solution utilization, and increases worker safety and productivity. Most machinery and equipment require oil lubrication to function properly. Removal of lubrication oils from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations is typically effected through the use of mineral spirit solvents which become contaminated in the cleaning process. Under the most common current practice, the solvent becomes more contaminated (and less effective) with repeated use, and, when it is saturated with oil, sludge and other contaminants as a result of the cleaning process (and frequently classified as a hazardous waste under federal and state regulations), it must be stored on site until pick-up, when pure solvent is delivered and the contaminated solvent is, generally, shipped to regional refining facilities. This off-site recycling program is typically scheduled on four to sixteen week cycles and involves both the utilization of progressively more contaminated solvent for cleaning operations until the solvent is too contaminated for use, and thereafter, the on-site storage of the hazardous solution until the periodic waste recovery service. By contrast, the Company's products allow the use and re-use of the solvent by removing all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer on demand, without the costly and dangerous storage and transportation of hazardous waste. Moreover, the small amount of waste by-product yielded in the distillation process utilized by the Company's products can typically be recycled and/or disposed of together with the customer's used motor oil, which is generally not classified as a hazardous waste. The Company believes that substantially all of the Company's target customers have established systems for the handling, transportation, recycling and disposal of used motor oil. The effectiveness of the Company's products in accomplishing the distillation of contaminated solvent to yield pure solvent and a by-product comparable to used oil has been extensively tested by the laboratory of a division of Valvoline Oil Company and the independent engineering concern of Law Engineering and Environmental Services, Inc. STRATEGY The Company's strategy is to focus initially on the manufacture, marketing and sale of its SystemOne(Trademark) Washer because of the anticipated size of the market for the product. The Company anticipates that the product should be able to achieve fairly rapid market penetration because of its technological, economic and environmental advantages and its relatively low price point compared to competitive equipment. Once the manufacturing and marketing programs for the SystemOne(Trademark) Washer are fully implemented, it will commence marketing its other products for which it has continued its research and development. The Company hopes to rapidly penetrate the industrial parts cleaning market by entering into large quantity contracts with target customers which have already established a national or regional presence, and are able to exploit more fully the economic and environmental benefits of the Company's products. The Company expects to pursue a national expansion program, through internal growth utilizing a network of regional distribution and service centers, through a strategic alliance with a national distributor, if one is available on favorable terms, or through a combination of the two. The Company is carrying out an internal growth program in Florida, where, in addition to its regional service center in Miami, it plans to establish at least four additional centers during the 12 months immediately following this offering, in Orlando, Tampa, Jacksonville and West Palm Beach. In August, the Company will 23 commence a test of a strategic marketing alliance by entering into a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Inc., a multinational oil refiner and distributor of automotive related products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under the pilot program, First Recovery will be the exclusive distributor of the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The initial term of the program is one year. If the arrangement proves successful, the Company expects to negotiate a broader agreement, possibly including a national distribution program. The Company expects to continue its emphasis on research and development even after its initial products are commercialized. The Company believes that its technology and its emphasis on waste minimization should yield product advances with broad market applications beyond the Company's current target market. INDUSTRY OVERVIEW The Company believes the chemical industrial parts cleaning industry has grown primarily in response to the demand for means of removing lubrication oils and other contaminants from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations. Based on financial and trade journal reports, the Company believes that in 1996 businesses in the United States incurred more than $1 billion in expenses to clean industrial parts using chemical cleaning techniques. Industrial parts cleaning machines are used by automotive, aviation and maritime service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring parts cleaning. The Company believes that the level of demand for the different types of industrial parts cleaning machines and services is and will continue to be a function of, among other things: (1) the effectiveness of the technology; (2) the cost of the machines and service; (3) the time and costs associated with documenting compliance with applicable environmental and other laws; (4) the safety and environmental risks associated with the machine and service; (5) customer service; and (6) the difficulty in handling the regulated substances used and/or generated by competitive machines. PRODUCTS AND SERVICES The Company product line includes a variety of self-contained recycling industrial cleaning and washing equipment, all of which incorporate proprietary waste minimization technology with respect to which the Company has obtained or applied for patent protection. The Company expects that all the products listed below will be available for commercial exploitation at various times prior to December 31, 1998. All of the Company's products utilize technology that (i) provides continuously recycled cleaning solution during the cleaning process, (ii) eliminates the necessity for continual replacement and disposal of contaminated cleaning solution and residues and (iii) facilitates practical and cost effective compliance with environmental laws and regulations. The Company anticipates that it will offer its various parts washing products to commercial users at prices which range from $2,000 to $25,000 per unit. SYSTEMONE(TRADEMARK) WASHER. The first of the Company's products to be available in commercial quantities is the SystemOne(Trademark) Washer. The SystemOne(Trademark) Washer line provides users with pure mineral spirit solvent for parts and tools cleaning purposes, utilizing a low-temperature vacuum distillation process to recycle the used solvent within the SystemOne(Trademark) Washer, so that the solvent may be reused, on demand, without any need for off-site processing. The SystemOne(Trademark) Washer minimizes the volume of waste by-product and eliminates the need for storage and disposal of the hazardous waste solvent necessitated by the most widely-used current treatment method. The Company's SystemOne(Trademark) Washer consists of one or two washing sinks mounted at standing level on top of a metal cabinet; a hinged lid on top of the washing sink to minimize evaporation of 24 solvent; a five gallon primary solvent holding tank; a distillation unit which contains a residue reservoir; and a 30-gallon secondary solvent holding tank. The SystemOne(Trademark) Washer utilizes a manually operated hose and scrubber which directs the flow of solvent to the part being cleaned. The distillation unit separates the solvent from the contaminants that accumulate in the solvent as a result of use by heating the solvent solution in a vacuum to a temperature at which the solvent, but not the residue, vaporizes; and then, cooling the solvent vapor so that the vapor condenses and is converted back into a liquid. The distilled solvent is channeled to the secondary solvent holding tank for future use. Accordingly, the solvent may be repeatedly used, distilled and reused without need for off-site distillation or processing. The residue is collected and held in the residue reservoir until final disposal. With respect to SystemOne(Trademark) Washers which are used in accordance with their intended purpose, the Company believes that the residue may be legally recycled and/or disposed of in the same manner that used oil is recycled and/or disposed of. See "--Government Regulations." The Company believes that substantially all of its target customers currently have established systems for the handling, transportation, recycling and disposal of used oil. In those instances in which the residue may not be recycled as used oil, the residue, but not the distilled solvent, shall be periodically picked up, recycled and/or disposed of by a third party. The Company warrants to users that if, for any reason, the residue generated by its SystemOne(Trademark) Washer cannot be recycled and/or disposed of as used oil, the Company will pay for any required recovery and disposal services. The Company does not intend to be in the business of handling, transporting, recycling and/or disposal of residue. If it is required under its warranty to pay for recovery and disposal, it intends to retain a third party to provide the required services. The Company has also developed and obtained patent protection with respect to a general parts washer which utilizes an aqueous based cleaning solution. The Company is in the process of evaluating when it will commence the commercial production and marketing of its aqueous based parts cleaner. The target market for SystemOne(Trademark) Washers are automotive, aviation and maritime service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring small parts cleaning. The Company anticipates that the SystemOne(Trademark) Washer will require service approximately four times a year for replacement of solvent lost to evaporation or spillage and general maintenance requirements. See "Marketing and Services Strategy" for additional information regarding the servicing of the SystemOne(Trademark) washers. OTHER PRODUCTS. MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed on a limited basis, and integrates three processes in one self-contained machine; a power spray wash process, a recycling/ reclamation process and a thermal oxidation process. The Power Spray Washer is able to accommodate large and bulky parts or units that are too large for the SystemOne(Trademark) Washer. The target market for power spray washers are automotive, aviation and maritime maintenance, repair and rebuilding facilities, parts remanufactures, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction in late 1996. It incorporates the Company's recycling/reclamation capabilities for paint thinner recovery. The target market for spray gun washers are automotive, aviation and maritime paint shops and all general manufacturing operations that utilize paint. The Company anticipates that the auto paint industry will represent a substantial market. The MultiProcess Spray Gun Washer facilitates compliance with rigorous environmental disposal regulations for the paint industry. MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction in 1997. It integrates an immersion wash process, a recycling/reclamation process and a thermal oxidation process in one self-contained machine. The MultiProcess Immersion Washer is designed for cleaning of complex parts 25 containing substantial integral and highly inaccessible passages requiring a total immersion washing. The primary target market for immersion washers are radiator rebuilding shops as well as automotive, aviation and maritime maintenance, repair and rebuilding facilities, parts remanufactures, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. MINIDISPOSER is scheduled for commercial introduction in 1998. It is a compact and portable mini-thermal oxidizer developed as a practical and efficient means for the disposal of contaminants by thermal oxidation within a unit measuring only one cubic foot. The MiniDisposer will be marketed both as optional equipment with the SystemOne(Trademark) Washer and as a stand alone mini-thermal oxidizer. The Company believes that the size and scope of the market for the MiniDisposer is substantial and diversified and includes industrial, commercial and consumer applications that generate small contaminant waste by-products. The Company continues to explore potential markets in medical, restaurant and other commercial and consumer applications. COMPETITION The industrial parts cleaning industry is highly competitive and dominated by a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has substantially greater financial and other resources than the Company. Safety-Kleen services the parts cleaning industry through a "closed-loop" recycling system in which contaminated solvent is removed for recycling and fresh solvent is delivered on a periodic basis. There can be no assurance that Safety-Kleen will not develop or acquire technology similar to or different from the Company's that would allow it to provide an on-site recycling service. To the best of the Company's knowledge, no other company is currently commercially marketing a recycling parts washer with comparable characteristics. There can be no assurance that Safety-Kleen or other competitors will not acquire or develop patent rights with respect to a recycling parts washer which are competitively superior to the Company's patent rights. See "--Patents, Trademarks and Proprietary Technology." The Company believes that certain of its target customers have attempted to enhance the capabilities of their existing industrial parts washers by acquiring machines capable of distilling solvent used in and removed from the parts washers. Although there are a wide variety and types of such machinery currently available to the public, the Company believes its SystemOne(Trademark) Washers provide superior service at a lower cost. The Company believes that Safety-Kleen services a significant portion of the parts washing machines currently in use. The Company believes that no other competitor accounts for more than 2% of the industrial parts washer market in the State of Florida or the United States. According to Safety-Kleen's Annual Report on Form 10-K for the year ended December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the world's largest provider of parts washing services and one of the world's largest collectors and re-refiners of used oil. According to the Safety-Kleen Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of approximately $433.0 million and, in the year ended December 31, 1995, Safety-Kleen had aggregate revenues of approximately $859.0 million, including revenues of approximately $240.0 million from its automotive/ retail parts cleaning service and $119 million from its industrial parts cleaning service, and served its customers in North America and Europe through a network of 235 branch facilities. At December 31, 1995, Safety-Kleen was providing services for approximately 493,000 parts washers for customers in the United States, of which approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its customers. The Company believes that its SystemOne(Trademark) Washer will compete favorably with its competitors on the basis of, among other things, (1) the effectiveness of the technology; (2) cost; (3) the time and cost associated with documenting compliance with applicable environmental and other laws; (4) the safety and environmental risks associated with the machines and service; (5) customer service; and (6) the difficulty in handling the regulated substances used and/or generated by competitive machines. 26 GOVERNMENT REGULATION The Company believes that federal and state laws and regulations have been instrumental in shaping the industrial parts washing industry. Federal and state regulations dictate and restrict to varying degrees what types of cleaning solvents may be utilized, how a solvent may be stored and utilized, and the manner in which contaminated solvents may be generated, handled, transported, recycled and disposed of. Although the federal and state laws and regulations discussed below regulate the behavior of the Company's customers, and not the Company, the Company believes that customer demand for its SystemOne(Trademark) Washer is partially a function of the legal environment in which the Company's customers conduct business. The Company's SystemOne(Trademark) Washer was designed to help minimize the cost of complying with existing federal and state environmental laws and regulations. Any changes, relaxation or repeal of the federal or state laws and regulations which have shaped the industrial parts washing industry may significantly affect demand for the Company's products and the Company's competitive position. REGULATION OF SOLVENT TYPES. Federal and state regulations have restricted the types of solvents that may be utilized in industrial parts cleaning machines. Prior to December 1995, methyl chloroform was a widely used cleaning solvent. The Clean Air Act of 1990 mandated the elimination of methyl chloroform by December 1995. REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more commonly known as mineral spirits and solvent naphtha, are the cleaning solvents typically used in the industrial parts washers of the Company's closest competitors. The Company intends to use mineral spirits with a minimum of 140 degrees fahrenheit ignitable limits in its SystemOne(Trademark) Washer. Such mineral spirits do not exhibit the ignitability characteristic for liquid hazardous wastes as defined in the Resource Conservation and Recovery Act of 1976, as amended, and the implementing regulations of that statute adopted by the United States Environmental Protection Agency (the "EPA") (collectively, "RCRA"). Certain machines of the Company's competitors use mineral spirits with lower ignitable limits, which may, after use, render such mineral spirits subject to regulation as a hazardous waste. The Company believes that the ability to recycle the mineral spirits used in its SystemOne(Trademark) Washer provides an economic benefit to the Company's customers by allowing them to avoid the expenses and potential liability associated with the disposal of such solvent as a hazardous waste. See "Government Regulation--Regulation of Generation, Handling, Transportation and Disposal of Contaminated Solvents." Federal, state and many local governments have adopted regulations governing the handling, transportation and disposal of such solvents. On the federal level, under the Hazardous Materials Transportation Act (HMTA), the United States Department of Transportation has promulgated requirements for the packaging, labeling and transportation of mineral spirits in excess of specified quantities. The Company does not intend to transport mineral spirits in quantities that would trigger the HMTA requirements. Relative to the handling and disposal of mineral spirits, many states and local governments have established programs requiring the assessment and remediation of hazardous materials that have been improperly discharged into the environment. Liability under such programs is possible for unauthorized release of mineral spirits in violation of applicable standards. Civil penalties and administrative costs may also be imposed for such violations. REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and disposal of contaminated solvents is regulated by the federal and state governments. At the federal level, the Resource Conservation and Recovery Act authorized the EPA to develop specific rules and regulations governing the generation, transportation, treatment, storage and disposal 27 of hazardous wastes as defined by the EPA. The EPA's definition of hazardous waste appears under Chapter 40 CFR Part 261. The Company believes that none of the residue by-products, the used solvent before distillation or the solvent recycled in a SystemOne(Trademark) Washer used in accordance with its intended purpose and instructions is subject to regulation as a "hazardous waste." In contrast, the Company believes that the mixture of solvent and contaminants which is periodically recovered from the machines of many of its competitors is subject to regulation as "hazardous waste." The Company believes that the ability to recycle and dispose of its residue by-product as used oil rather than as a hazardous waste is economically attractive to the Company's customers for a number of reasons. The Company believes that substantially all of its target customers currently have established systems for the handling, transportation, recycling and/or disposal of used oil. Accordingly, the classification of the residue as used oil would enable the Company's customers to: (1) dispose of or recycle the residue at no significant additional cost; and (2) avoid certain costs associated with establishing and disposing of wastes in compliance with a hazardous waste disposal system. Even if the residue by-product was required to be handled, transported, recycled and/or disposed of as a hazardous waste, the fact that the SystemOne(Trademark) Washer effects a substantial reduction in the volume of waste product requiring disposal would still serve to minimize disposal costs. The Company believes that solvent which has been used and is being held in a SystemOne(Trademark) Washer prior to distillation is not a "waste" and is not subject to regulation as a hazardous waste. RCRA establishes the basic framework for federal regulation of hazardous waste. RCRA governs the generation, transportation, treatment, storage, and disposal of hazardous waste. In contrast to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), which is discussed below, RCRA is designed to anticipate and prevent harm to human health and the environment, rather than to respond to the release of hazardous wastes. RCRA requires that facilities that generate, treat, store or dispose of hazardous wastes comply with certain operating and permitting standards. RCRA provides standards for permitting, maintenance and operation of facilities handling hazardous wastes, including requirements for testing and maintenance of equipment, contingency plans and emergency procedures, secondary containment, recordkeeping and reporting to government agencies. The recordkeeping and reporting requirements of RCRA are significant. Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their shipments consistent with detailed regulations and prepare a manifest to be filed with the appropriate governmental agency identifying the material and stating its destination. The transporter must deliver the hazardous waste in accordance with the manifest and to a facility with an appropriate RCRA permit (a "TSD Facility"). Failure to comply with the manifesting requirements may result in the imposition of civil and/or criminal penalties. Many states and local governments have adopted regulatory programs which parallel the RCRA regulatory system, many of which programs are in certain ways more restrictive and burdensome than the RCRA system. With regard to regulation of "used oil", the EPA ruled in 1992 that used oil is not a hazardous waste under RCRA. Like the RCRA regulations pertaining to hazardous wastes, the EPA's used oil regulations provide standards for permitting, the maintenance and operation of used oil facilities, including requirements for testing and maintenance of equipment, contingency plans and emergency procedures, secondary containment, recordkeeping and reporting. However, there are some material differences between RCRA's regulation of hazardous waste and used oil. In contrast to hazardous wastes, used oil need not be processed solely at sites with treatment, storage and disposal permits. In addition, the generators of used oil are not required to file a shipping manifest with government agencies with respect to each shipment of used oil. Many state and local governments have adopted regulatory programs which parallel the EPA's program for regulating used oil, many of which programs are in certain ways more restrictive or burdensome than the EPA's program. For instance, certain state and local governments continue to regulate used oil as a hazardous waste. CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), sets forth national policy and procedures for containing and removing releases of hazardous 28 substances, and identifying and remediating sites contaminated with hazardous substances. CERCLA created an $8.5 billion fund (the "Superfund"), financed from taxes on petroleum and various chemicals, to be administered by the EPA to fund cleanup of hazardous waste sites. SARA significantly expanded the scope of hazardous waste cleanup and imposed more stringent cleanup requirements. The Superfund's most notable objective, however, is to provide criteria and financial assistance for site cleanups and to impose liability on parties responsible for such contamination--namely, owners and operators of vessels or facilities from which such releases occur, and persons who generated, transported, or arranged for the transportation of hazardous substances to a facility from which a release or threatened release occurs. Most states, including Florida, have created programs similar to Superfund. These state programs are principally designed to help finance the state's share of remediation costs of sites under the federal Superfund and to finance cleanups at state sites that are not considered a priority for remediation under the federal program. The CERCLA definition of hazardous substances provides a major exception for petroleum, including used oil if recycled. However, liability under CERCLA is possible if petroleum products are released that contain hazardous substances as additives or that are tainted with hazardous substances during their use and disposal. The Company believes that the demand for its SystemOne(Trademark) Washer is enhanced as a result of certain federal and state environmental laws and regulations. Although the demand for industrial parts cleaning machines and services may be substantial in certain international markets, the level of demand for the Company's SystemOne(Trademark) Washer may not be substantial in certain countries as a result of permissive regulatory systems which allow the use of less environmentally stringent cleaning and waste disposal methods. MANUFACTURING AND SUPPLY The Company manufactures certain of its SystemOne(Trademark) Washers at its 10,000 square foot manufacturing facility located in Miami, Florida, at which all manufacturing operations, including design, metal cutting, bending and welding, painting and assembly can be performed. The Company has acquired all of the machinery necessary to manufacture SystemOne(Trademark) Washers. The Company believes that it can produce up to 200 SystemOne(Trademark) Washers a month at its manufacturing facility. The Company has secured third parties capable of manufacturing the balance of the SystemOne(Trademark) Washers needed to meet anticipated customer demand for the next 12 months. The Company intends to secure additional manufacturing capacity as the need arises. On May 7, 1996, the Company entered into an agreement (the "Supply Agreement") with a supplier (the "Supplier") pursuant to which the Supplier agreed to supply to the Company, at the Company's election, between 3,000 and 5,000 SystemOne(Trademark) Washers at established prices and in accordance with a delivery schedule. The Supply Agreement delivery schedule provides for the monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(Trademark) Washers in the quarters commencing August 1996, November 1996, February 1997 and May 1997, respectively, and for the monthly delivery of a maximum of 500 SystemOne(Trademark) Washers after December 1996. The Supply Agreement provides for adjustments in the established pricing schedule based upon certain reductions in the cost of production and/or increases in the cost of sheet metal. The Company has ordered a prototype SystemOne(Trademark) Washer manufactured by the Supplier and has paid the first of three $50,000 payments toward a $150,000 advance (the "Advance"), which amount will be credited against future purchases under the Supply Agreement at a rate of $50 per SystemOne(Trademark) Washer. The Supply Agreement provides that the Supplier will, based upon the Company's specifications and drawings, manufacture the SystemOne(Trademark) Washers in its factory and manufacture such items exclusively for the Company. According to the Supply Agreement, the Supplier is expressly responsible for all sheet metal fabrication, painting, assembling and quality assurance testing associated with the manufacture of SystemOne(Trademark) Washers. 29 The Supply Agreement requires the Company to provide the Supplier with all of the components and raw materials, except for sheet metal, necessary to manufacture SystemOne(Trademark) Washers. In addition, the Supply Agreement requires the Company to acquire and provide to the Supplier for use all of the hard tooling required to manufacture the SystemOne(Trademark) Washers. The Supply Agreement provides that the Company may unilaterally terminate the contract in whole or in part for cause or for convenience. In the event the Supply Agreement is terminated by the Company for convenience, the Supplier will be entitled to reimbursement of the costs it has incurred through the date of termination and, if such termination occurs prior to the delivery of 3,000 SystemOne(Trademark) Washers, the Supplier will be entitled to payment for SystemOne(Trademark) Washers produced through the date of termination and retain any unapplied amount of the Advance. The Company has retained the right to secure other contract manufacturers of SystemOne(Trademark) Washers. Although, at present, the Company seeks to avoid the transaction and opportunity costs associated with identifying, securing and training another SystemOne(Trademark) Washer manufacturer, the Company does not believe that it is dependent upon the Supplier to manufacture SystemOne(Trademark) Washers and that other manufacturers are readily available. The Company has entered into negotiations with a major contract manufacturer with a 2 million square foot facility and 75 years of experience to provide the manufacturing capacity needed to meet anticipated future customer demand. No assurances can be given that the Company and the major contract manufacturers will ever enter into a binding contract. The SystemOne(Trademark) Washer is an assembly of raw materials and components all of which the Company believes are readily obtainable in the United States of America. The Company does not believe that it nor the Supplier is dependent upon any of their respective current suppliers to obtain the raw materials and components necessary to assemble and manufacture SystemOne(Trademark) Washers. As of the date of this Prospectus, the Company was procuring raw materials and components for its SystemOne(Trademark) Washers from 42 sources. The Company is capable of manufacturing its other products in the amounts required for testing and test marketing in its own manufacturing facility. MARKETING AND SERVICING STRATEGY In order to create awareness of its products and test the demand for them, commencing in December 1995, the Company placed an aggregate of 47 SystemOne(Trademark) Washers in 38 automotive dealerships, municipal and private fleet maintenance facilities, repair facilities and other users of parts cleaning equipment in South Florida. The demonstrator units were provided at no charge. The test program was conducted primarily to enable the Company to gauge the demand for its products. Notwithstanding the absence of a formal marketing program during the test period, the Company has, to date, received firm purchase orders from a number of facilities in which the machines were placed, including Florida Detroit Diesel MTU (46 units); Kelly Tractor Company (23 units) and Pantropic Power Products (25 units), the South Florida Caterpillar dealers; United States Postal Service (2 units); Southern Sanitation, a subsidiary of Waste Management, Inc. (5 units); Broward County Mass Transit (25 units); Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile dealerships (an aggregate of 60 units). The Company commenced commercial sales and delivery of units in July 1996 at an approximate price per unit of $2,700, and anticipates delivering substantially all of the ordered units to date prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. In a parallel marketing strategy, to test the viability of the strategic marketing alliance concept for its products, in August 1996 the Company will commence a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Oil, pursuant to which First Recovery will serve as the exclusive distributor for the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The program, whose initial term is one year, but is cancelable by either party on 60 days notice, sets forth a schedule for the purchase of 1,000 units by First Recovery during the first year. First Recovery is 30 obligated to provide routine service to customers. Upon termination of the program, First Recovery will have the option to require the Company to assume the leases it has entered into with its customers and to pay First Recovery, on a discounted basis, the profit it would have realized under such leases. If First Recovery does not exercise that option, it will have the additional option, for one year after termination of the program, to lease up to four times the number of units it leased under the program, but only to its existing customers. Subject to its assessment of First Recovery's performance, the Company will consider entering into a more extensive distribution agreement. The Company also intends to expand the geographic scope of its operations through its internal marketing operations, initially focusing on Florida and then expanding to other regions. In addition to its sales and service operations in Miami, the Company intends to establish sales, service and technical support service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida during 1996 to support its proposed operations in Florida. The Company will market and service the SystemOne(Trademark) Washers it places with customers with its own marketing, service and technical support personnel. The Company believes it will retain at least 15 marketing, service and technical support personnel to support its proposed operations in Florida over the next 12 months. The Company intends to continue to generate consumer awareness of its SystemOne(Trademark) Washer through the efforts of its sales force, general advertisements in trade publications, and participation in trade conventions. SALES FINANCING AND SERVICING PROGRAMS Initially, the Company intends to make its SystemOne(Trademark) Washers available to the public through a third party leasing program. The Company entered into an agreement (the "Product Financing Agreement") with Oakmont Financial Services ("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed to provide third party leasing services. Pursuant to the Product Financing Agreement, the Company is to provide Oakmont certain information with respect to each proposed customer for which a third party lease is sought, including credit information with respect to each proposed lessee. Oakmont may reject a lease application if, in its sole discretion, the proposed transaction does not comply with Oakmont's then applicable criteria. If Oakmont elects to provide lease financing, Oakmont will purchase the SystemOne(Trademark) Washer in the manner and for an amount agreed to by the Company and Oakmont from time to time, upon Oakmont's receipt of required documentation. The Product Financing Agreement provides that, upon the customer's satisfaction of all of its lease payment obligations to Oakmont, the Company may, at its option, repurchase the subject equipment from Oakmont at a cash purchase price equal to the fair market value of the subject equipment plus applicable sales tax. The Product Financing Agreement states that the fair market value of a SystemOne(Trademark) Washer shall be determined by the mutual agreement of the Company and Oakmont or, if such an agreement is not reached, by an appraiser selected by mutual agreement of the Company and Oakmont. Under the Product Financing Agreement, the Company has agreed, for a fee, to utilize a reasonable and non-discriminatory approach to assist Oakmont in reselling any SystemOne(Trademark) Washers with respect to which a customer has failed to discharge its payment obligations to Oakmont. The Product Financing Agreement states that Oakmont does not have recourse against the Company for customer failures to discharge their obligations to Oakmont unless the Company has breached and failed to cure certain warranties. Specifically, the Company has agreed to make the following warranties upon each sale to Oakmont, which warranties provide Oakmont with a basis for recourse against the Company for certain customer failures: (i) to the best of the Company's knowledge, the customer will use the SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the best of the Company's knowledge, the lease and related documents have been duly executed and delivered; (iii) the lease incorporates all of the representations and warranties made by the Company to the lessee; (iv) all dealings by the Company with the lessee have been in accordance with all applicable laws and regulations; (v) the conduct of the Company in developing a lease will not subject Oakmont to suit or 31 administrative proceeding; (vi) the lessee has no defense, offset or counterclaims as to the enforcement of the lease arising out of the conduct or failure to perform of the Company; (vii) the Company does not know of any fact which indicates the uncollectibility of the lease; (viii) to the best of the Company's knowledge, the information provided by the lessee to the Company and Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed the Company is entitled to retain, the Company has not retained any funds given to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested in Oakmont free and clear of any liens of persons claiming by, through or under the Company. In the event the Company breaches one of the foregoing warranties and fails to cure the breach, the Product Financing Agreement requires the Company to purchase from Oakmont the leased SystemOne/trademark/ Washer and Oakmont's rights under the lease agreements with the customer for an amount equal to the sum of all lease payments then due and owing under the lease, all lease payments payable from the date of default to the end of the lease term and twenty percent of the equipment cost, less any applicable deposit which may be retained by Oakmont. Where required by applicable law, the foregoing amounts are required to be calculated using the discounted present value of the subject lease payments. The Product Financing Agreement provides for a term of one year, which automatically renews for successive one-year terms. Under the Product Financing Agreement, either the Company or Oakmont may terminate the agreement with or without cause upon 60 days notice, without affecting the rights and obligations of either party with respect to previous sales. In addition, if Oakmont declines any five lease applications within a 30-day period, which lease applications are accepted and funded by a third party on terms declined by Oakmont, the Company may, upon 10 days notice, terminate the Product Financing Agreement. PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY The Company holds United States patents relating to its SystemOne/trademark/ Washer, Power Spray Washer, Spray Gun Washer and Immersion Washer and anticipates that it will apply for additional patents it deems appropriate. The Company has applied for international patents in Canada, Japan, Europe and Mexico. The Company's patent with respect to its SystemOne/trademark/ Washer was issued on September 27, 1994 and will expire on September 26, 2011. The Company has three patents pending with respect to its SystemOne(Trademark) Washer, one of which was allowed by the U.S. Patent Office on April 2, 1996 and is awaiting issuance. The Company's patent with respect to its Power Spray Washer was issued on January 11, 1994, and expires on January 10, 2011. The Company's patent with respect to its Spray Gun Washer was issued on February 14, 1995, and expires on February 13, 2012. The Company's patent with respect to its Immersion Washer was issued on May 21, 1996 and expires on May 20, 2013. The Company's patent with respect to its MiniDisposer was allowed by the U.S. Patent Office on June 26, 1996 and is awaiting issuance. The Company believes that patent protection is important to its business. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford the Company, that any patent applications will result in issued patents, that patents will not be circumvented or invalidated or that the Company's competitors will not commence marketing self-contained washers with similar technology. It is possible that the Company's existing patent rights may not be valid although the Company believes that its patents and products do not and will not infringe patents or violate proprietary rights of others. It is possible that infringement of existing or future patents or proprietary rights of others may occur. In the event the Company's products or processes infringe patents or proprietary rights of others, the Company may be required to modify the design of its products or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation actions. Moreover, if the Company's product or processes 32 infringes patents or proprietary rights of others, the Company could, under certain circumstances, become the subject of an immediate injunction and be liable for damages, which could have a material adverse effect on the Company. The Company has applied for a federal trademark with respect to the mark "SystemOne" and design. The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation of its proprietary information. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Although the Company has and expects to have confidentiality agreements with its employees, suppliers and appropriate vendors, there can be no assurance that such arrangements will adequately protect the Company's trade secrets. Since the Company believes that its proprietary information is important to its business, failure to protect such information could have a material adverse effect on the Company. RESEARCH AND DEVELOPMENT During the years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, the Company expended $178,146, $393,874 and $365,435, respectively, on research and development of its various products. The Company plans to continue to focus significant resources on research and development of existing and future product lines. Although the Company intends to continue to seek means of refining and improving its SystemOne(Trademark) Washer, the Company believes, based on market response, that the SystemOne(Trademark) Washer is at a stage where commercial exploitation is appropriate. The Company recognizes that the industrial parts cleaning industry may be entering a phase of rapid technological change and progress and the Company will seek to retain what the Company perceives as its technological superiority over its competitors' products. In order to keep pace with the rate of technological change, the Company intends to devote considerable resources in time, personnel and funds on continued research and development for its products. The Company recognizes that many of its competitors have far greater financial and personnel resources than the Company which may be devoted to research and development and can provide no assurance that it will maintain a technological advantage. Subject to the availability of financial and personnel resources, the Company intends to spend approximately $400,000 and $500,000 in the years ended December 31, 1996 and 1997, respectively, to finalize development and testing of its various products and to develop new products and concepts. Although there can be no assurance that the Company will ever develop any new products capable of commercialization, the Company intends to continue its programs to develop new products, some of which may utilize the Company's patented products and processes. PRODUCT LIABILITY AND INSURANCE The Company is subject to potential product liability risks which are inherent in the design and use of industrial parts cleaning machines. The Company has implemented strict quality control measures and currently maintains product liability insurance of $5,000,000 in the aggregate and $5,000,000 per occurrence. PROPERTIES The Company maintains its corporate headquarters, research and development laboratory and manufacturing facilities in a 10,000 square foot and an adjacent 5,500 square foot building located in Miami, Florida. The lease for the 10,000 square foot building (the "Primary Lease") commenced on January 1, 1995 and expires December 31, 1996. The Primary Lease provides for two renewal terms 33 of two years. The Company's annual lease payments under the Primary Lease are approximately $61,000, which amount does not include the Company's obligation to pay all utility and service charges. The lease for the 5,500 square foot building (the "Secondary Lease") commenced on September 1, 1996 and expires August 30, 1998. The Company's annual lease payments under the Secondary Lease are approximately $32,208, which amount does not include the Company's obligation to pay all utility and service charges. The Company has the right to cancel the Secondary Lease upon four months written notice. In addition, the Company maintains a sales, distribution and light manufacturing center in a 1,692 square foot facility located in Pinellas Park, Florida (the "Sales Lease"). The Sales Lease commenced on September 15, 1996 and expires on October 1, 1998. The Company's annual lease payments under the Sales Lease are approximately $6,491.25, which amount does not include the Company's obligation to pay all utility and service charges. The Company intends to seek additional space, either at its current location or elsewhere, to house expanded corporate headquarters and research and development facilities. The Company anticipates no significant difficulty in locating such space on reasonable terms. The Company does not anticipate that it will experience difficulty in locating and equipping its regional sales and service centers, which are expected to contain a small office space/ showroom area and enough space for two or three delivery and maintenance vehicles. LEGAL PROCEEDINGS The Company is not involved in any litigation. EMPLOYEES As of the date of this Prospectus, the Company employed 16 employees, of whom five were in corporate management, three were in research and development, two were in sales and marketing, four were in manufacturing, and two were in administration. The Company intends to hire additional employees after this offering, commensurate with the Company's requirements and available funds, primarily to expand manufacturing and marketing operations. 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information concerning the executive officers and directors of the Company.
NAME AGE POSITION WITH COMPANY - ------------------------------------------------------------------------------------ Pierre G. Mansur ........ 44 Chairman of the Board and President Paul I. Mansur .......... 45 Director and Chief Executive Officer Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial Officer Charles W. Profilet .... 59 Vice President-Business Development Elias F. Mansur ......... 53 Director Dr. Jan Hedberg ......... 49 Director Joseph E. Jack .......... 68 Director
PIERRE G. MANSUR founded the Company and has served as its Chairman and President since its inception in November 1990. From June 1973 to August 1990, Mr. Pierre Mansur served as President of Mansur Industries Inc., a privately held New York corporation that operated a professional race engine machine shop. Mr. Pierre Mansur has over twenty years of advanced automotive and machinery operations experience including developing innovative automotive machine shop applications; designing, manufacturing, customizing, modifying and retooling high performance engines and component parts; developing state of the art automotive and powerboat race engines which have consistently achieved world championship status; and providing consulting services and publishing articles with respect to automotive technical research data. Mr. Pierre Mansur has conducted extensive research and development projects for several companies, including testing and evaluating engine parts and equipment for Direct Connection, a high performance racing division of the Chrysler Corporation; researching and developing specialized engine piston rings and codings for Seal Power Corporation; researching high-tech plastic polymers for internal combustion engines for ICI Americas; and designing and developing specialized high performance engine oil pan applications. Mr. Pierre Mansur is the brother of Paul I. Mansur and a cousin of Elias F. Mansur. Mr. Pierre Mansur is a graduate of the City University of New York. PAUL I. MANSUR has been Chief Executive Officer, Chief Financial Officer and a Director since September 1993. From September 1986 to July 1993, Mr. Paul Mansur served as Chief Executive Officer of Atlantic Entertainment Inc., a privately held regional retail chain of video superstores. From March 1981 to September 1986, Mr. Paul Mansur served as the Chief Executive Officer and President of Ameritrade Corporation, a privately held international distributor of factory direct duty free products. From June 1972 to March 1981, Mr. Paul Mansur held various finance and operation positions, including Assistant Vice President Finance and Operations for Mott's USA, Inc., a division of American Brands. Mr. Paul Mansur is the brother of Pierre G. Mansur and a cousin of Elias F. Mansur. Mr. Paul Mansur is a graduate of the City University of New York. CHARLES W. PROFILET has been the Vice President--Business Development of the Company since November 1995. From July 1992 to September 1995, Mr. Profilet served as Vice President--Florida Operations for Rust Environment and Infrastructure, Inc., a privately held environmental remediation company that is controlled by WMX Technologies, a publicly traded waste collection and recycling company traded on the New York Stock Exchange. From March 1991 to July 1992, Mr. Profilet served as Vice President-Marketing at Metcalf and Eddy, a full-service engineering and environmental consulting firm specializing in the treatment of waste water, air quality assurance, emissions control and remedial design. From July 1987 to February 1990, Mr. Profilet served as Executive Vice President and Chief Operating Officer at Craig A. Smith and Associates, a privately-held civil engineering firm. From August 1979 to September 1985, Mr. Profilet served as Vice President-Business Development at Reynolds Smith and Hills, a privately-held architectural and engineering planning firm. Mr. Profilet is a graduate of the U.S. Military Academy at West Point and holds a Master of Engineering degree from the University of Oklahoma. 35 RICHARD P. SMITH has been the Chief Financial Officer of the Company since September 1, 1996. From April 1987 to August 1996, Mr. Smith held various positions, including Vice President, Chief Financial Officer, Treasurer, Secretary, Director of Business Planning, and Controller of European Operations of Telematics International, Inc., a manufacturer and supplier of intelligent networking technologies and products. From August 1983 to April 1987, Mr. Smith served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a worldwide manufacturer of a diverse line of electronic equipment and components, including communications systems, semiconductors, electronic controls and computer systems. Motorola, Inc.'s securities are listed on the New York Stock Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan University and holds a Masters of Business Administration degree from the University of Illinois and a Masters of Finance degree from Cambridge University. ELIAS F. MANSUR has been a Director of the Company since August 1995. From September 1968 to present, Mr. Elias Mansur served as Managing Director of the Mansur Trading Company and its subsidiaries, an international, diversified group of companies involved in banking, international trade, manufacturing, real estate and hotel operations. From June 1975 to March 1981, Mr. Elias Mansur served as Chairman of the Board of the Central Bank of the Netherlands Antilles. From September 1984 to December 1985, Mr. Elias Mansur served as Minister of Economic Affairs of the Netherlands Antilles. From October 1977 to September 1984, Mr. Elias Mansur served as the Chief Economic Advisor, Minister of Economic Affairs and Chairman of the Council of Economic Advisors to the government of Aruba. Mr. Elias Mansur is a cousin of Mr. Pierre Mansur and Mr. Paul I. Mansur. DR. JAN HEDBERG has been a Director of the Company since August 1995. From October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief Executive Officer of Enprotec International Group, N.V., a company he co-founded and in the business of researching and developing of advanced waste oil recycling technologies. Since March 1993, Dr. Hedberg has been the Chairman of the Board and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned subsidiary of Enprotec International Group, N.V., which manufactures, designs and assembles oil re-refining plants. Dr. Hedberg was the co-recipient of the 1991 International Technology Award for Enterprising Innovation and Creativity for the development of the Vaxon Re-refining Process, which is a proprietary process that transforms used oil into useable oil products. Dr. Hedberg has over 15 years of experience in oil related and environmental companies and 12 years of research and teaching experience, including executive management and advisory positions, with several multinational organizations. Dr. Hedberg received his Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts Institute of Technology, Cambridge, Massachusetts in 1977. JOSEPH E. JACK has been a Director of the Company since August 1995. From May 1989 to June 1991, Mr. Jack served as Vice President of Waste Management Europe, a waste collection and recycling company that is a publicly traded company on the London Stock Exchange and a controlled subsidiary of WMX Technologies, a publicly traded New York Stock Exchange company. From April 1984 to December 1987, Mr. Jack was President of Waste Management Inc. of Florida, a waste collection and recycling company that is an affiliate of Waste Management, Inc.. From July 1983 to March 1984, Mr. Jack served as Vice President of Waste Management Partners, a division of Waste Management, Inc. From February 1982 to July 1983, Mr. Jack served as Vice President of Waste Management International, a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr. Jack was Vice President of Waste Management International (Middle East), a subsidiary of Waste Management, Inc., and from May 1978 to April 1980, Mr. Jack was the Resident Manager of Waste Management Saudi Arabia, a joint venture involving an affiliate of Waste Management, Inc. Under Mr. Jack's leadership, Waste Management experienced unprecedented growth in several markets worldwide including Waste Management Europe's growth of revenues from $10 million to $700 million in a three year period. Mr. Jack's significant accomplishments in the waste management field were acknowledged when he was inducted by the National Waste Management Association into the United States Waste Industry's "Hall of Fame". Mr. Jack has been an active investor in companies since he retired in June 1991. 36 The Company has agreed that, for five years after the effective date of this Prospectus, the Representative will have the right to designate one individual to be elected to the Company's Board of Directors. EXECUTIVE COMPENSATION The following table sets forth compensation paid or payable in respect of the three years ended December 31, 1995 to the Company's Chief Executive Officer and its other executive officer whose combined salaries and bonuses equalled or exceeded $100,000 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION ------------------------------------------------------------------------ OTHER ANNUAL ALL OTHER YEAR SALARY BONUS COMPENSATION(2) COMPENSATION - --------------------------- ------- ---------- -------------- ---------------- ------------- Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0 ------- ---------- -------------- ---------------- --------------- Chairman and President 1994 $66,000 $0 $550(2) $0 ------- ---------- -------------- ---------------- --------------- 1993 $22,000 $0 $0 $0 ------- ---------- -------------- ---------------- --------------- Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0 ------- ---------- -------------- ---------------- --------------- Chief Executive Officer 1994 $48,000 $0 $0 $0 ------- ---------- -------------- ---------------- --------------- 1993 $5,000 $0 $0 $0 ------- ---------- -------------- ---------------- ---------------
- ----------------------------------------------------------------------------- (1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of which has been paid and the remainder of which has been accrued. (2) Automobile allowance paid by the Company. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS In September 1993, the Company entered into a two year employment agreement with Mr. Pierre Mansur, which provides for an annual base salary of $66,000 and discretionary bonuses, based on Mr. Pierre Mansur's performance, as determined by the Compensation Committee of the Board of Directors. Pursuant to the terms of his employment contract, Mr. Mansur's employment was renewed in September 1995 by the Company for an additional two years. Pursuant to the employment agreement, during the term of Mr. Pierre Mansur's employment and for a period of three years following his termination of employment, Mr. Pierre Mansur is prohibited from disclosing any confidential information, including without limitation, information regarding the Company's patents, research and development, manufacturing process or knowledge or information with respect to confidential trade secrets of the Company. In addition, the employment agreement provides that Mr. Pierre Mansur is prohibited from, directly or indirectly, engaging in any business in substantial competition with the Company or its affiliates. The employment agreement also provides that Mr. Pierre Mansur is prohibited from becoming an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Company or its affiliates during the term of his employment and for three years thereafter. In September 1995, the Company entered into a two year employment agreement with Mr. Paul Mansur, which provides for an annual base salary of $48,000 and discretionary bonuses, based on Mr. Paul Mansur's performance, as determined by the Compensation Committee of the Board of Directors. Pursuant to the employment agreement, during the term of Mr. Paul Mansur's employment and for a period of three years following his termination of employment, Mr. Paul Mansur is prohibited from disclosing any confidential information, including without limitation, information regarding the Company's patents, research and development, manufacturing process or knowledge or information with respect to confidential trade secrets of the Company. In addition, the employment agreement provides that Mr. Paul Mansur is prohibited from, directly or indirectly, engaging in any business in 37 substantial competition with the Company or its affiliates. The employment agreement also provides that Mr. Paul Mansur is prohibited from becoming an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Company or its affiliates during the term of his employment and for three years thereafter. In July 1996, the Company entered into a one year employment agreement with Mr. Richard Smith, which provides for an annual base salary of $110,000, a car allowance of $400 a month, and a mobile telephone allowance of $150 a month. The employment agreement provides that Mr. Smith is entitled to receive a minimum of 10,000 common stock purchase options comprised of: 5,000 options to be issued upon the consummation of this offering and exercisable at the initial public offering price, and 5,000 options to be issued on December 31, 1996 exercisable at the then current market price of the common stock. Pursuant to the employment agreement, if Mr. Smith is terminated for cause, defined as an act of dishonesty, malfeasance, or other impropriety, he is not entitled to receive any severance payment. If Mr. Smith is terminated without cause, he is entitled to receive his current salary for four months or until he secures new employment, whichever occurs first. In addition to the employment agreement, the Company and Mr. Smith entered into a Non-Circumvention and Non-Disclosure Agreement. In November 1995, the Company entered into a one year employment agreement with Charles W. Profilet. Under the employment agreement, Mr. Profilet is entitled to an annual base salary of $80,000, a car allowance of $400 a month and monthly commissions, ranging from $5 per unit for parts washers to $25 per unit for jet washers, with respect to each new washer sold by the Company in the United States. The commissions earned by Mr. Profilet may be converted, at his option, into Common Stock at a discount on the then current trading price of the Common Stock. The conversion discount was 10% as of the date of this Prospectus, but, may be adjusted at the election of the Board of Directors of the Company. As of the date of this Prospectus, Mr. Profilet had earned an aggregate of $12,250 of commissions. The employment agreement provides that Mr. Profilet is eligible to participate in the Company's discretionary executive profit sharing awards and executive stock award or stock option awards. Pursuant to the employment agreement, if Mr. Profilet is terminated for cause, defined as an act of dishonesty, malfeasance, or other impropriety, he is not entitled to receive any severance payment. If Mr. Profilet is terminated without cause within his first year of employment, he is entitled to receive his current salary for six months or until he secures new employment, whichever occurs first. In addition to the employment agreement, the Company and Mr. Profilet entered into a Non-Circumvention and Non-Disclosure Agreement. INCENTIVE COMPENSATION PLAN The Company's 1996 Executive Incentive Compensation Plan (the "Incentive Plan") provides for grants of stock options, stock appreciation rights ("SARS"), restricted stock, deferred stock, other stock related awards and performance or annual incentive awards that may be settled in cash, stock or other property (collectively, "Awards"). The total number of shares of Common Stock that may be subject to the granting of Awards under the Incentive Plan at any time during the term of the Plan shall be 375,000. The Employee Plan is designed to serve as an incentive for retaining qualified and competent employees, directors, consultants and independent contractors of the Company. The persons eligible to receive Awards under the Incentive Plan are the officers, directors, employees and independent contractors of the Company, if any, and its subsidiaries. No director of the Company who is not an employee of the Company or any subsidiary (a "non-employee director") will be eligible to receive any Awards under the Incentive Plan other than automatic formula grants of stock options and restricted stock as described below, and no independent contractor will be eligible to receive any Awards other than stock options. The Incentive Plan is required to be administered by a committee designated by the Board of Directors consisting of not less than two directors (the "Committee"), each member of which must be a "disinterested person" as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as 38 amended, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation Committee of the Board has been appointed as the Committee for the Incentive Plan. Subject to the terms of the Incentive Plan, the Committee is authorized to select eligible persons to receive Awards, determine the type and number of Awards to be granted and the number of shares of Common Stock to which Awards will relate, specify times at which Awards will be exercisable or settleable (including performance conditions that may be required as a condition thereof), set other terms and conditions of Awards, prescribe forms of Award agreements, interpret and specify rules and regulations relating to the Incentive Plan, and make an other determinations that may be necessary or advisable for the administration of the Incentive Plan. In addition, the Incentive Plan imposes individual limitations on the amount of certain Awards in part to comply with Code Section 162(m). Under these limitations, during any fiscal year the number of options, SARS, restricted shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in lieu of other Company obligations, and other stock-based Awards granted to any one participant may not exceed 250,000 for each type of such Award, subject to adjustment in certain circumstances. The maximum amount that may be paid out as a final annual incentive Award or other cash Award in any fiscal year to any one participant is $1,000,000, and the maximum amount that may be earned as a final performance Award or other cash Award in respect of a performance period by any one participant is $5,000,000. The Incentive Plan provides that each non-employee director shall automatically receive (i) on the date of his or her appointment as a director of the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each year, on the day the Company issues its earnings release for the prior fiscal year, an option to purchase 2,500 shares of Common Stock. Such options will have a term of 10 years and become exercisable at the rate of 33-1/3% per year commencing on the first anniversary of the date of grant; provided, however, that the options will become fully exercisable in the event that, while serving as a director of the Company, the non-employee director dies, or suffers a "disability," or "retires" (within the meaning of such terms as defined in the Incentive Plan). The per share exercise price of all options granted to non-employee directors will be equal to the fair market value of a share of Common Stock on the date such option is granted. The Company will agree with the Representative that for a 13-month period immediately following the effective date of the Registration Statement of which this Prospectus forms a part, the Company will not, without the consent of the Representative, adopt or propose to adopt any plan or arrangement permitting the grant, issue or sale of any shares of its Common Stock or issue, sell or offer for sale any of its Common Stock, or grant any option for its Common Stock which shall: (x) have an exercise price per share of Common Stock less than (a) the initial public offering price of the Common Stock offered in this Prospectus or (b) the fair market value of the Common Stock on the date of grant; or (y) be granted to any direct or indirect beneficial holder of more than 10% of the issued and outstanding Common Stock of the Company. No option or other right to acquire Common Stock granted, issued or sold during the 13-month period immediately following the effective date of the Registration Statement of which this Prospectus forms a part shall permit (a) the payment with any form of consideration other than cash, (b) the payment of less than the full purchase or exercise price for such shares of Common Stock or other securities of the Company on or before the date of issuance, or (c) the existence of stock appreciation rights, phantom options or similar arrangements. The Company has not granted any Award under the Incentive Plan. COMPENSATION OF DIRECTORS After this offering, the Company will pay each director who is not an employee an annual retainer of $10,000. The Company will reimburse all directors for all travel-related expenses incurred in connection with their attendance at meetings of the Board of Directors. Directors will also be entitled to receive options under the Incentive Plan. See "Incentive Compensation Plan." Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted 10,000 shares of the Company's Common Stock in April 1996 in exchange for previously rendered consulting services. 39 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE The Board of Directors currently administers and determines compensation, including salary and bonus for the executive officers, directors and other employees. The Company intends to establish an Audit Committee and a Compensation Committee shortly after the closing of this offering. The Compensation Committee will be responsible for setting and administering policies that govern annual compensation of the Company's executive officers and administering the 1996 Executive Incentive Compensation Plan. The duties and responsibilities of the Audit Committee will include (i) recommending to the full Board the appointment of the Company's auditors and any termination of their appointment, (ii) reviewing the plan and scope of audits, (iii) reviewing the Company's significant accounting policies and internal controls, (iv) administering the Company's compliance programs, and (v) general responsibility for all related auditing matters. 40 CERTAIN TRANSACTIONS COMMON STOCK OWNERSHIP In connection with the organization of the Company in November 1990, the Company issued 2,000,000 shares of Common Stock, par value $0.001 per share, to Mr. Pierre Mansur in exchange for the assignment to the Company of (i) certain ongoing research and development and rights to any related patents and patents pending, and (ii) real estate and equipment valued at $52,000. CONSULTING AGREEMENT AND SERVICES In November 1994, the Company entered into a two-year consulting agreement (the "Consulting Agreement") with Environmental Technologies BVI Limited (the "Consultant"). Pursuant to the Consulting Agreement, the Consultant agreed to advise, consult with, introduce to third parties and generally assist the Company in its efforts to explore new manufacturing and marketing arrangements. In exchange for such services, the Consulting Agreement provided that the Consultant was entitled to receive certain fees in connection with the sale of certain equipment, services, license rights, royalty rights, manufacturing rights, marketing rights or the Company's entrance into a partnership or joint venture arrangement or consummation of a merger. The Consultant did not receive any commissions pursuant to the Consulting Agreement. In December 1995, the Company issued the Consultant 10,000 shares of Common Stock in exchange for the services rendered by the Consultant and to secure the Consultant's agreement to terminate the Consulting Agreement and any and all associated rights of the Consultant. Dr. Jan Hedberg, a director of the Company, owns 50 percent and serves as the managing director of the Consultant. Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack have, from time to time, rendered consulting services to the Company in connection with financing, marketing and technical matters. In April 1996, they were each granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share, in exchange for such previously rendered consulting services. NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur made a series of advances ranging from $5,000 to $30,000, totaling an aggregate of $150,000 (the "Debt"), to the Company between June 1, 1990 and May 31, 1996. Under the terms of the line of credit, interest accrued at a rate of 6% in 1994, 1995 and the five month period ended May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest owed with respect to the Debt. The note evidencing the Debt had a maturity date of December 31, 1995, which maturity date was extended to December 31, 1996. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding principal balance of and the interest owed with respect to the Debt. CONVERTIBLE NOTES In connection with its issuance of an aggregate of $1,012,500 in principal amount of Convertible Notes in June 1996, the Company issued promissory notes in the principal amount of $101,250 to each of Environmental Technologies BVI Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias F. Mansur, a director of the Company. Upon consummation of this offering, each of the Convertible Notes will be automatically converted into 15,000 shares of the Company's Common Stock. Mr. Mansur, Mr. Jack and Environmental Technologies BVI Limited acquired the Convertible Notes on the same terms as other unaffiliated investors. FUTURE TRANSACTIONS Each of the transactions between the Company and each officer and shareholder of the Company was made on terms no less favorable to the Company than those that were available from unaffiliated 41 third parties. All future transactions, including loans, between the Company and its officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of independent and disinterested outside directors on the Board of Directors, and will be on terms no less favorable to the Company than those that could be obtained from unaffiliated third parties. PRINCIPAL SHAREHOLDERS The following table sets forth certain information concerning the beneficial ownership of the Common Stock immediately prior to this offering, and as adjusted to reflect the issuance of shares upon the conversion of the Convertible Notes and the sale of shares offered by this Prospectus, by: (i) each person known by the Company to be the beneficial owner of more than 5% of the Common Stock, (ii) each Director or nominee for Director of the Company, (iii) each of the Named Executive Officers and (iv) all Directors and Executive Officers of the Company as a group.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED PRIOR TO THIS OFFERING AFTER THIS OFFERING ---------------------------- --------------------------- NAME NUMBER PERCENTAGE NUMBER PERCENTAGE - ------------------------------------- --------------- ------------- --------------- --------------- Mr. Pierre G. Mansur ................ 2,000,000 59.7% 2,000,000 46.0% Mr. Paul I. Mansur .................. 0 * 0 * Mr. Elias F. Mansur ................. 26,025 * 41,025(2) * Dr. Jan Hedberg ..................... 20,000(1) * 35,000(1)(3) * Mr. Joseph E. Jack .................. 22,820 * 37,820(2) * Mr. Charles W. Profilet ............. 0 * 0 * Mr. Richard P. Smith ................ 10,000(4) * 10,000(4) * All Directors and Executive Officers as a Group (6 persons) ............ 2,078,845(5) 61.9% 2,123,845(5) 48.8%
- ------------------ * Less than 1% (1) Includes 10,000 shares of Common Stock held by Environmental Technologies BVI Limited, of which Dr. Hedberg owns 50 percent and serves as the Managing Director. (2) Includes 15,000 shares of Common Stock issuable upon the conversion of a Convertible Note in the principal amount of $101,250, which conversion shall occur simultaneously with the consummation of this offering. (3) Includes 15,000 shares of Common Stock issuable upon the conversion of a Convertible Note held by Environmental Technologies BVI Limited in the principal amount of $101,250, which conversion shall occur simultaneously with the consummation of this offering. (4) Includes 10,000 shares of Common Stock issuable upon the exercise of stock options. (5) See Notes (1) -(4). DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 25,000,000 shares of Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309 shares of Common Stock and 0 shares of Preferred Stock are outstanding. COMMON STOCK Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of shareholders. Subject to the restrictions summarized below, dividends may be paid to the holders of Common Stock when and if declared by the Board of Directors out of funds legally available for dividends. See "Dividend Policy." Holders of Common Stock have no conversion, redemption, or preemptive rights. All outstanding shares of Common Stock are fully paid and nonassessable. In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of Common Stock will be entitled to share ratably in its assets remaining after provision for payment of creditors and holders of Preferred Stock. See "Dividend Policy." 42 PREFERRED STOCK The Company is authorized to issue Preferred Stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the value or market price of the Common Stock and voting power or other rights of the holders of Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certain specified thresholds, beginning at 20% of the Company's outstanding voting shares, will not possess any voting rights unless such voting rights are approved by a majority vote of a corporation's disinterested shareholders. Although the Company has elected not to be subject to the provisions of the Florida Control Share Act, the Company may, by amending its by-laws, elect to become subject to the provisions of the Florida Control Share Act in the future. The Affiliated Transactions Act generally requires majority approval by disinterested directors or supermajority approval of disinterested shareholders of certain specified transactions (such as a merger, consolidation, sale of assets, issuance of transfer of shares or reclassifications of securities) between a corporation and a holder of more than 10% of the outstanding voting shares of the corporation, or any affiliate of such shareholder. Mr. Pierre Mansur's initial acquisition of Common Stock was not subject to the provisions of the Florida Control Share Act or the Florida Affiliated Transactions Act. Future acquisitions of the Common Stock by Mr. Mansur will not trigger the provisions of the Florida Control Share Act unless the Company has elected to become subject to the provisions of the Florida Control Share Act. Future acquisitions of the Common Stock by Mr. Mansur will also not trigger the provisions of the Florida Affiliated Transactions Act provided any such acquisition has been approved by a majority of the "disinterested directors" on the Company's board of directors. Mr. Mansur is the Company's Chairman of the Board and President. The directors of the Company are subject to the "general standards for directors" provisions set forth in the Florida Business Corporation Act ("FBCA"). These provisions provide that in discharging his or her duties and determining what is in the best interests of the Company, a director may consider such factors as the director deems relevant, including the long-term prospects and interests of the Company and its shareholders and the social, economic, legal or other effects of any proposed action on the employees, suppliers or customers of the Company, the community in which the Company operates and the economy in general. Consequently, in connection with any proposed action, the Board of Directors is empowered to consider interests of other constituencies in addition to the Company's shareholders, and directors who take into account these other factors may make decisions which are less beneficial to some, or a majority, of the shareholders than if the law did not permit consideration of such other factors. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK The authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and Preferred Stock may enable the Board of Directors to issue shares to persons friendly to current management which could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger, or otherwise, and thereby protect the continuity of the Company's management. 43 LIMITED LIABILITY AND INDEMNIFICATION Under the FBCA, a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to fact unless (i) the director breached or failed to perform his duties as a director and (ii) a director's beach of, or failure to perform, those duties constitutes (1) a violation of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (2) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (3) a circumstance under which an unlawful distribution is made, (4) in a proceeding by or in the right of the corporation or procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation or willful misconduct, or (5) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. A corporation may purchase and maintain insurance on behalf of any director or officer against any liability asserted against him and incurred by him in his capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the FBCA. The Articles and Bylaws of the Company provide that the Company shall, to the fullest extent permitted by applicable law, as amended from time to time, indemnify all directors of the Company, as well as any officers or employees of the Company to whom the Company has agreed to grant indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Continental Stock Transfer & Trust Company. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company anticipates that it will have 4,351,309 shares of Common Stock outstanding. The 850,000 shares of Common Stock offered hereby will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by an "affiliate" of the Company (in general, a person who has a control relationship with the Company) which will be subject to the limitations of Rule 144 adopted under the Securities Act. All of the remaining 3,501,309 shares are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, in that such shares were issued and sold by the Company in private transactions not involving a public offering. Of such remaining shares: (i) 2,656,729 shares will become eligible for sale under Rule 144 90 days from the date of this Prospectus; (ii) 150,000 shares are registered for resale pursuant to an effective registration statement; and (iii) the remainder will become eligible for such sale at various times prior to June 1998. In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or other persons whose shares are aggregated), who has owned restricted shares of Common Stock beneficially for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the total number of outstanding shares of the same class or the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the 44 Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. All of the Company's officers, directors and shareholders have agreed not to sell or otherwise dispose of any of their shares of Common Stock for a period of 13 months from the date of this Prospectus without the prior written consent of the Representative. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Description of Securities" for information concerning outstanding warrants and convertible securities. UNDERWRITING The Underwriters named below (the "Underwriters"), for whom First Allied Securities Inc. is acting as Representative, have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company and the Company has agreed to sell to the Underwriters on a firm commitment basis the respective number of shares of Common Stock set forth opposite their names:
NUMBER UNDERWRITER OF SHARES - ---------------------------------- -------------- First Allied Securities Inc. .... -------------- Total .......................... 850,000 ==============
The Underwriters are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to conditions precedent specified therein. The Company has been advised by the Representative that the Underwriters propose to initially offer the Common Stock to the public at the public offering prices set forth on the cover page of this Prospectus and to certain dealers at such prices less concessions of not in excess of $ per share of Common Stock. Such dealers may reallow a concession not in excess of $ per share of Common Stock to other dealers. After the commencement of this offering, the public offering prices, concessions and reallowances may be changed by the Representative. The Representative has advised the Company that it does not anticipate sales to discretionary accounts by the Underwriters to exceed five percent of the total number of shares of Common Stock offered hereby. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make. The Company has also agreed to pay to the Representative an expense allowance on a 45 nonaccountable basis equal to three percent (3%) of the gross proceeds derived from the sale of the Common Stock underwritten, of which $50,000 has been paid to date. The Underwriters have been granted an option by the Company, exercisable within forty-five (45) days after the date of this Prospectus, to purchase up to an additional 127,500 shares of Common Stock at the initial public offering price per share of Common Stock offered hereby, less underwriting discounts and the expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the shares offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional shares of Common Stock proportionate to its initial commitment. All of the Company's officers and directors and all of the holders of the Common Stock have agreed not to, directly or indirectly, sell, transfer, hypothecate or otherwise encumber any of their shares for thirteen (13) months following the date of this Prospectus without the prior written consent of the Representative. The Company has agreed that, for five (5) years after the effective date of this Prospectus, the Representative will have the right to designate one individual to be elected to the Company's Board of Directors. Such individual may be a director, officer, employee or affiliate of the Representative. In the event the Representative elects not to designate a person to serve on the Company's Board of Directors, the Representative may designate an observer to attend meetings of the Board of Directors. In connection with this offering, the Company has agreed to sell to the Representative, for nominal consideration, the Representative's Warrants to purchase from the Company 85,000 shares of Common Stock. The Representative's Warrants are initially exercisable for shares of Common Stock at a price of $ [120% of the initial public offering price per share of Common Stock] per share of Common Stock for a period of four (4) years commencing one (1) year from the date of this Prospectus and are restricted from sale, transfer, assignment or hypothecation for a period of twelve (12) months from the date hereof, except to officers and principals of the Representative. The Representative's Warrants also provide for adjustment in the number of shares of Common Stock issuable upon the exercise thereof as a result of certain subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise of the Representative's Warrants. In connection with the Private Financing, the Representative is entitled to receive a commission of $101,250 and a non-accountable expense allowance of $30,375. The Representative was registered as a broker dealer on March 29, 1994. The Representative was relatively inactive for a period of time and was reactivated under its present ownership structure on December 15, 1994. The Representative does not have extensive experience as an underwriter of public offerings of securities. The Representative has acted as the managing underwriter for three public offerings. The Representative is a relatively small firm and no assurance can be given that the Representative will participate as a market maker in the Common Stock. Prior to this offering, there has been no public market for the Common Stock. Consequently, the initial public offering prices of the Common Stock has been determined by negotiations between the Company and the Representative and is not necessarily related to the Company's asset value, net worth or other established criteria of value. The factors considered in such negotiations included the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure and certain other factors as were deemed relevant. The foregoing is a summary of the principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the copy of the Underwriting Agreement filed as an Exhibit to the Registration Statement of which this Prospectus forms a part. 46 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as counsel for the Underwriters in connection with the offering. EXPERTS The financial statements of the Company as of December 31, 1995 and 1994 and for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 have been included in this Prospectus and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere in this Prospectus, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information about the Company and the Common Stock, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. Copies of each such document may be obtained from the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C., upon payment of the charges prescribed by the Commission. Copies of each document may also be obtained through the Commission's internet address at http://www.sec.gov. 47 INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ........................................................... F-2 Financial Statements Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unaudited) ................ F-3 Statements of Operations for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-4 Statements of Stockholders' Deficit for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1996 (unaudited) ................................... F-5 Statements of Cash Flows for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-6 Notes to Financial Statements .............................................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Mansur Industries Inc.: We have audited the accompanying balance sheets of Mansur Industries Inc. (a development stage company) as of December 31, 1994 and 1995, and the related statements of operations, stockholders'(deficit) and cash flows for the period from November 13, 1990 (inception) to December 31, 1991 and each of the years in the four-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mansur Industries Inc. as of December 31, 1994 and 1995 and the results of its operations and its cash flows for the period from November 13, 1990 (inception) to December 31, 1991 and each of the years in the four-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Miami, Florida January 19, 1996 F-2 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 --------------- --------------- -------------- (UNAUDITED) ASSETS Current assets: Cash .................................................. $ 20,766 $ 916,383 $ 640,592 Inventory ............................................. 0 193,838 412,431 Other assets .......................................... 85,810 18,290 176,425 --------------- --------------- -------------- Total current assets ................................. 106,576 1,128,511 1,229,448 --------------- --------------- -------------- Mortgage note receivable ............................... 200,000 0 0 --------------- --------------- -------------- Property and equipment, net ............................ 351,773 324,431 308,810 Other assets ........................................... 98,593 0 0 Intangible assets, net ................................. 0 0 24,454 --------------- --------------- -------------- 650,366 324,431 333,264 --------------- --------------- -------------- Total Assets ......................................... $ 756,942 1,452,942 1,562,712 =============== =============== ============== LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878 Due to officers/shareholders .......................... 250,000 250,000 0 Convertible notes payable ............................. 0 0 1,012,500 Interest payable ...................................... 45,684 0 2,250 Current installments of long-term debt ................ 43,637 45,846 48,786 --------------- --------------- -------------- Total current liabilities ............................ 345,328 515,323 1,446,414 --------------- --------------- -------------- Long-term debt, excluding current installments ........ 700,011 154,165 129,014 --------------- --------------- -------------- Total liabilities .................................... 1,045,339 669,488 1,575,428 --------------- --------------- -------------- Convertible redeemable preferred stock, $1 par value. Authorized 1,500,000 shares, issued and outstanding 580,000 and 490,000 in 1994 and 1995 respectively. ... 633,929 2,573,863 0 --------------- --------------- -------------- Stockholders' (deficit): Common stock, $0.001 par value. Authorized 25,000,000 shares, issued and outstanding 2,000,000; 2,673,129 and 3,351,309 shares for 1994, 1995 and 1996 respectively ........................................ 2,000 2,673 3,351 Additional paid-in capital ............................ (12,257) 438,132 3,560,948 Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015) --------------- --------------- -------------- Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716) --------------- --------------- -------------- Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712 =============== =============== ==============
See accompanying notes to financial statements. F-3 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
NOVEMBER 13, 1990 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------------------------- 1991 1992 1993 1994 -------------- ---------- ------------ ------------ Operating expenses: General and administrative .$ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development .. 128,439 31,924 69,256 178,146 --------------- ------------ ------------- ------------- Total operating expenses . 136,941 40,895 151,142 446,560 --------------- ------------ ------------- ------------- Loss from operations ..... (136,941) (40,895) (151,142) (446,560) --------------- ------------ ------------- ------------- Interest expense ............ -- (16,299) (16,360) (46,312) Exchange expense on redeemable preferred stock ........... -- -- -- -- Interest Income ............. -- -- -- -- Loss on disposal of property and equipment ............. -- (39,560) (18,000) -- --------------- ------------ ------------- ------------- Net loss .................. (136,941) (96,754) (185,502) (492,872) --------------- ------------ ------------- ------------- Dividends on redeemable preferred stock ......... -- -- (8,328) (53,929) --------------- ------------ ------------- ------------- Net loss to common shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801) =============== ============ ============= ============= Net loss per common share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27) =============== ============ ============= ============= Weighted average shares outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000 =============== ============ ============= =============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NOVEMBER 13, 1990 SIX MONTHS ENDED (INCEPTION) JUNE 30, THROUGH ----------------- JUNE 30, 1995 1995 1996 1996 ---------- -------- -------- ------------ (UNAUDITED)(UNAUDITED)(UNAUDITED) Operating expenses: General and administrative $907,393 $418,079 $622,641 $1,897,807 Research and development 393,874 162,732 365,435 1,167,074 --------------- ---------- -------- ---------- Total operating expenses . 1,301,267 580,811 988,076 3,064,881 --------------- ----------- -------- --------- Loss from operations ..... (1,301,267) (580,811) 988,076) 3,064,881) --------------- ----------- -------- ---------- Interest expense ............ (63,528) (38,259) (24,179) (166,678) F-4 Exchange expense on redeemable preferred stock ........ -- -- (344,631) (344,631) Interest income ............. 45,650 11,797 11,085 56,735 Loss on disposal of property and equipment ............. -- -- -- (57,560) --------------- ----------- -------- ---------- Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015) --------------- ----------- -------- ---------- Dividends on redeemable preferred stock ......... (222,067) (75,066) (147,000) (431,324) --------------- ----------- -------- ---------- Net loss to common shares .................. $(1,541,212) $ (682,339)$(1,492,801) $(4,008,339) =============== =========== =========== =========== Net loss per common share ................... $ (0.66) $ (0.34)$ (0.53) =============== =========== =========== =========== Weighted average shares outstanding ............. 2,335,140 2,000,000 2,799,071 =============== =========== =========== ===========
See accompanying notes to financial statements. F-4 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' (DEFICIT) FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
PREFFERED STOCK COMMON STOCK ---------------------------- ------------------------ SHARES AMOUNT SHARES PAR ------------ -------------- ------------ ---------- Balance at November 13, 1990 (inception) -- $ -- -- $ -- Issuance of common stock to an officer in exchange for machinery and real estate valued at market and rights to ongoing research and development patents and patents pending .......... -- -- 2,000,000 2,000 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1991 ............ -- -- 2,000,000 2,000 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1992 ............ -- -- 2,000,000 2,000 Issuance of preferred stock in exchange for cash ............................. 380,000 380,000 -- -- Issuance of preferred stock in satisfaction of notes payable ........ 200,000 200,000 -- -- Accrued dividends on preferred stock .. Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000 Accrued dividends on preferred stock .. 53,929 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000 Issuance of preferred stock in exchange for cash and note payable, net of costs ................................ 490,000 2,374,596 -- -- Accrued dividends on preferred stock .. 22,800 Conversion of preferred stock and accrued dividends to common stock .... (580,000) (656,729) 656,729 657 Accrued dividends on preferred stock .. 199,267 Issuance of common stock in exchange for services rendered ................ -- -- 16,400 16 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673 Issuance of common stock in exchange for services rendered (unaudited) .... -- -- 30,000 30 Conversion of note payable into common stock (unaudited) .................... -- -- 20,000 20 Accrued dividends on preferred stock (unaudited) .......................... 147,000 Exchange of preferred stock and accrued dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628 Net loss (unaudited) ................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351 ============ ============== ============ ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DEFICIT ACCUMULATED ADDITIONAL DURING THE TOTAL PAID-IN DEVELOPMENT STOCKHOLDERS' CAPITAL STAGE (DEFICIT) ---------- ---------------- ------------- Balance at November 13, 1990 (inception) $ -- $ -- $ -- Issuance of common stock to an officer in exchange for machinery and real estate valued at market and rights to ongoing research and development patents and patents pending .......... 50,000 -- 52,000 Net loss ............................... -- (136,941) (136,941) --------- ---------- ---------- Balance at December 31, 1991 ............ 50,000 (136,941) (84,941) Net loss ............................... -- (96,754) (96,754) -------- ---------- ---------- Balance at December 31, 1992 ............ 50,000 (233,695) (181,695) Issuance of preferred stock in exchange for cash ............................. -- -- -- Issuance of preferred stock in satisfaction of notes payable ........ -- -- -- Accrued dividends on preferred stock .. (8,328) (8,328) Net loss ............................... -- (185,502) (185,502) -------- --------- ---------- Balance at December 31, 1993 ............ 41,672 (419,197) (375,525) Accrued dividends on preferred stock .. (53,929) (53,929) Net loss ............................... -- (492,872) (492,872) -------- --------- ----------
DEFICIT ACCUMULATED ADDITIONAL DURING THE TOTAL PAID-IN DEVELOPMENT STOCKHOLDERS' CAPITAL STAGE (DEFICIT) ---------- ---------------- ------------- Balance at December 31, 1994 ............ (12,257) (912,069) (922,326) Issuance of preferred stock in exchange for cash and note payable, net of costs ................................ -- -- -- Accrued dividends on preferred stock .. (22,800) (22,800) Conversion of preferred stock and accrued dividends to common stock .... 656,072 -- 656,729 Accrued dividends on preferred stock .. (199,267) (199,267) Issuance of common stock in exchange for services rendered ................ 16,384 -- 16,400 Net loss ............................... -- (1,319,145) (1,319,145) ------------- --------------- ---------------- Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409) Issuance of common stock in exchange for services rendered (unaudited) .... 104,970 -- 105,000 Conversion of note payable into common stock (unaudited) .................... 99,980 -- 100,000 Accrued dividends on preferred stock (unaudited) .......................... (147,000) (147,000) Exchange of preferred stock and accrued dividends to common stock (unaudited) 3,064,866 -- 3,065,494 Net loss (unaudited) ................... -- (1,345,801) (1,345,801) ------------- --------------- ---------------- Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716) ============= =============== ================
See accompanying notes to financial statements. F-5 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
NOVEMBER 13, 1990 (INCEPTION) YEAR ENDED DECEMBER 31, THROUGH --------------------------------- DECEMBER 31, 1991 1992 1993 1994 -------------- --------- ----------- ---------- Cash used in operating activities: Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872) Adjustments to reconcile net loss to cash used in operating activities: Loss on sale of property ............. -- 31,680 -- -- Write-off of equipment and patent ...... 69,965 7,880 -- -- Depreciation ............................ -- -- -- 18,056 Common Stock issued for services ....... -- -- -- -- Changes in operating assets and liabilities: ...................... Inventory .............................. (5,095) (23,205) (29,838) (68,755) Other assets ........................... (1,318) (1,174) (7,067) (76,251) Intangible assets ...................... -- -- -- -- Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415 Advances from customer ................. 11,500 16,800 -- -- ---------- -------- --------- --------- Net cash used in operating activities ................ (60,099) (66,439) (213,946) (607,407) ---------- -------- --------- --------- Investing activities: Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227) Proceeds from mortgage note receivable .. -- -- -- -- Net proceeds from sale of property ...... -- 68,320 -- -- ---------- -------- --------- --------- Net cash provided (used) by investing activities .......................... (6,207) 64,112 (43,157) (48,227) Financing activities: Proceeds from notes payable and line of credit ......................... 68,911 52,627 24,860 500,000 Repayment of notes payable ............... -- (15,000) -- (9,262) Exchange expense on preferred stock exchanged for common stock ............. -- -- -- -- Proceeds from issuance of preferred stock ........................ -- -- 380,000 -- ---------- -------- ---------- --------- Net cash provided by financing activities ................ 68,911 37,627 404,860 490,738 ---------- -------- ---------- --------- Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896) Cash, beginning of period ................. -- 2,605 37,905 185,662 ---------- -------- ---------- --------- Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766 ========== ======== ========= =========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NOVEMBER 13, 1990 (INCEPTION) YEAR ENDED DECEMBER 31, THROUGH --------------------------------- DECEMBER 31, 1991 1992 1993 1994 -------------- --------- ----------- ---------- Cash used in operating activities: Net loss $(1,319,145) $(607,273) $(1,345,801) $(3,577,015) Adjustments to reconcile net loss to cash used in operating activities: loss on sale of property ............. -- -- -- 31,680 Write-off of equipment and patent ...... -- -- -- 77,845 Depreciation ............................ 42,404 20,934 22,396 82,856 Common Stock issued for services ....... 16,400 6,400 105,000 121,400 Changes in operating assets and liabilities: ...................... Inventory .............................. (95,245) (85,366) (218,593) (440,731) Other assets ........................... (7,884) (1,231) (158,135) (251,829) Intangible assets ...................... -- -- (24,454) (24,454) Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436 Advances from customer ................. -- -- -- 28,300 ------------- ----------- ------------- --------------- Net cash used in operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512) ------------- ----------- ------------- --------------- Investing activities: Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636) Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000 Net proceeds from sale of property ...... -- -- -- 68,320 ------------- ----------- ------------- --------------- Net cash provided (used) by investing activities .......................... 184,938 192,172 (6,775) 144,684 Financing activities: Proceeds from notes payable and line of credit ......................... -- -- 1,012,500 1,658,898 Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109) Exchange expense on preferred stock exchanged for common stock ............. -- 344,631 344,631 Proceeds from issuance of preferred stock ........................ 1,950,000 1,950,000 0 2,330,000 ------------- ----------- ------------- --------------- Net cash provided by financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420 ------------- ----------- ------------- --------------- Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592 Cash, beginning of period ................. 20,766 20,766 916,383 -- ------------- ----------- ------------- --------------- Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592 ============= =========== ============= ===============
Supplemental disclosures of noncash investing and financing activities: As discussed in note 7(d), in November, 1990, the Company issued 2,000,000 shares of common stock for real estate and equipment having an aggregate market value of $52,000. In addition, the officer assigned to the Company ongoing research and development and rights to patents and patents pending. Atinception, the Company assumed certain assets and liabilities, including a $200,000 note payable. During April 1992, the Company sold real property for $120,000 in cash and a $200,000 mortgage note receivable, as discussed in note 2. In December 1993, the Company issued preferred stock in exchange for $200,000 of notes payable. In July 1994, the Company purchased equipment, issuing a note payable to the seller in the amount of $252,910 (see note 5). During 1995, convertible preferred stock in the amount of $580,000 and related accrued dividends in the amount of $76,729 were converted to common stock (see note 7). During 1996, the Company exchanged 628,180 shares of common stock for 490,000 shares of preferred stock in the amount of $2,374,596 plus related accrued dividends of $346,260. In connection with this transaction, the Company recorded an exchange expense of 12% in the amount of $344,631 (note 7). See accompanying notes to financial statements. F-6 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 AND DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) (1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mansur Industries Inc. (the "Company") is primarily engaged in research and development, marketing, and initial production of industrial parts cleaning equipment for use in automotive, marine, airline and general manufacturing industries. The Company's focus is on the design, development and manufacture of industrial cleaning equipment which incorporate continuous recycling and recovery technologies for solvents and solutions, thereby reducing the need to replace and dispose of contaminated solvents and solutions. The Company is in the development stage. (A) OPERATIONS AND LIQUIDITY The Company has been primarily engaged in research, development, marketing, and initial production of its products. The Company's ultimate success is dependent upon future events, including the successful commercialization of the Company's products, establishing sources for manufacturing, marketing, and distribution channels, the outcomes of which are currently indeterminable, and is also dependent upon obtaining sufficient financing. As of June 30, 1996, the Company has realized no sales of its products. As indicated in the accompanying financial statements as of June 30, 1996, the Company's accumulated deficit totaled $3,577,015 (unaudited). The Company has financed this deficiency primarily through private placements of debt and equity securities. Management expects that product sales will commence during the second half of 1996 and that proceeds from the notes payable are sufficient to fund working capital requirements until sales of the Company's products reach levels sufficient to fund working capital requirements. In July 1996, the Company expects to file a registration statement with the Securities and Exchange Commission (the "SEC") in connection with a proposed initial public offering ("IPO") of shares of its common stock. In the event that the IPO is not completed, the Company has plans to restructure operations to minimize cash expenditures, and/or obtain additional financing in order to continue support of its activities. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. (B) INVENTORY Inventories are stated at the lower of cost or market using the first-in, first-out method. Inventory consists of the following.
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 --------------- --------------- ------------ (UNAUDITED) Raw materials ....................... $0 55,738 233,456 Work in progress and finished goods 0 138,100 178,975 --------------- --------------- ------------ $0 193,838 412,431 =============== =============== ============
(C) PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the lease term or the estimated useful lives of the respective assets. F-7 (D) INTANGIBLES Patents, patent applications and rights are stated at acquisition cost. Amortization of patents is recorded using the straight-line method over the legal lives of the patents, generally for periods ranging up to 17 years. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future cash flows from operations derived from such intangible assets is less than their carrying value. (E) OTHER ASSETS Included in other assets at December 31, 1994, were $75,404 in stock offering costs incurred in connection with the Series A preferred stock private placement (note 7). On June 30, 1996, other assets consist primarily of costs relating to the initial public offering of $94,251 and deposits with material suppliers (note 8). (unaudited) Included in non-current other assets at December 31, 1994 was $98,593 of inventory relating to products not to be marketed until other products in the product line were fully developed. (F) FINANCIAL INSTRUMENTS (unaudited) In assessing the fair value of financial instruments at June 30, 1996 the Company has used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. The carrying amount of long-term debt approximates fair value at June 30, 1996. For certain instruments, including accounts payable and accrued expenses, and short-term debt, the carrying amount approximates fair value due to their short maturity. (G) RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of costs incurred in connection with engineering activities related to the development of industrial parts cleaning machinery and are expensed as incurred. (H) INCOME TAXES The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (I) EARNINGS PER SHARE DATA The computation of loss per share in each year is based on the weighted average number of common shares outstanding. When dilutive, convertible preferred stock and convertible notes are F-8 included as common share equivalents using the if converted method. As these instruments have an anti-dilutive effect for the years presented, they are not included in the weighted average calculation. Primary and fully diluted earnings per share are the same for each of the years presented. (J) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (K) NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), which becomes effective for financial statements for fiscal years beginning after December 15, 1995. The statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangible assets and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangible assets to be disposed of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no material impact to the financial position or results of operations of the Company. In October 1995, the FASB issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes effective for financial statements for fiscal years beginning after December 31, 1995. SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Company is currently accounting for stock-based compensation under APB 25 and has opted to continue accounting for stock-based compensation under this method. (2) MORTGAGE NOTE RECEIVABLE During April 1992, the Company sold real property for $120,000 in cash and a $200,000 mortgage note receivable. The note bore interest at a rate of 12 percent per annum payable monthly with the principal due at maturity, being April 27, 1997. The interest received on the mortgage note receivable F-9 was assigned by the Company to repay interest due on an unsecured note payable and dividends on certain of the preferred stock. In April 1995, the balance of the note was received in full. (3) PROPERTY AND EQUIPMENT, NET Property and equipment was as follows:
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 USEFUL LIFE --------------- --------------- ------------ -------------- (UNAUDITED) Furniture and equipment ...... $ 7,289 20,433 23,709 5 Years Machinery and equipment ...... 351,688 353,606 357,105 10 Years Leasehold improvements ........ 10,852 10,852 10,852 --------------- --------------- ------------ 369,829 384,891 391,666 Less accumulated depreciation 18,056 60,460 82,856 --------------- --------------- ------------ $351,773 324,431 308,810 =============== =============== ============
(4) DUE TO OFFICERS/SHAREHOLDERS (A) NOTES PAYABLE Notes payable at December 31, 1994 and 1995 consists of the following:
12% UNSECURED NOTE PAYABLE ............. $100,000 Note payable to chief executive officer 150,000 ----------- $250,000 ===========
The 12% unsecured notes payable required interest payments monthly, with principal due at maturity. The note matured on December 31, 1995 and was renewed for one year. Pursuant to an amendment to the note signed in January 1996, the note was converted into common stock at a price of $5 per share (note 7). Advances made by the chief executive officer are pursuant to a $200,000 line of credit agreement signed in 1990. Under the terms of the agreement, interest is accrued at a variable rate not to exceed 10 percent per annum nor fall below 6 percent per annum negotiated annually. The rate for 1994 and 1995 was 6 percent. The note had a maturity date of December 31, 1995 and was renewed for one year to mature on December 31, 1996. The note payable to the chief executive officer was paid in full during May of 1996 (unaudited). (B) CONVERTIBLE NOTES PAYABLE (UNAUDITED) In June 1996, the Company issued cumulative convertible redeemable notes payable in the amount of $1,012,500, of which $303,750 was due to certain directors of the Company. The notes bear interest of 4% per annum until September 1996 and 12% thereafter. The notes will be automatically converted into common stock simultaneously with the initial public offering of the Company at a price of $6.75 per share. The Company may redeem these notes in full at any time at a price equal to the outstanding F-10 principal amount plus interest accrued thereon. Upon the conversion of the notes into common stock resulting from an IPO, a commission equalling 10% of the converted principal balance and a nonaccountable expense allowance equalling 3% of the converted principal balance is payable. (5) LONG-TERM DEBT
DECEMBER 31, ---------------------- JUNE 30, 1994 1995 1996 ----------- ---------- ---------- (UNAUDITED) Long-term debt consists of the following: 12% unsecured convertible promissory note, due May 10, 1996, converted into Series A preferred stock in 1995 (note 7). ..................................... $500,000 -- -- 12.5% note payable in monthly installments of $5,690, including interest due August 4, 1999, secured by equipment with a depreciated cost of $230,277 on June 30, 1996 (unaudited) .......................... 243,648 200,011 177,800 Less current installments ............................ 43,637 45,846 48,786 ----------- ---------- ------------ Long-term debt, excluding current installments ...... $700,011 154,165 129,014 =========== ========== ============
The 12 percent unsecured convertible promissory note was converted into 100,000 shares of Series A preferred stock during 1995 and subsequently converted to common stock in June 1996 (unaudited) (note 7). The aggregate maturities of long-term debt for each of the four years subsequent to June 30, 1996, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - --------------- ---------- 1996 .......... $ 23,635 1997 .......... 51,916 1998 .......... 58,791 1999 .......... 43,458 ---------- $177,800 ==========
(6) INCOME TAXES For the period from November 13, 1990 (inception) to June 30, 1996, the operations of the Company generated net operating losses of approximately $3,577,015 (unaudited) for financial reporting purposes. Because the Company is in the development stage, all costs through 1995 have been capitalized for tax purposes. The only loss reported for tax has been a $14,280 capital loss on the sale of real property in 1992. This capital loss may be carried forward by the Company for up to five years and will expire at the end of 1997. Capital losses carried forward may only be used to offset future capital gains. The gross amount of the deferred tax asset as of June 30, 1996 was approximately $1,288,000 (unaudited), which consists primarily of capital loss carryforwards, start-up costs, and research and experimental costs capitalized for tax purposes. Since realization of these tax benefits are not assured, a F-11 valuation allowance has been recorded against the entire deferred tax asset balance. In addition, pursuant to the Tax Reform Act of 1986, if certain substantial changes in ownership should occur there would be an annual limitation on the amount of tax attribute carryforwards which can be utilized in the future. (7) REDEEMABLE PREFERRED STOCK (A) SERIES A PREFERRED STOCK In April 1995, the Company issued 490,000 shares of 12 percent cumulative convertible redeemable preferred stock (the "Series A") as part of a second private placement at an offering price of $5 per share. The issuance raised $1,950,000 in cash and converted the $500,000 unsecured convertible promissory note (see note 5) into Series A shares. The Series A were convertible into common stock, one for one, at any time during the first 18 months following the issuance of the stock at the option of the stockholder. All then outstanding shares of Series A were to be redeemed no later than June 30, 1996. Dividends were payable at the time of conversion or redemption. The balance of the Series A plus accrued dividends was $2,573,863 at December 31, 1995. On April 27, 1996, the board of directors of the Company approved an offer to exchange all of the Series A plus the aggregate amount of dividends accrued through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares of common stock. In June 1996, 100% of the Series A shareholders accepted the Company's offer to exchange all of their preferred shares together with their dividends. In connection with this exchange the Company recognized an expense in the amount of $344,631 (unaudited). (B) FIRST SERIES PREFERRED STOCK In the fourth quarter of 1993, the Company issued 580,000 shares of 12 percent cumulative convertible redeemable preferred stock (the "First Series" ) in a private placement. The stock was convertible into common stock, one for one, at any time during the first 18 months following the issuance of the stock at the option of the stockholder. Dividends were payable at the time of conversion or redemption. The balance of the First Series preferred stock plus accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994 respectively. On May 30, 1995, the board of directors of the Company approved the redemption of all of the First Series outstanding at the redemption price of $1 per share plus dividends accrued through June 30, 1995, subject to the preferred shareholders' prior right to convert such preferred stock into common stock of the Company. In June 1995, 100% of the First Series with cumulative dividends thereon was converted into common stock, on a one for one basis. (8) STOCKHOLDERS' DEFICIT (A) CONVERTIBLE NOTE PAYABLE (UNAUDITED) In May 1996, the Company converted a $100,000 note payable into common stock at a price of $5 per share pursuant to an amendment to the note signed in January of 1996. F-12 (B) COMMON STOCK In November 1990, the Company issued 2,000,000 shares of common stock with a par value of $0.001 per share to the President of the Company for the President's assignment to the Company of all ongoing research and development and the rights to any related patents and patents pending, in addition to real estate and equipment with an aggregate fair value of $52,000 as part of the formation of the Company. (9) COMMITMENTS (A) LEASES The Company leases operating facilities under fixed rent operating leases. The facilities had a 24 month lease expiring December 31, 1994 with a rent of $4,631 per month. The lease was renewed under cancelable terms in October 1994 for an additional two-year period at a monthly rent of $5,094. During 1994, the Company leased equipment under an operating lease which expired in September 1995. Total rent expense was as follows: FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) ...................................... $30,564 For the year ended December 31: 1995 ............................................. $61,128 1994 ............................................. 55,572 1993 ............................................. 39,740 1992 ............................................. 24,835 From November 13 1990 (inception) to December 31, 1991 ........................................... 14,540 (B) DUE TO OFFICER In 1995, the Board of Directors of the Company declared an incentive bonus payable to the President, Pierre G. Mansur in the amount of $267,460. Payment of bonuses are subject to the determination by the Board of Directors that the Company is able to effectuate such payment without impeding the Company's operations or development. As a result, $88,110 has been paid and an amount of $179,350 has been accrued at December 31, 1995 and June 30, 1996 (unaudited). (C) SUPPLY AGREEMENT (unaudited) On May 7, 1996, the Company entered into an agreement (the "Supply Agreement" ) with a supplier (the "Supplier") pursuant to which the Supplier agreed to supply to the Company, at the Company's election, between 3,000 and 5,000 machine units per year at established prices and in accordance with a delivery schedule. The Company has agreed to pay $150,000 (the "Advance"), $50,000 of which has been advanced through June 30, 1996. The total Advance may be credited against future purchases under the Supply Agreement at the rate of $50 per unit. The Supply Agreement provides that the Company may unilaterally terminate the contract in whole or in part for cause or for convenience. In the event the Supply Agreement is terminated by the F-13 Company for convenience, the Supplier will be entitled to reimbursement of the costs it has incurred through the date of termination and, if such termination occurs prior to the delivery of 3,000 units, the Supplier will be entitled to payment for units produced through the date of termination and retain any unapplied amount of the Advance. (10) PRODUCT FINANCING AGREEMENT (unaudited) In May 1996, the Company entered into an agreement (the "Product Financing Agreement") with a leasing company which agrees to purchase machines produced by the Company and subsequently lease these machines to customers on 60 month terms. The Company will market the machines and provide the leasing company with credit information on potential customers which they may either accept or reject. The Product Financing Agreement states that the leasing company does not have recourse against the Company for customer failures to discharge their obligations to the leasing company unless the Company has breached and failed to cure certain warranties. Under the Product Financing Agreement, the Company has agreed to provide periodic service for the machines and replace solvent used in the machines. In addition, upon the leasing company's request, the Company agrees to assist the leasing company in remarketing any repossessed or surrendered equipment for a fee. At the end of each customer lease, the Company has the option to purchase the machine from the leasing company at its fair market value. F-14 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. - ----------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary ................. 3 Summary Financial Data ............. 6 Risk Factors ....................... 7 Use of Proceeds .................... 14 Dilution ........................... 15 Dividend Policy .................... 15 Capitalization ..................... 16 Selected Financial Data ............ 17 Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 18 Business ........................... 23 Management ......................... 35 Executive Compensation ............. 37 Certain Transactions ............... 41 Principal Shareholders ............. 42 Description of Capital Stock ...... 42 Shares Eligible for Future Sale ... 44 Underwriting ....................... 45 Legal Matters ...................... 47 Experts ............................ 47 Additional Information ............. 47 Index to Financial Statements ..... F-1
- ----------------------------------------------------------------------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 850,000 SHARES [MANSUR INDUSTRIES LOGO] Common Stock - ----------------------------------------------------------------------------- PROSPECTUS - ----------------------------------------------------------------------------- [FIRST ALLIED SECURITIES INC. LOGO] , 1996
MANSUR INDUSTRIES INC. CROSS-REFERENCE SHEET Pursuant to Item 501(b) of Regulation S-K Showing Location in Prospectus of Information Required by Items of Form S-1. ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT Location in Prospectus - ----------------------------------------------------------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover of Prospectus Page 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges Prospectus Summary; Risk Factors 4. Use of Proceeds Not Applicable 5. Determination of Offering Price Outside Front Cover Page; Plan of Distribution 6. Dilution Not Applicable 7. Selling Security Holders Principal and Selling Shareholders; Management 8. Plan of Distribution Outside Front Cover Page; Inside Front Cover Page; Plan of Distribution Underwriting 9. Description of Securities to be Registered Prospectus Summary; Capitalization; Dividend Policy; Description of Capital Stock; Shares Eligible for Future Sale 10. Interests of Named Experts and Counsel Not Applicable 11. Information with Respect to the Registrant Outside Front and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal and Selling Shareholders; Description of Capital Stock; Shares Eligible for Future Sale; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities Not Applicable
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 25, 1996 PROSPECTUS 150,000 SHARES [MANSUR INDUSTRIES LOGO] COMMON STOCK The 150,000 shares (the "Shares") of Common Stock, $.001 par value ("Common Stock"), offered hereby are being offered directly by certain shareholders (the "Selling Shareholders") of Mansur Industries Inc. (the "Company"). See "Principal and Selling Shareholders." The Company will receive none of the proceeds of the sale of the Shares. The Shares are issuable by the Company upon conversion of $1,012,500 in principal amount of its convertible notes due 1997 (the "Convertible Notes"), at a conversion price of $6.75 per share. Concurrently herewith, the Company is offering 850,000 shares of the Common Stock at an initial offering price of $ in an underwritten initial public offering (the "Concurrent Offering"). On the date of this Prospectus, a registration statement with respect to the shares offered in the Concurrent Offering was declared effective. Prior to the Concurrent Offering there was no public market for the Common Stock and there can be no assurance that any such market will develop or be sustained. The Common Stock will be included in the Nasdaq Small Cap Market (the "NASDAQ") under the symbol "MANS." The Company has registered the Shares under the Securities Act for sale by the Selling Shareholders. See "Selling Shareholders." The Selling Shareholders have advised the Company that they may from time to time sell all or a portion of the Shares offered hereby in one or more transactions in the over-the-counter market on the NASDAQ SmallCap Markeet, on any exchange on which the Common Stock may then be listed, in negotiated transactions or otherwise, or a combination of such methods of sale, at market prices prevailing at the time of sale or prices related to such prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Shareholders and/or purchasers of the Shares for whom they may act as agent (which compensation may be in excess of customary commissions). The Selling Shareholders and any participating broker-dealers may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amend (the "Securities Act"). Neither the Company nor the Selling Shareholders can presently estimate the amount of commissions or discounts, if any, that will be paid by the Selling Shareholders on account of their sales of the Shares from time to time. The shares are subject to an agreement between the holders thereof and the Representative of the Underwriters in the Concurrent Offering (the "Representative") restricting the sale thereof within the 13 months from the date of this Prospectus without the prior written consent of the Representative. The Company has agreed to indemnify the Selling Shareholders against certain liabilities, including certain liabilities under the Securities Act. The Company has also agreed to bear certain expenses (other than underwriting discounts and commissions and brokerage commissions and fees) in connection with the registration and sale of the Shares. See "Concurrent Offering," "Description of Securities," and "Plan of Distribution." - ----------------------------------------------------------------------------- SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. - ----------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. September , 1996 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS ASSUMES (I) THAT THE CONCURRENT OFFERING HAS BEEN CONSUMMATED AT AN ASSUMED INITIAL OFFERING PRICE OF $7.50 PER SHARE (II) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IN THE CONCURRENT OFFERING (THE "OVER-ALLOTMENT OPTION") TO PURCHASE UP TO 127,500 SHARES OF COMMON STOCK HAS NOT BEEN EXERCISED, AND (III) THAT THE REPRESENTATIVE'S WARRANTS TO PURCHASE 85,000 SHARES OF COMMON STOCK HAVE NOT BEEN EXERCISED. THE COMPANY Mansur Industries Inc. (the "Company") has developed and obtained patent protection with respect to a full line of self-contained, recycling industrial parts washers that incorporate innovative, proprietary waste minimization technologies and represent a significant advance over currently available machinery and processes. Focusing on waste minimization rather than its removal and recovery, the Company believes that its equipment will have a major impact on the industrial parts cleaning industry and will have a broad appeal to customers, because its equipment, unlike the machines now in use, facilitates efficient and economical compliance with environmental regulations, minimizes waste disposal requirements, enhances cleaning solution utilization, and increases worker safety and productivity. Most machinery and equipment require oil lubrication to function properly. Removal of lubrication oils from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations is typically effected through the use of mineral spirit solvents which become contaminated in the cleaning process. Under the most common current practice, the solvent becomes more contaminated (and less effective) with repeated use, and, when it is saturated with oil, sludge and other contaminants as a result of the cleaning process (and frequently classified as a hazardous waste under federal and state regulations), it must be stored on site until pick-up, when pure solvent is delivered and the contaminated solvent is, generally, shipped to regional refining facilities. This off-site recycling program is typically scheduled on four to sixteen week cycles and involves both the utilization of progressively more contaminated solvent for cleaning operations until the solvent is too contaminated for use, and thereafter, the on-site storage of the hazardous solution until the periodic waste recovery service. By contrast, the Company's products allow the use and re-use of the solvent by removing all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer on demand, without the costly and dangerous storage and transportation of hazardous waste. Moreover, the small amount of waste by-product yielded in the distillation process utilized by the Company's products can typically be recycled and/or disposed of together with the customer's used motor oil, which is generally not classified as a hazardous waste. The Company's products produce by-products that have been extensively tested by the laboratory of a division of Valvoline Oil Company and the independent engineering concern of Law Engineering and Environmental Services, Inc. The Company's products have proven effective in accomplishing the distillation of contaminated solvent to yield pure solvent and a by-product comparable to used oil. The Company believes that substantially all of the Company's target customers have established systems for the handling, transportation, recycling and disposal of used motor oil. While the Company intends to exploit its current full line of industrial washers, and to continue its research and development of new products, it has initially focused its attention on its General Parts Washer, marketed as SystemOne(Trademark) (the "SystemOne(Trademark) Washer"). The SystemOne(Trademark) Washer consists of a washing sink mounted on top of a metal cabinet in which the distillation and recovery apparatus is contained. The equipment allows the solvent to be used, treated and re-used, on demand, without requiring off-site processing. The Company has concluded extensive testing by independent laboratories and at various commercial sites and is currently conducting test marketing in a local area within close 3 proximity to its facilities. Demonstrator models were placed in 38 selected automotive repair facilities of national, fleet, industrial and commercial accounts. Notwithstanding the absence of a formal marketing program during the test period, the Company has, as of the date of this Prospectus, received firm purchase orders from a number of facilities in which the machines were placed, including Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company and Pantropic Power Products, South Florida Caterpillar dealers (48 Units); United States Postal Service (2 Units); Southern Sanitation, a subsidiary of Waste Management, Inc. (5 Units); Broward County Mass Transit (25 Units); Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile dealerships (an aggregate of 60 Units). The Company finances its SystemOne(Trademark) Washers through a third party leasing program with Oakmount Financial Services. The Company commenced commercial sales and delivery of units in July 1996 at an approximate price per unit of $2,700, and expects to deliver substantially all units ordered to date prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. The initial market for the Company's industrial cleaning product line includes automotive, aviation, marine and general industrial maintenance, service and repair operations. The Company believes that domestic expenditures in connection with industrial parts cleaning machines exceeds $1.0 billion annually, and that the anticipated monthly cost to the customer for the Company's products typically will not exceed, and is intended to be well below, the monthly cost of the non-recycling machines now in use. Additional competitive advantages provided by the Company's products include practical and cost effective compliance with demanding regulations of the Environmental Protection Agency; elimination of routine waste disposal costs; significant improvements in cleaning productivity; minimized cleaning solution purchases; and reduction of equipment down time for routine machine maintenance. The Company has retained experienced executives to head and develop its sales and marketing organization. In addition to its regional office in Miami, the Company expects to open four additional service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida during 1996. The Company expects to pursue a national expansion program, through internal growth utilizing a network of regional distribution and service centers, as in Florida, through a strategic alliance with a national distributor, if one is available on favorable terms, or through a combination of the two. In August, the Company commenced a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Inc., a multinational oil refiner and distributor of automotive related products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under the pilot program, First Recovery is the exclusive distributor of the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The initial term of the program is one year. If the arrangement proves successful, the Company expects to negotiate a broader agreement, possibly including a national distribution program. The Company has manufactured all its prototype and test models at its 10,000 square foot research and development ("R&D") facility. The Company's current manufacturing capabilities include advanced Computer Aided Design/Computer Aided Manufacturing technology and state of the art manufacturing machinery. Because the Company's R&D facility can be utilized to manufacture up to 200 units of the SystemOne(Trademark) Washer per month, all manufacturing operations, including design, metal fabrication, robotic welding, painting and assembly, can be performed in the Company's R&D facility during the Company's initial roll-out phase. At present, the Company plans to continue to use its own facility for existing and new product R&D activities and to use contract manufacturers when a product achieves commercial sales levels. In order to accommodate increased demand for the SystemOne(Trademark) Washer, the Company has entered into an agreement with a contract manufacturer with respect to the manufacture of at least 3,000 units during the first year thereof. In addition, the Company has entered into negotiations with a major contract manufacturer with a 2 million square foot facility and 75 years of experience to provide the manufacturing capacity needed to meet anticipated future customer demand. 4
THE OFFERING Common Stock Offered ...................150,000 shares Common Stock Outstanding After Offering...4,351,309(1) Use of Proceeds by the Company ..........The Company utilized the proceeds of the private financing pursuant to which the Convertible Notes were issued to finance the Concurrent Offering and for general corporate purposes. The Company will not receive any of the proceeds from the sale by the holders thereof of the shares of Common Stock issued pursuant to this Prospectus. Risk Factors .............................This offering involves a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution." Nasdaq SmallCap Symbol ..................MANS
- -------------------------- (1) Does not include an aggregate of 375,000 shares of Common Stock reserved for issuance upon exercise of options available for future grant and future restricted stock awards under the Company's Incentive Compensation Plan. See "Underwriting" and "Management--Incentive Compensation Plans." The Company will furnish its shareholders with annual reports containing audited financial statements certified by an independent auditing firm. CONCURRENT OFFERING On the date of this Prospectus, a registration statement filed under the Securities Act with respect to a concurrent underwritten public offering by the Company of 850,000 shares of Common Stock, and up to 127,500 additional shares of Common Stock to cover over-allotments, if any, was declared effective by the Securities and Exchange Commission (the "Concurrent Offering"). The Company received net proceeds of approximately $ from the sale of those shares, and will receive approximately $ __________ in additional net proceeds if the over-allotment option is exercised in full, after payment of underwriting discounts and commissions and estimated expenses of the Concurrent Offering. Mansur Industries Inc. was incorporated in Florida in 1990. The Company's principal executive office is located at 8425 S.W. 129th Terrace, Miami, Florida 33156, and its telephone number is (305) 232-6768. 5 SUMMARY FINANCIAL DATA The summary financial information set forth below should be read in conjunction with financial statements appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1991(1) 1992 1993 1994 STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ....... $ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development .......... 128,439 31,924 69,256 178,146 ------------- ------------ ------------- ------------- Total operating expenses ......... 136,941 40,895 151,142 446,560 ------------- ------------ ------------- ------------- Interest (expense), net ............ -- (16,299) (16,360) (46,312) Exchange (expense) on redeemable preferred stock .................. -- -- -- -- Loss on disposition of property and equipment ........................ -- (39,560) (18,000) -- ------------- ------------ ------------- ------------- Net (loss) ......................... (136,941) (96,754) (185,502) (492,872) Dividends on redeemable preferred stock ............................ -- -- (8,328) (53,929) Net (loss) to common shares ....... $ (136,941) $ (96,754) $ (193,830) $ (546,801) ============= ============ ============= ============= Net (loss) per common share(2) .... $ (0.07) $ (0.05) $ (0.10) $ (0.27) ============= ============ ============= ============= Weighted average shares outstanding(2) ................... 2,000,000 2,000,000 2,000,000 2,000,000
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SIX MONTHS ENDED JUNE 30, -------------- -------------------------- 1995 1995 1996 STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ....... $ 907,393 $ 418,079 $ 622,641 Research and development .......... 393,874 162,732 365,435 --------------- ------------- --------------- Total operating expenses ......... 1,301,267 580,811 988,076 --------------- ------------- --------------- Interest (expense), net ............ (17,878) (26,462) (13,094) Exchange (expense) on redeemable preferred stock .................. -- -- (344,631) Loss on disposition of property and equipment ........................ -- -- -- --------------- ------------- --------------- Net (loss) ......................... (1,319,145) (607,273) (1,345,801) Dividends on redeemable preferred stock ............................ (222,067) (75,066) (147,000) Net (loss) to common shares ....... $(1,541,212) $ (682,339) $(1,492,801) =============== ============= =============== Net (loss) per common share(2) .... $ (0.66) $ (0.34) $ (0.53) =============== ============= =============== Weighted average shares outstanding(2) ................... 2,335,140 2,000,000 2,799,071
DECEMBER 31, JUNE 30, 1996 ------------------------------------------------------------------------- ------------- 1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3) ------- -------- ---------- --------- ---------- --------- -------------- BALANCE SHEET DATA: WORKING CAPITAL ..................... $(414,148) $(407,230) $ (94,055) $ (238,752) $ 613,188) $ (216,966) $5,921,034 TOTAL ASSETS ........................ 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212 CURRENT LIABILITIES.................. 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914 LONG-TERM LIABILITIES................ 0 0 0 700,011 154,165 129,014 129,014 TOTAL LIABILITIES ................... 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928 TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
- ---------------- (1) Information provided for the period from November 13, 1990 (inception) to December 31, 1991. (2) See Note 1 to Notes to Financial Statements for information concerning the computation of net loss per share. (3) The information provided has been adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as a result of the conversion of the Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share and the initial application of the estimated net proceeds therefrom. See "Capitalization" and "Use of Proceeds." The information provided has not been adjusted to reflect that the Company issued $500,000 in principal amount of Short Term Notes as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 6 RISK FACTORS THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT DECISION. LIMITED OPERATING HISTORY; SIGNIFICANT AND CONTINUING LOSSES. The Company was formed in November 1990 and was a development stage company through June 30, 1996. Since its inception in November 1990, the Company has devoted substantially all of its resources to research and development programs relating to its full line of self contained, recycling industrial parts washers. As a result of such efforts, from inception until June 30, 1996, the Company accumulated a deficit of $3,577,015. It has only recently commenced the marketing and sale of one of its product lines on a limited basis, and has a limited operating history upon which an evaluation of the Company's performance and prospects can be made. The Company's prospects must be considered in light of the numerous risks, expenses, delays, problems and difficulties frequently encountered in the establishment of a new business in an industry characterized by vigorous competition and regulatory requirements. Since inception, the Company has incurred significant losses, including losses of $492,872 and $1,319,145, for the years ended December 31, 1994 and 1995, respectively, and a loss of $1,345,801 for the six months ended June 30, 1996. Losses are continuing through the date of this Prospectus. Inasmuch as the Company's operating expenses have increased and can be expected to continue to increase significantly in connection with the Company's proposed expansion, including the development of manufacturing capabilities, the development and establishment of regional sales, service and technological support centers and a service fleet, the development of a larger corporate headquarters and research and development facility, and the purchase of raw materials and inventory, the Company anticipates that losses and negative operating cash flow will continue until such time, if ever, as the Company is able to generate sufficient revenues to offset its operating costs and the costs of continuing expansion. There can be no assurance that the Company will generate significant revenues or ever achieve profitable operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Financial Statements. UNCERTAINTY OF MARKET ACCEPTANCE. To date, the Company's products have been marketed in limited geographic areas and for a limited period of time and, thus, have achieved only limited market acceptance. As of the date of this Prospectus, the Company has received firm purchase orders for 196 SystemOne/trademark/ Washers and anticipates delivering substantially all of the ordered units prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. The Company is attempting to market a new product which relies on a fundamental change in the way parts and tools are cleaned and solvent utilized, an activity pattern which has been relatively consistent within the target industries in the past. As is typically the case with an emerging business concept, demand and market acceptance for newly introduced products and services are subject to a high level of uncertainty. The Company has limited marketing experience and limited financial, marketing, personnel and other resources to undertake extensive marketing activities. The Company's success will be largely dependent on the Company's ability to position its products as a preferred method for cleaning parts. The Company believes that substantially all its target customers currently utilize competitive parts cleaning equipment. Potential customers may elect to utilize devices or methods with which they are more familiar or which they believe to be more efficient or have other advantages over the Company's system. Accordingly, achieving market acceptance for the Company's products will require substantial marketing efforts and expenditure of significant funds to educate automotive dealership and repair facilities and other potential users of the products of the distinctive characteristics and benefits of the Company's products as well as their environmental and cost savings advantages. There can be no assurance that the Company's efforts will result in significant initial or continued market acceptance for the Company's products or that the Company will succeed in positioning its products as a preferred method for cleaning parts. See "Business--Marketing and Servicing Strategy." INDUSTRY COMPETITION. The parts cleaning industry is characterized by intense competition, and the industry is dominated by Safety-Kleen, Inc. A number of other companies provide parts cleaning 7 equipment and services. While the Company believes that none of its competitors offer a product with the same features as the Company's products, many customers may view the products as functionally equivalent, and there can be no assurance that functionally equivalent products will not become available in the near future. In addition, there are numerous companies involved in the waste management industry, including waste hauling companies and companies engaged in waste separation, recovery and recycling, which may have the expertise and resources that would encourage them to attempt to develop and market products which would compete with the Company's products or render them obsolete or less marketable. Safety-Kleen, Inc., as well as most of the companies marketing such waste disposal services or products or with the potential to do so, are well established, have substantially greater financial and other resources than the Company, and have established reputations relating to product design, development, marketing and support. There can be no assurance that the Company's financial performance and prospects will not be negatively affected if Safety-Kleen, Inc. materially lowers the price to customers of its parts washers, or that the Company will be able to compete successfully. See "Business--Competition." RISKS ASSOCIATED WITH RAPID EXPANSION. The Company has achieved limited growth to date and has limited experience in effectuating rapid expansion or in managing operations which are geographically dispersed. Expansion of the Company's operations will be dependent on, among other things, the Company's ability to achieve significant market acceptance for its products, successfully locate, establish and operate Service Centers, hire and retain skilled management, marketing, technical and other personnel, secure adequate sources of supply on a timely basis and on commercially reasonable terms, successfully manage growth (including monitoring operations, controlling costs and maintaining effective quality controls), and maintain a third party leasing program capable of financing the customer's acquisition of the Company's products in a timely manner. To date, a substantial portion of the Company's products have been installed on a test basis in automotive dealership and repair facilities concentrated in limited geographic markets near the Company's headquarters. The Company's growth prospects will be largely dependent upon its ability to achieve greater penetration in these markets as well as significant penetration in new geographic markets. The Company's prospects could be adversely affected by declines in the automotive sales, maintenance or service industries or the economy generally, which could result in reduction or deferral of capital expenditures by prospective customers. The Company's future growth will also be dependent upon the Company's ability to achieve a sufficient installed base of its products. The Company may also seek to expand its operations through the acquisition of existing companies with customer bases that would appear to have needs for the Company's product line. There can be no assurance that the Company will be able to successfully expand its operations. See "Business--Marketing and Servicing Strategy." DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company's capital requirements have been and will continue to be significant. The Company is dependent on and intends to use a substantial portion of the proceeds of the Concurrent Offering to implement its proposed expansion. The Company anticipates, based on currently proposed plans and assumptions relating to its operations (including the anticipated costs associated with, and timetable for, its proposed expansion), that the proceeds of this offering, together with cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change, its third party lease financing arrangement does not function as anticipated, its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow otherwise prove to be insufficient to fund expansion (due to unanticipated expenses, delays, problems, difficulties or otherwise), the Company has plans to restructure its operations to minimize cash expenditures and/or obtain additional financing in order to support its plan of operations. The Company has no current arrangements with respect to, or sources of, additional financing and there can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. Although the Company believes that available third party lease financing may help offset the Company's cost structure for product rollout, a significant level of demand for the Company's products will, in all likelihood, initially result in significant up-front capital expenditures without corresponding cash flow. Any additional equity financing may involve 8 dilution to the interests of the Company's then existing shareholders. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. See "Use of Proceeds." RISKS ASSOCIATED WITH PRODUCT FINANCING. The Company has entered into a third party lease financing arrangement (the "Product Financing Agreement") with Oakmont Financial Services ("Oakmont"), pursuant to which Oakmont has agreed to provide third party leasing services. If the Company breaches certain warranties, Oakmont has the right to require the Company to repurchase the leased unit from Oakmont. Specifically, the Company has agreed to make the following warranties upon each sale to Oakmont, which warranties provide Oakmont with a basis for recourse against the Company for certain customer failures: (i) to the best of the Company's knowledge, the customer will use the SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the best of the Company's knowledge, the lease and related documents have been duly executed and delivered; (iii) the lease incorporates all of the representations and warranties made by the Company to the lessee; (iv) all dealings by the Company with the lessee have been in accordance with all applicable laws and regulations; (v) the conduct of the Company in developing a lease will not subject Oakmont to suit or administrative proceeding; (vi) the lessee has no defense, offset or counterclaims as to the enforcement of the lease arising out of the conduct or failure to perform of the Company; (vii) to the best of the Company's knowledge, the Company does not know of any fact which indicates the uncollectibility of the lease; (viii) to the best of the Company's knowledge, the information provided by the lessee to the Company and Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed the Company is entitled to retain, the Company has not retained any funds given to it by a lessee; and (x) title to the SystemOne Washer/trademark/ has vested in Oakmont free and clear of any liens of persons claiming by, through or under the Company. In the event the Company breaches one of the foregoing warranties and fails to cure the breach, the Product Financing Agreement requires the Company to purchase from Oakmont the leased SystemOne Washer and Oakmont's rights under the lease agreement with the customer for an amount equal to the sum of all lease payments then due and owing under the lease, all lease payments payable from the date of default to the end of the lease term and twenty percent of the equipment cost, less any applicable deposit which may be retained by Oakmont. Where required by applicable law, the foregoing amounts are required to be calculated using the discounted present value of the subject lease payments. To the extent that the Company is required to use a portion of the proceeds of the Concurrent Offering to repurchase units from Oakmont, the Company will have less resources available to it for other purposes. Oakmont has the right to review the creditworthiness of proposed lessees and to withhold financing on the basis of its credit review. While the Company may terminate its agreement with Oakmont if Oakmont consistently refuses to approve the credit of the Company's proposed lessees, any such termination, in the absence of alternative financing programs, could have a material adverse effect on the Company. The Company is not likely to utilize third party financing with respect to units leased under its pilot marketing program with First Recovery and Valvoline Oil Company, but will, instead, use a portion of the proceeds of the Concurrent Offering. See "Use of Proceeds of Concurrent Offering", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Sales Financing and Servicing Programs." DEPENDENCE ON ENVIRONMENTAL LEGISLATION. In recent years, government authorities have adopted extensive regulations regulating the storage, handling, shipment, recycling and/or disposal of hazardous waste, including contaminated solvent used in industrial parts washers. The Company believes that continuing initiatives of federal, state and local government authorities and increasing storage and hauling costs and disposal fees will create incentives for customers to use the Company's products. Failure by government authorities to continue to implement such legislation or significant relaxation of such requirements or enforcement thereof could have a material adverse effect on the Company's business and prospects. Moreover, while the Company believes that the utilization of its products as intended does not constitute the generation, treatment or disposal of hazardous waste and that its products yield pure solvent and a residue that is not classified as hazardous waste, but may, rather, be disposed of or utilized as used motor oil, there can be no assurance that environmental agencies will reach the same conclusion. If the utilization of the Company's products constitutes the generation, 9 treatment or disposal of hazardous waste, if the residue is classified as hazardous waste, or if used motor oil itself is classified as hazardous waste, the Company will lose a significant competitive advantage. The Company believes that certain of its competitors have attempted and are continuing their efforts to have used motor oil classified as a hazardous waste. See "Business--Industry Overview" and "Risk Factors--Potential Warranty Expense and Product Liability." DEPENDENCE ON THIRD-PARTY MANUFACTURING ARRANGEMENTS. The Company will be dependent on a number of third parties for its components and for the manufacture of a large portion of its finished units. Although the Company has entered into a SystemOne/trademark/ Washer supply agreement with a contract manufacturer and believes that several alternative manufacturing sources are readily available, failure by its current manufacturer to continue to supply the Company on commercially reasonable terms, or at all, in the absence of readily available alternative sources, would have a material adverse effect on the Company. The Company is substantially dependent on the ability of its 42 component and raw material suppliers and contract manufacturer, among other things, to satisfy performance and quality specifications and dedicate sufficient production capacity for components and raw materials within scheduled delivery times. See "Business--Manufacturing and Supply." PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION. The Company holds four United States patents and has four United States patents pending with respect to the Company's products. Two of the five pending patents have been allowed by the U.S. Patent Office and are awaiting issuance. Other parts washing machines which may not be covered by the Company's patents are currently in commercial distribution by the Company's competitors. The Company has applied for international patents in Canada, Mexico, Europe and Japan and anticipates that it will apply for additional patents as deemed appropriate. The Company believes that patent protection is important to its business and that it could be required to expend significant funds in connection with enforcing or defending its patent rights. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford the Company, that any unissued patent applications will result in issued patents or that patents will not be circumvented or invalidated. It is possible that the Company's existing patent rights may not be valid although the Company believes that neither its products nor processes now infringe or will infringe patents or violate proprietary rights of others. It is possible that infringement of existing or future patents or proprietary rights of others may occur. In the event that the Company's products or processes infringe patents or proprietary rights of others, the Company may be required to modify the design or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. Failure to do any of the foregoing could have a material adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement, proprietary rights violation action or alleged infringement or violation action. Moreover, if the Company's products or processes infringe patents or propriety rights of others, the Company could, under certain circumstances, become the subject of an immediate injunction and be liable for damages, which could have a material adverse effect on the Company. See "Business--Patents, Trademarks and Proprietary Technology." The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation of its proprietary information. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Although the Company has and expects to have confidentiality agreements with its employees, suppliers and appropriate vendors, there can be no assurance that such agreements will adequately protect the Company's trade secrets. Since the Company believes that its proprietary information is important to its business, failure to protect such information could have a material adverse effect on the Company. See "Business--Patents, Trademarks and Proprietary Information." POTENTIAL WARRANTY EXPENSE AND PRODUCT LIABILITY. The Company unconditionally warrants its products to be free of material defects for 60 months. In addition the Company warrants to users that if, for any reason, the residue generated by its System One/trademark/ Washer cannot be recycled and/or disposed 10 of as used oil, the Company will pay for any required recovery and disposal services. Accordingly, the Company could incur significant warranty expenses as a result of defects in its products or a change in federal or state regulations pertaining to the disposal of cleaning residue. Since the Company only recently commenced its planned principal operations, the reserve account it will establish for warranty expense will be derived without the benefit of historical figures and actual warranty expenses could exceed the amount which will be established as a reserve. The Company may also be exposed to potential product liability claims by its customers and users of its products. The Company maintains product liability insurance coverage of $5,000,000 in the aggregate and $5,000,000 per occurrence. The Company believes such insurance provides adequate coverage for the types of products currently marketed by the Company. There can be no assurance, however, that such insurance will be sufficient to cover potential claims or that an adequate level of coverage will be available in the future at a reasonable cost. A partially insured or completely uninsured successful claim against the Company could have a material adverse effect on the Company. See "Business--Sales Financing and Service Programs" and "--Product Liability and Insurance." DEPENDENCE ON KEY PERSONNEL. The success of the Company will be largely dependent on the personal efforts of Pierre Mansur, its Chairman of the Board and President and the inventor of the Company's products, Paul Mansur, its Chief Executive Officer, and other key personnel. Although the Company has entered into employment agreements with Pierre Mansur and Paul Mansur which expire in September 1997, the loss of the services of either of such individuals or certain other key employees, could have a material adverse effect on the Company's business and prospects. The Company has obtained and is the sole beneficiary of "key-man" life insurance on Pierre Mansur and Paul Mansur each in the amount of $1,000,000. The success of the Company is also dependent upon its ability to hire and retain additional qualified marketing, technical and other personnel. There can be no assurance that the Company will be able to hire or retain such personnel. See "Management." CONTROL BY MANAGEMENT. After consummation of this offering and the Concurrent Offering, Pierre Mansur will beneficially own approximately 46% of the Company's outstanding Common Stock. Accordingly, Pierre Mansur will be in a position to effectively control the Company, including the election of all of the directors of the Company. See "Management" and "Principal Shareholders." BROAD DISCRETION IN APPLICATION OF PROCEEDS; POSSIBLE BENEFITS TO RELATED PARTIES. Approximately $572,000 (11%) of the estimated net proceeds from the Concurrent Offering has been allocated to working capital and general corporate purposes. Accordingly, the Company's management will have broad discretion as to the application of such proceeds. In addition, the Company may use a portion of the net proceeds allocated to working capital to pay salaries and benefits of executive officers over the 12 months following the consummation of this offering to the extent cash flow is insufficient for such purpose. See "Use of Proceeds of Concurrent Offering." DIVIDENDS. The Company has not paid any cash dividends on its Common Stock and does not expect to declare or pay any cash dividends in the foreseeable future. See "Dividend Policy." DILUTION. The assumed initial offering price of $7.50 is substantially higher than the net tangible book value per share of Common Stock. Investors purchasing shares of Common Stock in this offering will incur immediate and substantial dilution of approximately $6.10 (81%) per share of Common Stock from the assumed initial public offering price. See "Dilution." INEXPERIENCE OF REPRESENTATIVE. The Representative was registered as a broker dealer on March 29, 1994. The Representative was relatively inactive for a period of time and was reactivated under its present ownership structure on December 15, 1994. The Representative does not have extensive experience as an underwriter of public offerings of securities, having acted as the managing underwriter for three public offerings. The Representative is a relatively small firm and no assurance can be given that the Representative will participate as a market maker in the Common Stock. In the event the Representative does not participate as a market maker the liquidity in the Company's Common Stock may be adversely affected. See "Underwriting." 11 NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to the Concurrent Offering, there has been no public market for the Common Stock, and no assurance can be given that an active trading market will develop or be sustained after this offering. Since there has been no trading market, the initial public offering price of the Common Stock and the conversion price of the Convertible Notes may not bear any relationship to the actual value of the Common Stock. The initial public offering price was established by negotiations between the Company and the Representative, is not necessarily related to the Company's asset value, net worth or other established criteria of value, and may not be indicative of prices that will prevail in the trading market. The stock market has experienced significant price and volume fluctuations that are often unrelated to the operating performance of particular companies. The market price of the Common Stock, similar to that of securities of other development stage companies, is likely to be highly volatile. Factors such as the results of studies and trials by the Company or its competitors, other evidence of the efficacy of products of the Company or its competitors, announcements of technological innovations or new products by the Company or its competitors, changes in governmental regulation, developments in patent or other proprietary rights of the Company or its competitors, including litigation, fluctuations in the Company's operating results and changes in general market conditions could have a significant impact on the future price of the Common Stock. See "Underwriting." NO PRIOR TRADING MARKET; POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET; DISCLOSURE RELATING TO LOW PRICED STOCKS. Prior to this offering there has been no public trading market for the Common Stock. The Common Stock has been approved for quotation on Nasdaq SmallCap Market; however, there can be no assurance that a trading market will develop or, if developed, that it will be maintained. In addition, there can be no assurance that the Company will in the future meet the maintenance criteria for continued quotation of the securities on Nasdaq SmallCap Market. The continued quotation criteria for Nasdaq SmallCap Market includes, among other things, $2,000,000 in total assets, $1,000,000 in capital and surplus, a public float of 100,000 shares with a market value equal to $200,000, two market makers and a minimum bid price of $1.00 per share of common stock. If an issuer does not meet the $1.00 minimum bid price standard, it may, however, remain on the Nasdaq SmallCap Market if the market value of its public float is at least $1,000,000 and the issuer has at least $2,000,000 in equity. If the Company were removed from the Nasdaq SmallCap Market, trading, if any, in the Common Stock would thereafter have to be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, the NASD's OTC Electronic Bulletin Board. As a result, an investor would find it more difficult to dispose of, and to obtain accurate quotations as to the value of such securities. In addition, if the Common Stock is delisted from trading on the Nasdaq SmallCap Market and the trading price of the Common Stock is less than $5.00 per share, trading in the Common Stock would also be subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who recommend such low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's written consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to recent regulations adopted by the Securities and Exchange Commission, any equity security not traded on an exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Such requirements could severely limit the market liquidity of the Common Stock and the ability of purchasers in this offering to sell their securities in the secondary market. There can be no assurance that the Common Stock will not be delisted or treated as a penny stock. EFFECT OF ANTI-TAKEOVER LEGISLATION; POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK ON MARKET PRICE AND RIGHTS OF COMMON STOCK. The State of Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certain specified thresholds will not possess any voting rights unless such 12 voting rights are approved by a majority vote of a corporation's disinterested shareholders. The Florida Affiliated Transactions Act generally requires supermajority approval by disinterested directors or shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). Mr. Pierre Mansur's initial acquisition of Common Stock was not subject to the provisions of the Control Share Act. Future acquisitions of the Common Stock of the Company by Mr. Mansur will not trigger the provisions of the Control Share Act provided any such acquisition has been approved by the Company's board of directors. The Company's Articles of Incorporation authorize the issuance of 1,500,000 shares of "blank check" Preferred Stock ("Preferred Stock") with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. The issuance of any series of Preferred Stock having rights superior to those of the Common Stock may result in a decrease in the value or market price of the Common Stock. Holders of Preferred Stock to be issued in the future may have the right to receive dividends and certain preferences in liquidation and conversion rights. The issuance of such Preferred Stock could make the possible takeover of the Company or the removal of management of the Company more difficult, discourage hostile bids for control of the Company in which shareholders may receive premiums for their Common Stock and adversely affect the voting and other rights of the holders of the Common Stock. The Company may in the future issue additional shares of its Preferred Stock. See "Description of Securities." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon the consummation of the Concurrent Offering, the Company anticipates that it will have 4,351,309 shares of Common Stock issued and outstanding. Of such shares, the 1,000,000 shares offered hereby or pursuant to the Concurrent Offering are freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless held by an "affiliate" of the Company. The remaining 3,351,309 shares of Common Stock are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act. Of such remaining shares; (i) 2,656,729 shares are currently eligible for sale under Rule 144; and (ii) the remainder will become eligible for sale under Rule 144 at various times prior to June 1998. No prediction can be made as to the effect, if any, that sales or shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale." FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK. This prospectus contains forward-looking statements, including statements regarding, among other items (i) the Company's growth strategies, (ii) the impact of the Company's products and anticipated trends in the Company's business, and (iii) the Company's ability to enter into contracts with certain suppliers and strategic partners. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of the factors described herein, including, among others, regulatory or economic influences. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this Prospectus will in fact transpire or prove to be accurate. CONCURRENT OFFERING On the date of this Prospectus, a registration statement filed under the Securities Act with respect to a concurrent underwritten public offering by the Company of 850,000 shares of Common Stock, and up to 127,500 additional shares of Common Stock to cover over-allotments, if any, was declared effective by the Securities and Exchange Commission (the "Concurrent Offering"). The Company received net proceeds of approximately $ from the sale of those shares, and will receive approximately $ __________ in additional net proceeds if the over-allotment option is exercised in full, after payment of underwriting discounts and commissions and estimated expenses of the Concurrent Offering. 13 USE OF PROCEEDS OF CONCURRENT OFFERING The Company will receive no proceeds from the offering of shares under the Prospectus. However, the conversion of the Convertible Notes will result in the extinguishment of $1,012,500 of indebtedness. The net proceeds to be received by the Company from the sale of the shares of Common Stock offered pursuant to the Concurrent Offering are estimated to be approximately $5,271,750 based on an assumed initial public offering price of $7.50 per share (approximately $6,103,688 if the Underwriters' over-allotment option is exercised in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
APPROXIMATE APPROXIMATE PERCENTAGE APPLICATION OF PROCEEDS DOLLAR AMOUNT OF NET PROCEEDS - --------------------------------------------------------------- ---------------- ---------------- Development of manufacturing capacity(1) ...................... $ 750,000 14% Development of marketing, sales and service centers and service fleet(2) ............................................ 1,000,000 19 Development of corporate headquarters and research and development facilities(3) ................................... 700,000 13 Purchase of raw materials and inventory(4) .................... 1,750,000 33 Working capital and general corporate purposes(5) ............ 1,071,750 21 ---------------- ---------------- Total ....................................................... $5,271,750 100% ================ ================
- -------- (1) Represents the estimated cost of developing the Company's manufacturing capabilities, primarily for research and development, testing and initial pre-commercial manufacturing operations, including certain property, plant and equipment costs, set-up costs, hard and soft tooling costs and custom mold development costs over the next 12 months. See "Business--Manufacturing and Supply" and "--Research and Development." (2) Represents the estimated cost of developing sales, service and technological support centers and a fleet of service vehicles throughout Florida and the eastern United States over the next 12 months. See "Business--Marketing and Servicing Strategy." (3) Represents the estimated cost of developing a larger corporate headquarters and research and development facility, including the cost of a client server computer system, over the next 12 months. See "Business--Research and Development." (4) Represents the estimated cost of raw materials and finished goods inventory that may be held by the Company, as well as the cost of units provided under its pilot marketing program with First Recovery and Valvoline Oil Company for which the Company will not use third party financing. (5) Such figure includes the cost of retiring the Short Term Notes. As of September 9, 1996, the Company issued $500,000 in principal amount of Short Term Notes in a private financing. The Short Term Notes bear interest at a rate of 4% through September 1996 and 12% thereafter. The Short Term Notes are due and payable on September 4, 1997, or, if earlier, upon the consummation of the Concurrent Offering. The Company intends to utilize the proceeds of the Short Term Notes for the same purposes as the proceeds of the Concurrent Offering are to be applied, with the exception that none of the proceeds of the Short Term Notes will be used to develop a corporate headquarters or a research and development facililty. The foregoing represents the Company's best estimate of its allocation of the net proceeds of the Concurrent Offering based upon the current status of its business operations, its current plans, and current economic and industry conditions. Future events, as well as changes in economic or competitive conditions or the Company's business and the results of the Company's sales and marketing activities may make shifts in the allocation of funds within or between each of the items referred to above necessary or desirable. If the Underwriters exercise the over-allotment option in full, the Company will realize additional net proceeds of approximately $832,000 which will be added to the Company's working capital. The Company anticipates, based on currently proposed plans and assumptions relating to its operations, that the proceeds of the Concurrent Offering, together with projected cash flow from operations, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions change or prove to be inaccurate or if the proceeds of this offering or cash flow prove to be insufficient (due to unanticipated expenses or otherwise), the Company may be required to seek additional financing in order to support its plan of operations. There can be no assurance that additional financing will be available to the Company on commercially reasonable terms, or at all. 14 Proceeds not immediately required for the purposes described above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest-bearing investments. DILUTION The difference between the conversion price per share of Common Stock and the pro forma net tangible book value per share after this offering constitutes the dilution to holders of the Convertible Notes and recipients of shares of Common Stock pursuant to this offering. Net tangible book value per share is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) by the number of outstanding shares of Common Stock. At June 30, 1996, the net tangible book value of the Company was $(37,170), or $(.01) per share. After giving effect to the conversion of the Convertible Notes into 150,000 shares of Common Stock, and assuming the sale of 850,000 shares of Common Stock offered in the Concurrent Offering at an assumed initial public offering price of $7.50 per share and deducting underwriting discounts and commissions and estimated expenses of that offering, the pro forma net tangible book value of the Company as of June 30, 1996 would have been $6,100,830, or $1.40 per share. This represents an immediate increase in net tangible book value of $1.41 per share to the existing shareholders and an immediate dilution of $5.35 per share to the holders of Convertible Notes. The following table illustrates this dilution, on a per share basis: CONVERSION PRICE OF COMMON STOCK ................. $6.75 Net tangible book value before offering ........ $(.01) Increase attributable to new investors ......... 1.41 Pro forma net tangible book value after offering 1.40 -------- Total dilution to holders of Convertible Notes .. $5.35 ======== If the Underwriters' over-allotment option is exercised in full, the pro forma net tangible book value of the Company as of June 30, 1996 will be $6,932,768, or $1.59 per share. This represents an immediate increase in net tangible book value of $1.60 per share to the existing shareholders and an immediate dilution of $5.15 per share to new investors. The following table summarizes, as of June 30, 1996, the total number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid (assuming an initial public offering price of $7.50 per share) by the existing shareholders and the new investors.
PERCENT PERCENT AVERAGE SHARES OF TOTAL AGGREGATE OF TOTAL PRICE PURCHASED SHARES CONSIDERATION CONSIDERATION PER SHARE ------------ ----------- ---------------- ---------------- ------------ Existing Shareholders 3,501,309 80.5% $ 4,142,500 39.4% $1.18 New Investors ......... 850,000 19.5% 6,375,000 60.6% $7.50 ------------ ----------- ---------------- ---------------- Total ................. 4,351,309 100.0% 10,517,500 100.0% ============ =========== ================ ================
If the Underwriters' over-allotment option is exercised in full, the new investors will have paid $7,331,250 for 977,500 shares of Common Stock, representing 63.9% of the total consideration for 21.8% of the total number of shares outstanding. 15 CAPITALIZATION Set forth below is the capitalization of the Company at June 30, 1996, and as adjusted to reflect the Company's issuance of 850,000 shares of Common Stock in this offering at an assumed initial public offering price of $7.50 per share and the automatic conversion of the Convertible Notes. See Note 4(B) of Notes to Financial Statements.
JUNE 30, 1996 ----------------------------- ACTUAL AS ADJUSTED ------------- -------------- DEBT: Short-term debt .................................................... $1,012,500 $ 0(1) Current installments of long-term debt ............................. 48,786 48,786 Long-term debt, excluding current installments ..................... 129,014 129,014 STOCKHOLDERS' EQUITY (DEFICIT): Preferred Stock, $1 par value; 1,500,000 shares authorized; no shares issued and outstanding ................................. 0 0 Common Stock, $.001 par value; 25,000,000 shares authorized; 3,351,309 and 4,351,309 shares issued and outstanding, respectively ..................................................... 3,351 4,351 Additional paid in capital ......................................... 3,560,948 9,697,948 Deficit accumulated during the development stage ................... 3,577,015 3,577,015 ------------- -------------- Total stockholders' equity (deficit) .............................. (12,716) 6,125,284 ------------- -------------- Total capitalization ............................................... $1,177,584 $6,303,084 ============= ==============
- ------------------- (1) The information provided has not been adjusted to reflect that the Company issued $500,000 in principal amount of Short Term Notes as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 16 SELECTED FINANCIAL DATA The selected financial data set forth below has been derived from the financial statements of the Company. The financial statements as of and for the period from November 13, 1990 (inception) through December 31, 1991 and for the years ended December 31, 1992, 1993, 1994 and 1995 have been audited by KPMG Peat Marwick LLP, independent certified public accountants. In the opinion of the Company, the financial information for each of the six month periods ended June 30, 1995 and 1996, which is unaudited, includes all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of its financial position and results of operations for these periods. The statement of operations data for the six month period ended June 30, 1996 is not necessarily indicative of the results of operations that may be expected for the full year. The selected financial data presented below should be read in conjunction with the Company's financial statements, related notes, and other financial information contained in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1991(1) 1992 1993 1994 ------------- ------------ ------------- ------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ... $ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development ..... 128,439 31,924 69,256 178,146 ------------- ------------ ------------- ------------- Total operating expenses .... 136,941 40,895 151,142 446,560 ------------- ------------ ------------- ------------- Interest (expense), net ........ -- (16,299) (16,360) (46,312) Exchange (expense) on redeemable preferred stock ... -- -- -- -- Loss on disposition of property and equipment ................ -- (39,560) (18,000) -- ------------- ------------ ------------- ------------- Net (loss) ..................... (136,941) (96,754) (185,502) (492,872) Dividends on redeemable preferred stock .............. -- -- (8,328) (53,929) ------------- ------------ ------------- ------------- Net (loss) to common shares ... $ (136,941) $ (96,754) $ (193,830) $ (546,801) ============= ============ ============= ============= Net (loss) per common share(2) ..................... $ (0.07) $ (0.05) $ (0.10) $ (0.27) ============= ============ ============= ============= Weighted average shares outstanding(2) ............... 2,000,000 2,000,000 2,000,000 2,000,000
(RESTUBBED TABLE CONTINUED FROM ABOVE)
SIX MONTHS ENDED JUNE 30, ------------------------------ 1995 1995 1996 --------------- ------------- --------------- STATEMENT OF OPERATIONS DATA: Operating expenses: General and administrative ... $ 907,393 $ 418,079 $ 622,641 Research and development ..... 393,874 162,732 365,435 --------------- ------------- --------------- Total operating expenses .... 1,301,267 580,811 988,076 --------------- ------------- --------------- Interest (expense), net ........ (17,878) (26,462) (13,094) Exchange (expense) on redeemable preferred stock ... -- -- (344,631) Loss on disposition of property and equipment ................ -- -- -- --------------- ------------- --------------- Net (loss) ..................... (1,319,145) (607,273) (1,345,801) Dividends on redeemable preferred stock .............. (222,067) (75,066) (147,000) --------------- ------------- --------------- Net (loss) to common shares ... $(1,541,212) $ (682,339) $(1,492,801) =============== ============= =============== Net (loss) per common share(2) ..................... $ (0.66) $ (0.34) $ (0.53) =============== ============= =============== Weighted average shares outstanding(2) ............... 2,335,140 2,000,000 2,799,071
DECEMBER 31, JUNE 30, 1996 ------------------------------------------------------------------ ---------------------------- 1991(1) 1992 1993 1994 1995 ACTUAL AS ADJUSTED(3) ------- ---- ---- ---- ---- ------ -------------- BALANCE SHEET DATA: Working capital ............... $(414,148) $(407,230) $(94,055) $ (238,752) $ 613,188 $ (216,966) $5,921,034 Total assets .................. 338,225 265,932 493,751 756,942 1,452,942 1,562,712 6,628,212 Current liabilities............ 423,166 447,627 289,276 345,328 515,323 1,446,414 373,914 Long-term liabilities.......... 0 0 0 700,011 154,165 129,014 129,014 Total liabilities ............. 423,166 447,627 289,276 1,045,339 669,488 1,575,428 502,928 Stockholders' equity (deficit): Total stockholders' equity (deficit) .................. (84,941) (181,695) (375,525) (922,326) (1,790,409) (12,716) 6,125,284
- ---------------- (1) Information provided for the period from November 13, 1990 (inception) to December 31, 1991. (2) See Note 1 to Notes to Financial Statements for information concerning the computation of net loss per share. (3) The information provided has been adjusted to reflect (i) the issuance of 150,000 shares of Common Stock as a result of the conversion of the Convertible Notes; and (ii) the sale of 850,000 shares of Common Stock offered hereby at an assumed initial public offering price of $7.50 per share and the initial application of the estimated net proceeds therefrom. See "Capitalization" and "Use of Proceeds." The information provided has not been adjusted to reflect the issuance by the Company of $500,000 in principal amount of Short Term Notes as of September 9, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Financial Statements, including the notes thereto, contained elsewhere in this Prospectus. GENERAL Since its inception in November 1990 the Company has devoted substantially all of its resources to research and development programs relating to its full line of self contained, recycling industrial parts washers. The Company was a development stage company through June 30, 1996, and commenced its planned principal operations in July 1996. The Company has been unprofitable since its inception and expects that it will incur significant additional losses at least through December 31, 1996. From the period from inception through June 30, 1996, the Company incurred a cumulative net loss of $3,577,015. The Company anticipates that it will incur losses until such time, if ever, as the Company is able to generate sufficient revenues to offset its operating costs and the costs of its continuing expansion. In light of the material uncertainties in connection with the commencement of the Company's operations, the Company cannot reasonably estimate the length of time before the Company may generate net income, if ever. The Company intends to make its SystemOne(Trademark) Washer and services available to the public through a third party leasing program. The Company will recognize the revenue from the sale of a machine at the time that the equipment is delivered either to the third party lessor or directly by the Company to the lessee. A portion of the revenue (currently estimated at 10% of the sale price per machine) will be accounted for as deferred revenue, and recognized as revenue in respect of the service portion of the agreement over the term of the underlying lease. See "Business--Sales Financing and Servicing Programs" for a description of the Product Financing Agreement the Company has entered into with Oakmont Financial Services. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995. The Company did not generate any revenues prior to June 30, 1996. The Company's general and administrative expenses increased by $204,562 to $622,641 for the six months ended June 30, 1996 from $418,079 during the comparable period in 1995. The 49% increase is primarily attributable to the Company's hiring of additional management, sales and marketing staff in anticipation of the Company's commencement of its planned principal operations and the Company's grant of an aggregate of 30,000 shares of Common Stock to three directors of the Company in exchange for certain consulting services. The Company anticipates that its monthly general and administrative expenses will continue to increase over the next twelve months if the Company's operations expand in accordance with its proposed business plan. The Company's research and development expenses for the six months ended June 30, 1995 and 1996 were $162,732 and $365,435, respectively. The 125% increase is primarily a function of the Company's accelerated prototype development during the latter period, as opposed to the basic and applied research conducted during the prior period. During 1996, the Company manufactured and shipped a number of SystemOne(Trademark) Washers to various facilities to test market receptivity. Subject to the availability of financial and personnel resources, the Company intends to spend approximately $400,000 and $500,000 in the years ended December 31, 1996 and 1997, respectively, to complete development and testing of various of its products and to develop new products and concepts. The Company's interest expenses for the six months ended June 30, 1995 and 1996 were $38,259 and $24,179, respectively. The Company's interest expense in the six months ended June 30, 1996 18 decreased by 36% relative to the six months ended June 30, 1995 due to a relative decrease in the indebtedness of the Company. In the six months ended June 30, 1995 and 1996, the Company earned interest income of $11,797 and $11,085 on cash deposits. In the six months ended June 30, 1996, the Company incurred an exchange expense of $344,631 in connection with its efforts to induce all the holders of the Company's Series A Preferred Stock to convert their Series A Preferred Stock to Common Stock. As a result of the foregoing, the Company incurred a net loss of $607,273 and $1,345,801 in the six months ended June 30, 1995 and 1996, respectively. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994. The Company's general and administrative expenses for the years ended December 31, 1994 and 1995 were $268,414 and $907,393, respectively. The $638,979 (238%) increase in general and administrative expenses was a function of the Company's hiring of additional management and sales staff, increased use of management consulting, engineering, legal and accounting professionals, purchase of more comprehensive insurance policies and increased executive compensation. For the years ended December 31, 1994 and 1995, the Company's research and development expenses were $178,146 and $393,874, respectively. The $215,728 (121%) increase in research and development expenses was a reflection of the Company's accelerated research and development efforts and an increased focus on developing prototype products during the latter part of 1995. The Company's interest expense was $46,312 and $63,528 for the years ended December 31, 1994 and 1995, respectively. The Company's interest expense increased by $17,216 as a result of additional interest expenses incurred with respect to equipment financing secured in September 1994. In the year ended December 31, 1995, the Company earned interest income of $45,650 on cash deposits. Due to the factors described above, the Company incurred net losses of $492,872 and $1,319,145 in the years ended December 31, 1994 and 1995, respectively. The Company expects that it will incur significant additional losses at least through December 31, 1996. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993. The Company's general and administrative expenses were $81,886 in the year ended December 31, 1993 and $268,414 in the year ended December 31, 1994. General and administrative expenses increased by $186,528 primarily in response to increases in the Company's staff and the Company's increased use of management consulting, engineering, legal and accounting professionals. For the years ended December 31, 1993 and 1994, research and development expenses were $69,256 and $178,146, respectively. The Company's expenses for research and development increased by $108,890 as the Company increased the scope of its research and development efforts to a number of product lines. Interest expense for the Company for the years ended December 31, 1993 and 1994 was $16,360 and $46,312, respectively. The Company's interest expense increased by $29,952 primarily as a result of $10,346 of additional interest expense with respect to equipment financing secured in September 1994 and $11,278 of additional interest expense with respect to notes payable. In the year ended December 31, 1993, the Company recognized a $18,000 loss on the disposal of property and equipment. As a result of the foregoing, the Company incurred net losses of $185,502 and $492,872 in the years ended December 31, 1993 and 1994, respectively. 19 LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had a working capital deficiency of $(216,966) and cash and cash equivalents of $640,592. The Company intends to use the proceeds of this offering and the cash generated from operations, if any, to finance its proposed plan of operations. The capital requirements relating to implementation of the Company's business plan will be significant. Based on the Company's current assumptions relating to implementation of its business plan (including the timetable of and the cost associated with development of manufacturing capabilities, a service fleet, a corporate headquarters, and research and development facilities), the Company will seek to develop at least four service centers during the 12 months immediately following this offering. The Company believes that product sales will commence in the third quarter of 1996 and that the proceeds from the Convertible Notes are sufficient to fund working capital requirements until sales of the Company's products reach levels sufficient to fund working capital requirements. The Company believes that its ability to generate cash from operations is dependent upon, among other things, demand for its products and services and the Company's third party leasing arrangement with Oakmont. If the Company's third party leasing arrangements with Oakmont proves to be unsuccessful, and the Company is unable to locate another third party willing to provide comparable third party leasing services, the Company believes that it will be substantially dependent upon the proceeds of the Concurrent Offering to execute its proposed plan of operations over the next 12 months. If the Company's plans change, its assumptions prove to be inaccurate, the capital resources available to the Company otherwise prove to be insufficient to implement its business plan (as a result of unanticipated expenses, problems or difficulties, or otherwise) or in the event the Concurrent Offering is not completed, the Company has plans to restructure its operations to minimize cash expenditures and/or obtain additional financing in order to support its plan of operations. In order to reduce certain of the Company's up-front capital requirements associated with service center and service fleet development, the Company intends to lease service center sites and may seek to the extent possible, to lease rather than purchase certain equipment and vehicles necessary for service center development. There can be no assurance that the Company will have sufficient capital resources to permit the Company to fully implement its business plan. The Company has no current arrangements with respect to, or sources of, additional financing. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. In addition, any implementation of the Company's business plan subsequent to the 12 month period immediately following this offering will require capital resources substantially greater than the proceeds of the Concurrent Offering or otherwise currently available to the Company. Aside from meeting SystemOne/trademark/ Washer purchase and lease orders, the Company's material commitments principally relate to its obligations to pay the contract manufacturers of its SystemOne(Trademark) Washers (currently approximately $745-$905 per SystemOne/trademark/ Washer), make lease payments pursuant to certain real property and equipment leases (currently approximately $7,940 per month), makes installment payments pursuant to an equipment purchase finance agreement (currently approximately $5,690 per month) and satisfy its financial obligations under seven employment agreements (currently approximately $38,835 per month). Upon consummation of this offering and the retirement of the Short Term Notes from the proceeds thereof, the Company will not have any outstanding indebtedness. The Company anticipates that its material commitments will increase significantly upon the consummation of this offering as a result of the Company's planned expansion. See "Business--Manufacturing and Supply" and "--Properties" and "Executive Compensation." Additionally, after the expiration or termination of the pilot marketing program with First Recovery and Valvoline Oil Company, if the subject parties do not enter into another agreement for the marketing of SystemOne/trademark/ Washers the Company could, at First Recovery's sole option, be required to acquire the sublessor's interest of First Recovery in certain leases entered into by First Recovery under a the pilot marketing program. In such an event, the Company would be required to purchase First Recovery's sublessor's interest for the net present value of First Recovery's expected profit over the remaining term of the equipment sublease assuming a 12% discount rate. Because the Company does not intend to use third-party financing with 20 respect to units leased under the pilot marketing program with First Recovery and Valvoline Oil Company, it will be required to use a portion of the proceeds of the Concurrent Offering to finance those units. See "Business--Marketing and Servicing Strategy." In August 1994, the Company acquired a Trumpf Model 200 TC Computer Numerical Controlled Punch Press (the "Punch Press"). The Company financed the acquisition of the Punch Press pursuant to a finance and security agreement with The CIT Group/Equipment Financing, Inc. ("CIT"). Pursuant to the terms of the finance agreement and security agreement, the Company has agreed to pay CIT an aggregate of $341,397 in equal monthly payments of $5,690 over five years. The Company's obligations to CIT are secured by a security interest in the Punch Press. As indicated in the accompanying financial statements, as of June 30, 1996, the Company's accumulated deficit totalled $3,577,015. Since its inception, the Company has financed its operations through a variety of stock and debt issuances and conversions and the sale of property. In November 1990, the Company obtained from Pierre Mansur, its Chairman and President, all rights to certain ongoing research and development and related patents and patents pending, as well as certain real estate and equipment, in exchange for 2,000,000 shares of Common Stock. In January 1991, the Company issued $300,000 in principal amount of its 12% Promissory Notes (the "Promissory Notes"). To raise additional capital and refinance a portion of the Promissory Notes, in September 1993 the Company issued 580,000 shares of 12% Cumulative Redeemable Preferred Stock (the "First Series Preferred Stock") in exchange for $380,000 and the satisfaction of $200,000 in principal amount of the Promissory Notes. In April 1992, the Company sold the commercial property originally contributed to the Company in 1990 for $120,000 in cash and a $200,000 purchase money mortgage ("PMM"), which bore interest at a rate of 12%. In January 1994, the Company assigned its rights to receive interest with respect to the PMM to satisfy the Company's obligation to pay interest with respect to the remaining outstanding Promissory Note. The principal amount of the PMM was paid to the Company on April 24, 1995. In November 1994, the Company borrowed $500,000 pursuant to a 12% Secured Convertible Promissory Note (the "Secured Note") and in April 1995 the Company issued 490,000 shares of 12% Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") in exchange for $1,950,000 in cash and the satisfaction of the Secured Note. To minimize the Company's dividend obligations, in May 1995 the Company issued a notice of redemption with respect to the First Series Preferred Stock and, subsequently, all of the outstanding shares of First Series Preferred Stock and accrued interest thereon were converted into an aggregate 656,729 shares of Common Stock. In May 1996, the Company issued 20,000 shares of Common Stock in satisfaction of the remaining outstanding $100,000 in principal amount of the Promissory Notes. In June 1996, the Company issued 628,180 shares of Common Stock in exchange for all of the Series A Preferred Stock and accrued dividends thereon. Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur advanced the Company an aggregate of $150,000 (the "Debt") between June 1, 1990 and May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest owed with respect to the Debt. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding principal balance of and the interest owed with respect to the Debt. In June 1996, the Company issued (the "Private Financing") $1,012,500 in principal amount of Convertible Notes, bearing interest at the rate of 4% per annum through September 30, 1996 and thereafter until maturity at the rate of 12% per annum, and convertible into Common Stock at a 21 conversion price of $6.75 per share. Pursuant to the provisions of the Convertible Notes, the entire outstanding principal amount thereof will be automatically converted into 150,000 shares of Common Stock upon the consummation of this offering. Each of Environmental Technologies BVI, Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias F. Mansur, a director of the Company, acquired Convertible Notes in the principal amount of $101,250, and, upon consummation of this offering, each of them will receive 15,000 shares of the Company's Common Stock pursuant to the automatic conversion thereof. As of September 9, 1996, the Company issued $500,000 in principal amount of Short Term Notes, bearing interest at the rate of 4% through September 1996 and 12% thereafter. The Short Term Notes are due and payable on September 4, 1997, or, if earlier, upon the consummation and out of the proceeds of this offering. 22 BUSINESS GENERAL The Company has developed and obtained patent protection with respect to a full line of self-contained, recycling industrial parts washers that incorporate innovative, proprietary waste minimization technologies and represent a significant advance over currently available machinery and processes. Focusing on waste minimization rather than its removal and recovery, the Company believes that its equipment will have a major impact on the industrial parts cleaning industry and will have a broad appeal to customers, because its equipment, unlike the machines now in use, facilitates efficient and economical compliance with environmental regulations, minimizes waste disposal requirements, enhances cleaning solution utilization, and increases worker safety and productivity. Most machinery and equipment require oil lubrication to function properly. Removal of lubrication oils from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations is typically effected through the use of mineral spirit solvents which become contaminated in the cleaning process. Under the most common current practice, the solvent becomes more contaminated (and less effective) with repeated use, and, when it is saturated with oil, sludge and other contaminants as a result of the cleaning process (and frequently classified as a hazardous waste under federal and state regulations), it must be stored on site until pick-up, when pure solvent is delivered and the contaminated solvent is, generally, shipped to regional refining facilities. This off-site recycling program is typically scheduled on four to sixteen week cycles and involves both the utilization of progressively more contaminated solvent for cleaning operations until the solvent is too contaminated for use, and thereafter, the on-site storage of the hazardous solution until the periodic waste recovery service. By contrast, the Company's products allow the use and re-use of the solvent by removing all the contaminants from the solvent within the cleaning unit itself, minimizing the volume of waste by-product and providing pure solvent to the customer on demand, without the costly and dangerous storage and transportation of hazardous waste. Moreover, the small amount of waste by-product yielded in the distillation process utilized by the Company if products can typically be recycled and/or disposed of together with the customer's used motor oil, which is generally not classified as a hazardous waste. The Company's products produce by-products that have been extensively tested by the laboratory of a division of Valvoline Oil Company and the independent engineering concern of Law Engineering and Environmental Services, Inc. The Company's products have proven effective in accomplishing the distillation of contaminated solvent to yield pure solvent and a by-product comparable to used oil. The Company believes that substantially all of the Company's target customers have established systems for the handling, transportation, recycling and disposal of used motor oil. STRATEGY The Company's strategy is to focus initially on the manufacture, marketing and sale of its SystemOne(Trademark) Washer because of the anticipated size of the market for the product. The Company anticipates that the product should be able to achieve fairly rapid market penetration because of its technological, economic and environmental advantages and its relatively low price point compared to competitive equipment. Once the manufacturing and marketing programs for the SystemOne(Trademark) Washer are fully implemented, it will commence marketing its other products for which it has continued its research and development. The Company hopes to rapidly penetrate the industrial parts cleaning market by entering into large quantity contracts with target customers which have already established a national or regional presence, and are able to exploit more fully the economic and environmental benefits of the Company's products. The Company expects to pursue a national expansion program, through internal growth utilizing a network of regional distribution and service centers, through a strategic alliance with a national distributor, if one is available on favorable terms, or through a combination of the two. The Company is carrying out an internal growth program in Florida, where, in addition to its regional service center in Miami, it plans to establish at least four additional centers during the 12 months immediately following this offering, in Orlando, Tampa, Jacksonville and West Palm Beach. In August, the Company will 23 commence a test of a strategic marketing alliance by entering into a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Inc., a multinational oil refiner and distributor of automotive related products, including Valvoline Oil and Ashland 140 Solvent, one of the brands of mineral spirits solvent used in the Company's SystemOne(Trademark) Washer. Under the pilot program, First Recovery will be the exclusive distributor of the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The initial term of the program is one year. If the arrangement proves successful, the Company expects to negotiate a broader agreement, possibly including a national distribution program. The Company expects to continue its emphasis on research and development even after its initial products are commercialized. The Company believes that its technology and its emphasis on waste minimization should yield product advances with broad market applications beyond the Company's current target market. INDUSTRY OVERVIEW The Company believes the chemical industrial parts cleaning industry has grown primarily in response to the demand for means of removing lubrication oils and other contaminants from tools and parts during automotive, aviation, marine and general industrial maintenance, service and repair operations. Based on financial and trade journal reports, the Company believes that in 1996 businesses in the United States incurred more than $1 billion in expenses to clean industrial parts using chemical cleaning techniques. Industrial parts cleaning machines are used by automotive, aviation and maritime service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring parts cleaning. The Company believes that the level of demand for the different types of industrial parts cleaning machines and services is and will continue to be a function of, among other things: (1) the effectiveness of the technology; (2) the cost of the machines and service; (3) the time and costs associated with documenting compliance with applicable environmental and other laws; (4) the safety and environmental risks associated with the machine and service; (5) customer service; and (6) the difficulty in handling the regulated substances used and/or generated by competitive machines. PRODUCTS AND SERVICES The Company product line includes a variety of self-contained recycling industrial cleaning and washing equipment, all of which incorporate proprietary waste minimization technology with respect to which the Company has obtained or applied for patent protection. The Company expects that all the products listed below will be available for commercial exploitation at various times prior to December 31, 1998. All of the Company's products utilize technology that (i) provides continuously recycled cleaning solution during the cleaning process, (ii) eliminates the necessity for continual replacement and disposal of contaminated cleaning solution and residues and (iii) facilitates practical and cost effective compliance with environmental laws and regulations. The Company anticipates that it will offer its various parts washing products to commercial users at prices which range from $2,000 to $25,000 per unit. SYSTEMONE(TRADEMARK) WASHER. The first of the Company's products to be available in commercial quantities is the SystemOne(Trademark) Washer. The SystemOne(Trademark) Washer line provides users with pure mineral spirit solvent for parts and tools cleaning purposes, utilizing a low-temperature vacuum distillation process to recycle the used solvent within the SystemOne(Trademark) Washer, so that the solvent may be reused, on demand, without any need for off-site processing. The SystemOne(Trademark) Washer minimizes the volume of waste by-product and eliminates the need for storage and disposal of the hazardous waste solvent necessitated by the most widely-used current treatment method. The Company's SystemOne(Trademark) Washer consists of one or two washing sinks mounted at standing level on top of a metal cabinet; a hinged lid on top of the washing sink to minimize evaporation of 24 solvent; a five gallon primary solvent holding tank; a distillation unit which contains a residue reservoir; and a 30-gallon secondary solvent holding tank. The SystemOne(Trademark) Washer utilizes a manually operated hose and scrubber which directs the flow of solvent to the part being cleaned. The distillation unit separates the solvent from the contaminants that accumulate in the solvent as a result of use by heating the solvent solution in a vacuum to a temperature at which the solvent, but not the residue, vaporizes; and then, cooling the solvent vapor so that the vapor condenses and is converted back into a liquid. The distilled solvent is channeled to the secondary solvent holding tank for future use. Accordingly, the solvent may be repeatedly used, distilled and reused without need for off-site distillation or processing. The residue is collected and held in the residue reservoir until final disposal. With respect to SystemOne(Trademark) Washers which are used in accordance with their intended purpose, the Company believes that the residue may be legally recycled and/or disposed of in the same manner that used oil is recycled and/or disposed of. See "--Government Regulations." The Company believes that substantially all of its target customers currently have established systems for the handling, transportation, recycling and disposal of used oil. In those instances in which the residue may not be recycled as used oil, the residue, but not the distilled solvent, shall be periodically picked up, recycled and/or disposed of by a third party. The Company warrants to users that if, for any reason, the residue generated by its SystemOne(Trademark) Washer cannot be recycled and/or disposed of as used oil, the Company will pay for any required recovery and disposal services. The Company does not intend to be in the business of handling, transporting, recycling and/or disposal of residue. If it is required under its warranty to pay for recovery and disposal, it intends to retain a third party to provide the required services. The Company has also developed and obtained patent protection with respect to a general parts washer which utilizes an aqueous based cleaning solution. The Company is in the process of evaluating when it will commence the commercial production and marketing of its aqueous based parts cleaner. The target market for SystemOne(Trademark) Washers are automotive, aviation and maritime service, repair and rebuilding facilities, gas stations, transmission shops, parts remanufacturers, machine shops, and general manufacturing operations of every size and category requiring small parts cleaning. The Company anticipates that the SystemOne(Trademark) Washer will require service approximately four times a year for replacement of solvent lost to evaporation or spillage and general maintenance requirements. See "Marketing and Services Strategy" for additional information regarding the servicing of the SystemOne(Trademark) washers. OTHER PRODUCTS. MULTIPROCESS POWER SPRAY WASHER is currently manufactured and marketed on a limited basis, and integrates three processes in one self-contained machine; a power spray wash process, a recycling/ reclamation process and a thermal oxidation process. The Power Spray Washer is able to accommodate large and bulky parts or units that are too large for the SystemOne(Trademark) Washer. The target market for power spray washers are automotive, aviation and maritime maintenance, repair and rebuilding facilities, parts remanufactures, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. MULTIPROCESS SPRAY GUN WASHER is scheduled for commercial introduction in late 1996. It incorporates the Company's recycling/reclamation capabilities for paint thinner recovery. The target market for spray gun washers are automotive, aviation and maritime paint shops and all general manufacturing operations that utilize paint. The Company anticipates that the auto paint industry will represent a substantial market. The MultiProcess Spray Gun Washer facilitates compliance with rigorous environmental disposal regulations for the paint industry. MULTIPROCESS IMMERSION WASHER is scheduled for commercial introduction in 1997. It integrates an immersion wash process, a recycling/reclamation process and a thermal oxidation process in one self-contained machine. The MultiProcess Immersion Washer is designed for cleaning of complex parts 25 containing substantial integral and highly inaccessible passages requiring a total immersion washing. The primary target market for immersion washers are radiator rebuilding shops as well as automotive, aviation and maritime maintenance, repair and rebuilding facilities, parts remanufactures, machine shops, transmission shops, and all facets of general manufacturing requiring maintenance and repair of mechanical equipment. MINIDISPOSER is scheduled for commercial introduction in 1998. It is a compact and portable mini-thermal oxidizer developed as a practical and efficient means for the disposal of contaminants by thermal oxidation within a unit measuring only one cubic foot. The MiniDisposer will be marketed both as optional equipment with the SystemOne(Trademark) Washer and as a stand alone mini-thermal oxidizer. The Company believes that the size and scope of the market for the MiniDisposer is substantial and diversified and includes industrial, commercial and consumer applications that generate small contaminant waste by-products. The Company continues to explore potential markets in medical, restaurant and other commercial and consumer applications. COMPETITION The industrial parts cleaning industry is highly competitive and dominated by a large company, Safety-Kleen Inc. ("Safety-Kleen"), which has substantially greater financial and other resources than the Company. Safety-Kleen services the parts cleaning industry through a "closed-loop" recycling system in which contaminated solvent is removed for recycling and fresh solvent is delivered on a periodic basis. There can be no assurance that Safety-Kleen will not develop or acquire technology similar to or different from the Company's that would allow it to provide an on-site recycling service. To the best of the Company's knowledge, no other company is currently commercially marketing a recycling parts washer with comparable characteristics. There can be no assurance that Safety-Kleen or other competitors will not acquire or develop patent rights with respect to a recycling parts washer which are competitively superior to the Company's patent rights. See "--Patents, Trademarks and Proprietary Technology." The Company believes that certain of its target customers have attempted to enhance the capabilities of their existing industrial parts washers by acquiring machines capable of distilling solvent used in and removed from the parts washers. Although there are a wide variety and types of such machinery currently available to the public, the Company believes its SystemOne(Trademark) Washers provide superior service at a lower cost. The Company believes that Safety-Kleen services a significant portion of the parts washing machines currently in use. The Company believes that no other competitor accounts for more than 2% of the industrial parts washer market in the State of Florida or the United States. According to Safety-Kleen's Annual Report on Form 10-K for the year ended December 31, 1995 (the "Safety-Kleen Annual Report"), Safety-Kleen was the world's largest provider of parts washing services and one of the world's largest collectors and re-refiners of used oil. According to the Safety-Kleen Annual Report, at December 31, 1995, Safety-Kleen had Shareholders' Equity of approximately $433.0 million and, in the year ended December 31, 1995, Safety-Kleen had aggregate revenues of approximately $859.0 million, including revenues of approximately $240.0 million from its automotive/ retail parts cleaning service and $119 million from its industrial parts cleaning service, and served its customers in North America and Europe through a network of 235 branch facilities. At December 31, 1995, Safety-Kleen was providing services for approximately 493,000 parts washers for customers in the United States, of which approximately 375,000 were owned by Safety-Kleen and 118,000 were owned by its customers. The Company believes that its SystemOne(Trademark) Washer will compete favorably with its competitors on the basis of, among other things, (1) the effectiveness of the technology; (2) cost; (3) the time and cost associated with documenting compliance with applicable environmental and other laws; (4) the safety and environmental risks associated with the machines and service; (5) customer service; and (6) the difficulty in handling the regulated substances used and/or generated by competitive machines. 26 GOVERNMENT REGULATION The Company believes that federal and state laws and regulations have been instrumental in shaping the industrial parts washing industry. Federal and state regulations dictate and restrict to varying degrees what types of cleaning solvents may be utilized, how a solvent may be stored and utilized, and the manner in which contaminated solvents may be generated, handled, transported, recycled and disposed of. Although the federal and state laws and regulations discussed below regulate the behavior of the Company's customers, and not the Company, the Company believes that customer demand for its SystemOne(Trademark) Washer is partially a function of the legal environment in which the Company's customers conduct business. The Company's SystemOne(Trademark) Washer was designed to help minimize the cost of complying with existing federal and state environmental laws and regulations. Any changes, relaxation or repeal of the federal or state laws and regulations which have shaped the industrial parts washing industry may significantly affect demand for the Company's products and the Company's competitive position. REGULATION OF SOLVENT TYPES. Federal and state regulations have restricted the types of solvents that may be utilized in industrial parts cleaning machines. Prior to December 1995, methyl chloroform was a widely used cleaning solvent. The Clean Air Act of 1990 mandated the elimination of methyl chloroform by December 1995. REGULATION OF HANDLING AND USE OF SOLVENTS. Stoddard solvents, more commonly known as mineral spirits and solvent naphtha, are the cleaning solvents typically used in the industrial parts washers of the Company's closest competitors. The Company intends to use mineral spirits with a minimum of 140 degrees fahrenheit ignitable limits in its SystemOne(Trademark) Washer. Such mineral spirits do not exhibit the ignitability characteristic for liquid hazardous wastes as defined in the Resource Conservation and Recovery Act of 1976, as amended, and the implementing regulations of that statute adopted by the United States Environmental Protection Agency (the "EPA") (collectively, "RCRA"). Certain machines of the Company's competitors use mineral spirits with lower ignitable limits, which may, after use, render such mineral spirits subject to regulation as a hazardous waste. The Company believes that the ability to recycle the mineral spirits used in its SystemOne(Trademark) Washer provides an economic benefit to the Company's customers by allowing them to avoid the expenses and potential liability associated with the disposal of such solvent as a hazardous waste. See "Government Regulation--Regulation of Generation, Handling, Transportation and Disposal of Contaminated Solvents." Federal, state and many local governments have adopted regulations governing the handling, transportation and disposal of such solvents. On the federal level, under the Hazardous Materials Transportation Act (HMTA), the United States Department of Transportation has promulgated requirements for the packaging, labeling and transportation of mineral spirits in excess of specified quantities. The Company does not intend to transport mineral spirits in quantities that would trigger the HMTA requirements. Relative to the handling and disposal of mineral spirits, many states and local governments have established programs requiring the assessment and remediation of hazardous materials that have been improperly discharged into the environment. Liability under such programs is possible for unauthorized release of mineral spirits in violation of applicable standards. Civil penalties and administrative costs may also be imposed for such violations. REGULATION OF GENERATION,TRANSPORTATION, TREATMENT, STORAGE AND DISPOSAL OF CONTAMINATED SOLVENTS. The generation, transportation, treatment, storage and disposal of contaminated solvents is regulated by the federal and state governments. At the federal level, the Resource Conservation and Recovery Act authorized the EPA to develop specific rules and regulations governing the generation, transportation, treatment, storage and disposal 27 of hazardous wastes as defined by the EPA. The EPA's definition of hazardous waste appears under Chapter 40 CFR Part 261. The Company believes that none of the residue by-products, the used solvent before distillation or the solvent recycled in a SystemOne(Trademark) Washer used in accordance with its intended purpose and instructions is subject to regulation as a "hazardous waste." In contrast, the Company believes that the mixture of solvent and contaminants which is periodically recovered from the machines of many of its competitors is subject to regulation as "hazardous waste." The Company believes that the ability to recycle and dispose of its residue by-product as used oil rather than as a hazardous waste is economically attractive to the Company's customers for a number of reasons. The Company believes that substantially all of its target customers currently have established systems for the handling, transportation, recycling and/or disposal of used oil. Accordingly, the classification of the residue as used oil would enable the Company's customers to: (1) dispose of or recycle the residue at no significant additional cost; and (2) avoid certain costs associated with establishing and disposing of wastes in compliance with a hazardous waste disposal system. Even if the residue by-product was required to be handled, transported, recycled and/or disposed of as a hazardous waste, the fact that the SystemOne(Trademark) Washer effects a substantial reduction in the volume of waste product requiring disposal would still serve to minimize disposal costs. The Company believes that solvent which has been used and is being held in a SystemOne(Trademark) Washer prior to distillation is not a "waste" and is not subject to regulation as a hazardous waste. RCRA establishes the basic framework for federal regulation of hazardous waste. RCRA governs the generation, transportation, treatment, storage, and disposal of hazardous waste. In contrast to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), which is discussed below, RCRA is designed to anticipate and prevent harm to human health and the environment, rather than to respond to the release of hazardous wastes. RCRA requires that facilities that generate, treat, store or dispose of hazardous wastes comply with certain operating and permitting standards. RCRA provides standards for permitting, maintenance and operation of facilities handling hazardous wastes, including requirements for testing and maintenance of equipment, contingency plans and emergency procedures, secondary containment, recordkeeping and reporting to government agencies. The recordkeeping and reporting requirements of RCRA are significant. Before transportation and disposal of hazardous wastes off-site, generators of such waste must package and label their shipments consistent with detailed regulations and prepare a manifest to be filed with the appropriate governmental agency identifying the material and stating its destination. The transporter must deliver the hazardous waste in accordance with the manifest and to a facility with an appropriate RCRA permit (a "TSD Facility"). Failure to comply with the manifesting requirements may result in the imposition of civil and/or criminal penalties. Many states and local governments have adopted regulatory programs which parallel the RCRA regulatory system, many of which programs are in certain ways more restrictive and burdensome than the RCRA system. With regard to regulation of "used oil", the EPA ruled in 1992 that used oil is not a hazardous waste under RCRA. Like the RCRA regulations pertaining to hazardous wastes, the EPA's used oil regulations provide standards for permitting, the maintenance and operation of used oil facilities, including requirements for testing and maintenance of equipment, contingency plans and emergency procedures, secondary containment, recordkeeping and reporting. However, there are some material differences between RCRA's regulation of hazardous waste and used oil. In contrast to hazardous wastes, used oil need not be processed solely at sites with treatment, storage and disposal permits. In addition, the generators of used oil are not required to file a shipping manifest with government agencies with respect to each shipment of used oil. Many state and local governments have adopted regulatory programs which parallel the EPA's program for regulating used oil, many of which programs are in certain ways more restrictive or burdensome than the EPA's program. For instance, certain state and local governments continue to regulate used oil as a hazardous waste. CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), sets forth national policy and procedures for containing and removing releases of hazardous 28 substances, and identifying and remediating sites contaminated with hazardous substances. CERCLA created an $8.5 billion fund (the "Superfund"), financed from taxes on petroleum and various chemicals, to be administered by the EPA to fund cleanup of hazardous waste sites. SARA significantly expanded the scope of hazardous waste cleanup and imposed more stringent cleanup requirements. The Superfund's most notable objective, however, is to provide criteria and financial assistance for site cleanups and to impose liability on parties responsible for such contamination--namely, owners and operators of vessels or facilities from which such releases occur, and persons who generated, transported, or arranged for the transportation of hazardous substances to a facility from which a release or threatened release occurs. Most states, including Florida, have created programs similar to Superfund. These state programs are principally designed to help finance the state's share of remediation costs of sites under the federal Superfund and to finance cleanups at state sites that are not considered a priority for remediation under the federal program. The CERCLA definition of hazardous substances provides a major exception for petroleum, including used oil if recycled. However, liability under CERCLA is possible if petroleum products are released that contain hazardous substances as additives or that are tainted with hazardous substances during their use and disposal. The Company believes that the demand for its SystemOne(Trademark) Washer is enhanced as a result of certain federal and state environmental laws and regulations. Although the demand for industrial parts cleaning machines and services may be substantial in certain international markets, the level of demand for the Company's SystemOne(Trademark) Washer may not be substantial in certain countries as a result of permissive regulatory systems which allow the use of less environmentally stringent cleaning and waste disposal methods. MANUFACTURING AND SUPPLY The Company manufactures certain of its SystemOne(Trademark) Washers at its 10,000 square foot manufacturing facility located in Miami, Florida, at which all manufacturing operations, including design, metal cutting, bending and welding, painting and assembly can be performed. The Company has acquired all of the machinery necessary to manufacture SystemOne(Trademark) Washers. The Company believes that it can produce up to 200 SystemOne(Trademark) Washers a month at its manufacturing facility. The Company has secured third parties capable of manufacturing the balance of the SystemOne(Trademark) Washers needed to meet anticipated customer demand for the next 12 months. The Company intends to secure additional manufacturing capacity as the need arises. On May 7, 1996, the Company entered into an agreement (the "Supply Agreement") with a supplier (the "Supplier") pursuant to which the Supplier agreed to supply to the Company, at the Company's election, between 3,000 and 5,000 SystemOne(Trademark) Washers at established prices and in accordance with a delivery schedule. The Supply Agreement delivery schedule provides for the monthly delivery of a minimum of 100, 200, 300 and 400 SystemOne(Trademark) Washers in the quarters commencing August 1996, November 1996, February 1997 and May 1997, respectively, and for the monthly delivery of a maximum of 500 SystemOne(Trademark) Washers after December 1996. The Supply Agreement provides for adjustments in the established pricing schedule based upon certain reductions in the cost of production and/or increases in the cost of sheet metal. The Company has ordered a prototype SystemOne(Trademark) Washer manufactured by the Supplier and has paid the first of three $50,000 payments toward a $150,000 advance (the "Advance"), which amount will be credited against future purchases under the Supply Agreement at a rate of $50 per SystemOne(Trademark) Washer. The Supply Agreement provides that the Supplier will, based upon the Company's specifications and drawings, manufacture the SystemOne(Trademark) Washers in its factory and manufacture such items exclusively for the Company. According to the Supply Agreement, the Supplier is expressly responsible for all sheet metal fabrication, painting, assembling and quality assurance testing associated with the manufacture of SystemOne(Trademark) Washers. 29 The Supply Agreement requires the Company to provide the Supplier with all of the components and raw materials, except for sheet metal, necessary to manufacture SystemOne(Trademark) Washers. In addition, the Supply Agreement requires the Company to acquire and provide to the Supplier for use all of the hard tooling required to manufacture the SystemOne(Trademark) Washers. The Supply Agreement provides that the Company may unilaterally terminate the contract in whole or in part for cause or for convenience. In the event the Supply Agreement is terminated by the Company for convenience, the Supplier will be entitled to reimbursement of the costs it has incurred through the date of termination and, if such termination occurs prior to the delivery of 3,000 SystemOne(Trademark) Washers, the Supplier will be entitled to payment for SystemOne(Trademark) Washers produced through the date of termination and retain any unapplied amount of the Advance. The Company has retained the right to secure other contract manufacturers of SystemOne(Trademark) Washers. Although, at present, the Company seeks to avoid the transaction and opportunity costs associated with identifying, securing and training another SystemOne(Trademark) Washer manufacturer, the Company does not believe that it is dependent upon the Supplier to manufacture SystemOne(Trademark) Washers and that other manufacturers are readily available. The Company has entered into negotiations with a major contract manufacturer with a 2 million square foot facility and 75 years of experience to provide the manufacturing capacity needed to meet anticipated future customer demand. No assurances can be given that the Company and the major contract manufacturers will ever enter into a binding contract. The SystemOne(Trademark) Washer is an assembly of raw materials and components all of which the Company believes are readily obtainable in the United States of America. The Company does not believe that it nor the Supplier is dependent upon any of their respective current suppliers to obtain the raw materials and components necessary to assemble and manufacture SystemOne(Trademark) Washers. As of the date of this Prospectus, the Company was procuring raw materials and components for its SystemOne/trademark/ Washers from 42 sources. The Company is capable of manufacturing its other products in the amounts required for testing and test marketing in its own manufacturing facility. MARKETING AND SERVICING STRATEGY In order to create awareness of its products and test the demand for them, commencing in December 1995, the Company placed an aggregate of 47 SystemOne(Trademark) Washers in 38 automotive dealerships, municipal and private fleet maintenance facilities, repair facilities and other users of parts cleaning equipment in South Florida. The demonstrator units were provided at no charge. The test program was conducted primarily to enable the Company to gauge the demand for its products. Notwithstanding the absence of a formal marketing program during the test period, the Company has, to date, received firm purchase orders from a number of facilities in which the machines were placed, including Florida Detroit Diesel MTU (46 Units); Kelly Tractor Company (23 units) and Pantropic Power Products (25 units), the South Florida Caterpillar dealers; United States Postal Service (2 units); Southern Sanitation, a subsidiary of Waste Management, Inc. (5 units); Broward County Mass Transit (25 units); Greenwich Air Services Inc. (10 Units); and a number of South Florida automobile dealerships (an aggregate of 60 units). The Company commenced commercial sales and delivery of units in July 1996 at an approximate price per unit of $2,700, and anticipates delivering substantially all of the ordered units to date prior to December 31, 1996. As of the date of this Prospectus, the Company had delivered and recognized the sale of 44 units. In a parallel marketing strategy, to test the viability of the strategic marketing alliance concept for its products, in August 1996 the Company will commence a pilot program with First Recovery and Valvoline Oil Company, two affiliates of Ashland Oil, pursuant to which First Recovery will serve as the exclusive distributor for the SystemOne(Trademark) Washer in the Dallas/Ft. Worth and Houston markets. The program, whose initial term is one year, but is cancelable by either party on 60 days notice, sets forth a schedule for the purchase of 1,000 units by First Recovery during the first year. First Recovery is 30 obligated to provide routine service to customers. Upon termination of the program, First Recovery will have the option to require the Company to assume the leases it has entered into with its customers and to pay First Recovery, on a discounted basis, the profit it would have realized under such leases. If First Recovery does not exercise that option, it will have the additional option, for one year after termination of the program, to lease up to four times the number of units it leased under the program, but only to its existing customers. Subject to its assessment of First Recovery's performance, the Company will consider entering into a more extensive distribution agreement. The Company also intends to expand the geographic scope of its operations through its internal marketing operations, initially focusing on Florida and then expanding to other regions. In addition to its sales and service operations in Miami, the Company intends to establish sales, service and technical support service centers in Orlando, Tampa, Jacksonville and West Palm Beach, Florida during 1996 to support its proposed operations in Florida. The Company will market and service the SystemOne(Trademark) Washers it places with customers with its own marketing, service and technical support personnel. The Company believes it will retain at least 15 marketing, service and technical support personnel to support its proposed operations in Florida over the next 12 months. The Company intends to continue to generate consumer awareness of its SystemOne(Trademark) Washer through the efforts of its sales force, general advertisements in trade publications, and participation in trade conventions. SALES FINANCING AND SERVICING PROGRAMS Initially, the Company intends to make its SystemOne(Trademark) Washers available to the public through a third party leasing program. The Company entered into an agreement (the "Product Financing Agreement") with Oakmont Financial Services ("Oakmont") on May 28, 1996 pursuant to which Oakmont agreed to provide third party leasing services. Pursuant to the Product Financing Agreement, the Company is to provide Oakmont certain information with respect to each proposed customer for which a third party lease is sought, including credit information with respect to each proposed lessee. Oakmont may reject a lease application if, in its sole discretion, the proposed transaction does not comply with Oakmont's then applicable criteria. If Oakmont elects to provide lease financing, Oakmont will purchase the SystemOne(Trademark) Washer in the manner and for an amount agreed to by the Company and Oakmont from time to time, upon Oakmont's receipt of required documentation. The Product Financing Agreement provides that, upon the customer's satisfaction of all of its lease payment obligations to Oakmont, the Company may, at its option, repurchase the subject equipment from Oakmont at a cash purchase price equal to the fair market value of the subject equipment plus applicable sales tax. The Product Financing Agreement states that the fair market value of a SystemOne(Trademark) Washer shall be determined by the mutual agreement of the Company and Oakmont or, if such an agreement is not reached, by an appraiser selected by mutual agreement of the Company and Oakmont. Under the Product Financing Agreement, the Company has agreed, for a fee, to utilize a reasonable and non-discriminatory approach to assist Oakmont in reselling any SystemOne(Trademark) Washers with respect to which a customer has failed to discharge its payment obligations to Oakmont. The Product Financing Agreement states that Oakmont does not have recourse against the Company for customer failures to discharge their obligations to Oakmont unless the Company has breached and failed to cure certain warranties. Specifically, the Company has agreed to make the following warranties upon each sale to Oakmont, which warranties provide Oakmont with a basis for recourse against the Company for certain customer failures: (i) to the best of the Company's knowledge, the customer will use the SystemOne/trademark/ Washer principally for commercial purposes; (ii) to the best of the Company's knowledge, the lease and related documents have been duly executed and delivered; (iii) the lease incorporates all of the representations and warranties made by the Company to the lessee; (iv) all dealings by the Company with the lessee have been in accordance with all applicable laws and regulations; (v) the conduct of the Company in developing a lease will not subject Oakmont to suit or 31 administrative proceeding; (vi) the lessee has no defense, offset or counterclaims as to the enforcement of the lease arising out of the conduct or failure to perform of the Company; (vii) the Company does not know of any fact which indicates the uncollectibility of the lease; (viii) to the best of the Company's knowledge, the information provided by the lessee to the Company and Oakmont is accurate and complete; (ix) except for funds which Oakmont has agreed the Company is entitled to retain, the Company has not retained any funds given to it by a lessee; and (x) title to the SystemOne/trademark/ Washer has vested in Oakmont free and clear of any liens of persons claiming by, through or under the Company. In the event the Company breaches one of the foregoing warranties and fails to cure the breach, the Product Financing Agreement requires the Company to purchase from Oakmont the leased SystemOne(Trademark) Washer and Oakmont's rights under the lease agreements with the customer for an amount equal to the sum of all lease payments then due and owing under the lease, all lease payments payable from the date of default to the end of the lease term and twenty percent of the equipment cost, less any applicable deposit which may be retained by Oakmont. Where required by applicable law, the foregoing amounts are required to be calculated using the discounted present value of the subject lease payments. The Product Financing Agreement provides for a term of one year, which automatically renews for successive one-year terms. Under the Product Financing Agreement, either the Company or Oakmont may terminate the agreement with or without cause upon 60 days notice, without affecting the rights and obligations of either party with respect to previous sales. In addition, if Oakmont declines any five lease applications within a 30-day period, which lease applications are accepted and funded by a third party on terms declined by Oakmont, the Company may, upon 10 days notice, terminate the Product Financing Agreement. PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY The Company holds United States patents relating to its SystemOne(Trademark) Washer, Power Spray Washer, Spray Gun Washer and Immersion Washer and anticipates that it will apply for additional patents it deems appropriate. The Company has applied for international patents in Canada, Japan, Europe and Mexico. The Company's patent with respect to its SystemOne(Trademark) Washer was issued on September 27, 1994 and will expire on September 26, 2011. The Company has three patents pending with respect to its SystemOne(Trademark) Washer, one of which was allowed by the U.S. Patent Office on April 2, 1996 and is awaiting issuance. The Company's patent with respect to its Power Spray Washer was issued on January 11, 1994, and expires on January 10, 2011. The Company's patent with respect to its Spray Gun Washer was issued on February 14, 1995, and expires on February 13, 2012. The Company's patent with respect to its Immersion Washer was issued on May 21, 1996 and expires on May 20, 2013. The Company's patent with respect to its MiniDisposer was allowed by the U.S. Patent Office on June 26, 1996 and is awaiting issuance. The Company believes that patent protection is important to its business. There can be no assurance as to the breadth or degree of protection which existing or future patents, if any, may afford the Company, that any patent applications will result in issued patents, that patents will not be circumvented or invalidated or that the Company's competitors will not commence marketing self-contained washers with similar technology. It is possible that the Company's existing patent rights may not be valid although the Company believes that its patents and products do not and will not infringe patents or violate proprietary rights of others. It is possible that infringement of existing or future patents or proprietary rights of others may occur. In the event the Company's products or processes infringe patents or proprietary rights of others, the Company may be required to modify the design of its products or obtain a license. There can be no assurance that the Company will be able to do so in a timely manner, upon acceptable terms and conditions or at all. The failure to do any of the foregoing could have a material adverse effect upon the Company. In addition, there can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation actions. Moreover, if the Company's product or processes 32 infringes patents or proprietary rights of others, the Company could, under certain circumstances, become the subject of an immediate injunction and be liable for damages, which could have a material adverse effect on the Company. The Company has applied for a federal trademark with respect to the mark "SystemOne" and design. The Company also relies on trade secrets and proprietary know-how and employs various methods to protect the concepts, ideas and documentation of its proprietary information. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Although the Company has and expects to have confidentiality agreements with its employees, suppliers and appropriate vendors, there can be no assurance that such arrangements will adequately protect the Company's trade secrets. Since the Company believes that its proprietary information is important to its business, failure to protect such information could have a material adverse effect on the Company. RESEARCH AND DEVELOPMENT During the years ended December 31, 1994 and 1995 and the six months ended June 30, 1996, the Company expended $178,146, $393,874 and $365,435, respectively, on research and development of its various products. The Company plans to continue to focus significant resources on research and development of existing and future product lines. Although the Company intends to continue to seek means of refining and improving its SystemOne(Trademark) Washer, the Company believes, based on market response, that the SystemOne(Trademark) Washer is at a stage where commercial exploitation is appropriate. The Company recognizes that the industrial parts cleaning industry may be entering a phase of rapid technological change and progress and the Company will seek to retain what the Company perceives as its technological superiority over its competitors' products. In order to keep pace with the rate of technological change, the Company intends to devote considerable resources in time, personnel and funds on continued research and development for its products. The Company recognizes that many of its competitors have far greater financial and personnel resources than the Company which may be devoted to research and development and can provide no assurance that it will maintain a technological advantage. Subject to the availability of financial and personnel resources, the Company intends to spend approximately $400,000 and $500,000 in the years ended December 31, 1996 and 1997, respectively, to finalize development and testing of its various products and to develop new products and concepts. Although there can be no assurance that the Company will ever develop any new products capable of commercialization, the Company intends to continue its programs to develop new products, some of which may utilize the Company's patented products and processes. PRODUCT LIABILITY AND INSURANCE The Company is subject to potential product liability risks which are inherent in the design and use of industrial parts cleaning machines. The Company has implemented strict quality control measures and currently maintains product liability insurance of $5,000,000 in the aggregate and $5,000,000 per occurrence. PROPERTIES The Company maintains its corporate headquarters, research and development laboratory and manufacturing facilities in a 10,000 square foot and an adjacent 5,500 square foot building located in Miami, Florida. The lease for the 10,000 square foot building (the "Primary Lease") commenced on January 1, 1995 and expires December 31, 1996. The Primary Lease provides for two renewal terms 33 of two years. The Company's annual lease payments under the Primary Lease are approximately $61,000, which amount does not include the Company's obligation to pay all utility and service charges. The lease for the 5,500 square foot building (the "Secondary Lease") commenced on September 1, 1996 and expires August 30, 1998. The Company's annual lease payments under the Secondary Lease are approximately $32,208, which amount does not include the Company's obligation to pay all utility and service charges. The Company has the right to cancel the Secondary Lease upon four months written notice. In addition, the Company maintains a sales, distribution and light manufacturing center in a 1,692 square foot facility located in Pinellas Park, Florida (the "Sales Lease"). The Sales Lease commenced on September 15, 1996 and expires on October 1, 1998. Annual rental obligations under the Sales Lease are approximately $6,491.25, which amount does not include the Company's obligation to pay all utility and service charges. The Company intends to seek additional space, either at its current location or elsewhere, to house expanded corporate headquarters and research and development facilities. The Company anticipates no significant difficulty in locating such space on reasonable terms. The Company does not anticipate that it will experience difficulty in locating and equipping its regional sales and service centers, which are expected to contain a small office space/showroom area and enough space for two or three delivery and maintenance vehicles. LEGAL PROCEEDINGS The Company is not involved in any litigation. EMPLOYEES As of the date of this Prospectus, the Company employed 16 employees, of whom five were in corporate management, three were in research and development, two were in sales and marketing, four were in manufacturing, and two were in administration. The Company intends to hire additional employees after this offering, commensurate with the Company's requirements and available funds, primarily to expand manufacturing and marketing operations. 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information concerning the executive officers and directors of the Company.
NAME AGE POSITION WITH COMPANY - ------------------------------------------------------------------------------------ Pierre G. Mansur ........ 44 Chairman of the Board and President Paul I. Mansur .......... 45 Director and Chief Executive Officer Richard P. Smith, C.P.A. 39 Vice President of Finance and Chief Financial Officer Charles W. Profilet .... 59 Vice President-Business Development Elias F. Mansur ......... 53 Director Dr. Jan Hedberg ......... 49 Director Joseph E. Jack .......... 68 Director
PIERRE G. MANSUR founded the Company and has served as its Chairman and President since its inception in November 1990. From June 1973 to August 1990, Mr. Pierre Mansur served as President of Mansur Industries Inc., a privately held New York corporation that operated a professional race engine machine shop. Mr. Pierre Mansur has over twenty years of advanced automotive and machinery operations experience including developing innovative automotive machine shop applications; designing, manufacturing, customizing, modifying and retooling high performance engines and component parts; developing state of the art automotive and powerboat race engines which have consistently achieved world championship status; and providing consulting services and publishing articles with respect to automotive technical research data. Mr. Pierre Mansur has conducted extensive research and development projects for several companies, including testing and evaluating engine parts and equipment for Direct Connection, a high performance racing division of the Chrysler Corporation; researching and developing specialized engine piston rings and codings for Seal Power Corporation; researching high-tech plastic polymers for internal combustion engines for ICI Americas; and designing and developing specialized high performance engine oil pan applications. Mr. Pierre Mansur is the brother of Paul I. Mansur and a cousin of Elias F. Mansur. Mr. Pierre Mansur is a graduate of the City University of New York. PAUL I. MANSUR has been Chief Executive Officer, Chief Financial Officer and a Director since September 1993. From September 1986 to July 1993, Mr. Paul Mansur served as Chief Executive Officer of Atlantic Entertainment Inc., a privately held regional retail chain of video superstores. From March 1981 to September 1986, Mr. Paul Mansur served as the Chief Executive Officer and President of Ameritrade Corporation, a privately held international distributor of factory direct duty free products. From June 1972 to March 1981, Mr. Paul Mansur held various finance and operation positions, including Assistant Vice President Finance and Operations for Mott's USA, Inc., a division of American Brands. Mr. Paul Mansur is the brother of Pierre G. Mansur and a cousin of Elias F. Mansur. Mr. Paul Mansur is a graduate of the City University of New York. CHARLES W. PROFILET has been the Vice President--Business Development of the Company since November 1995. From July 1992 to September 1995, Mr. Profilet served as Vice President--Florida Operations for Rust Environment and Infrastructure, Inc., a privately held environmental remediation company that is controlled by WMX Technologies, a publicly traded waste collection and recycling company traded on the New York Stock Exchange. From March 1991 to July 1992, Mr. Profilet served as Vice President-Marketing at Metcalf and Eddy, a full-service engineering and environmental consulting firm specializing in the treatment of waste water, air quality assurance, emissions control and remedial design. From July 1987 to February 1990, Mr. Profilet served as Executive Vice President and Chief Operating Officer at Craig A. Smith and Associates, a privately-held civil engineering firm. From August 1979 to September 1985, Mr. Profilet served as Vice President-Business Development at Reynolds Smith and Hills, a privately-held architectural and engineering planning firm. Mr. Profilet is a graduate of the U.S. Military Academy at West Point and holds a Master of Engineering degree from the University of Oklahoma. 35 RICHARD P. SMITH has been the Chief Financial Officer of the Company since September 1, 1996. From April 1987 to August 1996, Mr. Smith held various positions, including Vice President, Chief Financial Officer, Treasurer, Secretary, Director of Business Planning, and Controller of European Operations of Telematics International, Inc., a manufacturer and supplier of intelligent networking technologies and products. From August 1983 to April 1987, Mr. Smith served as Manager of Internal Controls and Cost Analysis for Motorola, Inc., a worldwide manufacturer of a diverse line of electronic equipment and components, including communications systems, semiconductors, electronic controls and computer systems. Motorola, Inc.'s securities are listed on the New York Stock Exchange. From January 1980 to March 1981, Mr. Smith worked as an accountant for Arthur Young and Co. C.P.A. Mr. Smith is a graduate of Illinois Wesleyan University and holds a Masters of Business Administration degree from the University of Illinois and a Masters of Finance degree from Cambridge University. ELIAS F. MANSUR has been a Director of the Company since August 1995. From September 1968 to present, Mr. Elias Mansur served as Managing Director of the Mansur Trading Company and its subsidiaries, an international, diversified group of companies involved in banking, international trade, manufacturing, real estate and hotel operations. From June 1975 to March 1981, Mr. Elias Mansur served as Chairman of the Board of the Central Bank of the Netherlands Antilles. From September 1984 to December 1985, Mr. Elias Mansur served as Minister of Economic Affairs of the Netherlands Antilles. From October 1977 to September 1984, Mr. Elias Mansur served as the Chief Economic Advisor, Minister of Economic Affairs and Chairman of the Council of Economic Advisors to the government of Aruba. Mr. Elias Mansur is a cousin of Mr. Pierre Mansur and Mr. Paul I. Mansur. DR. JAN HEDBERG has been a Director of the Company since August 1995. From October 1987 to March 1993, Dr. Hedberg was the Chairman and Chief Executive Officer of Enprotec International Group, N.V., a company he co-founded and in the business of researching and developing of advanced waste oil recycling technologies. Since March 1993, Dr. Hedberg has been the Chairman of the Board and Chief Executive Officer of Enprotec (USA) Inc., a wholly owned subsidiary of Enprotec International Group, N.V., which manufactures, designs and assembles oil re-refining plants. Dr. Hedberg was the co-recipient of the 1991 International Technology Award for Enterprising Innovation and Creativity for the development of the Vaxon Re-refining Process, which is a proprietary process that transforms used oil into useable oil products. Dr. Hedberg has over 15 years of experience in oil related and environmental companies and 12 years of research and teaching experience, including executive management and advisory positions, with several multinational organizations. Dr. Hedberg received his Doctor of Philosophy (PhD) in Geotechnical Engineering from the Massachusetts Institute of Technology, Cambridge, Massachusetts in 1977. JOSEPH E. JACK has been a Director of the Company since August 1995. From May 1989 to June 1991, Mr. Jack served as Vice President of Waste Management Europe, a waste collection and recycling company that is a publicly traded company on the London Stock Exchange and a controlled subsidiary of WMX Technologies, a publicly traded New York Stock Exchange company. From April 1984 to December 1987, Mr. Jack was President of Waste Management Inc. of Florida, a waste collection and recycling company that is an affiliate of Waste Management, Inc.. From July 1983 to March 1984, Mr. Jack served as Vice President of Waste Management Partners, a division of Waste Management, Inc. From February 1982 to July 1983, Mr. Jack served as Vice President of Waste Management International, a subsidiary of Waste Management, Inc. From April 1980 to February 1982, Mr. Jack was Vice President of Waste Management International (Middle East), a subsidiary of Waste Management, Inc., and from May 1978 to April 1980, Mr. Jack was the Resident Manager of Waste Management Saudi Arabia, a joint venture involving an affiliate of Waste Management, Inc. Under Mr. Jack's leadership, Waste Management experienced unprecedented growth in several markets worldwide including Waste Management Europe's growth of revenues from $10 million to $700 million in a three year period. Mr. Jack's significant accomplishments in the waste management field were acknowledged when he was inducted by the National Waste Management Association into the United States Waste Industry's "Hall of Fame". Mr. Jack has been an active investor in companies since he retired in June 1991. 36 The Company has agreed that, for five years after the effective date of this Prospectus, the Representative will have the right to designate one individual to be elected to the Company's Board of Directors. EXECUTIVE COMPENSATION The following table sets forth compensation paid or payable in respect of the three years ended December 31, 1995 to the Company's Chief Executive Officer and its other executive officer whose combined salaries and bonuses equalled or exceeded $100,000 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION -------------------------------------------------- -------------- OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) COMPENSATION - --------------------------- ------- ---------- -------------- ---------------- -------------- Mr. Pierre G. Mansur 1995 $66,000 $267,460(1) $6,605(2) $0 ------- ---------- -------------- ---------------- --------------- Chairman and President 1994 $66,000 $0 $550(2) $0 ------- ---------- -------------- ---------------- --------------- 1993 $22,000 $0 $0 $0 ------- ---------- -------------- ---------------- --------------- Mr. Paul I. Mansur 1995 $48,000 $0 $2,550(2) $0 ------- ---------- -------------- ---------------- --------------- Chief Executive Officer 1994 $48,000 $0 $0 $0 ------- ---------- -------------- ---------------- --------------- 1993 $5,000 $0 $0 $0 ------- ---------- -------------- ---------------- ---------------
- ---------- (1) Represents incentive compensation earned by Pierre G. Mansur, $88,110 of which has been paid and the remainder of which has been accrued. (2) Automobile allowance paid by the Company. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS In September 1993, the Company entered into a two year employment agreement with Mr. Pierre Mansur, which provides for an annual base salary of $66,000 and discretionary bonuses, based on Mr. Pierre Mansur's performance, as determined by the Compensation Committee of the Board of Directors. Pursuant to the terms of his employment contract, Mr. Mansur's employment was renewed in September 1995 by the Company for an additional two years. Pursuant to the employment agreement, during the term of Mr. Pierre Mansur's employment and for a period of three years following his termination of employment, Mr. Pierre Mansur is prohibited from disclosing any confidential information, including without limitation, information regarding the Company's patents, research and development, manufacturing process or knowledge or information with respect to confidential trade secrets of the Company. In addition, the employment agreement provides that Mr. Pierre Mansur is prohibited from, directly or indirectly, engaging in any business in substantial competition with the Company or its affiliates. The employment agreement also provides that Mr. Pierre Mansur is prohibited from becoming an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Company or its affiliates during the term of his employment and for three years thereafter. In September 1995, the Company entered into a two year employment agreement with Mr. Paul Mansur, which provides for an annual base salary of $48,000 and discretionary bonuses, based on Mr. Paul Mansur's performance, as determined by the Compensation Committee of the Board of Directors. Pursuant to the employment agreement, during the term of Mr. Paul Mansur's employment and for a period of three years following his termination of employment, Mr. Paul Mansur is prohibited from disclosing any confidential information, including without limitation, information regarding the Company's patents, research and development, manufacturing process or knowledge or information with respect to confidential trade secrets of the Company. In addition, the employment agreement provides that Mr. Paul Mansur is prohibited from, directly or indirectly, engaging in any business in 37 substantial competition with the Company or its affiliates. The employment agreement also provides that Mr. Paul Mansur is prohibited from becoming an officer, director or employee of any corporation, partnership or any other business in substantial competition with the Company or its affiliates during the term of his employment and for three years thereafter. In July 1996, the Company entered into a one year employment agreement with Mr. Richard Smith, which provides for an annual base salary of $110,000, a car allowance of $400 a month, and a mobile telephone allowance of $150 a month. The employment agreement provides that Mr. Smith is entitled to receive a minimum of 10,000 common stock purchase options comprised of: 5,000 options to be issued upon the consummation of the Concurrent Offering exercisable at the initial public offering price, and 5,000 options to be issued on December 31, 1996 exercisable at the then current market price of the common stock. Pursuant to the employment agreement, if Mr. Smith is terminated for cause, defined as an act of dishonesty, malfeasance, or other impropriety, he is not entitled to receive any severance payment. If Mr. Smith is terminated without cause, he is entitled to receive his current salary for four months or until he secures new employment, whichever occurs first. In addition to the employment agreement, the Company and Mr. Smith entered into a Non-Circumvention and Non-Disclosure Agreement. In November 1995, the Company entered into a one year employment agreement with Charles W. Profilet. Under the employment agreement, Mr. Profilet is entitled to an annual base salary of $80,000, a car allowance of $400 a month and monthly commissions, ranging from $5 per unit for parts washers to $25 per unit for jet washers, with respect to each new washer sold by the Company in the United States. The commissions earned by Mr. Profilet may be converted, at his option, into Common Stock at a discount on the then current trading price of the Common Stock. The conversion discount was 10% as of the date of this Prospectus, but, may be adjusted at the election of the Board of Directors of the Company. As of the date of this Prospectus, Mr. Profilet had earned an aggregate of $12,250 of commissions. The employment agreement provides that Mr. Profilet is eligible to participate in the Company's discretionary executive profit sharing awards and executive stock award or stock option awards. Pursuant to the employment agreement, if Mr. Profilet is terminated for cause, defined as an act of dishonesty, malfeasance, or other impropriety, he is not entitled to receive any severance payment. If Mr. Profilet is terminated without cause within his first year of employment, he is entitled to receive his current salary for six months or until he secures new employment, whichever occurs first. In addition to the employment agreement, the Company and Mr. Profilet entered into a Non-Circumvention and Non-Disclosure Agreement. INCENTIVE COMPENSATION PLAN The Company's 1996 Executive Incentive Compensation Plan (the "Incentive Plan") provides for grants of stock options, stock appreciation rights ("SARS"), restricted stock, deferred stock, other stock related awards and performance or annual incentive awards that may be settled in cash, stock or other property (collectively, "Awards"). The total number of shares of Common Stock that may be subject to the granting of Awards under the Incentive Plan at any time during the term of the Plan shall be 375,000. The Employee Plan is designed to serve as an incentive for retaining qualified and competent employees, directors, consultants and independent contractors of the Company. The persons eligible to receive Awards under the Incentive Plan are the officers, directors, employees and independent contractors of the Company, if any, and its subsidiaries. No director of the Company who is not an employee of the Company or any subsidiary (a "non-employee director") will be eligible to receive any Awards under the Incentive Plan other than automatic formula grants of stock options and restricted stock as described below, and no independent contractor will be eligible to receive any Awards other than stock options. The Incentive Plan is required to be administered by a committee designated by the Board of Directors consisting of not less than two directors (the "Committee"), each member of which must be a "disinterested person" as defined under Rule 16b-3 under the Securities Exchange Act of 1934, as 38 amended, and an "outside director" for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Compensation Committee of the Board has been appointed as the Committee for the Incentive Plan. Subject to the terms of the Incentive Plan, the Committee is authorized to select eligible persons to receive Awards, determine the type and number of Awards to be granted and the number of shares of Common Stock to which Awards will relate, specify times at which Awards will be exercisable or settleable (including performance conditions that may be required as a condition thereof), set other terms and conditions of Awards, prescribe forms of Award agreements, interpret and specify rules and regulations relating to the Incentive Plan, and make any other determinations that may be necessary or advisable for the administration of the Incentive Plan. In addition, the Incentive Plan imposes individual limitations on the amount of certain Awards in part to comply with Code Section 162(m). Under these limitations, during any fiscal year the number of options, SARS, restricted shares of Common Stock, deferred shares of Common Stock, shares as a bonus or in lieu of other Company obligations, and other stock-based Awards granted to any one participant may not exceed 250,000 for each type of such Award, subject to adjustment in certain circumstances. The maximum amount that may be paid out as a final annual incentive Award or other cash Award in any fiscal year to any one participant is $1,000,000, and the maximum amount that may be earned as a final performance Award or other cash Award in respect of a performance period by any one participant is $5,000,000. The Incentive Plan provides that each non-employee director shall automatically receive (i) on the date of his or her appointment as a director of the Company, an option to purchase 2,500 shares of Common Stock, and (ii) each year, on the day the Company issues its earnings release for the prior fiscal year, an option to purchase 2,500 shares of Common Stock. Such options will have a term of 10 years and become exercisable at the rate of 33-1/3% per year commencing on the first anniversary of the date of grant; provided, however, that the options will become fully exercisable in the event that, while serving as a director of the Company, the non-employee director dies, or suffers a "disability," or "retires" (within the meaning of such terms as defined in the Incentive Plan). The per share exercise price of all options granted to non-employee directors will be equal to the fair market value of a share of Common Stock on the date such option is granted. The Company will agree with the Representative that for a 13-month period immediately following the effective date of the Registration Statement of which this Prospectus forms a part, the Company will not, without the consent of the Representative, adopt or propose to adopt any plan or arrangement permitting the grant, issue or sale of any shares of its Common Stock or issue, sell or offer for sale any of its Common Stock, or grant any option for its Common Stock which shall: (x) have an exercise price per share of Common Stock less than (a) the initial public offering price of the Common Stock offered in this Prospectus or (b) the fair market value of the Common Stock on the date of grant; or (y) be granted to any direct or indirect beneficial holder of more than 10% of the issued and outstanding Common Stock of the Company. No option or other right to acquire Common Stock granted, issued or sold during the 13-month period immediately following the effective date of the Registration Statement of which this Prospectus forms a part shall permit (a) the payment with any form of consideration other than cash, (b) the payment of less than the full purchase or exercise price for such shares of Common Stock or other securities of the Company on or before the date of issuance, or (c) the existence of stock appreciation rights, phantom options or similar arrangements. The Company has not granted any Award under the Incentive Plan. COMPENSATION OF DIRECTORS After this offering, the Company will pay each director who is not an employee an annual retainer of $10,000. The Company will reimburse all directors for all travel-related expenses incurred in connection with their attendance at meetings of the Board of Directors. Directors will also be entitled to receive options under the Incentive Plan. See "Incentive Compensation Plan." Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack were each granted 10,000 shares of the Company's Common Stock in April 1996 in exchange for previously rendered consulting services. 39 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION; AUDIT COMMITTEE The Board of Directors currently administers and determines compensation, including salary and bonus for the executive officers, directors and other employees. The Company intends to establish an Audit Committee and a Compensation Committee shortly after the closing of this offering. The Compensation Committee will be responsible for setting and administering policies that govern annual compensation of the Company's executive officers and administering the 1996 Executive Incentive Compensation Plan. The duties and responsibilities of the Audit Committee will include (i) recommending to the full Board the appointment of the Company's auditors and any termination of their appointment, (ii) reviewing the plan and scope of audits, (iii) reviewing the Company's significant accounting policies and internal controls, (iv) administering the Company's compliance programs, and (v) general responsibility for all related auditing matters. 40 CERTAIN TRANSACTIONS COMMON STOCK OWNERSHIP In connection with the organization of the Company in November 1990, the Company issued 2,000,000 shares of Common Stock, par value $0.001 per share, to Mr. Pierre Mansur in exchange for the assignment to the Company of certain ongoing research and development and rights to any related patents and patents pending and real estate and equipment valued at $52,000. CONSULTING AGREEMENT AND SERVICES In November 1994, the Company entered into a two-year consulting agreement (the "Consulting Agreement") with Environmental Technologies BVI Limited (the "Consultant"). Pursuant to the Consulting Agreement, the Consultant agreed to advise, consult with, introduce to third parties and generally assist the Company in its efforts to explore new manufacturing and marketing arrangements. In exchange for such services, the Consulting Agreement provided that the Consultant was entitled to receive certain fees in connection with the sale of certain equipment, services, license rights, royalty rights, manufacturing rights, marketing rights or the Company's entrance into a partnership or joint venture arrangement or consummation of a merger. The Consultant did not receive any commissions pursuant to the Consulting Agreement. In December 1995, the Company issued the Consultant 10,000 shares of Common Stock in exchange for the services rendered by the Consultant and to secure the Consultant's agreement to terminate the Consulting Agreement and any and all associated rights of the Consultant. Dr. Jan Hedberg, a director of the Company, owns 50 percent and serves as the managing director of the Consultant. Mr. Elias Mansur, Dr. Jan Hedberg and Mr. Joseph Jack have, from time to time, rendered consulting services to the Company in connection with financing, marketing and technical matters. In April 1996 they were each granted 10,000 shares of the Company's Common Stock, valued at $3.50 per share, in exchange for such previously rendered consulting services. NOTE PAYABLE TO CHIEF EXECUTIVE OFFICER Pursuant to a revolving line of credit dated June 1, 1990, Mr. Paul Mansur made a series of advances ranging from $5,000 to $30,000, totaling an aggregate of $150,000 (the "Debt"), to the Company between June 1, 1990 and May 31, 1996. Under the terms of the line of credit, interest accrued at a rate of 6% in 1994, 1995 and the five month period ended May 31, 1996. On December 31, 1994 and December 31, 1995, the Company paid Mr. Paul Mansur $34,814 and $12,000, respectively, in satisfaction of interest owed with respect to the Debt. The note evidencing the Debt had a maturity date of December 31, 1995, which maturity date was extended to December 31, 1996. On May 31, 1996, the Company paid Mr. Paul Mansur $150,000 and $5,000 in satisfaction of the outstanding principal balance of and the interest owed with respect to the Debt. CONVERTIBLE NOTES In connection with its issuance of an aggregate of $1,012,500 in principal amount of Convertible Notes in June 1996, the Company issued promissory notes in the principal amount of $101,250 to each of Environmental Technologies BVI Limited, a consulting firm of which Dr. Jan Hedberg, a director of the Company, is Managing Director, Mr. Joseph E. Jack, a director of the Company, and Mr. Elias F. Mansur, a director of the Company. Upon consummation of this offering, each of the Convertible Notes will be automatically converted into 15,000 shares of the Company's Common Stock. Mr. Mansur, Mr. Jack and Environmental Technologies BVI Limited acquired the Convertible Notes on the same terms as other unaffiliated investors. FUTURE TRANSACTIONS Each of the transactions between the Company and each officer and shareholder of the Company was made on terms no less favorable to the Company than those that were available from unaffiliated 41 third parties. All future transactions, including loans, between the Company and its officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of independent and disinterested outside directors on the Board of Directors, and will be on terms no less favorable to the Company than those that could be obtained from unaffiliated third parties. PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information concerning the beneficial ownership of the Common Stock immediately prior to this offering and the concurrent offering, and as adjusted to reflect the sale of shares offered hereby and in the Concurrent Offering, by: (i) each person known by the Company to be the beneficial owner of more than 5% of the Common Stock, (ii) each Director or nominee for Director of the Company, (iii) each of the Named Executive Officers, (iv) each Selling Shareholder and (v) all Directors and Executive Officers of the Company as a group.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED PRIOR OWNED AFTER TO THIS OFFERING NUMBER OF THIS OFFERING ----------------------- SHARES --------------------------- NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE - ---- -------- ------------- ---------- --------- ---------- Mr. Pierre G. Mansur/dagger/ .. 2,000,000 59.7% 0 2,000,000 46.0% Mr. Paul I. Mansur/dagger/ .... 0 * 0 0 * Dr. Jan Hedberg/dagger/ ........ 35,000(1) 1.0% 15,000 20,000(1) * Mr. Elias F. Mansur/dagger/ ... 41,025(2) 1.2% 15,000 26,025 * Mr. Joseph E. Jack/dagger/ .... 37,820(2) 1.1% 15,000 22,820 * First Malro, Inc. .............. 157,690(3) 3% 100,000 57,690 1.3% Environmental Technologies BVI Limited ...................... 25,000(2) * 15,000 10,000 * Said Mouawad ................... 17,820(4) * 5,000 12,820 * Mr. Charles W. Profilet/dagger/ 0 * 0 0 * Mr. Richard P. Smith/dagger/ .. 10,000(5) * 0 10,000(5) * All Directors and Executive Officers as a Group (6 persons) ....... 2,123,845(6) 63.4% 45,000 2,078,845(6) 47.8%
- --------------- * Less than 1% /dagger/ The address of the beneficial owner is 8425 S.W. 129th Terr., Miami, Florida 33156. (1) Includes 25,000 shares of Common Stock beneficially held by Environmental Technologies BVI Limited, of which Dr. Hedberg owns 50 percent and serves as the Managing Director. See Note 2. (2) Includes 15,000 shares of Common Stock issuable upon the conversion of a Convertible Note in the principal amount of $101,250, which conversion shall occur upon the consummation of the Concurrent Offering. (3) Includes 100,000 shares of Common Stock issuable upon the conversion of a Convertible Note in the principal amount of $675,000, which conversion shall occur upon the consummation of the Concurrent Offering. (4) Includes 5,000 shares of Common Stock issuable upon the conversion of a Convertible Note in the principal amount of 33,750, which conversion shall occur upon the consummation of the Concurrent Offering. (5) Includes 10,000 shares of Common Stock issuable upon the exercise of stock options. (6) See Notes (1), (2) and (5). DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 25,000,000 shares of Common Stock, $.001 par value per share, and 1,500,000 shares of Preferred Stock, $1.00 par value per share. As of the date of this Prospectus, 3,351,309 shares of Common Stock and 0 shares of Preferred Stock are outstanding. COMMON STOCK Each outstanding share of Common Stock is entitled to one vote on all matters submitted to a vote of shareholders. Subject to the restrictions summarized below, dividends may be paid to the holders of Common Stock when and if declared by the Board of Directors out of funds legally available for dividends. See "Dividend Policy." 42 Holders of Common Stock have no conversion, redemption, or preemptive rights. All outstanding shares of Common Stock are fully paid and nonassessable. In the event of any liquidation, dissolution or winding up of the affairs of the Company, the holders of Common Stock will be entitled to share ratably in its assets remaining after provision for payment of creditors and holders of Preferred Stock. See "Dividend Policy." PREFERRED STOCK The Company is authorized to issue Preferred Stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the value or market price of the Common Stock and voting power or other rights of the holders of Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The "Control Share Acquisitions" section of the Florida Business Corporation Act ("FBCA") generally provides that shares acquired in excess of certain specified thresholds, beginning at 20% of the Company's outstanding voting shares, will not possess any voting rights unless such voting rights are approved by a majority vote of a corporation's disinterested shareholders. The "Affiliated Transactions" section of the FBCA generally requires majority approval by disinterested directors or supermajority approval of disinterested shareholders of certain specified transactions (such as a merger, consolidation, sale of assets, issuance of transfer of shares or reclassifications of securities) between a corporation and a holder of more than 10% of the outstanding voting shares of the corporation, or any affiliate of such shareholder. The directors of the Company are subject to the "general standards for directors" provisions set forth in the FBCA. These provisions provide that in discharging his or her duties and determining what is in the best interests of the Company, a director may consider such factors as the director deems relevant, including the long-term prospects and interests of the Company and its shareholders and the social, economic, legal or other effects of any proposed action on the employees, suppliers or customers of the Company, the community in which the Company operates and the economy in general. Consequently, in connection with any proposed action, the Board of Directors is empowered to consider interests of other constituencies in addition to the Company's shareholders, and directors who take into account these other factors may make decisions which are less beneficial to some, or a majority, of the shareholders than if the law did not permit consideration of such other factors. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK The authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and Preferred Stock may enable the Board of Directors to issue shares to persons friendly to current management which could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger, or otherwise, and thereby protect the continuity of the Company's management. LIMITED LIABILITY AND INDEMNIFICATION Under the FBCA, a director is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to fact unless (i) the director breached or 43 failed to perform his duties as a director and (ii) a director's beach of, or failure to perform, those duties constitutes (1) a violation of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (2) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (3) a circumstance under which an unlawful distribution is made, (4) in a proceeding by or in the right of the corporation or procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation or willful misconduct, or (5) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. A corporation may purchase and maintain insurance on behalf of any director or officer against any liability asserted against him and incurred by him in his capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the FBCA. The Articles and Bylaws of the Company provide that the Company shall, to the fullest extent permitted by applicable law, as amended from time to time, indemnify all directors of the Company, as well as any officers or employees of the Company to whom the Company has agreed to grant indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is Continental Stock Transfer & Trust Company. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company anticipates that it will have 4,351,309 shares of Common Stock outstanding. The 1,000,000 shares of Common Stock offered hereby or pursuant to the Concurrent Offering will be freely tradeable without restriction or further registration under the Securities Act, except for any shares purchased by an "affiliate" of the Company (in general, a person who has a control relationship with the Company) which will be subject to the limitations of Rule 144 adopted under the Securities Act. All of the remaining 3,351,309 shares are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, in that such shares were issued and sold by the Company in private transactions not involving a public offering. Of such remaining shares; (i) 2,656,729 shares will become eligible for sale under Rule 144 90 days from the date of this Prospectus; and (ii) the remainder will become eligible for such sale at various times prior to June 1998. In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or other persons whose shares are aggregated), who has owned restricted shares of Common Stock beneficially for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of one percent of the total number of outstanding shares of the same class or the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least the three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. 44 All of the Company's officers, directors and shareholders have agreed not to sell or otherwise dispose of any of their shares of Common Stock for a period of 13 months from the date of this Prospectus without the prior written consent of the Representative. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Description of Securities" for information concerning outstanding warrants and convertible securities. PLAN OF DISTRIBUTION The Selling Shareholders have advised the Company that they may from time to time sell all or a portion of the Shares offered hereby in one or more transactions in the over-the-counter market, on the NASDAQ SmallCap Market, on any exchange on which the Common Stock may then be listed, in negotiated transactions or otherwise, or a combination of such methods of sale, at market, prices prevailing at the time of sale or prices related to such prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Shareholders and/or purchasers of the Shares for whom they may act as agent (which compensation may be in excess of customary commissions). In connection with such sales, the Selling Shareholders and any broker-dealers or agents participating in such sales may be deemed to be underwriters as that term is defined under the Securities Act. Neither the Company nor the Selling Shareholders can presently estimate the amount of commissions or discounts, if any, that will be paid by the Selling Shareholders on account of their sales of the Shares from time to time. The Shares are subject to an agreement between the holders thereof and the Representative restricting the sale thereof within the 13 months from the date of this Prospectus without the prior written consent of the Representative. Under the securities laws of certain states, the Shares may be sold in such states only through registered or licensed broker-dealers or pursuant to available exemptions from such requirements. In addition, in certain states the Shares may not be sold therein unless the Shares have been registered or qualified for sale in such state or an exemption from such requirement is available and satisfied. The Company will pay certain expenses in connection with this offering, estimated to be approximately $ but will not pay for any underwriting commissions and discounts, if any, or counsel fees or expenses of the Selling Shareholders. The Company will pay the Representative a commission of $127,250 and a non-accountable expense allowance of $30,375 in connection with the services provided with respect to the Convertible Notes. The Company has agreed to indemnify the Selling Shareholders, their directors, officers, agents and representatives, and any underwriters, against certain liabilities, including certain liabilities under the Securities Act. The Selling Shareholders have also agreed to indemnify the Company, its directors, officers, agents and representatives against certain liabilities, including certain liabilities under the Securities Act. The Selling Shareholders and other persons participating in the distribution of the Shares offered hereby are subject to the applicable requirements of Rule 10b-6 promulgated under the Exchange Act in connection with sales of the Shares. 45 UNDERWRITING OF THE CONCURRENT OFFERING In connection with the Concurrent Offering, the Underwriters named below (the "Underwriters"), for whom First Allied Securities Inc. is acting as Representative, have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement"), to purchase from the Company and the Company has agreed to sell to the Underwriters on a firm commitment basis the respective number of shares of Common Stock set forth opposite their names:
NUMBER UNDERWRITER OF SHARES - ---------------------------------- -------------- First Allied Securities Inc. .... -------------- Total .......................... 850,000 ==============
The Underwriters are committed to purchase all shares of Common Stock offered in the Concurrent Offering if any of such shares are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to conditions precedent specified therein. The Company has been advised by the Representative that the Underwriters propose to initially offer the Common Stock to the public for $ and to certain dealers at such prices less concessions of not in excess of $ per share of Common Stock. Such dealers may reallow a concession not in excess of $ per share of Common Stock to other dealers. After the commencement of the Concurrent Offering, the public offering prices, concessions and reallowances may be changed by the Representative. The Representative has advised the Company that it does not anticipate sales to discretionary accounts by the Underwriters to exceed five percent of the total number of shares of Common Stock offered in the Concurrent Offering. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act. The Company has also agreed to pay to the Representative an expense allowance on a nonaccountable basis equal to three percent (3%) of the gross proceeds derived from the sale of the Common Stock underwritten, of which $50,000 has been paid to date. The Underwriters have been granted an option by the Company, exercisable within forty-five (45) days after the date of this Prospectus, to purchase up to an additional 127,500 shares of Common Stock at the initial public offering price per share of Common Stock offered in the Concurrent Offering, less underwriting discounts and the expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the shares offered in the Concurrent Offering. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the number of the additional shares of Common Stock proportionate to its initial commitment. All of the Company's officers and directors and all of the holders of the Common Stock have agreed not to, directly or indirectly, sell, transfer, hypothecate or otherwise encumber any of their shares for thirteen (13) months following the date of this Prospectus without the prior written consent of the Representative. The Company has agreed that, for five (5) years after the effective date of this Prospectus, the Representative will have the right to designate one individual to be elected to the Company's Board of 46 Directors. Such individual may be a director, officer, employee or affiliate of the Representative. In the event the Representative elects not to designate a person to serve on the Company's Board of Directors, the Representative may designate an observer to attend meetings of the Board of Directors. In connection with the Concurrent Offering, the Company has agreed to sell to the Representative, for nominal consideration, the Representative's Warrants to purchase from the Company 85,000 shares of Common Stock. The Representative's Warrants are initially exercisable for shares of Common Stock at a price of $ [120% of the initial public offering price per share of Common Stock] per share of Common Stock for a period of four (4) years commencing one (1) year from the date of this Prospectus and are restricted from sale, transfer, assignment or hypothecation for a period of twelve (12) months from the date hereof, except to officers and principals of the Representative. The Representative's Warrants also provide for adjustment in the number of shares of Common Stock issuable upon the exercise thereof as a result of certain subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise of the Representative's Warrants. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriter may be required to make. In connection with the Private Financing, the Representative is entitled to receive a commission of $101,250 and a non-accountable expense allowance of $30,375. The Representative was registered as a broker dealer on March 29, 1994. The Representative was relatively inactive for a period of time and was reactivated under its present ownership structure on December 15, 1994. The Representative does not have extensive experience as an underwriter of public offerings of securities. The Representative has acted as the managing underwriter for three public offerings. The Representative is a relatively small firm and no assurance can be given that the Representative will participate as a market maker in the Common Stock. Prior to the Concurrent Offering, there has been no public market for the Common Stock. Consequently, the initial public offering prices of the Common Stock has been determined by negotiations between the Company and the Representative and is not necessarily related to the Company's asset value, net worth or other established criteria of value. The factors considered in such negotiations included the history of and prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, its capital structure and certain other factors as were deemed relevant. The foregoing is a summary of the principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to the copy of the Underwriting Agreement filed as an Exhibit to the Registration Statement of which this Prospectus forms a part. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Orrick, Herrington & Sutcliffe, New York, New York, has acted as counsel for the Underwriters in connection with the offering. EXPERTS The financial statements of the Company as of December 31, 1995 and 1994 and for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year 47 period ended December 31, 1995 have been included in this Prospectus and in the registration statement in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere in this Prospectus, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement under the Securities Act with respect to the Common Stock offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information about the Company and the Common Stock, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. Copies of each such document may be obtained from the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C., upon payment of the charges prescribed by the Commission. Copies of each document may also be obtained through the Commission's internet address at http://www.sec.gov. 48 INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants ........................................................... F-2 Financial Statements Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unaudited) ................ F-3 Statements of Operations for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-4 Statements of Stockholders' Deficit for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1996 (unaudited) ................................... F-5 Statements of Cash Flows for the period from November 13, 1990 (inception) to December 31, 1991, and each of the years in the four year period ended December 31, 1995 and for the six months ended June 30, 1995 (unaudited) and 1996 (unaudited) .......................... F-6 Notes to Financial Statements .............................................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Mansur Industries Inc.: We have audited the accompanying balance sheets of Mansur Industries Inc. (a development stage company) as of December 31, 1994 and 1995, and the related statements of operations, stockholders' (deficit) and cash flows for the period from November 13, 1990 (inception) to December 31, 1991 and each of the years in the four-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mansur Industries Inc. as of December 31, 1994 and 1995 and the results of its operations and its cash flows for the period from November 13, 1990 (inception) to December 31, 1991 and each of the years in the four-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Miami, Florida January 19, 1996 F-2 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 --------------- --------------- -------------- (UNAUDITED) ASSETS Current assets: Cash .................................................. $ 20,766 $ 916,383 $ 640,592 Inventory ............................................. 0 193,838 412,431 Other assets .......................................... 85,810 18,290 176,425 --------------- --------------- -------------- Total current assets ................................. 106,576 1,128,511 1,229,448 --------------- --------------- -------------- Mortgage note receivable ............................... 200,000 0 0 --------------- --------------- -------------- Property and equipment, net ............................ 351,773 324,431 308,810 Other assets ........................................... 98,593 0 0 Intangible assets, net ................................. 0 0 24,454 --------------- --------------- -------------- 650,366 324,431 333,264 --------------- --------------- -------------- Total Assets ......................................... $ 756,942 1,452,942 1,562,712 =============== =============== ============== LIABILITIES AND STOCKHOLDERS' (DEFICIT) Current liabilities: Accounts payable and accrued expenses ................. $ 6,007 219,477 382,878 Due to officers/shareholders .......................... 250,000 250,000 0 Convertible notes payable ............................. 0 0 1,012,500 Interest payable ...................................... 45,684 0 2,250 Current installments of long-term debt ................ 43,637 45,846 48,786 --------------- --------------- -------------- Total current liabilities ............................ 345,328 515,323 1,446,414 --------------- --------------- -------------- Long-term debt, excluding current installments ........ 700,011 154,165 129,014 --------------- --------------- -------------- Total liabilities .................................... 1,045,339 669,488 1,575,428 --------------- --------------- -------------- Convertible redeemable preferred stock, $1 par value. Authorized 1,500,000 shares, issued and outstanding 580,000 and 490,000 in 1994 and 1995 respectively. ... 633,929 2,573,863 0 --------------- --------------- -------------- Stockholders' (deficit): Common stock, $0.001 par value. Authorized 25,000,000 shares, issued and outstanding 2,000,000; 2,673,129 and 3,351,309 shares for 1994, 1995 and 1996 respectively ........................................ 2,000 2,673 3,351 Additional paid-in capital ............................ (12,257) 438,132 3,560,948 Deficit accumulated during the development stage ..... (912,069) (2,231,214) (3,577,015) --------------- --------------- -------------- Total stockholders' (deficit) ........................ (922,326) (1,790,409) (12,716) --------------- --------------- -------------- Total liabilities and stockholders' (deficit) ....... $ 756,942 $ 1,452,942 $ 1,562,712 =============== =============== ==============
See accompanying notes to financial statements. F-3 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
NOVEMBER 13, 1990 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, --------------------------------- 1991 1992 1993 1994 ------------- --------- ------- -------- Operating expenses: General and administrative $ 8,502 $ 8,971 $ 81,886 $ 268,414 Research and development .. 128,439 31,924 69,256 178,146 --------------- ------------ ------------- ------------- Total operating expenses . 136,941 40,895 151,142 446,560 --------------- ------------ ------------- ------------- Loss from operations ..... (136,941) (40,895) (151,142) (446,560) --------------- ------------ ------------- ------------- Interest expense ............ -- (16,299) (16,360) (46,312) Exchange expense on redeemable preferred stock ........... -- -- -- -- Interest Income ............. -- -- -- -- Loss on disposal of property and equipment ............. -- (39,560) (18,000) -- --------------- ------------ ------------- ------------- Net loss .................. (136,941) (96,754) (185,502) (492,872) --------------- ------------ ------------- ------------- Dividends on redeemable preferred stock ......... -- -- (8,328) (53,929) --------------- ------------ ------------- ------------- Net loss to common shares .................. $ (136,941) $ (96,754) $ (193,830) $ (546,801) =============== ============ ============= ============= Net loss per common share ................... $ (0.07) $ (0.05) $ (0.10) $ (0.27) =============== ============ ============= ============= Weighted average shares outstanding ............. 2,000,000 2,000,000 2,000,000 2,000,000 =============== ============ ============= =============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NOVEMBER 13, 1990 SIX MONTHS ENDED (INCEPTION) JUNE 30, THROUGH ---------------- JUNE 30, 1995 1995 1996 1996 ---- ---- ---- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) Operating expenses: General and administrative $907,393 $418,079 $622,641 $1,897,807 research and development 393,874 162,732 365,435 1,167,074 --------------- ------------- --------------- --------------- Total operating expenses . 1,301,267 580,811 988,076 3,064,881 --------------- ------------- --------------- --------------- Loss from operations ..... (1,301,267) (580,811) (988,076) (3,064,881) --------------- ------------- --------------- --------------- Interest expense ............ (63,528) (38,259) (24,179) (166,678) Exchange expense on redeemable preferred stock ........ -- -- (344,631) (344,631) Interest income ............. 45,650 11,797 11,085 56,735 Loss on disposal of property and equipment ............. -- -- -- (57,560) --------------- ------------- --------------- --------------- Net loss .................. (1,319,145) (607,273) (1,345,801) (3,577,015) --------------- ------------- --------------- --------------- Dividends on redeemable preferred stock ......... (222,067) (75,066) (147,000) (431,324) --------------- ------------- --------------- --------------- Net loss to common shares .................. $(1,541,212) $ (682,339) $(1,492,801) $(4,008,339) =============== ============= =============== =============== Net loss per common share ................... $ (0.66) $ (0.34) $ (0.53) =============== ============= =============== Weighted average shares outstanding ............. 2,335,140 2,000,000 2,799,071 =============== ============= ===============
See accompanying notes to financial statements. F-4 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' (DEFICIT) FROM NOVEMBER 13, 1990 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
PREFFERED STOCK COMMON STOCK ---------------------------- ------------------------ SHARES AMOUNT SHARES PAR ------------ -------------- ------------ ---------- Balance at November 13, 1990 (inception) -- $ -- -- $ -- Issuance of common stock to an officer in exchange for machinery and real estate valued at market and rights to ongoing research and development patents and patents pending .......... -- -- 2,000,000 2,000 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1991 ............ -- -- 2,000,000 2,000 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1992 ............ -- -- 2,000,000 2,000 Issuance of preferred stock in exchange for cash ............................. 380,000 380,000 -- -- Issuance of preferred stock in satisfaction of notes payable ........ 200,000 200,000 -- -- Accrued dividends on preferred stock .. Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1993 ............ 580,000 580,000 2,000,000 2,000 Accrued dividends on preferred stock .. 53,929 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1994 ............ 580,000 633,929 2,000,000 2,000 Issuance of preferred stock in exchange for cash and note payable, net of costs ................................ 490,000 2,374,596 -- -- Accrued dividends on preferred stock .. 22,800 Conversion of preferred stock and accrued dividends to common stock .... (580,000) (656,729) 656,729 657 Accrued dividends on preferred stock .. 199,267 Issuance of common stock in exchange for services rendered ................ -- -- 16,400 16 Net loss ............................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at December 31, 1995 ............ 490,000 2,573,863 2,673,129 2,673 Issuance of common stock in exchange for services rendered (unaudited) .... -- -- 30,000 30 Conversion of note payable into common stock (unaudited) .................... -- -- 20,000 20 Accrued dividends on preferred stock (unaudited) .......................... 147,000 Exchange of preferred stock and accrued dividends to common stock (unaudited) (490,000) (2,720,863) 628,180 628 Net loss (unaudited) ................... -- -- -- -- ------------ -------------- ------------ ---------- Balance at June 30, 1996 (unaudited) ... 0 $ 0 3,351,309 $ 3,351 ============ ============== ============ ==========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DEFICIT ACCUMULATED ADDITIONAL DURING THE TOTAL PAID-IN DEVELOPMENT STOCKHOLDERS' CAPITAL STAGE (DEFICIT) ------------- --------------- ---------------- Balance at November 13, 1990 (inception) $ -- $ -- $ -- Issuance of common stock to an officer in exchange for machinery and real estate valued at market and rights to ongoing research and development patents and patents pending .......... 50,000 -- 52,000 Net loss ............................... -- (136,941) (136,941) ------------- --------------- ---------------- Balance at December 31, 1991 ............ 50,000 (136,941) (84,941) Net loss ............................... -- (96,754) (96,754) ------------- --------------- ---------------- Balance at December 31, 1992 ............ 50,000 (233,695) (181,695) Issuance of preferred stock in exchange for cash ............................. -- -- -- Issuance of preferred stock in satisfaction of notes payable ........ -- -- -- Accrued dividends on preferred stock .. (8,328) (8,328) Net loss ............................... -- (185,502) (185,502) ------------- --------------- ---------------- Balance at December 31, 1993 ............ 41,672 (419,197) (375,525) Accrued dividends on preferred stock .. (53,929) (53,929) Net loss ............................... -- (492,872) (492,872) Balance at December 31, 1994 ............ (12,257) (912,069) (922,326) Issuance of preferred stock in exchange for cash and note payable, net of costs ................................ -- -- -- Accrued dividends on preferred stock .. (22,800) (22,800) Conversion of preferred stock and accrued dividends to common stock .... 656,072 -- 656,729 Accrued dividends on preferred stock .. (199,267) (199,267) Issuance of common stock in exchange for services rendered ................ 16,384 -- 16,400 Net loss ............................... -- (1,319,145) (1,319,145) ------------- --------------- ---------------- Balance at December 31, 1995 ............ 438,132 (2,231,214) (1,790,409) Issuance of common stock in exchange for services rendered (unaudited) .... 104,970 -- 105,000 Conversion of note payable into common stock (unaudited) .................... 99,980 -- 100,000 Accrued dividends on preferred stock (unaudited) .......................... (147,000) (147,000) Exchange of preferred stock and accrued dividends to common stock (unaudited) 3,064,866 -- 3,065,494 Net loss (unaudited) ................... -- (1,345,801) (1,345,801) ------------- --------------- ---------------- Balance at June 30, 1996 (unaudited) ... $3,560,948 $(3,577,015) $ (12,716) ============= =============== ================
See accompanying notes to financial statements. F-5 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
NOVEMBER 13, 1990 (INCEPTION) THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, ---------------------------------- 1991 1992 1993 1994 -------------- ----- ----- ----- Cash used in operating activities: Net loss ................................. $(136,941) $(96,754) $(185,502) $(492,872) Adjustments to reconcile net loss to cash used in operating activities: Loss on sale of property ............. -- 31,680 -- -- Write-off of equipment and patent ...... 69,965 7,880 -- -- Depreciation ............................ -- -- -- 18,056 Common Stock issued for services ....... -- -- -- -- Changes in operating assets and liabilities: ...................... Inventory .............................. (5,095) (23,205) (29,838) (68,755) Other assets ........................... (1,318) (1,174) (7,067) (76,251) Intangible assets ...................... -- -- -- -- Accounts payable and accrued expenses . 1,790 (1,666) 8,461 12,415 Advances from customer ................. 11,500 16,800 -- -- --------------- ---------- ----------- ----------- Net cash used in operating activities ................ (60,099) (66,439) (213,946) (607,407) --------------- ---------- ----------- ----------- Investing activities: Purchase of property and equipment ...... (6,207) (4,208) (43,157) (48,227) Proceeds from mortgage note receivable .. -- -- -- -- Net proceeds from sale of property ...... -- 68,320 -- -- --------------- ---------- ----------- ----------- Net cash provided (used) by investing activities .......................... (6,207) 64,112 (43,157) (48,227) Financing activities: Proceeds from notes payable and line of credit ......................... 68,911 52,627 24,860 500,000 Repayment of notes payable ............... -- (15,000) -- (9,262) Exchange expense on preferred stock exchanged for common stock ............. -- -- -- -- Proceeds from issuance of preferred stock ........................ -- -- 380,000 -- --------------- ---------- ----------- ----------- Net cash provided by financing activities ................ 68,911 37,627 404,860 490,738 --------------- ---------- ----------- ----------- Net increase (decrease) in cash ...... 2,605 35,300 147,757 (164,896) Cash, beginning of period ................. -- 2,605 37,905 185,662 --------------- ---------- ----------- ----------- Cash, end of period ....................... $ 2,605 $ 37,905 $ 185,662 $ 20,766 =============== ========== =========== ===========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
NOVEMBER 13, 1990 SIX MONTHS ENDED (INCEPTION) JUNE 30, THROUGH ---------------------- JUNE 30, 1995 1995 1996 1996 ------ ---- ---- ------------ Cash used in operating activities: Net loss $(1,319,145) $(607,273) $(1,345,801) $(3,577,015) Adjustments to reconcile net loss to cash used in operating activities: Loss on sale of property ............. -- -- -- 31,680 Write-off of equipment and patent ...... -- -- -- 77,845 Depreciation ............................ 42,404 20,934 22,396 82,856 Common Stock issued for services ....... 16,400 6,400 105,000 121,400 Changes in operating assets and liabilities: ...................... Inventory .......................... (95,245) (85,366) (218,593) (440,731) Other assets ........................... (7,884) (1,231) (158,135) (251,829) Intangible assets ...................... -- -- (24,454) (24,454) Accounts payable and accrued expenses . 167,786 (38,739) 165,650 354,436 Advances from customer ................. -- -- -- 28,300 ------------- ----------- ------------- --------------- Net cash used in operating activities ................ (1,195,684) (705,275) (1,453,937) (3,597,512) ------------- ----------- ------------- --------------- Investing activities: Purchase of property and equipment ...... (15,062) (7,828) (6,775) (123,636) Proceeds from mortgage note receivable .. 200,000 200,000 -- 200,000 Net proceeds from sale of property ...... -- -- -- 68,320 ------------- ----------- ------------- --------------- Net cash provided (used) by investing activities .......................... 184,938 192,172 (6,775) 144,684 Financing activities: Proceeds from notes payable and line of credit ......................... -- -- 1,012,500 1,658,898 Repayment of notes payable ............... (43,637) (22,765) (172,210) (240,109) Exchange expense on preferred stock exchanged for common stock ............. -- 344,631 344,631 Proceeds from issuance of preferred stock ........................ 1,950,000 1,950,000 0 2,330,000 ------------- ----------- ------------- --------------- Net cash provided by financing activities ................ 1,906,363 1,927,235 1,184,921 4,093,420 ------------- ----------- ------------- --------------- Net increase (decrease) in cash ...... 895,617 1,414,132 (275,791) 640,592 Cash, beginning of period ................. 20,766 20,766 916,383 -- ------------- ----------- ------------- --------------- Cash, end of period ....................... $ 916,383 $1,434,898 $ 640,592 $ 640,592 ============= =========== ============= ===============
Supplemental disclosures of noncash investing and financing activities: As discussed in note 7(d), in November, 1990, the Company issued 2,000,000 shares of common stock for real estate and equipment having an aggregate market value of $52,000. In addition, the officer assigned to the Company ongoing research and development and rights to patents and patents pending. At inception, the Company assumed certain assets and liabilities, including a $200,000 note payable. During April 1992, the Company sold real property for $120,000 in cash and a $200,000 mortgage note receivable, as discussed in note 2. In December 1993, the Company issued preferred stock in exchange for $200,000 of notes payable. In July 1994, the Company purchased equipment, issuing a note payable to the seller in the amount of $252,910 (see note 5). During 1995, convertible preferred stock in the amount of $580,000 and related accrued dividends in the amount of $76,729 were converted to common stock (see note 7). During 1996, the Company exchanged 628,180 shares of common stock for 490,000 shares of preferred stock in the amount of $2,374,596 plus related accrued dividends of $346,260. In connection with this transaction, the Company recorded an exchange expense of 12% in the amount of $344,631 (note 7). See accompanying notes to financial statements. F6 MANSUR INDUSTRIES INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 AND DECEMBER 31, 1995 AND JUNE 30, 1996 (UNAUDITED) (1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mansur Industries Inc. (the "Company") is primarily engaged in research and development, marketing, and initial production of industrial parts cleaning equipment for use in automotive, marine, airline and general manufacturing industries. The Company's focus is on the design, development and manufacture of industrial cleaning equipment which incorporate continuous recycling and recovery technologies for solvents and solutions, thereby reducing the need to replace and dispose of contaminated solvents and solutions. The Company is in the development stage. (A) OPERATIONS AND LIQUIDITY The Company has been primarily engaged in research, development, marketing, and initial production of its products. The Company's ultimate success is dependent upon future events, including the successful commercialization of the Company's products, establishing sources for manufacturing, marketing, and distribution channels, the outcomes of which are currently indeterminable, and is also dependent upon obtaining sufficient financing. As of June 30, 1996, the Company has realized no sales of its products. As indicated in the accompanying financial statements as of June 30, 1996, the Company's accumulated deficit totaled $3,577,015 (unaudited). The Company has financed this deficiency primarily through private placements of debt and equity securities. Management expects that product sales will commence during the second half of 1996 and that proceeds from the notes payable are sufficient to fund working capital requirements until sales of the Company's products reach levels sufficient to fund working capital requirements. In July 1996, the Company expects to file a registration statement with the Securities and Exchange Commission (the "SEC") in connection with a proposed initial public offering ("IPO") of shares of its common stock. In the event that the IPO is not completed, the Company has plans to restructure operations to minimize cash expenditures, and/or obtain additional financing in order to continue support of its activities. If adequate funds are not available from additional sources of financing, the Company's business may be materially adversely affected. (B) INVENTORY Inventories are stated at the lower of cost or market using the first-in, first-out method. Inventory consists of the following.
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 --------------- --------------- ------------ (UNAUDITED) Raw materials ....................... $0 55,738 233,456 Work in progress and finished goods 0 138,100 178,975 --------------- --------------- ------------ $0 193,838 412,431 =============== =============== ============
(C) PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the shorter of the lease term or the estimated useful lives of the respective assets. F-7 (D) INTANGIBLES Patents, patent applications and rights are stated at acquisition cost. Amortization of patents is recorded using the straight-line method over the legal lives of the patents, generally for periods ranging up to 17 years. The carrying value of intangible assets is periodically reviewed by the Company and impairments are recognized when the expected future cash flows from operations derived from such intangible assets is less than their carrying value. (E) OTHER ASSETS Included in other assets at December 31, 1994, were $75,404 in stock offering costs incurred in connection with the Series A preferred stock private placement (note 7). On June 30, 1996, other assets consist primarily of costs relating to the initial public offering of $94,251 and deposits with material suppliers (note 8). (unaudited) Included in non-current other assets at December 31, 1994 was $98,593 of inventory relating to products not to be marketed until other products in the product line were fully developed. (F) FINANCIAL INSTRUMENTS (unaudited) In assessing the fair value of financial instruments at June 30, 1996 the Company has used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time. The carrying amount of long-term debt approximates fair value at June 30, 1996. For certain instruments, including accounts payable and accrued expenses, and short-term debt, the carrying amount approximates fair value due to their short maturity. (G) RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of costs incurred in connection with engineering activities related to the development of industrial parts cleaning machinery and are expensed as incurred. (H) INCOME TAXES The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (I) EARNINGS PER SHARE DATA The computation of loss per share in each year is based on the weighted average number of common shares outstanding. When dilutive, convertible preferred stock and convertible notes are F-8 included as common share equivalents using the if converted method. As these instruments have an anti-dilutive effect for the years presented, they are not included in the weighted average calculation. Primary and fully diluted earnings per share are the same for each of the years presented. (J) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (K) NEW ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), which becomes effective for financial statements for fiscal years beginning after December 15, 1995. The statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangible assets and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangible assets to be disposed of. The Company has adopted SFAS No. 121 and as of January 1, 1996 there was no material impact to the financial position or results of operations of the Company. In October 1995, the FASB issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which becomes effective for financial statements for fiscal years beginning after December 31, 1995. SFAS No. 123 defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Company is currently accounting for stock-based compensation under APB 25 and has opted to continue accounting for stock-based compensation under this method. (2) MORTGAGE NOTE RECEIVABLE During April 1992, the Company sold real property for $120,000 in cash and a $200,000 mortgage note receivable. The note bore interest at a rate of 12 percent per annum payable monthly with the principal due at maturity, being April 27, 1997. The interest received on the mortgage note receivable F-9 was assigned by the Company to repay interest due on an unsecured note payable and dividends on certain of the preferred stock. In April 1995, the balance of the note was received in full. (3) PROPERTY AND EQUIPMENT, NET Property and equipment was as follows:
DECEMBER 31, DECEMBER 31, JUNE 30, 1994 1995 1996 USEFUL LIFE --------------- --------------- ------------ -------------- (UNAUDITED) Furniture and equipment ...... $ 7,289 20,433 23,709 5 Years Machinery and equipment ...... 351,688 353,606 357,105 10 Years Leasehold improvements ........ 10,852 10,852 10,852 --------------- --------------- ------------ 369,829 384,891 391,666 Less accumulated depreciation 18,056 60,460 82,856 --------------- --------------- ------------ $351,773 324,431 308,810 =============== =============== ============
(4) DUE TO OFFICERS/SHAREHOLDERS (A) NOTES PAYABLE Notes payable at December 31, 1994 and 1995 consists of the following:
12% UNSECURED NOTE PAYABLE ............. $100,000 Note payable to chief executive officer 150,000 ----------- $250,000 ===========
The 12% unsecured notes payable required interest payments monthly, with principal due at maturity. The note matured on December 31, 1995 and was renewed for one year. Pursuant to an amendment to the note signed in January 1996, the note was converted into common stock at a price of $5 per share (note 7). Advances made by the chief executive officer are pursuant to a $200,000 line of credit agreement signed in 1990. Under the terms of the agreement, interest is accrued at a variable rate not to exceed 10 percent per annum nor fall below 6 percent per annum negotiated annually. The rate for 1994 and 1995 was 6 percent. The note had a maturity date of December 31, 1995 and was renewed for one year to mature on December 31, 1996. The note payable to the chief executive officer was paid in full during May of 1996 (unaudited). (B) CONVERTIBLE NOTES PAYABLE (UNAUDITED) In June 1996, the Company issued cumulative convertible redeemable notes payable in the amount of $1,012,500, of which $303,750 was due to certain directors of the Company. The notes bear interest of 4% per annum until September 1996 and 12% thereafter. The notes will be automatically converted into common stock simultaneously with the initial public offering of the Company at a price of $6.75 per share. The Company may redeem these notes in full at any time at a price equal to the outstanding F-10 principal amount plus interest accrued thereon. Upon the conversion of the notes into common stock resulting from an IPO, a commission equalling 10% of the converted principal balance and a nonaccountable expense allowance equalling 3% of the converted principal balance is payable. (5) LONG-TERM DEBT
DECEMBER 31, ----------------- JUNE 30, 1994 1995 1996 ----------- ---------- ----------- (UNAUDITED) Long-term debt consists of the following: 12% unsecured convertible promissory note, due May 10, 1996, converted into Series A preferred stock in 1995 (note 7). ..................................... $500,000 -- -- 12.5% note payable in monthly installments of $5,690, including interest due August 4, 1999, secured by equipment with a depreciated cost of $230,277 on June 30, 1996 (unaudited) .......................... 243,648 200,011 177,800 Less current installments ............................ 43,637 45,846 48,786 ----------- ---------- ------------ Long-term debt, excluding current installments ...... $700,011 154,165 129,014 =========== ========== ============
The 12 percent unsecured convertible promissory note was converted into 100,000 shares of Series A preferred stock during 1995 and subsequently converted to common stock in June 1996 (unaudited) (note 7). The aggregate maturities of long-term debt for each of the four years subsequent to June 30, 1996, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - --------------- ---------- 1996 .......... $ 23,635 1997 .......... 51,916 1998 .......... 58,791 1999 .......... 43,458 ---------- $177,800 ==========
(6) INCOME TAXES For the period from November 13, 1990 (inception) to June 30, 1996, the operations of the Company generated net operating losses of approximately $3,577,015 (unaudited) for financial reporting purposes. Because the Company is in the development stage, all costs through 1995 have been capitalized for tax purposes. The only loss reported for tax has been a $14,280 capital loss on the sale of real property in 1992. This capital loss may be carried forward by the Company for up to five years and will expire at the end of 1997. Capital losses carried forward may only be used to offset future capital gains. The gross amount of the deferred tax asset as of June 30, 1996 was approximately $1,288,000 (unaudited), which consists primarily of capital loss carryforwards, start-up costs, and research and experimental costs capitalized for tax purposes. Since realization of these tax benefits are not assured, a F-11 valuation allowance has been recorded against the entire deferred tax asset balance. In addition, pursuant to the Tax Reform Act of 1986, if certain substantial changes in ownership should occur there would be an annual limitation on the amount of tax attribute carryforwards which can be utilized in the future. (7) REDEEMABLE PREFERRED STOCK (A) SERIES A PREFERRED STOCK In April 1995, the Company issued 490,000 shares of 12 percent cumulative convertible redeemable preferred stock (the "Series A") as part of a second private placement at an offering price of $5 per share. The issuance raised $1,950,000 in cash and converted the $500,000 unsecured convertible promissory note (see note 5) into Series A shares. The Series A were convertible into common stock, one for one, at any time during the first 18 months following the issuance of the stock at the option of the stockholder. All then outstanding shares of Series A were to be redeemed no later than June 30, 1996. Dividends were payable at the time of conversion or redemption. The balance of the Series A plus accrued dividends was $2,573,863 at December 31, 1995. On April 27, 1996, the board of directors of the Company approved an offer to exchange all of the Series A plus the aggregate amount of dividends accrued through June 30, 1996 in the amount of $346,269 (unaudited) for 628,180 shares of common stock. In June 1996, 100% of the Series A shareholders accepted the Company's offer to exchange all of their preferred shares together with their dividends. In connection with this exchange the Company recognized an expense in the amount of $344,631 (unaudited). (B) FIRST SERIES PREFERRED STOCK In the fourth quarter of 1993, the Company issued 580,000 shares of 12 percent cumulative convertible redeemable preferred stock (the "First Series" ) in a private placement. The stock was convertible into common stock, one for one, at any time during the first 18 months following the issuance of the stock at the option of the stockholder. Dividends were payable at the time of conversion or redemption. The balance of the First Series preferred stock plus accrued dividends was $588,328 and $633,929 at December 31, 1993 and 1994 respectively. On May 30, 1995, the board of directors of the Company approved the redemption of all of the First Series preferred stock outstanding at the redemption price of $1 per share plus dividends accrued through June 30, 1995, subject to the preferred shareholders' prior right to convert such preferred stock into common stock of the Company. In June 1995, 100% of the First Series with cumulative dividends thereon was converted into common stock, on a one for one basis. (8) STOCKHOLDERS' DEFICIT (A) CONVERTIBLE NOTE PAYABLE (UNAUDITED) In May 1996, the Company converted a $100,000 note payable into common stock at a price of $5 per share pursuant to an amendment to the note signed in January of 1996. F-12 (B) COMMON STOCK In November 1990, the Company issued 2,000,000 shares of common stock with a par value of $0.001 per share to the President of the Company for the President's assignment to the Company of all ongoing research and development and the rights to any related patents and patents pending, in addition to real estate and equipment with an aggregate fair value of $52,000 as part of the formation of the Company. (9) COMMITMENTS (A) LEASES The Company leases operating facilities under fixed rent operating leases. The facilities had a 24 month lease expiring December 31, 1994 with a rent of $4,631 per month. The lease was renewed under cancelable terms in October 1994 for an additional two-year period at a monthly rent of $5,094. During 1994, the Company leased equipment under an operating lease which expired in September 1995. Total rent expense was as follows: FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) ...................................... $30,564 For the year ended December 31: 1995 ............................................. $61,128 1994 ............................................. 55,572 1993 ............................................. 39,740 1992 ............................................. 24,835 From November 13 1990 (inception) to December 31, 1991 ........................................... 14,540 (B) DUE TO OFFICER In 1995, the Board of Directors of the Company declared an incentive bonus payable to the President, Pierre G. Mansur in the amount of $267,460. Payment of bonuses are subject to the determination by the Board of Directors that the Company is able to effectuate such payment without impeding the Company's operations or development. As a result, $88,110 has been paid and an amount of $179,350 has been accrued at December 31, 1995 and June 30, 1996 (unaudited). (C) SUPPLY AGREEMENT (unaudited) On May 7, 1996, the Company entered into an agreement (the "Supply Agreement" ) with a supplier (the "Supplier") pursuant to which the Supplier agreed to supply to the Company, at the Company's election, between 3,000 and 5,000 machine units per year at established prices and in accordance with a delivery schedule. The Company has agreed to pay $150,000 (the "Advance"), $50,000 of which has been advanced through June 30, 1996. The total Advance may be credited against future purchases under the Supply Agreement at the rate of $50 per unit. The Supply Agreement provides that the Company may unilaterally terminate the contract in whole or in part for cause or for convenience. In the event the Supply Agreement is terminated by the F-13 Company for convenience, the Supplier will be entitled to reimbursement of the costs it has incurred through the date of termination and, if such termination occurs prior to the delivery of 3,000 units, the Supplier will be entitled to payment for units produced through the date of termination and retain any unapplied amount of the Advance. (10) PRODUCT FINANCING AGREEMENT (unaudited) In May 1996, the Company entered into an agreement (the "Product Financing Agreement") with a leasing company which agrees to purchase machines produced by the Company and subsequently lease these machines to customers on 60 month terms. The Company will market the machines and provide the leasing company with credit information on potential customers which they may either accept or reject. The Product Financing Agreement states that the leasing company does not have recourse against the Company for customer failures to discharge their obligations to the leasing company unless the Company has breached and failed to cure certain warranties. Under the Product Financing Agreement, the Company has agreed to provide periodic service for the machines and replace solvent used in the machines. In addition, upon the leasing company's request, the Company agrees to assist the leasing company in remarketing any repossessed or surrendered equipment for a fee. At the end of each customer lease, the Company has the option to purchase the machine from the leasing company at its fair market value. F-14 NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. - ----------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE --------- Prospectus Summary ......................... 3 Risk Factors ............................... 7 Concurrent Offering ........................ 13 Use of Proceeds of Concurrent Offering .... 14 Dilution ................................... 15 Dividend Policy ............................ Capitalization ............................. 16 Selected Financial Data .................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations .................. 18 Business ................................... 23 Management ................................. 35 Executive Compensation ..................... 37 Certain Transactions ....................... 41 Principal and Selling Shareholders ........ 42 Description of Capital Stock ............... 42 Shares Eligible for Future Sale ............ 44 Plan of Distribution ....................... 45 Underwriting of the Concurrent Offering ... 46 Legal Matters .............................. 47 Experts .................................... 47 Additional Information ..................... 48 Index to Financial Statements .............. F-1
- ----------------------------------------------------------------------------- UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 150,000 SHARES [MANSUR INDUSTRIES LOGO] COMMON STOCK - ----------------------------------------------------------------------------- PROSPECTUS - ----------------------------------------------------------------------------- , 1996 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The Registrant estimates that expenses in connection with the offering described in this registration statement, excluding the Underwriter's non-accountable expense allowance, will be as follows:
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE .................................... $ 6,000 NASD filing fee ........................................................................ 1,465 Printing and engraving expenses ........................................................ 50,000 Accounting fees and expenses ........................................................... 35,000 Legal fees and expenses ................................................................ 125,000 NASDAQ National market listing fees .................................................... 6,500 Fees and expenses (including legal fees) for qualifications under state securities laws 30,000 Registrar and Transfer Agent's fees and expenses ....................................... 5,000 Miscellaneous .......................................................................... 15,535 ---------- Total .................................................................................. $274,500 ==========
All amounts except the Securities and Exchange Commission registration fee and the NASD filing fee are estimated. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant has authority under Section 607.0850 of the Florida Business Corporation Act to indemnify its directors and officers to the extent provided for in such statute. The Registrant's Articles of Incorporation provide that the Registrant shall indemnify and may insure its officers and directors to the fullest extent not prohibited by law. The Registrant has also entered into an agreement (the form of which is filed as Exhibit 10.3 hereto) with each of its directors and executive officers wherein it has agreed to indemnify each of them to the fullest extent permitted by law. In general, Florida law permits a Florida corporation to indemnify its directors, officers, employees and agents, and persons serving at the corporation's request in such capacities for another enterprise, against liabilities arising from conduct that such persons reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement, the Underwriter has agreed to indemnify the directors, officers and controlling persons of the Registrant against certain civil liabilities that may be incurred in connection with the offering, including certain liabilities under the Securities Act of 1933, as amended. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below are the dates, number of shares and purchase prices per share of all shares of capital stock sold by the Company during the past three years: ISSUANCE OF FIRST SERIES PREFERRED STOCK
DATE NUMBER OF SHARES PRICE - --------------- ----------------- -------- October 1993 . 245,000(1) $1 November 1993 115,000(2) $1 December 1993 20,000(3) $1
- --------------- (1) Such figure represents shares issued to a group of accredited investors comprised of Weymouth Investments, Mark J. Bryn, Timothy P. Gilbert, Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks and Jack Milazzo. II-1 (2) Such figure represents shares issued to a group of accredited investors comprised of Crestwell Corporation and George V. Hindy. (3) Such figure represents shares issued to a group of accredited investors comprised of Robert M. & Angela M. Downey and Richard T. & John T. Downey. EXCHANGE OF PROMISSORY NOTES FOR COMMON STOCK
DATE NUMBER OF SHARES PRICE - ---------------- ----------------- -------- December 1993 . 200,000(1) $1 May 1996 ....... 20,000(2) $5
- ----------------------------------------------------------------------------- (1) Such figure represents 100,000 shares of the Company's Common Stock issued in exchange for a $100,000 Promissory Note issued in favor of Frank Sanci; and 100,000 shares of the Company's Common Stock issued in exchange for $100,000 of a $200,000 Promissory Note issued in favor of Philip Salvatore. (2) Such figure represents 20,000 shares of the Company's Common Stock issued in exchange for the remaining $100,000 principal amount of a $200,000 Promissory Note issued in favor of Philip Salvatore. ISSUANCE OF SERIES A PREFERRED STOCK DATE NUMBER OF SHARES PRICE - -------------- ----------------- -------- APRIL 1995 .. 390,000(1) $5 - ----------------------------------------------------------------------------- (1) Such figure represents shares issued to a group of accredited investors comprised of Landmark Services, Mark J. Bryn, First Malro, Timothy P. Gilbert, Nicholas Milazzo, John R. Tormondsen, Ronald J. Marks, Jack Milazzo, George V. Hindy, Joseph E. Jack, C. Steven Duncker, Antonin & Adele Tutter, Said H. Mouawad, Artur Sella, Patrick Buhse, Maria G. Jackson, Stanley Krueger, Paul H. Davis, Julian & Sydonia Nacron, Gerald Michelak, James J. & Paul E. Downey, Vincent Pacella, Peter H. Burger, Derek Lee, Peter L. Polito, Jonathan Savitz, Caballo Grande Investments, Howard J. Gilbert and William S. Gilbert. EXCHANGE OF PROMISSORY NOTES FOR SERIES A PREFERRED STOCK DATE NUMBER OF SHARES PRICE - -------------- ----------------- -------- APRIL 1995 .. 100,000(1) $5 - ----------------------------------------------------------------------------- (1) Such figure represents 100,000 shares of Series A Preferred Stock issued in exchange for a $500,000 12% Secured Convertible Promissory Note, dated as of November 1994, issued in favor of Imperial Trust. CONVERSION OF FIRST SERIES PREFERRED STOCK INTO COMMON STOCK DATE NUMBER OF SHARES PRICE - -------------- ----------------- -------- APRIL 1995 .. 456,729 $1 - ----------------------------------------------------------------------------- (1) Such figure includes (i) 380,000 shares of Common Stock issued upon conversion of 380,000 shares of First Series Preferred Stock and (ii) 76,729 shares of Common Stock issued in satisfaction of dividends with respect to the First Series Preferred Stock, which accrued at a rate of 12 percent from the date of issuance until the date of conversion. ISSUANCE OF COMMON STOCK
DATE NUMBER OF SHARES PRICE - --------------- ----------------- -------- June 1995 ..... 6,400(1) $ 5 December 1995 10,000(2) $ 1 April 1996 .... 30,000(3) $3.50
- ----------------------------------------------------------------------------- (1) Such figure represents shares of the Company's Common Stock issued to William R. Burdette and Edward A. Calt, as Placement Agents in connection with the Series A Preferred Stock offering. (2) Such figure represents shares of the Company's Common Stock issued to Environmental Technologies BVI Limited for cancellation of any and all rights of that certain Consulting Agreement, dated as of November 10, 1994. (3) Such figure represents share of the Company's Common Stock issued to Elias F. Mansur, Jan Hedberg and Joseph E. Jack, non-employee directors of the Company, for previously rendered consulting services. II-2 EXCHANGE OF SERIES A PREFERRED STOCK FOR COMMON STOCK DATE NUMBER OF SHARES PRICE - ------------- ----------------- -------- JUNE 1996 .. 628,180 $5 - ----------------------------------------------------------------------------- (1) Such figure includes (i) 490,000 shares of Common Stock issued upon exchange of 490,000 shares of Series A Preferred Stock; (ii) 69,254 shares of Common Stock issued in satisfaction of dividends with respect to the Series A Preferred Stock, which accrued at a rate of 12 percent from the date of issuance, through the maturity date of June 30, 1996; and (iii) 68,926 shares of Common Stock issued as an exchange expense to induce all of the holders of the Series A Preferred Stock to exchange the Series A Preferred Stock into shares of Common Stock as of June 30, 1996. ISSUANCE OF SHORT-TERM NOTES DATE NUMBER OF SHARES PRICE - ------------- ----------------- -------- SEPTEMBER 1996 *(1) *(1) - ----------------------------------------------------------------------------- (1) As of September 9, 1996, the Company issued $500,000 in principal amount of Short Term Notes, bearing interest at the rate of 4% through September 1996 and 12% thereafter. The Short Term Notes are due and payable on September 4, 1997, or, if earlier, upon the consummation and out of the proceeds of this offering. The aforementioned issuances and sales were made in reliance upon the exemption from the registration provisions of the 1933 Act afforded by Sections 4(2) and/or 4(6) thereof and/or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The Purchasers of the securities described above acquired them for their own account and not with a view to any distribution thereof to the public. The certificates evidencing the securities bear legends stating that the shares may not be offered, sold or transferred other than pursuant to an effective registration statement under the 1933 Act, or an exemption from such registration requirements. The Company will place stop transfer instructions with its transfer agent with respect to all such securities. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits:
EXHIBIT DESCRIPTION - ------------------------------------------------------------------------------------------------------------ 1.1 Proposed form of Underwriting Agreement between the Registrant and First Allied Securities Inc. (the "Underwriter") 3.1 Restated Articles of Incorporation of Registrant(1) 3.2 Bylaws of Registrant, as amended 4.1 Certificate for Shares of Common Stock, par value $.001 4.3 Proposed form of Representatives' Warrant Agreement between the Registrant and the Underwriter with form of warrant attached(1) 5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the Common Stock being registered 10.1 Registrant's Executive Incentive Plan(1) 10.2 Master Lease and Distribution Agreement, effective August 1, 1996, among the Registrant, The Valvoline Company and First Recovery(1) 10.3 Form of Indemnification Agreement between the Registrant and each of its directors and executive officers(1) 10.4 Employment Agreement between Pierre G. Mansur and the Registrant dated September 1, 1995(1) 10.5 Employment Agreement between Paul I. Mansur and the Registrant dated September 1, 1995(1) 10.6 Employment Agreement between the Company and Charles W. Profilet, dated as of November 27, 1995(1) 10.7 Vendor Lease Plan Agreement between the Registrant and Oakmont Financial Services, dated as of May 28, 1996(1) 10.8 A Manufacture Agreement between the Registrant and EMJAC Industries, Inc., dated as of May 7, 1996(1) 10.9 Lease Agreement, dated October 29, 1994, between Registrant and Marvin L. Duncan(1) 10.10 Security Agreement between the Registrant and The CIT Group/ Equipment Financing, Inc. for one (1) TRUMPF TC 200 CNC Punching Machine, Serial No. 070080 with tooling package, dated as of October 25, 1995(1) 10.11 Term Life Insurance Policy for Pierce G. Mansur with the Equitable Life Assurance Society of the United States, dated as of November 9, 1994(1) II-3 EXHIBIT DESCRIPTION - ------------------------------------------------------------------------------------------------------------ 10.12 Term Life Insurance Policy for Paul I. Mansur with the Equitable Life Assurance Society of the United States, dated as of May 24, 1996(1) 10.13 United States Patent No. 5,277,208 for Multi-Process Power Spray Washer Apparatus dated January 11, 1994(1) 10.14 United States Patent No. 5,349,974 for SystemOne(Trademark) Washer dated September 27, 1994(1) 10.15 United States Patent Application No. 08/394,290 for Improved SystemOne(Trademark) Washer allowed April 2, 1996(1) 10.16 United States Patent No. 5,388,601 for Spray Gun Washer dated February 14, 1995(1) 10.17 United States Patent No. 5,518,013 for Immersion Washer dated May 21, 1996(1) 10.18 United States Patent Applications No. 08/364,785 for apparatus for disposal of refuse by thermal oxidation allowed June 26, 1996(1) 10.19 Short Term Note, dated as of September 9, 1996, between Maria G. Jackson and the Registrant in the principal amount of $100,000(1) 10.20 Short Term Note, dated as of September 9, 1996, between First Malro and the Registrant in the principal amount of $250,000(1) 10.21 Short Term Note, dated as of September 9, 1996, between Paul L. Samy, Johanna M. Samy, Lysiane M. Samy, Claudia J. Samy, Marlon E. Samy and the Registrant in the principal amount of $50,000(1) 10.22 Short Term Note, dated as of September 9, 1996, between Crestwell Corporation and the Registrant in the principal amount of $100,000(1) 10.23 Employment Agreement, dated as of July 31, 1996, between Richard P. Smith and the Registrant(1) 10.24 Lease, dated as of September 1, 1996 between Y.F.G., Inc. and the Registrant 10.25 Lease, dated as of September 15, 1996 between Business Enterprise of Pinellas Limited and the Registrant 23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its opinion to be filed as Exhibit 5.1) 23.2 Consent of KPMG Peat Marwick LLP 24.1 Reference is made to the Signatures section of this Registration Statement for the Power of Attorney contained herein. 27.1 Financial Data Schedule(1)
- ----------------------------------------------------------------------------- * To be filed by amendment (1) Previously filed. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 3 to this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on September 24, 1996. MANSUR INDUSTRIES INC. By: /s/ Paul I. Mansur ------------------ Paul I. Mansur Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints each of Pierre G. Mansur and Paul I. Mansur, respectively, his true and lawful attorney-in-fact, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including any post-effective amendments, to this Registration Statement, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to this registration statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURES TITLE DATE - -------------------------------------------------------------------------------------- /s/ Pierre G. Mansur Chairman of the Board and President September 24, 1996 - ------------------------- Pierre G. Mansur /s/ Paul I. Mansur Director and Chief Executive Officer September 24, 1996 - ------------------------- (Principal Executive Officer) Paul I. Mansur /s/ Richard P. Smith Vice President of Finance September 24, 1996 - ------------------------- and Chief Financial Officer Richard P. Smith (Principal Financial and Accounting Officer) /s/ Elias F. Mansur* Director September 24, 1996 - ------------------------- Elias F. Mansur /s/ Dr. Jan Hedberg* Director September 24, 1996 - ------------------------- Dr. Jan Jedberg /s/ Joseph E. Jack* Director September 24, 1996 - ------------------------- Joseph E. Jack - ----------------------------------------------------------------------------- *BY: /S/ PAUL I. MANSUR ------------------- Paul I. Mansur Attorney-in-fact
II-6 EX-1.1 2 EXHIBIT 1.1 OH&S DRAFT [Form of Underwriting Agreement - Subject to Additional Review] 850,000 SHARES OF COMMON STOCK MANSUR INDUSTRIES INC. UNDERWRITING AGREEMENT New York, New York , 1996 FIRST ALLIED SECURITIES, INC. As Representative of the Several Underwriters listed on Schedule A hereto c/o First Allied Securities, Inc. 200 Park Avenue 24th Floor New York, New York 10166 Ladies and Gentlemen: Mansur Industries Inc., a Florida corporation (the "Company") confirms its agreement with First Allied Securities, Inc. ("First Allied") and each of the underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in SECTION 11), for whom First Allied is acting as representative (in such capacity, First Allied shall hereinafter be referred to as "you" or the "Representative"), with respect to the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of the Company's common stock, $.001 par value per share ("Common Stock") set forth in Schedule A hereto. Such shares of Common Stock are hereinafter referred to as the "Firm Shares." Upon your request, as provided in Section 2(b) of this Agreement, the Company shall also sell to the Underwriters, acting severally and not jointly, up to an additional 127,500 shares of Common Stock for the purpose of covering over-allotments, if any (the "Option Shares"). The Firm Shares and the Option Shares are sometimes hereinafter referred to as the "Shares." The Company also proposes to issue and sell to you warrants (the "Representative's Warrants") pursuant to the Representative's Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of an additional 85,000 shares of Common Stock. The shares of Common Stock issuable upon exercise of the Representative's Warrants are hereinafter referred to as the "Representative's Shares." The Firm Shares, the Option Shares, the Representative's Warrants and the Representative's Shares (collectively, hereinafter referred to as the "Securities") are more fully described in the Registration Statement and the Prospectus referred to below. 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the Closing Date (hereinafter defined) and the Option Closing Date (hereinafter defined), if any, as follows: (a) The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement, and an amendment or amendments thereto, on Form S-1 (No. 333-_____), including any related preliminary prospectus ("Preliminary Prospectus"), for the registration of the Firm Shares and the Option Shares under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations (the "Regulations") of the Commission under the Act. The Company will promptly file a further amendment to said registration statement in the form heretofore delivered to the Underwriters and will not, file any other amendment thereto to which the Underwriters shall have objected in writing after having been furnished with a copy thereof. Except as the context may otherwise require, such registration statement, as amended, on file with the Commission at the time the registration statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein (including, but not limited to those documents or information incorporated by reference therein) and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations)), is hereinafter called the "Registration Statement", and the form of prospectus in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, the Registration Statement or the Prospectus or any part of any thereof and no proceedings for a stop order suspending the effectiveness of the Registration Statement or any of the Company's securities have been instituted or are pending or to the Company's knowledge, threatened. Each of the Preliminary Prospectus, Registration Statement and Prospectus at the time of filing thereof conformed with the requirements of the Act and the Rules and Regulations, and none of the Preliminary Prospectus, Registration Statement or Prospectus at the time of filing thereof contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein and necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does - 2 - not apply to statements made in reliance upon and in conformity with written information furnished to the Company with respect to the Underwriters by or on behalf of the Underwriters expressly for use in such Preliminary Prospectus, Registration Statement or Prospectus. (c) When the Registration Statement becomes effective and at all times subsequent thereto up to the Closing Date and each Option Closing Date, if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, the Registration Statement and the Prospectus will contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and will conform to the requirements of the Act and the Rules and Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, PROVIDED, HOWEVER, that this representation and warranty does not apply to statements made or statements omitted in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of any Underwriter expressly for use in the Preliminary Prospectus, Registration Statement or Prospectus or any amendment thereof or supplement thereto. (d) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the state of its incorporation. The Company does not own an interest in any corporation, partnership, trust, joint venture or other business entity. The Company is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing. The Company has all requisite corporate power and authority, and the Company has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; the Company is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all federal, state and local laws, rules and regulations; and the Company has not received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, value, operation, properties, business or results of operations of the Company. The disclosures in the Registration Statement concerning the effects of federal, state and local laws, rules and regulations on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made. (e) The Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, under "Capitalization" and "Description of Capital Stock" and will have the adjusted capitalization set forth therein on the Closing Date and the Option Closing Date, if any, based upon the assumptions set forth therein, and the Company is - 3 - not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and as described in the Prospectus. The Securities and all other securities issued or issuable by the Company conform or, when issued and paid for, will conform, in all respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable and the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. The Securities are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and will conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Securities has been duly and validly taken; and the certificates representing the Securities will be in due and proper form. Upon the issuance and delivery pursuant to the terms hereof of the Securities to be sold by the Company hereunder, the Underwriters or the Representative, as the case may be, will acquire good and marketable title to such Securities free and clear of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever. (f) The financial statements, including the related notes and schedules thereto, included in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position, income, changes in cash flow, changes in stockholders' equity, and the results of operations of the Company at the respective dates and for the respective periods to which they apply [and the pro forma financial information included in the Registration Statement and Prospectus presents fairly on a basis consistent with that of the audited financial statements included therein, what the Company's pro forma capitalization would have been for the respective periods and as of the respective dates to which they apply after giving effect to the adjustments described therein.] Such financial statements have been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved. There has been no adverse change or development involving a material prospective change in the condition, financial or otherwise, or in the earnings, position, prospects, value, operation, properties, business, or results of operations of the Company whether or not arising in the ordinary course of business, since the date of the financial statements included in the Registration Statement and the Prospectus and the outstanding debt, the property, both tangible and intangible, and the business of the Company conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. Financial information set forth in the Prospectus under the headings "Summary Financial Data," "Selected Financial Data," "Capitalization," and "Management's Discussion and Analysis of Financial Condition and Results of Operations," fairly present, on the basis stated in the Prospectus, the information set forth therein, have been derived from or compiled on a basis consistent with that of the audited financial statements included in the Prospectus. - 4 - (g) The Company (i) has paid all federal, state, local, and foreign taxes for which it is liable, including, but not limited to, withholding taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of 1986 (the "Code"), and has furnished all information returns it is required to furnish pursuant to the Code, (ii) has established adequate reserves for such taxes which are not due and payable, and (iii) does not have any tax deficiency or claims outstanding, proposed or assessed against it. (h) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Securities, (ii) the purchase by the Underwriters of the Securities from the Company and the purchase by the Representative of the Representative's Warrants from the Company, (iii) the consummation by the Company of any of its obligations under this Agreement or the Representative's Warrant Agreement, or (iv) resales of the Shares in connection with the distribution contemplated hereby. (i) The Company maintains insurance policies, including, but not limited to, general liability and property insurance, which insures the Company and its employees, against such losses and risks generally insured against by comparable businesses. The Company (A) has not failed to give notice or present any insurance claim with respect to any matter, including but not limited to the Company's business, property or employees, under the insurance policy or surety bond in a due and timely manner, (B) does not have any disputes or claims against any underwriter of such insurance policies or surety bonds or has not failed to pay any premiums due and payable thereunder, or (C) has not failed to comply with all conditions contained in such insurance policies and surety bonds. There are no facts or circumstances under any such insurance policy or surety bond which would relieve any insurer of its obligation to satisfy in full any valid claim of the Company. (j) There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of, the Company which (i) questions the validity of the capital stock of the Company, this Agreement or the Representative's Warrant Agreement or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement or the Representative's Warrant Agreement, (ii) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all material respects), or (iii) might materially and adversely affect the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company. (k) The Company has full legal right, power and authority to authorize, issue, deliver and sell the Securities, enter into this Agreement and the Representative's Warrant Agreement and to consummate the transactions provided for in such agreements; and this Agreement and the Representative's Warrant Agreement have each been duly and properly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except (i) as such - 5 - enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification or contribution provisions may be limited under applicable laws or the public policies underlying such laws and (iii) that the remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceedings may be brought. None of the Company's issue and sale of the Securities, execution or delivery of this Agreement or the Representative's Warrant Agreement, its performance hereunder and thereunder, its consummation of the transactions contemplated herein and therein, the conversion of $1,012,500 in principal amount of convertible notes of the Company issued in June 1996 (the "Convertible Notes") into an aggregate of 150,000 shares of Common Stock or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company pursuant to the terms of, (i) the certificate of incorporation or by-laws of the Company, (ii) any license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of its activities or properties. (l) Except as described in the Prospectus, no consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Shares pursuant to the Prospectus and the Registration Statement, the issuance of the Representative's Warrants, the performance of this Agreement and the Representative's Warrant Agreement and the transactions contemplated hereby and thereby, including without limitation, any waiver of any preemptive, first refusal or other rights that any entity or person may have for the issue and/or sale of any of the Shares, or the Representative's Warrants, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Shares, and the Representative's Warrants to be sold by the Company hereunder. (m) All executed agreements, contracts or other documents or copies of executed agreements, contracts or other documents filed as exhibits to the Registration Statement to which the Company is a party or by which it may be bound or to which any of its assets, properties or business may be subject have been duly and validly authorized, executed and delivered by the Company, and constitute the legal, valid and binding agreements of the Company, enforceable against the Company, in accordance with their respective terms. The descriptions in the Registration Statement of agreements, contracts and other documents are accurate in all material respects and fairly present the information required to be shown with - 6 - respect thereto by Form S-1, and there are no contracts or other documents which are required by the Act to be described in the Registration Statement or filed as exhibits to the Registration Statement which are not described or filed as required, and the exhibits which have been filed are in all material respects complete and correct copies of the documents of which they purport to be copies. (n) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, the Company has not (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, (ii) entered into any transaction other than in the ordinary course of business, or (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock of any class, and there has not been any change in the capital stock, or any material change in the debt (long or short term) or liabilities or material adverse change in or affecting the general affairs, management, financial operations, stockholders' equity or results of operations of the Company. (o) No default exists in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, partnership agreement, note, loan or credit agreement, purchase order, or any other agreement or instrument evidencing an obligation for borrowed money, or any other material agreement or instrument to which the Company is a party or by which the Company may be bound or to which the property or assets (tangible or intangible) of the Company is subject or affected. (p) The Company has generally enjoyed a satisfactory employer-employee relationship with its employees and is in compliance with all federal, state, local, and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours. There are no pending investigations involving the Company by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state, local, or foreign laws and regulations. There is no unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company or any predecessor entity, and none has ever occurred. No representation question exists respecting the employees of the Company, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company. No labor dispute with the employees of the Company exists, or is imminent. (q) Except as described in the Prospectus, the Company does not maintain, sponsor or contribute to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited - 7 - transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Code, which could subject the Company to any tax penalty on prohibited transactions and which has not adequately been corrected. Each ERISA Plan is in compliance with all reporting, disclosure and other requirements of the Code and ERISA as they relate to any such ERISA Plan. Determination letters have been received from the Internal Revenue Service with respect to each ERISA Plan which is intended to comply with Code Section 401(a), stating that such ERISA Plan and the attendant trust are qualified thereunder. The Company has never completely or partially withdrawn from a "multiemployer plan." (r) Neither the Company nor any of its employees, directors, stockholders, partners, or affiliates (within the meaning of the Rules and Regulations) of any of the foregoing has taken or will take, directly or indirectly, any action designed to or which has constituted or which might be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities or otherwise. (s) Except as otherwise disclosed in the Prospectus, none of the patents, patent applications, trademarks, service marks, service names, trade names and copyrights, and none of the licenses and rights to the foregoing presently owned or held by the Company are in dispute or are in any conflict with the right of any other person or entity. The Company (i) owns or has the right to use, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, all patents, patent applications, trademarks, service marks, service names, trade names and copyrights, technology and licenses and rights with respect to the foregoing, used in the conduct of its business as now conducted or proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person, corporation or other entity under or with respect to any of the foregoing and (ii) is not obligated or under any liability whatsoever to make any payment by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, patent application, trademark, service mark, service names, trade name, copyright, know-how, technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. There is no action, suit, proceeding, inquiry, arbitration, investigation, litigation or governmental or other proceeding, domestic or foreign, pending or threatened (or circumstances that may give rise to the same) against the Company which challenges the exclusive rights of the Company with respect to any trademarks, trade names, service marks, service names, copyrights, patents, patent applications or licenses or rights to the foregoing used in the conduct of its business, or which challenge the right of the Company to use any technology presently used or contemplated to be used in the conduct of its business. (t) The Company owns and has the unrestricted right to use all trade secrets, know-how (including all other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), inventions, technology, designs, processes, works of authorship, computer programs and technical data and information (collectively herein "intellectual property") that are material to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company, free and clear of and without violating any right, lien, or claim of others, including without limitation, former - 8 - employers of its employees; provided, however, that the possibility exists that other persons or entities, completely independently of the Company, or its employees or agents, could have developed trade secrets or items of technical information similar or identical to those of the Company. The Company is not aware of any such development of similar or identical trade secrets or technical information by others. (u) The Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus, to be owned or leased by it free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects, or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. (v) KPMG Peat Marwick, L.L.P., whose report is filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (w) The Company has caused to be duly executed legally binding and enforceable agreements pursuant to which all of the holders of the Common Stock and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock have agreed not to, directly or indirectly, offer to sell, sell, grant any option for the sale of, assign, transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein for a period of not less than 13 months following the effective date of the Registration Statement without the prior written consent of the Representative. The Company will cause the Transfer Agent, as defined below, to mark an appropriate legend on the face of stock certificates representing all of such securities and to place "stop transfer" orders on the Company's stock ledgers. (x) Except as described in the Prospectus under "Underwriting," there are no claims, payments, issuances, arrangements or understandings, whether oral or written, for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the Company or any of its officers, directors, stockholders, partners, employees or affiliates that may affect the Underwriters' compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). (y) The Common Stock has been approved for quotation on the Nasdaq National Market ("NNM"). (z) Neither the Company nor any of its officers, employees, agents, or any other person acting on behalf of the Company, has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency (domestic or foreign) or instrumentality of any government (domestic or foreign) or any political party or candidate for - 9 - office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist the Company in connection with any actual or proposed transaction) which (a) might subject the Company, or any other such person to any damage or penalty in any civil, criminal or governmental litigation or proceeding (domestic or foreign), (b) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company, or (c) if not continued in the future, might adversely affect the assets, business, operations or prospects of the Company. The Company's internal accounting controls are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as amended. (aa) Except as set forth in the Prospectus, no officer, director or stockholder of the Company, or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Rules and Regulations) of any of the foregoing persons or entities has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (B) purchases from or sells or furnishes to the Company any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected. Except as set forth in the Prospectus under "Certain Transactions," there are no existing agreements, arrangements, understandings or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company and any officer, director, or Principal Stockholder (as such term is defined in the Prospectus) of the Company or any partner, affiliate or associate of any of the foregoing persons or entities. (bb) Any certificate signed by any officer of the Company, and delivered to the Underwriters or to Underwriters' Counsel (as defined herein) shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. (cc) The minute books of the Company have been made available to the Underwriters and contains a complete summary of all meetings and actions of the directors, stockholders, audit committee, compensation committee and any other committee of the Board of Directors of the Company, respectively, since the time of its incorporation, and reflects all transactions referred to in such minutes accurately in all material respects. (dd) Except and to the extent described in the Prospectus, no holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company or to require the Company to file a registration statement under the Act and no person or entity holds any anti-dilution rights with respect to any securities of the Company. (ee) The Company has as of the effective date of the Registration Statement (i) entered into an employment agreement with each of Paul I. Mansur and Pierre G. Mansur, in the form filed as Exhibits ____ and ____, respectively, to the Registration Statement and (ii) - 10 - purchased term key-man insurance on the lives of Paul I. Mansur and Pierre G. Mansur in the amount of $1,000,000 each, which policies name the Company as the sole beneficiary thereof. (ff) The conversion of $1,012,500 in principal amount of the Convertible Notes into an aggregate of 150,000 shares of Common Stock as set forth in the Prospectus has been duly authorized by the Company, the holders of the Convertible Notes and the shareholders of the Company, if applicable, in accordance with all agreements, documents, understandings and instruments affecting the rights, duties, responsibilities, obligations and/or privileges of holders of the Convertible Notes or to which the Company is bound, including without limitation, the Convertible Notes, the Company's certificate of incorporation and the Company's by-laws; and upon the consummation of the Offering, without any further action of the Company, any holder of a Convertible Note(s) or any shareholder of the Company, the aggregate outstanding principal amount of the Convertible Notes will simultaneously convert into 150,000 validly issued, fully paid and nonassessable shares of Common Stock. 2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND REPRESENTATIVE'S WARRANTS. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter, severally and not jointly, agrees to purchase from the Company at a price of $_______ [90% of the initial public offering price] per share of Common Stock, that number of Firm Shares of set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Firm Shares which such Underwriter may become obligated to purchase pursuant to the provisions of SECTION 11 hereof. (b) In addition, on the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase all or any part of an additional 127,500 shares of Common Stock at a price of $____ [90% of the initial public offering price] per share of Common Stock. The option granted hereby will expire 45 days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement if the Company has elected to rely upon Rule 430A under the Rules and Regulations, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Shares upon notice by the Representative to the Company setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for any such Option Shares. Any such time and date of delivery (an "Option Closing Date") shall be determined by the Representative, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined, unless otherwise agreed upon by the Representative and the Company. Nothing herein contained shall obligate the Underwriters to make any over-allotments. No Option Shares shall be delivered unless the Firm Shares shall be simultaneously delivered or shall theretofore have been delivered as herein provided. - 11 - (c) Payment of the purchase price for, and delivery of certificates for, the Firm Shares shall be made at the offices of First Allied Securities, Inc. at 200 Park Avenue, 24th Floor, New York, New York 10166, or at such other place as shall be agreed upon by the Representative and the Company. Such delivery and payment shall be made at 10:00 a.m. (New York City time) on _________________ , 1996 or at such other time and date as shall be agreed upon by the Representative and the Company, but not less than three (3) nor more than seven (7) full business days after the effective date of the Registration Statement (such time and date of payment and delivery being herein called "Closing Date"). In addition, in the event that any or all of the Option Shares are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Shares shall be made at the above mentioned office of the Representative or at such other place as shall be agreed upon by the Representative and the Company on each Option Closing Date as specified in the notice from the Representative to the Company. Delivery of the certificates for the Firm Shares and the Option Shares, if any, shall be made to the Underwriters against payment by the Underwriters, severally and not jointly, of the purchase price for the Firm Shares and the Option Shares, if any, to the order of the Company for the Firm Shares and the Option Shares, if any, by New York Clearing House funds. In the event such option is exercised, each of the Underwriters, acting severally and not jointly, shall purchase that proportion of the total number of Option Shares then being purchased which the number of Firm Shares set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Firm Shares, subject in each case to such adjustments as the Representative in their discretion shall make to eliminate any sales or purchases of fractional shares. Certificates for the Firm Shares and the Option Shares, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Underwriters may request in writing at least two (2) business days prior to the Closing Date or the relevant Option Closing Date, as the case may be. The certificates for the Firm Shares and the Option Shares, if any, shall be made available to the Representative at such office or such other place as the Representative may designate for inspection, checking and packaging no later than 9:30 a.m. on the last business day prior to Closing Date or the relevant Option Closing Date, as the case may be. (d) On the Closing Date, the Company shall issue and sell to the Representative Representative's Warrants at a purchase price of $.001 per warrant, which warrants shall entitle the holders thereof to purchase an aggregate of 85,000 shares of Common Stock. The Representative's Warrants shall be exercisable for a period of four years commencing one year from the effective date of the Registration Statement at a price equaling one hundred twenty percent (120%) of the initial public offering price of the shares of Common Stock. The Representative's Warrant Agreement and form of Warrant Certificate shall be substantially in the form filed as Exhibit [4.3] to the Registration Statement. Payment for the Representative's Warrants shall be made on the Closing Date. 3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration Statement becomes effective as the Representative deems advisable, the Underwriters shall make a public offering of the Shares (other than to residents of or in any jurisdiction in which qualification of the Shares is required and has not become effective) at the price and upon the other terms set forth in the Prospectus. The Representative may from time to time increase or decrease the public offering price after distribution of the Shares has been completed to such extent as the - 12 - Representative, in their discretion deems advisable. The Underwriters may enter into one of more agreements as the Underwriters, in each of their sole discretion, deem advisable with one or more broker-dealers who shall act as dealers in connection with such public offering. 4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and agrees with each of the Underwriters as follows: (a) The Company shall use its best efforts to cause the Registration Statement and any amendments thereto to become effective as promptly as practicable and will not at any time, whether before or after the effective date of the Registration Statement, file any amendment to the Registration Statement or supplement to the Prospectus or file any document under the Act or Exchange Act before termination of the offering of the Shares by the Underwriters of which the Representative shall not previously have been advised and furnished with a copy, or to which the Representative shall have objected or which is not in compliance with the Act, the Exchange Act or the Rules and Regulations. (b) As soon as the Company is advised or obtains knowledge thereof, the Company will advise the Representative and confirm the notice in writing, (i) when the Registration Statement, as amended, becomes effective, if the provisions of Rule 430A promulgated under the Act will be relied upon, when the Prospectus has been filed in accordance with said Rule 430A and when any post-effective amendment to the Registration Statement becomes effective, (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding, suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of the Preliminary Prospectus or the Prospectus, or any amendment or supplement thereto, or the institution of proceedings for that purpose, (iii) of the issuance by the Commission or by any state securities commission of any proceedings for the suspension of the qualification of any of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, (iv) of the receipt of any comments from the Commission; and (v) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information. If the Commission or any state securities commission authority shall enter a stop order or suspend such qualification at any time, the Company will make every effort to obtain promptly the lifting of such order. (c) The Company shall file the Prospectus (in form and substance satisfactory to the Representative) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission pursuant to Rule 424(b)(1) (or, if applicable and if consented to by the Representative, pursuant to Rule 424(b)(4)) not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement and (ii) the fifteenth business day after the effective date of the Registration Statement. (d) The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the - 13 - offering of the Securities which differs from the corresponding prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will furnish the Representative with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such prospectus to which the Representative or Orrick, Herrington & Sutcliffe ("Underwriters' Counsel"), shall object. (e) The Company shall endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective, to qualify the Securities for offering and sale under the securities laws of such jurisdictions as the Representative may designate to permit the continuance of sales and dealings therein for as long as may be necessary to complete the distribution, and shall make such applications, file such documents and furnish such information as may be required for such purpose; PROVIDED, HOWEVER, the Company shall not be required to qualify as a foreign corporation or file a general or limited consent to service of process in any such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agree that such action is not at the time necessary or advisable, use all reasonable efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction to continue such qualification. (f) During the time when a prospectus is required to be delivered under the Act, the Company shall use all reasonable efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended and by the Rules and Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus, or any amendments or supplements thereto. If at any time when a prospectus relating to the Securities or the Representative's Shares is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or Underwriters' Counsel, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Representative promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act, each such amendment or supplement to be satisfactory to Underwriters' Counsel, and the Company will furnish to the Underwriters copies of such amendment or supplement as soon as available and in such quantities as the Underwriters may request. (g) As soon as practicable, but in any event not later than 45 days after the end of the 12-month period beginning on the day after the end of the fiscal quarter of the Company during which the effective date of the Registration Statement occurs (90 days in the event that the end of such fiscal quarter is the end of the Company's fiscal year), the Company shall make generally available to its security holders, in the manner specified in Rule 158(b) of the Rules and Regulations, and to the Representative, an earnings statement which will be in the detail required by, and will otherwise comply with, the provisions of Section 11(a) of the Act - 14 - and Rule 158(a) of the Rules and Regulations, which statement need not be audited unless required by the Act, covering a period of at least 12 consecutive months after the effective date of the Registration Statement. (h) During a period of seven years after the date hereof, the Company will furnish to its stockholders, as soon as practicable, annual reports (including financial statements audited by independent public accountants) and unaudited quarterly reports of earnings, and will deliver to the Representative: i) concurrently with furnishing such quarterly reports to its stockholders, statements of income of the Company for each quarter in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; ii) concurrently with furnishing such annual reports to its stockholders, a balance sheet of the Company as at the end of the preceding fiscal year, together with statements of operations, stockholders' equity, and cash flows of the Company for such fiscal year, accompanied by a copy of the certificate thereon of independent certified public accountants; iii) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; iv) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the NASD or any securities exchange; v) every press release and every material news item or article of interest to the financial community in respect of the Company, or its affairs which was released or prepared by or on behalf of the Company; and vi) any additional information of a public nature concerning the Company (and any future subsidiary) or its businesses which the Representative may request. During such seven-year period, if the Company has an active subsidiary, the foregoing financial statements will be on a consolidated basis to the extent that the accounts of the Company and its subsidiary are consolidated, and will be accompanied by similar financial statements for any significant subsidiary which is not so consolidated. (i) The Company will maintain a Transfer Agent and, if necessary under the jurisdiction of incorporation of the Company, a Registrar (which may be the same entity as the Transfer Agent) for its Common Stock. (j) The Company will furnish to the Representative or on the Representative's order, without charge, at such place as the Representative may designate, copies - 15 - of each Preliminary Prospectus, the Registration Statement and any pre-effective or post-effective amendments thereto (two of which copies will be signed and will include all financial statements and exhibits), the Prospectus, and all amendments and supplements thereto, including any prospectus prepared after the effective date of the Registration Statement, in each case as soon as available and in such quantities as the Representative may request. (k) On or before the effective date of the Registration Statement, the Company shall provide the Representative with true copies of duly executed, legally binding and enforceable agreements pursuant to which for a period of 13 months from the effective date of the Registration Statement, the holders of all shares of Common Stock and holders of securities exchangeable or exercisable for or convertible into shares of Common Stock, agree that it or he or she will not directly or indirectly, issue, offer to sell, sell, grant an option for the sale of, assign, transfer, pledge, hypothecate, distribute or otherwise encumber or dispose of any shares of Common Stock or securities convertible into, exercisable or exchangeable for or evidencing any right to purchase or subscribe for any shares of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of any beneficial interest therein without the prior written consent of the Representative (collectively, the "Lock-up Agreements"). During the 13 month period commencing with the effective date of the Registration Statement, the Company shall not, without the prior written consent of the Representative, sell, contract or offer to sell, issue, transfer, assign, pledge, hypothecate, distribute, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any options, rights or warrants with respect to any shares of Common Stock, except as set forth in clause (s) of SECTION 4 hereof. On or before the Closing Date, the Company shall deliver instructions to the Transfer Agent authorizing it to place appropriate legends on the certificates representing the securities subject to the Lock-up Agreements and to place appropriate stop transfer orders on the Company's ledgers. (l) Neither the Company, nor any of its officers, directors, stockholders, nor any of their respective affiliates (within the meaning of the Rules and Regulations) will take, directly or indirectly, any action designed to, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company. (m) The Company shall apply the net proceeds from the sale of the Securities in the manner, and subject to the conditions, set forth under "Use of Proceeds" in the Prospectus. Except as described in the Prospectus, no portion of the net proceeds will be used, directly or indirectly, to acquire any securities issued by the Company. (n) The Company shall timely file all such reports, forms or other documents as may be required (including, but not limited to, a Form SR as may be required pursuant to Rule 463 under the Act) from time to time, under the Act, the Exchange Act, and the Rules and Regulations, and all such reports, forms and documents filed will comply as to form and substance with the applicable requirements under the Act, the Exchange Act, and the Rules and Regulations. - 16 - (o) The Company shall furnish to the Representative as early as practicable prior to each of the date hereof, the Closing Date and each Option Closing Date, if any, but no later than two (2) full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company (which in no event shall be as of a date more than thirty (30) days prior to the date of the Registration Statement) which have been read by the Company's independent public accountants, as stated in its letter to be furnished pursuant to SECTION 6(i) hereof. (p) The Company shall cause the Common Stock to be quoted on NNM and for a period of seven (7) years from the date hereof, use its best efforts to maintain the NNM quotation of the Common Stock to the extent outstanding. (q) For a period of five (5) years from the Closing Date, the Company shall furnish to the Representative at the Representative's request and at the Company's sole expense, (i) daily consolidated transfer sheets relating to the Common Stock (ii) the list of holders of all of the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary sales of the Company's securities prepared by counsel to the Company. (r) As soon as practicable, (i) but in no event more than 5 business days before the effective date of the Registration Statement, file a Form 8-A with the Commission providing for the registration under the Exchange Act of the Securities and (ii) but in no event more than 30 days from the effective date of the Registration Statement, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions and Moody's OTC Manual and to continue such inclusion for a period of not less than seven (7) years. (s) The Company hereby agrees that it will not for a period of thirteen (13) months from the effective date of the Registration Statement, adopt, propose to adopt or otherwise permit to exist any employee, officer, director, consultant or compensation plan or arrangement permitting the grant, issue or sale of any shares of Common Stock or other securities of the Company (i) in an amount greater than an aggregate of 375,000 shares, (ii) at an exercise or sale price per share less than the greater of (a) the initial public offering price of the Shares set forth herein and (b) the fair market value of the Common Stock on the date of grant or sale, (iii) to any direct or indirect beneficial holder on the date hereof of more than 10% of the issued and outstanding shares of Common Stock, (iv) with the payment for such securities with any form of consideration other than cash, (v) upon payment of less than the full purchase or exercise price for such shares of Common Stock or other securities of the Company on the date of grant or issuance, or (vi) permitting the existence of stock appreciation rights, phantom options or similar arrangements. The Company further agrees that it will not issue any stock options to Pierre G. Mansur for a period of thirteen (13) months from the effective date of the Registration Statement. (t) Until the completion of the distribution of the Shares, the Company shall not without the prior written consent of the Representative and Underwriters' Counsel, issue, directly or indirectly, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering contemplated hereby, - 17 - other than trade releases issued in the ordinary course of the Company's business consistent with past practices with respect to the Company's operations. (u) For a period equal to the lesser of (i) seven (7) years from the date hereof, and (ii) the sale to the public of the Representative's Shares, the Company will not take any action or actions which may prevent or disqualify the Company's use of Form S-1 (or other appropriate form) for the registration under the Act of the Representative's Shares. (v) For a period of five (5) years after the effective date of the Registration Statement, the Representative shall have the right to designate for election one (1) individual to the Company's Board of Directors (the "Board"). In the event the Representative elects not to exercise such right, then it may designate one (1) individual to attend meetings of the Company's Board. The Company shall notify the Representative of each meeting of the Board and the Company shall send to such individual all notices and other correspondence and communications sent by the Company to members of the Board. Such individual shall be reimbursed for all out-of-pocket expenses incurred in connection with his attendance of meetings of the Board. 5. PAYMENT OF EXPENSES. (a) The Company hereby agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid at the Closing Date) all expenses and fees (other than fees of Underwriters' Counsel, except as provided in (iv) below) incident to the performance of the obligations of the Company under this Agreement and the Representative's Warrant Agreement, including, without limitation, (i) the fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, (including mailing and handling charges) filing, delivery and mailing (including the payment of postage with respect thereto) of the Registration Statement and the Prospectus and any amendments and supplements thereto and the printing, mailing (including the payment of postage with respect thereto) and delivery of this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreements, and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments thereof or supplements thereto supplied to the Underwriters and such dealers as the Underwriters may request, in quantities as hereinabove stated, (iii) the printing, engraving, issuance and delivery of the Securities including, but not limited to, (x) the purchase by the Underwriters of the Shares and the purchase by the Representative of the Representative's Warrants from the Company, (y) the consummation by the Company of any of its obligations under this Agreement and the Representative's Warrant Agreement, and (z) resale of the Shares by the Underwriters in connection with the distribution contemplated hereby, (iv) the qualification of the Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and disbursements and fees of counsel in connection therewith (such fees not to exceed $40,000), (v) costs and expenses in connection with due diligence investigations, including but not limited to the fees of any independent counsel or consultant retained, (vi) fees and expenses of the transfer agent and registrar, (vii) applications for assignments of a rating of the Securities by qualified rating agencies, - 18 - (viii) the fees payable to the Commission and the NASD, and (ix) the fees and expenses incurred in connection with the quotation of the Securities on NNM and any other exchange. (b) If this Agreement is terminated by the Underwriters in accordance with the provisions of SECTION 6 or SECTION 12, the Company shall reimburse and indemnify the Representative for all of its actual out-of-pocket expenses, including the fees and disbursements of Underwriters' Counsel, less any amounts already paid pursuant to SECTION 5(c) hereof. (c) The Company further agrees that, in addition to the expenses payable pursuant to subsection (a) of this SECTION 5, it will pay to the Representative on the Closing Date by certified or bank cashier's check or, at the election of the Representative, by deduction from the proceeds of the offering contemplated herein a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Firm Shares, $50,000 of which has been paid to date. In the event the Representative elect to exercise the over-allotment option described in SECTION 2(b) hereof, the Company agrees to pay to the Representative on the Option Closing Date (by certified or bank cashier's check or, at the Representative's election, by deduction from the proceeds of the Option Shares) a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received by the Company from the sale of the Option Shares. 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company herein as of the date hereof and as of the Closing Date and each Option Closing Date, if any, with respect to the Company as if it had been made on and as of the Closing Date or each Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of the officers of the Company made pursuant to the provisions hereof; and the performance by the Company on and as of the Closing Date and each Option Closing Date, if any, of its covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 12:00 Noon, New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative, and, at Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations within the prescribed time period, and prior to Closing Date the Company shall have provided evidence satisfactory to the Representative of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. - 19 - (b) The Representative shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact which, in the Representative's opinion, is material, or omits to state a fact which, in the Representative's opinion, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On or prior to the Closing Date, the Representative shall have received from Underwriters' Counsel, such opinion or opinions with respect to the organization of the Company, the validity of the Securities, the Representative's Warrants, the Registration Statement, the Prospectus and other related matters as the Representative may request and Underwriters' Counsel shall have received such papers and information as they request to enable them to pass upon such matters. (d) At Closing Date, the Underwriters shall have received the favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel to the Company, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: i) the Company (A) has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction, (B) is duly qualified and licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing, and (C) has all requisite corporate power and authority; and the Company has obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, those having jurisdiction over environmental or similar matters), to own or lease its properties and conduct its business as described in the Prospectus; the Company is and has been doing business in material compliance with all such authorizations, approvals, orders, licenses, certificates, franchises and permits and all federal, state and local laws, rules and regulations; the Company has not received any notice of proceedings relating to the revocation or modification of any such authorization, approval, order, license, certificate, franchise, or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the business, operations, condition, financial or otherwise, or the earnings, business affairs, position, prospects, value, operation, properties, business or results of operations of the Company. The disclosures in the Registration Statement concerning the effects of federal, state and local laws, rules and regulations on the Company's business as currently conducted and as contemplated are correct in all material respects and do not omit to state a fact - 20 - necessary to make the statements contained therein not misleading in light of the circumstances in which they were made; ii) to the best of such counsel's knowledge, the Company does not own an interest in any other corporation, partnership, joint venture, trust or other business entity; iii) the Company has a duly authorized, issued and outstanding capitalization as set forth in the Prospectus, and any amendment or supplement thereto, under "Capitalization" and "Description of Capital Stock," and the Company is not a party to or bound by any instrument, agreement or other arrangement providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement, the Representative's Warrant Agreement and as described in the Prospectus. The Securities, and all other securities issued or issuable by the Company conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company. The Shares, the Representative's Warrants and the Representative's Shares to be sold by the Company hereunder and under the Representative's Warrant Agreement are not and will not be subject to any preemptive or other similar rights of any stockholder, have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and conform to the description thereof contained in the Prospectus; the holders thereof will not be subject to any liability solely as such holders; all corporate action required to be taken for the authorization, issue and sale of the Shares, the Representative's Warrants and the Representative's Shares has been duly and validly taken; and the certificates representing the Shares and the Representative's Warrants are in due and proper form. The Representative's Warrants constitute valid and binding obligations of the Company to issue and sell, upon exercise thereof and payment therefor, the number and type of securities of the Company called for thereby. Upon the issuance and delivery pursuant to this Agreement and the Representative's Warrant Agreement of the Shares and the Representative's Warrants, respectively, to be sold by the Company, the Underwriters and the Representative, respectively, will acquire good and marketable title to the Shares and Representative's Warrants free and clear of any pledge, lien, charge, claim, encumbrance, pledge, security interest, or other restriction or equity of any kind whatsoever. No transfer tax is payable by or on behalf of the Underwriters in connection with (A) the issuance by the Company of the Shares, (B) the purchase by the Underwriters and the Representative of the Shares and the Representative's Warrants, respectively, from the Company, (C) the consummation by the Company of any of its obligations under this Agreement or the Representative's - 21 - Warrant Agreement, or (D) resales of the Shares in connection with the distribution contemplated hereby; iv) The conversion of $1,012,500 in principal amount of the Convertible Notes into an aggregate of 150,000 shares of Common Stock of the Company as set forth in the Prospectus has been duly authorized by the Company, the holders of the Convertible Notes and the shareholders of the Company, if applicable, in accordance with all agreements, documents, understandings and instruments affecting the rights, duties, responsibilities, obligations and/or privileges of holders of the Convertible Notes or to which the Company is bound, including without limitation, the Convertible Notes, the Company's certificate of incorporation and the Company's by-laws; and upon the consummation of the Offering, without any further action of the Company, any holder of a Convertible Note(s) or any shareholder of the Company, the aggregate outstanding principal amount of the Convertible Notes will simultaneously convert into 150,000 validly issued, fully paid and nonassessable shares of Common Stock; v) the Registration Statement is effective under the Act, and, if applicable, filing of all pricing information has been timely made in the appropriate form under Rule 430A, and no stop order suspending the use of the Preliminary Prospectus, the Registration Statement or Prospectus or any part of any thereof or suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to the best of such counsel's knowledge, threatened or contemplated under the Act; vi) each of the Preliminary Prospectus, the Registration Statement, and the Prospectus and any amendments or supplements thereto (other than the financial statements and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; vii) to the best of such counsel's knowledge, (A) there are no agreements, contracts or other documents required by the Act to be described in the Registration Statement and the Prospectus and filed as exhibits to the Registration Statement other than those described in the Registration Statement (or required to be filed under the Exchange Act if upon such filing they would be incorporated, in whole or in part, by reference therein) and the Prospectus and filed as exhibits thereto, and the exhibits which have been filed are correct copies of the documents of which they purport to be copies; (B) the descriptions in the Registration Statement and the Prospectus and any supplement or amendment thereto of contracts and other documents to which the Company is a party or by which it is bound, including any document to which the Company is a party or by which it is bound, incorporated by reference into the Prospectus and any supplement or amendment thereto, are accurate in all material respects and fairly represent the information required to be shown by Form S-1; (C) there is not pending or threatened against the Company any action, arbitration, suit, - 22 - proceeding, inquiry, investigation, litigation, governmental or other proceeding (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, pending or threatened against (or circumstances that may give rise to the same), or involving the properties or business of the Company which (x) is required to be disclosed in the Registration Statement which is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all material respects), (y) questions the validity of the capital stock of the Company or this Agreement or the Representative's Warrant Agreement, or of any action taken or to be taken by the Company pursuant to or in connection with any of the foregoing; (D) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; and (E) there is no action, suit or proceeding pending, or threatened, against or affecting the Company before any court or arbitrator or governmental body, agency or official (or any basis thereof known to such counsel) in which there is a reasonable possibility of an adverse decision which may result in a material adverse change in the condition, financial or otherwise, or the earnings, position, prospects, stockholders' equity, value, operation, properties, business or results of operations of the Company, which could adversely affect the present or prospective ability of the Company to perform its obligations under this Agreement or the Representative's Warrant Agreement or which in any manner draws into question the validity or enforceability of this Agreement or the Representative's Warrant Agreement; viii) the Company has full legal right, power and authority to enter into each of this Agreement and the Representative's Warrant Agreement, and to consummate the transactions provided for herein and therein; and each of this Agreement and the Representative's Warrant Agreement has been duly authorized, executed and delivered by the Company. Each of this Agreement and the Representative's Warrant Agreement, assuming due authorization, execution and delivery by each other party thereto constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law), and none of the Company's execution or delivery of this Agreement and the Representative's Warrant Agreement, its performance hereunder or thereunder, its consummation of the transactions contemplated herein or therein, or the conduct of its business as described in the Registration Statement, the Prospectus, and any amendments or supplements thereto, or the conversion of the Convertible Notes as set forth in the Registration Statement, the Prospectus and any amendments or supplements thereto, conflicts with or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction or equity of any - 23 - kind whatsoever upon, any property or assets (tangible or intangible) of the Company pursuant to the terms of, (A) the certificate of incorporation or by-laws of the Company, (B) any license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its respective properties or assets (tangible or intangible) is or may be subject, or any indebtedness, or (C) any statute, judgment, decree, order, rule or regulation applicable to the Company of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body (including, without limitation, those having jurisdiction over environmental or similar matters), domestic or foreign, having jurisdiction over the Company or any of its activities or properties; ix) except as described in the Prospectus, no consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body (other than such as may be required under Blue Sky laws, as to which no opinion need be rendered) is required in connection with the issuance of the Shares pursuant to the Prospectus, the issuance of the Representative's Warrants, and the Registration Statement, the performance of this Agreement and the Representative's Warrant Agreement, and the transactions contemplated hereby and thereby; x) the properties and business of the Company conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus; and the Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, in each case free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable; xi) to the best knowledge of such counsel, the Company is not in breach of, or in default under, any term or provision of any license, contract, indenture, mortgage, installment sale agreement, deed of trust, lease, voting trust agreement, stockholders' agreement, partnership agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company is a party or by which the Company may be bound or to which the property or assets (tangible or intangible) of the Company is subject or affected; and the Company is not in violation of any term or provision of its certificate of incorporation by-laws, or in violation of any franchise, license, permit, judgment, decree, order, statute, rule or regulation; xii) the statements in the Prospectus under "BUSINESS," "MANAGEMENT," "PRINCIPAL SHAREHOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES - 24 - ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions, are correct in all material respects; xiii) the Shares have been accepted for quotation on NNM; xiv) the persons listed under the caption "PRINCIPAL SHAREHOLDERS" in the Prospectus are the respective "beneficial owners" (as such phrase is defined in regulation 13d-3 under the Exchange Act) of the securities set forth opposite their respective names thereunder as and to the extent set forth therein; xv) except as described in the Prospectus, no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement, require the Company to file any registration statement or, if filed, to include any security in such registration statement; xvi) except as described in the Prospectus, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or financial consulting arrangement or any other arrangements, agreements, understandings, payments or issuances that may affect the Underwriters' compensation, as determined by the NASD; xvii) assuming due execution by the parties thereto other than the Company, the Lock-up Agreements are legal, valid and binding obligations of parties thereto, enforceable against the party and any subsequent holder of the securities subject thereto in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law); and xviii) except as described in the Prospectus, the Company does not (A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or contribute, now or at any time previously, to a defined benefit plan, as defined in Section 3(35) of ERISA, and (C) has never completely or partially withdrawn from a "multiemployer plan". Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Preliminary Prospectus, the Registration Statement, the Prospectus, and related matters were discussed and, although such - 25 - counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Prospectus, the Registration Statement and Prospectus, on the basis of the foregoing, no facts have come to the attention of such counsel which lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or the Preliminary Prospectus or Prospectus or amendment or supplement thereto as of the date of such opinion contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no opinion with respect to the financial statements and schedules and other financial and statistical data included in the Preliminary Prospectus, the Registration Statement or Prospectus). Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991), or any comparable State bar accord. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and jurisdictions in which they are admitted, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance satisfactory to Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company, and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative and they are justified in relying thereon. At each Option Closing Date, if any, the Underwriters shall have received the favorable opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., counsel to the Company, dated the Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel confirming as of Option Closing Date the statements made by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., in its opinion delivered on the Closing Date. (e) On or prior to each of the Closing Date and the Option Closing Date, if any, Underwriters' Counsel shall have been furnished such documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this SECTION 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company, or herein contained. (f) Prior to each of the Closing Date and each Option Closing Date, if any, (i) there shall have been no material adverse change nor development involving a prospective - 26 - change in the condition, financial or otherwise, prospects, stockholders' equity or the business activities of the Company, whether or not in the ordinary course of business, from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company, from the latest date as of which the financial condition of the Company is set forth in the Registration Statement and Prospectus which is materially adverse to the Company; (iii) the Company shall not be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) the Company shall not have issued any securities (other than the Securities); the Company shall not have declared or paid any dividend or made any distribution in respect of its capital stock of any class; and there has not been any change in the capital stock of the Company, or any material change in the debt (long or short term) or liabilities or obligations of the Company (contingent or otherwise); (v) no material amount of the assets of the Company shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (vi) no action, suit or proceeding, at law or in equity, shall have been pending or threatened (or circumstances giving rise to same) against the Company, or affecting any of its properties or business before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement and Prospectus; and (vii) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, threatened or contemplated by the Commission. (g) At each of the Closing Date and each Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial or chief accounting officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement, and that: (i) The representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; ii) No stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued, and no proceedings for that purpose have been instituted or are pending or, to the best of each of such person's knowledge, after due inquiry are contemplated or threatened under the Act; iii) The Registration Statement and the Prospectus and, if any, each amendment and each supplement thereto, contain all statements and information required to be included therein, and none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be - 27 - stated therein or necessary to make the statements therein not misleading and neither the Preliminary Prospectus or any supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and iv) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, (a) the Company has not incurred up to and including the Closing Date or the Option Closing Date, as the case may be, other than in the ordinary course of its business, any material liabilities or obligations, direct or contingent; (b) the Company has not paid or declared any dividends or other distributions on its capital stock; (c) the Company has not entered into any transactions not in the ordinary course of business; (d) there has not been any change in the capital stock of the Company or any material change in the debt (long or short-term) of the Company; (e) the Company has not sustained any material loss or damage to its property or assets, whether or not insured; (g) there is no litigation which is pending or threatened (or circumstances giving rise to same) against the Company, or any affiliated party of any of the foregoing which is required to be set forth in an amended or supplemented Prospectus which has not been set forth; and (h) there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been set forth. References to the Registration Statement and the Prospectus in this subsection (g) are to such documents as amended and supplemented at the date of such certificate. (h) By the Closing Date, the Underwriters will have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriters, as described in the Registration Statement. (i) At the time this Agreement is executed, the Underwriters shall have received a letter, dated such date, addressed to the Underwriters in form and substance satisfactory (including the non-material nature of the changes or decreases, if any, referred to in clause (iii) below) in all respects to the Underwriters and Underwriters' Counsel, from KPMG Peat Marwick, L.L.P.; (i) confirming that they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable Rules and Regulations; ii) stating that it is their opinion that the financial statements and supporting schedules of the Company included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations thereunder and that the Representative may rely upon the opinion of KPMG Peat Marwick, L.L.P. with - 28 - respect to such financial statements and supporting schedules included in the Registration Statement; iii) stating that, on the basis of a limited review which included a reading of the latest available unaudited interim financial statements of the Company, a reading of the latest available minutes of the stockholders and board of directors and the various committees of the boards of directors of the Company, consultations with officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the pro forma financial information contained in the Registration Statement and Prospectus does not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or is not fairly presented in conformity with generally accepted accounting principles applied on a basis consistent with that of the audited financial statements of the Company or the unaudited pro forma financial information included in the Registration Statement, (B) the unaudited financial statements and supporting schedules of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement, or (C) at a specified date not more than five (5) days prior to the effective date of the Registration Statement, there has been any change in the capital stock of the Company, any change in the long-term debt of the Company, or any decrease in the stockholders' equity of the Company or any decrease in the net current assets or net assets of the Company as compared with amounts shown in the June 30, 1996 balance sheets included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (D) during the period from June 30, 1996 to a specified date not more than five (5) days prior to the effective date of the Registration Statement, there was any decrease in net revenues or net earnings of the Company or increase in net earnings per common share of the Company, in each case as compared with the corresponding period beginning June 30, 1995 other than as set forth in or contemplated by the Registration Statement, or, if there was any such decrease, setting forth the amount of such decrease; iv) setting forth, at a date not later than five (5) days prior to the date of the Registration Statement, the amount of liabilities of the Company (including a break-down of commercial paper and notes payable to banks); v) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information - 29 - may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and vi) statements as to such other matters incident to the transaction contemplated hereby as the Representative may request. (j) At the Closing Date and each Option Closing Date, if any, the Underwriters shall have received from KPMG Peat Marwick, L.L.P. a letter, dated as of the Closing Date or the Option Closing Date, as the case may be, to the effect that they reaffirm the statements made in the letter furnished pursuant to SUBSECTION (i) of this Section hereof except that the specified date referred to shall be a date not more than five days prior to the Closing Date or the Option Closing Date, as the case may be, and, if the Company has elected to rely on Rule 430A of the Rules and Regulations, to the further effect that they have carried out procedures as specified in clause (v) of SUBSECTION (i) of this Section with respect to certain amounts, percentages and financial information as specified by the Representative and deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (v). (k) The Company shall have delivered to the Representative a letter from KPMG Peat Marwick, L.L.P. addressed to the Company stating that they have not during the immediately preceding two year period brought to the attention of the Company's management any "weakness" as defined in Statement of Auditing Standards No. 60 "Communication of Internal Control Structure Related Matters Noted in an Audit," in any of the Company's internal controls. (l) On or before the Closing Date, the Underwriters shall have received the favorable opinion of [____________________], special intellectual property counsel to the Company, dated the Closing Date, addressed to the Underwriters, in form and substance satisfactory to Underwriters' Counsel, and in substantially the form of EXHIBIT A attached hereto. At each Option Closing date, if any, the Underwriters shall have received the favorable opinion of [___________________], dated the relevant Option Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriter's Counsel confirming, as of the Option Closing Date, the statements made by [___________________], in its opinion delivered on the Closing Date. (m) On each of the Closing Date and Option Closing Date, if any, there shall have been duly tendered to the Representative for the several Underwriters' accounts the appropriate number of Shares. - 30 - (n) No order suspending the sale of the Securities in any jurisdiction designated by the Representative pursuant to subsection (e) of SECTION 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or shall be contemplated. (o) On or before the Closing Date, the Company shall have executed and delivered to the Representative, (i) the Representative's Warrant Agreement substantially in the form filed as Exhibit 4.2 to the Registration Statement in final form and substance satisfactory to the Representative, and (ii) the Representative's Warrants in such denominations and to such designees as shall have been provided to the Company. (p) On or before the Closing Date, the Shares shall have been duly approved for quotation on NNM, subject to official notice of issuance. (q) On or before the Closing Date, there shall have been delivered to the Representative all of the Lock-up Agreements, in form and substance satisfactory to Underwriters' Counsel. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Representative may terminate this Agreement or, if the Representative so elect, it may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 7. INDEMNIFICATION. (a) The Company, agrees to indemnify and hold harmless each of the Underwriters (for purposes of this SECTION 7 "Underwriter" shall include the officers, directors, partners, employees, agents and counsel of the Underwriter, including specifically each person who may be substituted for an Underwriter as provided in SECTION 11 hereof), and each person, if any, who controls the Underwriter ("controlling person") within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions, proceedings, investigations, inquiries, and suits in respect thereof), whatsoever (including but not limited to any and all costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against such action, proceeding, investigation, inquiry or suit, commenced or threatened, or any claim whatsoever), as such are incurred, to which the Underwriter or such controlling person may become subject under the Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon (A) any untrue statement or alleged untrue statement of a material fact contained (i) in any Preliminary Prospectus, the Registration Statement or the Prospectus (as from time to time amended and supplemented); (ii) in any post-effective amendment or amendments or any new registration statement and prospectus in which is included securities of the Company issued or issuable upon exercise of the Securities; or (iii) in any application or other document or written communication (in this SECTION 7 collectively called "application") executed by the Company or based upon written information furnished by the Company filed, delivered or used in any jurisdiction in - 31 - order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, NNM or any other securities exchange, (B) the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which they were made), or (C) any breach of any representation, warranty, covenant or agreement of the Company contained herein or in any certificate by or on behalf of the Company or any of its officers delivered pursuant hereto unless, in the case of clause (A) or (B) above, such statement or omission was made in reliance upon and in conformity with written information furnished to the Company with respect to any Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, the Registration Statement or any Prospectus, or any amendment thereof or supplement thereto, or in any application, as the case may be. The indemnity agreement in this subsection (a) shall be in addition to any liability which the Company may have at common law or otherwise. (b) Each of the Underwriters agrees severally, but not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of the Act, to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in any Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any application made in reliance upon, and in strict conformity with, written information furnished to the Company with respect to any Underwriter by such Underwriter expressly for use in such Preliminary Prospectus, the Registration Statement or Prospectus or any amendment thereof or supplement thereto or in any such application, provided that such written information or omissions only pertain to disclosures in the Preliminary Prospectus, the Registration Statement or Prospectus directly relating to the transactions effected by the Underwriters in connection with this Offering. The Company acknowledges that the statements with respect to the public offering of the Securities set forth under the heading "Underwriting" and the stabilization legend in the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. The indemnity agreement in this subsection (b) shall be in addition to any liability which the Underwriters may have at common law or otherwise. (c) Promptly after receipt by an indemnified party under this SECTION 7 of notice of the commencement of any action, suit or proceeding, such indemnified party shall, if a claim in respect thereof is to be made against one or more indemnifying parties under this SECTION 7, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this SECTION 7 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may have otherwise). In case any such action, investigation, inquiry, suit or proceeding is brought against any indemnified party, and it notifies an indemnifying party or parties of the commencement - 32 - thereof, the indemnifying party or parties will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying parties in connection with the defense of such action at the expense of the indemnifying party, (ii) the indemnifying parties shall not have employed counsel reasonably satisfactory to such indemnified party to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to one or all of the indemnifying parties (in which case the indemnifying parties shall not have the right to direct the defense of such action, investigation, inquiry, suit or proceeding on behalf of the indemnified party or parties), in any of which events such fees and expenses of one additional counsel shall be borne by the indemnifying parties. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action, investigation, inquiry, suit or proceeding or separate but similar or related actions, investigations, inquiries, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances. Anything in this SECTION 7 to the contrary notwithstanding, an indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; PROVIDED, HOWEVER, that such consent was not unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, settle compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, investigation, inquiry, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party form all liability arising out of such claim, action, suit or proceeding and (ii) doe snot include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in any case in which (i) an indemnified party makes claim for indemnification pursuant to this SECTION 7, but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of this SECTION 7 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any indemnified party, then each indemnifying party shall contribute to the amount paid as a result of such losses, claims, damages, expenses or liabilities (or actions, investigations, inquiries, suits or proceedings in respect thereof) (A) in such proportion as is appropriate to reflect the relative benefits received by each of the contributing parties, on the one hand, and the party to be indemnified on the other hand, from the offering of the Securities or (B) if the allocation provided by clause (A) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits - 33 - referred to in clause (i) above but also the relative fault of each of the contributing parties, on the one hand, and the party to be indemnified on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. In any case where the Company is the contributing party and the Underwriters are the indemnified party, the relative benefits received by the Company on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) bear to the total underwriting discounts received by the Underwriters hereunder, in each case as set forth in the table on the Cover Page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, or by the Underwriters, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions, investigations, inquiries, suits or proceedings in respect thereof) referred to above in this subdivision (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action, claim, investigation, inquiry, suit or proceeding. Notwithstanding the provisions of this subdivision (d) the Underwriters shall not be required to contribute any amount in excess of the underwriting discount applicable to the Securities purchased by the Underwriters hereunder. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this SECTION 7, each person, if any, who controls the Company within the meaning of the Act, each officer of the Company who has signed the Registration Statement, and each director of the Company shall have the same rights to contribution as the Company, subject in each case to this subparagraph (d). Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit, inquiry, investigation or proceeding against such party in respect to which a claim for contribution may be made against another party or parties under this subparagraph (d), notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have hereunder or otherwise than under this subparagraph (d), or to the extent that such party or parties were not adversely affected by such omission. The contribution agreement set forth above shall be in addition to any liabilities which any indemnifying party may have at common law or otherwise. 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto, shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements of the Company and the indemnity agreements contained in SECTION 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, any controlling person of any Underwriter or the Company, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriters and the Representative, as the case may be. - 34 - 9. EFFECTIVE DATE. (a) This Agreement shall become effective at 10:00 a.m., New York City time, on the next full business day following the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representative, in its discretion, shall release the Shares for sale to the public; PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and 10 of this Agreement shall at all times be effective. For purposes of this SECTION 9, the Shares to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representative of telegrams to securities dealers releasing such shares for offering or the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Shares. 10. TERMINATION. (a) Subject to subsection (b) of this SECTION 10, the Representative shall have the right to terminate this Agreement, after the date hereof, (i) if any domestic or international event or act or occurrence has materially disrupted, or in the Representative's opinion will in the immediate future materially adversely disrupt the financial markets; or (ii) any material adverse change in the financial markets shall have occurred; or (iii) if trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Commission or any other government authority having jurisdiction; or (iv) if trading of any of the securities of the Company shall have been suspended, or any of the securities of the Company shall have been delisted, on any exchange or in any over-the-counter market; or (v) if the United States shall have become involved in a war or major hostilities, or if there shall have been an escalation in an existing war or major hostilities or a national emergency shall have been declared in the United States; or (vi) if a banking moratorium has been declared by a state or federal authority; or (vii) if the Company shall have sustained a loss material to the Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative's opinion, make it inadvisable to proceed with the delivery of the Securities; or (viii) if there shall have occurred any outbreak or escalation of hostilities or any calamity or crisis or there shall have been such a material adverse change in the conditions or prospects of the Company, or such material adverse change in the general market, political or economic conditions, in the United States or elsewhere as in the Representative's judgment would make it inadvisable to proceed with the offering, sale and/or delivery of the Securities or (ix) if Paul I. Mansur and Pierre G. Mansur shall no longer serve the Company in their present capacity. (b) If this Agreement is terminated by the Representative in accordance with the provisions of SECTION 10(a) the Company shall promptly reimburse and indemnify the Representative for all of their actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to SECTION 5(c) above). Notwithstanding any contrary provision contained in this Agreement, if this - 35 - Agreement shall not be carried out within the time specified herein, or any extension thereof granted to the Representative, by reason of any failure on the part of the Company to perform any undertaking or satisfy any condition of this Agreement by it to be performed or satisfied (including, without limitation, pursuant to SECTION 6 or SECTION 12) then, the Company shall promptly reimburse and indemnify the Representative for all of their actual out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters (less amounts previously paid pursuant to SECTION 5(c) above). In addition, the Company shall remain liable for all Blue Sky counsel fees (such fees not to exceed $40,000) and expenses and filing fees. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to SECTIONS 6, 10, 11 and 12 hereof), and whether or not this Agreement is otherwise carried out, the provisions of SECTION 5 and SECTION 7 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of SECTION 6, SECTION 10 or SECTION 12 hereof) to purchase the Securities which it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangement for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Shares to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Shares, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default which does not result in a termination of this Agreement, the Representative shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing Date or at any Option Closing Date, as applicable, to sell and deliver the number of Shares which it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Shares to be purchased on an Option Closing - 36 - Date, the Underwriters may at the Representative's option, by notice from the Representative to the Company, terminate the Underwriters' obligation to purchase Option Shares from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to SECTION 5, SECTION 7 and SECTION 10 hereof. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default. 13. NOTICES. All notices and communications hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative c/o First Allied Securities, Inc., 200 Park Avenue, 24th Floor, New York, New York 10166, Attention: Scott A. Weisman, with a copy to Orrick, Herrington & Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence B. Fisher, Esq. Notices to the Company shall be directed to the Company at 8425 S.W. 129th Terrace, Miami, Florida 33156, Attention: Paul I. Mansur, Chief Executive Officer, with a copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attention: Gary M. Epstein, Esq. 14. PARTIES. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Company and the controlling persons, directors and officers referred to in SECTION 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 15. CONSTRUCTION. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to the choice of law or conflict of laws principles. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the Representative's Warrant Agreement constitute the entire agreement of the parties hereto and supersede all prior written or oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may not be amended except in a writing, signed by the Representative and the Company. - 37 - If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, MANSUR INDUSTRIES INC. By: Paul I. Mansur Chief Executive Officer Confirmed and accepted as of the date first above written. FIRST ALLIED SECURITIES, INC. For itself and as Representative of the several Underwriters named in Schedule A hereto. By: - 38 - SCHEDULE A Member of Firm Shares NAME OF UNDERWRITERS TO BE PURCHASED First Allied Securities, Inc.......................... Total.................................................. 850,000 - 39 - EXHIBIT A [FORM OF INTELLECTUAL PROPERTY OPINION] ___________________, 1996 FIRST ALLIED SECURITIES, INC. 200 Park Avenue, 24th Floor New York, New York 10166 Re: PUBLIC OFFERING OF MANSUR INDUSTRIES INC. Gentlemen: We have acted as special counsel to MANSUR INDUSTRIES Inc., a Florida corporation (the "Company"), in connection with the entering into by the Company of that certain Underwriting Agreement by and between First Allied Securities, Inc. ("First Allied"), as representative of the several underwriters named in Schedule A thereto, and the Company, dated _______________, 1996 (the "Underwriting Agreement"). This opinion is provided to you pursuant to Section ____ of the Underwriting Agreement. For the purpose of rendering the opinions set forth below we have reviewed the following (collectively, the "Documents"): (i) the Underwriting Agreement; (ii) that certain Registration Statement filed _____, 1996, together with any and all amendments thereof exhibits thereto (collectively, the "Registration Statement"); (iii) a search of the United States Patent and Trademark Office records relevant to ownership of any and all: patents and patent applications (including, without limitation, the patents and patent applications listed on Schedule A annexed hereto and hereby incorporated by reference herein (collectively, the "Patents")), and trademarks, trademark applications, service marks and service mark applications (collectively, the "Marks") (including, without limitation, the Marks listed on Schedule B annexed hereto and hereby incorporated by reference herein (collectively, the "Trademarks")), First Allied Securities, Inc. __________, 1996 owned, purportedly owned or licensed by the Company (including, those patents, patent applications and Marks licensed, without limitation, pursuant to the licenses listed on Schedule C annexed hereto and hereby incorporated by reference herein (collectively, the "Licenses")), conducted by ______________________________ and certified as true and correct as of _______________________, 1996 (no earlier than 5 days prior to the date of the Closing (as defined in the Underwriting Agreement)); (v) _____ a search of the United States Copyright Office records relevant to ownership of any and all copyrighted material (including, without limitation, the copyright in, or license permitting the Company's actual use of, the material licensed or otherwise distributed by the Company and listed on Schedule D annexed hereto and hereby incorporated by reference herein (collectively, the "Copyrighted Material")), owned, purportedly owned or licensed by the Company conducted by _____________________ and certified as true and correct as of __________________, 1996 (no earlier than 5 days prior to the date of the Closing); (vi) ____ an intellectual property litigation search with respect to all Patents, Trademarks, Licenses and Copyrighted Material, listed on Schedules A, B, C and D, respectively; (vii) a search of the Uniform Commercial Code ("UCC") recordation offices, in the following jurisdictions -- [________________, _____________ and _______], with respect to the following two categories of general intangibles: (a) the intellectual property general intangibles of the Company, including, without limitation, the Company's patents, patent applications, inventions, know how, trademarks, service marks, copyrights, service and trade names, intellectual property licenses and other rights, and (b) the intellectual property general intangibles licensed to the Company, including, without limitation, the patents, patent applications, inventions, know how, trademarks, service marks, copyrights, service and trade names and other intellectual property rights licensed to the Company pursuant to the Licenses (listed on Schedule C), said search certified to us as complete and accurate by ________________ and current through ________________________, 1996 (no earlier than 5 days prior to the date of the Closing) and said jurisdictions being the only jurisdictions in which filing of UCC financing statements or other documents may be filed to effectively evidence a security or other interest in said general intangibles; and A-2 First Allied Securities, Inc. __________, 1996 (viii) any and all records, documents, instruments and agreements in our possession or under our control relating to the Company. We have also examined such corporate records, documents, instruments and agreements, and inquired into such other matters, as we have deemed necessary or appropriate as a basis for the opinions set forth herein. Whenever our opinion herein is qualified by the phrase "to the best of our knowledge" or "to the best of our knowledge, after due inquiry," such language means that, based upon (i) our inquiries of officers of the Company, (ii) our review of the Documents, and (iii) our review of such other corporate records, documents, instruments and agreements described in the first sentence of this paragraph, we believe that such opinions are factually correct. To the best of our knowledge, as to all matters of fact represented to you by the Company, we advise you that nothing has come to our attention that would cause us to believe that such facts are incorrect, incomplete or misleading or that reliance thereon is not warranted under the circumstances. We call to your attention that our opinion is limited to such facts as they exist on the date hereof and do not take into account any change of circumstances, fact or law subsequent thereto. Based upon and subject to the foregoing, we are of the opinion that: 1. To the best of our knowledge, after due inquiry, except as described in the Registration Statement, the Company owns or has the right to use, free and clear of all liens, encumbrances, pledges, security interests, defects or other restrictions or equities of any kind whatsoever, (i) all patents and patent applications (including, without limitation, the Patents), (ii) all trademarks and service marks (including, without limitation, the Trademarks), (iii) all copyrights (including, without limitation, the Copyrighted Material), (iv) all service and trade names, and (v) all intellectual property licenses (including, without limitation, the Licenses), used in, or required for, the conduct of the Company's business. A-3 First Allied Securities, Inc. __________, 1996 2. To the best of our knowledge, after due inquiry, the Company possesses all material intellectual property licenses or rights used in, or required for, the conduct of its business (including, the Licenses and without limitation, any such licenses or rights described in the Registration Statement as being owned, possessed or licensed by the Company, as the case may be) and such licenses and rights are in full force and effect. 3. To the best of our knowledge, after due inquiry, there is no claim or action, pending, threatened or potential, which affects or could affect the rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications or licenses used in, or required for, the conduct of the Company's business. 4. To the best of our knowledge, after due inquiry, there is no intellectual property based claim or action, pending, threatened or potential, which affects or could affect the rights of the Company with respect to any products, services, processes or licenses, including, without limitation, the Licenses used in the conduct of the Company's business. 5. To the best of our knowledge, after due inquiry, except as described in the Registration Statement, the Company is not under any obligation to pay royalties or fees to any third party with respect to any material, technology or intellectual properties developed, employed, licensed or used by the Company. 6. To the best of our knowledge, after due inquiry, the statements in the Registration Statement under the headings, "Risk Factors - ______________________ " and "Business - ____________________", are accurate in all material respects, fairly represent the information disclosed therein and do not omit to state any fact necessary to make the statements made therein complete and accurate. 7. To the best of our knowledge, after due inquiry, the statements in the Registration Statement do not contain any untrue statement of a material fact with respect to the intellectual property position of the Company, or omit to state any material fact relating to the intellectual property position of the Company which is required to be stated in the Registration Statement or is necessary to make the statements therein not misleading. We call your attention to the fact that the members of this firm are licensed to practice law in the State of ______________ and before the United States Patent and Trademark Office as Registered Patent Attorneys. Accordingly, we express no opinion with respect to the laws, rules and regulations of any jurisdictions other than the State of ___________ and the United States of America. A-4 First Allied Securities, Inc. __________, 1996 The opinions expressed herein are for the sole benefit of, and may be relied upon only by, the several Underwriters named in Schedule A to the Underwriting Agreement and Orrick, Herrington & Sutcliffe. Very truly yours, A-5 EX-3.2 3 EXHIBIT 3.2 BYLAWS OF MANSUR INDUSTRIES INC. BYLAWS OF MANSUR INDUSTRIES INC. ARTICLE I. OFFICES 1 ARTICLE II. SHAREHOLDERS 1 Section 1. Annual Meetings 1 Section 2. Special Meetings 1 Section 3. Notice of Meeting 1 Section 4. Notice of Adjourned Meeting 2 Section 5. Waiver of Notice 2 Section 6. Voting Record 2 Section 7. Shareholder Quorum 2 Section 8. Proxies 2 Section 9. Voting of Shares 3 Section 10. Voting of Shares by Certain Holders 3 Section 11. Action Taken by Shareholders Without a Meeting 3 Section 12. Shareholders' Agreements 3 ARTICLE III. BOARD OF DIRECTORS 3 Section 1. Number, Qualification, Election and Tenure 3 Section 2. Regular Meetings 3 Section 3. Special Meetings 4 Section 4. Special Meetings 4 Section 5. Notice and Waiver 4 Section 6. Quorum and Voting 4 Section 7. Action Without a Meeting 4 Section 8. Presumption of Assent 4 Section 9. Vacancies 4 Section 10. Compensation 5 Section 11. Conflict of Interest 5 Section 12. Resignations 5 Section 13. Removal 5 ARTICLE IV. OFFICERS 5 Section 1. Officers 5 Section 2. Election and Term of Office 5 Section 3. Duties 5 Section 4. Vacancies 6 Section 5. Removal 6 Section 6. Compensation 6 Section 7. Repayment by Officers for Compensation Held Unreasonable 7 Section 8. Delegation of Duties 7 ARTICLE V. EXECUTIVE AND OTHER COMMITTEES 7 Section 1. Creation of Committees 7 Section 2. Authority 7 Section 3. Qualification and Tenure 7 Section 4. Meetings 7 Section 5. Quorum and Manner of Acting 7 Section 6. Action Without a Meeting Section 7. Procedure 8 ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS 8 Section 1. Contracts 8 Section 2. Loans 8 Section 3. Checks, Drafts, Etc 8 Section 4. Deposits 8 ARTICLE Vll. STOCK 8 Section 1. Certificates 8 Section 2. Issuance of Shares for Future Services or Promissory Notes 9 Section 3. Transfer of Shares 9 ARTICLE VIII. FISCAL YEAR 9 ARTICLE IX. BOOKS AND RECORDS 9 Section 1. Books and Records 9 Section 2. Inspection by Shareholders 9 Section 3. Financial Reports 10 ARTICLE X. DIVIDENDS 10 ARTICLE XI. CORPORATE SEAL 10 ARTICLE XII. EMERGENCY BYLAWS 10 ARTICLE XIII. AMENDMENTS TO BYLAWS 10 ARTICLE XIV. INDEMNIFICATION 11 ARTICLE XV. CONTROL SHARE ACQUISITIONS 12 BYLAWS OF MANSUR INDUSTRIES INC. ARTICLE I - OFFICES The principal office of the Corporation shall be in the State of Florida. The Corporation may have such other offices, within or outside of the State of Florida, as the Board of Directors may designate as the business of the Corporation may require from time to time. The Corporation shall designate and maintain a registered office within the State of Florida. Such office need not be identical with the principal office of the Corporation and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II - SHAREHOLDERS Section 1. Annual Meetings. The annual meeting of the Shareholders shall be held at the principal office of the Corporation during the month of December beginning with the year 1993 or at such other time and place as may be designated by the Board of Directors. If the day fixed for the annual meeting shall fall on a Sunday or legal holiday the meeting shall be held on the next succeeding business day. The purpose of the annual meeting shall be to elect the Directors of the Corporation and transact such other businesses as may come before the meeting. Failure to hold a timely meeting shall in no way affect the terms of Officers or Directors of the Corporation or the validity of actions of the Corporation. Section 2. Special Meetings. Special meetings of the Shareholders, unless otherwise prescribed by statute may be called by the President or the Board of Directors, and shall be called by the President at the request of the holders of not less than one-tenth of all outstanding Shares of the Corporation entitled to vote at the meeting. The purpose of such special meeting shall be stated in the notice of the meeting and only business within the purpose or purposes described in the special meeting notice may be conducted at a special Shareholders' meeting unless all Shareholders' are in attendance and agree to consider additional business. Section 3. Notice of Meeting. Oral or written notice stating the place, day and hour of the Shareholder's meeting and, in the case of a special meeting, the purpose of the meeting shall, unless otherwise prescribed by statute, be delivered not less than ten nor more than sixty days before the date of the meeting. Such notice may be delivered in person, by telephone, telegram, teletype, fax or other form of electronic communication, or by mail at the discretion of the person calling the meeting. If mailed, such notice shall be effective when mailed, postpaid, to the Shareholder's address of record. 1 Section 4. Notice of Adjourned Meeting. If a meeting is adjourned to another date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before the adjournment is taken, and any business may be transacted at the adjourned meeting that might have been transacted on the original date of the meeting. Section 5. Waiver of Notice. A written waiver of notice signed by a Shareholder before or after a meeting shall be the equivalent of giving the Shareholder notice of the meeting and shall be filed with the Corporate records. Attendance of a Shareholder at a meeting shall constitute a waiver of notice of the meeting except when the Shareholder attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any Shareholder attending a meeting also waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the Shareholder objects to considering the matter when it is presented. Section 6. Voting Record. The Officer or Agent having charge of stock transfer records of the Corporation shall make a list of all Shareholders entitled to vote at such meeting or any adjournment thereof. The record date may not be more than 70 days before the meeting or action requiring a determination of Shareholders and shall not be later than the day prior to delivery of the first notice to any Shareholder. Such record date shall be effective for any adjournment of the meeting unless the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. The list of Shareholders eligible to vote shall include the address and number of Shares held for each Shareholder, and shall be kept on file either at the registered or principal office of the Corporation or at the office of the transfer agent of the Corporation and shall be open for inspection during usual business hours by any Shareholder, Shareholder's agent, or attorney, at the Shareholder's expense, at least ten days prior to the meeting. The list shall also be available at the Shareholder's meeting and open for inspection by any Shareholder, Shareholder's agent or attorney at any time during the meeting. If the requirements of this section have not been substantially complied with, then, upon demand by any Shareholder, personally or by proxy, the meeting shall be adjourned until the requirements of this section are complied with. If no such demand is made, failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. Section 7. Shareholder Quorum. A majority of the outstanding Shares of the Corporation, represented in person or by proxy, entitled to vote shall constitute a quorum at the meeting of Shareholders. If less than a quorum is present at the meeting, a majority of the Shares represented at the meeting may adjourn the meeting without further notice. The Shareholders present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough Shareholders during the meeting to leave less than quorum. Section 8. Proxies. Every Shareholder entitled to vote at a Shareholder's meeting may vote in person or by proxy executed in writing by the Shareholder or the Shareholder's attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or during the meeting. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided in the proxy. Every proxy is revocable by the Shareholder unless the appointment form specifically states that is irrevocable and the appointment is coupled with an interest. 2 Section 9. Voting of Shares. Each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of Shareholders. Unless otherwise provided in the Articles of Incorporation or these Bylaws, at any duly convened Shareholders' meeting an affirmative vote of a majority of Shares in attendance shall be the act of Shareholders. If a quorum exists, action is taken affirmatively on a matter if the votes favoring the action exceed the votes cast opposing the action. Abstentions constitute neutral votes. Section 10. Voting of Shares by Certain Holders. Shares held in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or in the absence of such provision, as the Board of Directors of such other corporation may determine. Section 11. Action Taken by Shareholders Without a Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting, without prior notice, and without a vote if consent in writing, setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Shares entitled to vote thereon were present and voted. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date of receipt by the Corporation of the earliest dated consent, all required consents are received. Any written consent may be revoked prior to the date the Corporation receives the required number of consents to authorize the proposed action. Whenever action is taken pursuant to this Section, all written consent of Shareholders shall be held with the Corporate minutes. Section 12. Shareholder's Agreements. The Shareholders may enter into a Shareholder's Agreement, and the provision of such agreement will supersede these Bylaws providing all Shareholders are parties to the agreement. ARTICLE III - BOARD OF DIRECTORS Section 1. Powers. Subject to limitation by the Articles of Incorporation these Bylaws and Florida statutes, all business of the Corporation shall be directed and managed by the Board of Directors. Section 2. Number, Qualification, Election. and Tenure. The initial Directors of the Corporation shall be Pierre G. Mansur and Paul I. Mansur. Pierre G. Mansur shall serve as the initial Chairman of the Board. Pierre G. Mansur may appoint additional directors who shall serve until the first annual meeting of the Shareholders in 1996. Commencing in 1996, Directors shall be elected by the Shareholders at the annual Shareholder's meeting and shall hold office until the next annual Shareholder's meeting and until their successors have been elected and qualified. The number of Directors may be increased or decreased from time to time by a majority of vote of the Shareholders without need to amend these Bylaws but shall never be less than one. The Directors must be natural persons but need not be Shareholders nor residents of the State of Florida. The majority of Directors in office shall select a Chairman immediately subsequent to their election. 3 Section 3. Regular Meetings. Regular annual meetings of the Board of Directors shall be held without other notice than by this bylaw immediately after, and at the same place as, the annual Shareholder's meeting. Additional regular meetings may be provided by resolutions of the Board of Directors and held without notice other than such resolution. Meetings may be held by telephone conference. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Chief Executive Officer, the President, or any Director. Meetings may be held by telephone conference. Section 5. Notice and Waiver. Oral or written notice of any special meeting shall be given at least two days prior to the meeting. Such notice may be delivered in person, mailed, or given by telephone, telegram, teletype, fax or other electronic method. If mailed, such notice shall be deemed to be delivered when mailed, postage paid, to the Director at the Director's current address in the Corporation's records. Any Director may waive notice of any meeting. Attendance by a Director at a meeting shall constitute a waiver of notice except where a Director attends a meeting for the express purpose of objecting to any business because the meeting was not lawfully called or convened. Neither the business to be transacted at the meeting nor the purpose need to be stated in the notice or waiver of any meeting. Section 6. Quorum and Voting. A majority of Directors shall constitute a quorum for the transaction of business and a vote of the majority of Directors present at a duly convened meeting shall be the act of the Board of Directors. If less than a quorum is present then a majority of the Directors present may adjourn the meeting without notice until a quorum is present. Section 7. Action without a Meeting. Any action required or permitted to be taken by the Board of Directors at a meeting may be taken without a meeting if a consent in writing, setting forth the action to be taken, shall be signed by all of the Directors. Such action is not effective until the last required consent is received by the Corporation. Section 8. Presumption of Assent. A Director who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless he votes against such action or abstains from voting. An abstention is a neutral vote. Section 9. Vacancies. Any vacancy occurring in the Board of Directors may be filled by an affirmative vote of majority of the remaining Directors though less than a quorum of the Board of Directors, or by a majority vote of the Shareholders. A Director elected to fill a vacancy shall be elected for the unexpired term of the Director's predecessor. Any Directorship to be filled due to an increase in the number of Directors shall be filled by a vote of the majority of the Board, the term of office continuing only until the next election of Directors by the Shareholders. 4 Section 10. Compensation. By resolution of the Board of Directors each Director may be paid the expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a stated salary as Director or a fixed sum for attendance at each meeting or both. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors may set their own compensation for service as Officers as well as for service as Directors. Section 11. Conflict of Interest. Any contract or other transaction between the Corporation and any corporation or firm in which any of its Directors holds a financial interest shall be valid for all purposes notwithstanding the presence of such Director at the meeting authorizing such contract or transaction, or his participation in such meeting. The foregoing shall, however, apply only (a) if the interest of such Director is disclosed to the Board of Directors at said meeting; (b) the Board, having been apprised of the interest, affirmed the subject transaction with no vote cast by the interested Director; or (c) the contract or transaction is deemed to be fair and reasonable to the Corporation at the time it is authorized. The interested Director may be counted for the purpose of determining whether a quorum is present. Section 12. Resignations. Directors may resign at any time by delivering written notice to the Corporation or to the Board of Directors. Section 13. Removal. At any duly convened meeting of Shareholders called expressly for that purpose, any Director may be removed from office, with or without cause. ARTICLE IV - OFFICERS Section 1. Officers. The Officers of the Corporation shall be elected or appointed by the Board of Directors and may include a Chief Executive Officer, President, Secretary, Treasurer, one or more Vice Presidents, Controller and/or such other Officers as may be deemed necessary or desirable. Any two or more offices may be held by the same person. The Directors may eliminate or add Officers at any time by resolution. Section 2. Election and Term of Office. All Officers to be elected or appointed by the Board of Directors shall be elected or appointed at the regular annual meeting of the Board. Each Officer shall hold office until that Officer's death, resignation or removal or until his or her successor shall have been duly elected or appointed in accordance with these Bylaws. Section 3. Duties. A. President: The President shall have the responsibility for the general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect. The President shall preside at all meetings of the Shareholders and of Board of Directors unless the Board elects a Chairman of the Board or Chief Executive Officer. The President shall have all powers generally associated with the Presidency of the Corporation as well as any powers authorized by resolution of the Board. 5 B. Vice President: The Vice Presidents, in the order designated by the Board of Directors if there is more than one, shall in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform other duties as the Board of Directors may prescribe. C. Secretary: The Secretary shall attend all meetings of the Shareholders and of the Board of Directors and shall record all votes and the minutes of all such proceedings in a book to be kept for that purpose and shall perform like duties for committees of the Corporation when required. The Secretary shall give, or cause to be given, all required notices for such meetings and shall perform other duties as may be prescribed by the President or the Board of Directors. When required or requested, the Secretary shall execute with the President all contracts, conveyances or other instruments of the Corporation and shall, when requested, provide certifications of recorded minutes. The Secretary shall keep safe custody of the Corporate Seal and, when requested, shall affix same to any instrument requiring it. The Secretary shall keep a current register of the mailing addresses of each Shareholder, such addresses to be furnished to the Secretary by the Shareholders and the responsibility for keeping said addresses current shall be upon the Shareholders. The Secretary shall have general charge of the stock transfer books of the Corporation and shall issue or transfer stock at the direction of the Board of Directors. D. Treasurer: The Treasurer shall have custody of and keep of all money, funds and property of the Corporation, unless otherwise determined by the Board of Directors, and shall render such accounts and present such statements to the Directors and President when requested. The Treasurer shall deposit funds of the Corporation which may come into his or her hands into such bank or banks as designed by the Board of Directors and shall keep all bank accounts in the name of the Corporation and shall exhibit the Corporation's books and accounts at all reasonable times to any Director of the Corporation upon reasonable notice and during regular business hours. If required by the Board, the Treasurer shall give a bond to the Corporation with such surety in such amount as are acceptable to the Board. E. Assistant Officers: The Assistant Secretaries and Assistant Treasurers, if any, in the order designated by the Board, shall perform the respective duties of the Secretary and Treasurer. F. Other Officers: Should the Board designate Officers other than those listed above, they shall, by resolution, set forth the specific duties of each Officer designated. Section 4. Vacancies. Any vacancies shall be filled at any time by an election or appointment by the Board of Directors for the unexpired term of such offices. Section 5. Removal. Any Officer or Agent of the Corporation may be removed at any time with or without cause by the Board of Directors. Section 6. Compensation. All compensation of Officers shall be fixed from time to time by the Board of Directors; no Officer shall be prevented from receiving such compensation by reason of the fact that he is also a Director of the Corporation. 6 Section 7. Repayment by Officers for Compensation Held Unreasonable. Any payments made to an Officer of the Corporation, including but not limited to, salary, commissions, bonuses, interest, rent or entertainment or other expenses incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service shall be reimbursed by such Officer to the Corporation to the full extent of such disallowance. It shall be the duty of the Board to enforce payment of all amounts so disallowed. In lieu of payment by the Officer, subject to the determination of the Directors, proportionate amounts may be withheld from any Officer's future compensation payments until the amount owed to the Corporation has been recovered. Section 8. Delegation of Duties. Should an Officer be absent or disabled or for any other reason be unable to perform his duties, the Board of Directors may delegate his powers or duties to any other Officer. ARTICLE V - EXECUTIVE AND OTHER COMMITTEES Section 1. Creation of Committees. The Board of Directors may, by resolution, designate an Executive Committee or other committees consisting of two or more members of the Board. The designation of such committees, however, shall not relieve the Board of Directors or any member thereof of any responsibility imposed by law and any such committees' powers are limited by Florida Statutes. Section 2. Authority. The Executive Committee shall consult with and advise the Officers of the Corporation in the management of its business and shall have, and may exercise, to the extent provided in the resolution of the Board of Directors creating such committee, such powers as may be lawfully delegated by the Board. Other committees shall have the functions and may exercise such power of the Board as can be lawfully delegated and as provided in the resolutions of the Board creating such committees. Section 3. Qualifications and Tenure. All members of the Executive Committee and other committees appointed by the Board shall be members of the Board and shall hold office until the next regular annual meeting of the Board, their resignation, death or removal by a majority vote of the Board. Section 4. Meetings. Regular meetings of the Executive Committee may be held without notice at such times and places as the committee may affix from time to time by resolution. Special meetings of the Executive Committee or other committees, may be called by any member thereof upon not less than one day's notice to the other members of the committees, which notice may be oral or by mail. If given by mail, such notice shall be deemed to be delivered when deposited, postage paid, in the United States mail addressed to the committee member at this business address. Any member of any committee may waive notice of any meeting and attendance at a meeting shall constitute waiver of notice of the meeting. Section 5. Quorum and Manner of Acting. At all committee meetings, a majority of committee members then in office shall constitute a quorum for the transaction of business. The acts of a majority of committee members at any duly convened meeting of that committee shall be the act of that committee. 7 Section 6. Action without a Meeting. Any action required or permitted to be taken by a committee may be taken without a meeting if a consent in writing, setting forth the action so taken shall be signed by all the members of the Committee. Such action shall not become effective until the last required consent has been received by the Corporation. Section 7. Procedure. Each Committee shall elect its own presiding Officer from its members and may fix its own rules of procedure as long as such rules are not inconsistent with these Bylaws. The Committees shall keep regular minutes of their proceedings and report same to the Board of Directors when requested. ARTICLE VI - CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. Contracts. The Board of Directors may authorize any Officer or Agent to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 2. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks, Drafts, etc. All checks, drafts or other order for the payment of money, notes or other evidences of indebtedness of the Corporation shall be signed by such Officers or Agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited to the credit of the Corporation in such depositories as the Board of Directors may select. ARTICLE VII - STOCK Section 1. Certificates. The Directors may, but do not need to, provide for Certificates to represent shares of the Corporation. If required, such certificates shall be in such form as shall be determined by the Board of Directors, signed by an authorized Officer of the Corporation and may, but need not be, sealed with a corporate seal or facsimile thereof. The signature of an authorized Officer upon a certificate may be a facsimile if the certificate is manually signed on behalf of transfer agent or a registrar. Each certificate shall be consecutively numbered and contain the following information: (a) the name of the Corporation, (b) that the Corporation is organized under the laws of the State of Florida, (c) the name of the person or persons to whom issued, (d) the number and class of shares and the designation of series, if any, which the certificate represents, (e) the par value of each share. If there are any restrictions on transfer of the stock, the certificate shall so state. 8 Section 2. Issuance of Shares for Future Services or Promissory Notes. Shares may be issued in exchange for a promissory note and such note may be unsecured if deemed sufficient by the Directors. Shares may be issued in exchange for a written contract for future services. Any shares issued in this manner must be disclosed to all existing Shareholders. In either event the Directors may determine whether to immediately issue such Shares or to place them in escrow until the promissory note is paid in full or the contract for services has been fully performed. In the event the promissory note is not paid or a contract for services not performed, the shares issued therefore shall be deemed recalled and cancelled. Section 3. Transfer of Shares. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. Transfer of Shares shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative who shall furnish proper evidence of authority to transfer, or by his attorney authorized by power of attorney duly executed and filed with the Secretary of the Corporation. The person in whose name the shares stand on the books of the Corporation shall be deemed to be the owner thereof for all purposes. There shall be no treasury stock and all previously issued stock transferred to the Corporation shall revert to authorized unissued stock. ARTICLE VIII - FISCAL YEAR The fiscal year of the Corporation shall begin on the 1st day of January in each year. The fiscal year may be changed by a resolution of the Board of Directors without amending these Bylaws. ARTICLE IX - BOOKS AND RECORDS Section 1. Books and Records. The Corporation shall keep complete and accurate books, records of account and minutes of the proceedings of Shareholders, the Board of Directors and Committees of Directors. The Corporation shall keep at its registered office, principal place of business or office of its attorneys, a record of all Shareholders, indicating the name, address and number of shares held by each registered Shareholder. Section 2. Inspection by Shareholders. Upon five business days written notice, any Shareholder may, in person or by agent or attorney, inspect and copy at the Shareholder's expense at the Corporation's principal office during regular business hours (a) The Articles of Incorporation and amendments, (b) the Bylaws and amendments, (c) resolutions adopted by the Board of Directors creating a series of classes of stock and fixing their relative rights, preferences and limitations, if shares issued pursuant to those resolutions are outstanding, (d) minutes of all Shareholders' meetings and actions taken by them without a meeting for the past three years, (e) written communications to all Shareholders of a class or series within the past three years, including financial statements for the past three years, (f) a list of the names and business street addresses of current Directors and Officers, and (g) the Corporations most recent Corporate Annual Report filed with the Secretary of State. 9 Upon five business days written notice, any Shareholder may, in person or by agent or attorney, inspect and copy at the Shareholder's expense at the Corporation's principal office during regular business hours, any other books and records of the Corporation if (a) the demand is made in good faith and for a proper purpose, (b) the Shareholder describes with particularity his or her purpose and the records to be inspected, and (c) the records demanded are directly connected with the Shareholder's purpose. SECTION 3. FINANCIAL REPORTS. Not later than four months after the close of each fiscal year, the Corporation shall furnish to all Shareholders financial statements for the prior fiscal year that include a balance sheet, an income statement, and a cash flow statement. ARTICLE X - DIVIDENDS The Board of Directors may from time to time declare dividends on its Shares in cash, property or its own Shares except when the Corporation is insolvent, or when the payment thereof would render the Corporation insolvent. ARTICLE XI - CORPORATE SEAL The Board of Directors may, but does not need to, require a corporate seal. If required, such seal shall be in circular form, embossing in nature, and inscribed with the name of the Corporation, the year of incorporation and the words "Corporate Seal". ARTICLE XII - EMERGENCY BYLAWS In accordance with Section 22 of the Florida Business Corporation Act, in the event that a quorum of the Corporation's Directors cannot be readily assembled because of some catastrophic event, the directors may adopt emergency Bylaws. Such Bylaws may be adopted prior or during such emergency, shall be effective only during such emergency and are subject to amendment or repeal by the Shareholders. Such Bylaws may provide for procedures for calling a meeting of the Directors, establish quorum requirements for such a meeting, and provide for the designation of additional or substitute directors. All provisions of the regular Bylaws of the Corporation that are not inconsistent with the emergency Bylaws remain in effect. Any Corporate action taken in good faith in accordance with emergency Bylaws binds the Corporation and may not be used to impose liability on a corporate director, officer, employee or agent. ARTICLE XIII - AMENDMENTS TO BYLAWS These Bylaws may be revised, amended or replaced and new Bylaws adopted by the Board of Directors provided that any such revisions, amendments or new Bylaws may be repealed by the Shareholders at a special meeting called for that purpose. 10 ARTICLE XIV - INDEMNIFICATION The Corporation shall indemnify its present and former Officers and Directors to the fullest extent permitted by law. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed claim, demand, action, suit, or proceeding, whether civil or criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Such indemnification shall be against expenses including, without limitation, attorneys' fees, judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him or her in connection with such claim, demand, action, suit, or proceeding, including any appeal of such action, suit or proceeding, if he or she acted in good faith or in a manner he or she reasonably believed to be in the best interests of the Corporation, and with respect to any criminal action or proceeding, if he or she had no reasonable cause to believe such conduct was unlawful. However, with respect to any action by or in the right of the Corporation to procure a judgement in its favor, no indemnification shall be made with respect to any claim, issue, or matter as to which such person is adjudged liable for negligence or misconduct in the performance of his or her duty to the Corporation unless, and only to the extent that, the court in which such action or suit was brought determines, on application, that despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity in view of all the circumstances of the case. Any indemnification under this article shall be made only on a determination by a majority of disinterested directors or upon the approval of a majority of shareholders; that indemnification is proper in the particular circumstances because the party to be indemnified has met the applicable standard of conduct. Determination of any claim, demand, action, suit, or proceeding by judgement, order, settlement, conviction, or on a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the party did not meet the applicable standard of conduct. Indemnification may be paid by the Corporation in advance of the final disposition of any claim, demand, action, suit, or proceeding, on a preliminary determination that the director or officer met the applicable standard of conduct and on receipt of an undertaking by or on behalf of the director or officer to repay such amount, unless it is ultimately determined that he or she is entitled to be indemnified by the Corporation as authorized in this article. The Corporation shall have power to purchase and maintain insurance on behalf of any person who was or is a director or officer of the Corporation, or who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have authority to indemnify him or her against such liability under the provisions of these articles, or under the law. 11 ARTICLE XV - CONTROL SHARE ACQUISITIONS Section 607.0902 of the Florida Business Corporation Act shall not apply to control share acquisitions of shares of the Corporation. EX-4.1 4 Exhibit 4.1 MANSUR INDUSTRIES INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA NUMBER SHARES MI CUSIP 564491 10 8 THIS CERTIFIES THAT_____________________________________________________ IS THE OWNER OF ________________________________________________________ FULLY-PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF MANSUR INDUSTRIES INC. Transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Articles of Incorporation, as amended, and the Bye-Laws of the Corporation, as amended (copies of which are on file at the office of the Transfer Agent), to all of which the holder of this Certificate by acceptance hereof assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: Paul I. Mansur Chief Executive Officer Pierre G. Mansur Chairman of the Board Countersigned and registered CONTINENTAL STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR MANSUR INDUSTRIES INC. THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF (A) THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF CAPITAL STOCK AUTHORIZED TO BE ISSUED; (B) THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES AUTHORIZED TO BE ISSUED WITHIN EACH SUCH CLASS AND (C) THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE SUCH VARIATIONS FOR SUBSEQUENT SERIES. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIT GIFT MIN ACT_____Custodian_____ TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act______________________________ in common (State) Additional abbreviations may also be used though not in the above list. For value received,______________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ Shares of the common stock evidenced by this Certificate, and do hereby irrovocably constitute and appoint _______________________________________________________________________Attorney, to transfer the said shares on the books of the Corporation with full power of substitution. Dated________________________ NOTICE ________________________________________________________________________ THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. Signature Guaranteed: _______________________________________________________________________________ THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15 EX-5.1 5 September 24, 1996 Paul I. Mansur Chief Executive Officer Mansur Industries Inc. 8425 S.W. 129th Terrace Miami, Florida 33156 Re: Initial Public Offering Gentlemen: On July 23, 1996, Mansur Industries Inc., a Florida corporation (the "Company"), filed with the Securities and Exchange Commission a Registration Statement on Form S-1 (No. 333-08657) (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"). The Registration Statement relates to: (i) the sale by the Company of (a) up to 977,500 shares (the "Public Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), (b) 85,000 common stock purchase warrants (the "Representative's Warrants"), and (c) up to 85,000 shares of Common Stock (the "Warrant Shares") issuable upon exercise of the Representative's Warrants; and (ii) the sale by certain selling shareholders of the Company of 150,000 shares of Common Stock (the "Resale Shares"), which Resale Shares are issuable upon conversion of $1,012,500 in principal amount of Convertible Redeemable Notes due June 10, 1997 (the "Convertible Notes"). We have acted as counsel to the Company in connection with the preparation and filing of the Registration Statement. In connection therewith, we have examined and relied upon copies of (i) the Company's Amended and Restated Articles of Incorporation and Bylaws; (ii) resolutions of the Company's Board of Directors authorizing the offering and the issuance of the Public Shares, Representative's Warrants, Warrant Shares and Resale Shares and related matters; (iii) the Registration Statement and exhibits thereto; (iv) the Representative's Warrants and the Convertible Notes, and (v) such other documents and instruments as we have deemed necessary for the expression of opinions herein contained. In making the foregoing examinations, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, and the conformity to original documents of all documents submitted to us as certified or photostatic copies. As to various questions of fact material to this opinion, we have relied, to the extent we deemed reasonably appropriate, upon representations or certificates of officers or directors of the Company and upon documents, records and instruments furnished to us by the Company, without independently verifying the accuracy of such documents, records and instruments. Based upon the foregoing examination, we are of the opinion that: Paul I. Mansur September 24, 1996 Page 2 1. The Public Shares have been duly and validly authorized and, when issued and delivered in accordance with the terms of the Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement, will be validly issued, fully paid and nonassessable. 2. The Representative's Warrants have been duly and validly authorized, and when issued and paid for in accordance with the terms of the Warrant Agreement filed as Exhibit 4.2 to the Registration Statement, will be validly issued, fully paid and nonassessable. 3. The Warrant Shares have been duly and validly authorized and, when issued and paid for in accordance with the terms of the Representative's Warrants, will be validly issued, fully paid and nonassessable. 4. The Resale Shares have been duly authorized and, when issued upon conversion of and in accordance with the Convertible Notes, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the caption "Legal Matters" in the prospectus comprising a part of the Registration Statement. In giving such consent, we do not thereby admit that we are included within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. Sincerely, GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN & QUENTEL, P.A. By: /S/ GARY M. EPSTEIN ---------------------------- Gary M. Epstein GME:wp Enclosure EX-10.24 6 Exhibit 10.24 BUSINESS LEASE THIS AGREEMENT, entered into this 1st day of September, 1996 between Y.F.G., Inc.; 13015 S.W. 85th Avenue Road, Dade, Florida 33156, hereinafter called the lessor or landlord, party of the first part, and Mansur Industries, Inc.; 8425 S.W. 129th Terrace Miami, Florida 33156 hereinafter called the lessee or tenant, party of the second part: WITNESSETH, that the said lessor or landlord does this day lease unto said lessee, and said lessee does hereby hire and take as tenant _____ under said lessor the following described premises; (Describe type of property, address, etc.) No. 12940 S.W. 85th Avenue Road situate in Dade County, State of Florida ________, to be used and occupied by the lessee as storage and light manufacturing/assembly of recyclable parts washers and for no other purposes or uses whatsoever, for the term of two (2) years, subject and conditioned on the provisions of clause ten of this lease beginning the 1st day of September 1996, and ending the 30th day of August, 1998, at and for the agreed total rental of Sixty Thousand Five Hundred 16/100 ($60,500.16) Dollars, payable as follows: $2,520.84 per month plus sales tax charged by the State of Florida commencing September 1, 1996. The landlord has received one month rent in advance including sales tax in the amount of $2,684.70 and two months security deposit in the amount of $5,041.68. Sales tax is $163.86 per month, plus any increase in sales tax applicable. Thereby making total monthly payment of $2,684.70. all payments to be made to the lessor on the first day of each and every month in advance without demand at the office of Y.F.G., Inc., 13015 S.W. 85th Avenue Road in the City of Miami, Florida 33156 or at such other place and to such other person, as the lessor may from time to time designate in writing. The following express stipulations and conditions are made a part of this lease and are hereby assented to by the lessee: FIRST: The lessee shall not assign this lease, nor sub-let the premises, or any part thereof nor use the same, or any part thereof, nor permit the same, or any part thereof, to be used for any other purpose than as above stipulated, nor make any alterations therein, and all additions thereto, without the written consent of the lessor, and all additions, fixtures or improvements which may be made by lessee, except movable office furniture, shall become the property of the lessor and remain upon the premises as a part thereof, and be surrendered with the premises at the termination of this lease. SECOND: All personal property placed or moved in the premises above described shall be at the risk of the lessee or owner thereof, and lessor shall not be liable for any damage to said personal property, or to the lessee arising from the bursting or leaking of water pipes, or from any act of negligence of any co-tenant or occupants of the building or of any other person whomsoever. THIRD: That the tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and City Government and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term, and shall also promptly comply with an execute all rules, orders and regulations of the applicable fire prevention codes for the prevention of fires, at ___________________ own cost and expense. FOURTH: In the event the premises shall be destroyed or so damaged or injured by fire or other casualty during the Life of this agreement, whereby the same shall be rendered untenantable, then the lessor shall have the right to render said premises tenantable by repairs within ninety days therefrom. If said premises are not rendered tenantable within said time, it shall be optional with either party hereto to cancel this lease, and in the event of such cancellation the rent shall be paid only to the date of such fire or casualty. The cancellation herein mentioned shall be evidenced in writing. FIFTH: The prompt payment of the rent for said premises upon the dates named, and the faithful observance of the rules and regulations printed upon this lease, and which are hereby made a part of this covenant, and of such other and further rules or regulations as may be hereafter made by the lessor, are the conditions upon which the lease is made and accepted and any failure on the part of the lessee to comply with the terms of said lease, or any of said rules and regulations now in existence, or which may be hereafter prescribed by the lessor, shall at the option of the lessor, work a forfeiture of this contract, and all of the rights of the lessee hereunder. SIXTH: If the lessee shall abandon or vacate said premises before the end of the term of this lease, or shall suffer the rent to be in arrears, the lessor may, at his option, forthwith cancel this lease or he may enter said premises as the agent of the lessee, without being liable in any way therefor, and relet the premises with or without any furniture that may be, therein, as the agent of the lessee, at such price and upon such terms and for such duration of time as the lessor may determine, and receive the rent therefor, applying the same to the payment of the rent due by these presents, and if the full rental herein provided shall not be realized by lessor over and above the expenses to lessor in such re-letting, the said lessee shall pay any deficiency, and if more than the full rental is realized lessor will pay over to said lessee the excess of demand. SEVENTH: Lessee agrees to pay the cost of collection and ten percent attorney's fee on any part of said rental that may be collected by suit or by attorney, after the same is past due. EIGHTH: The lessee agrees that he will pay all charges for rent, gas, electricity or other illumination, and for all water used on said premises, and should said charges for rent, light or water herein provided for at any time remain due and unpaid for the space of five days after the same shall have become due, the lessor may at its option consider the said lessee tenant at sufferance and the entire rent for the rental period then next ensuing shall at once be due and payable and may forthwith be collected by distress or otherwise. NINTH: The said lessee hereby pledges and assigns to the lessor all the furniture, fixtures, goods and chattels of said lessee, which shall or may be brought or put on said premises as security for the payment of the rent herein reserved, and the lessee agrees that the said lien may be enforced by distress foreclosure or otherwise at the election of the said lessor, and does hereby agree to pay attorney's fees of ten percent of the amount so collected or found to be due, together with all costs and charges therefore incurred or paid by the lessor. TENTH: The lessor, or any of his agents, shall have the right to enter said premises during all reasonable hours, to examine the same to make such repairs, additions or alterations as may be deemed necessary for the safety, comfort, or preservation thereof, or of said building, or to exhibit said premises, and to put or keep upon the doors or windows thereof a notice "FOR RENT" at any time within thirty (30) days before the expiration of this lease. The right of entry shall likewise exist for the purpose of removing placards, signs, fixtures, alterations, or additions, which do not conform to this agreement, or to the rules and regulations of the building. ELEVENTH: Lessee hereby accepts the premises in the condition they are in at the beginning of this lease and agrees to maintain said premises in the same condition, order and repair as they are at the commencement of said term, excepting only reasonable 2 wear and tear arising from the use thereof under this agreement, and to make good to said lessor immediately upon demand, any damage to water apparatus, or electric lights or any fixture, appliances or appurtenances of said premises, or of the building, caused by any act or neglect of lessee, or of any person or persons in the employ or under the control of the lessee. TWELFTH: It is expressly agreed and understood by and between the parties to this agreement, that the landlord shall not be liable for any damage or injury by water, which may be sustained by the said tenant or other person or for any other damage or injury resulting from the carelessness, negligence, or improper conduct on the part of any other tenant or agents, or employees, or by reason of the breakage, leakage, or obstruction of the water, sewer or soil pipes, or other leakage in or about the said building. THIRTEENTH: If the lessee shall become insolvent or if bankruptcy proceedings shall be begun by or against the lessee, before the end of said term the lessor is hereby irrevocably authorized at its option, to forthwith cancel this lease, as for a default. Lessor may elect to accept rent from such receiver, trustee, or other judicial officer during the term of their occupancy in their fiduciary capacity without affecting lessor's rights as contained in this contract, but no receiver, trustee or other judicial officer shall ever have any right, title or interest in or to the above described property by virtue of this contract. FOURTEENTH: Lessee hereby waives and renounces for himself and family any and all homestead and exemption rights he may have now, or hereafter, under or by virtue of the constitution and laws of this State, or of any other State, or of the United States, as against the payment of said rental or any portion hereof, or any other obligation or damage that may accrue under the terms of this agreement. FIFTEENTH: This contract shall bind the lessor and its assigns or successors, and the heirs, assigns, personal representatives, or successors as the case may be, of the lessee. SIXTEENTH: It is understood and agreed between the parties hereto that time is of the essence of this contract and this applies to all terms and conditions contained herein. SEVENTEETH: It is understood and agreed between the parties hereto that written notice mailed or delivered to the premises leased hereunder shall constitute sufficient notice to the lessee and written notice mailed or delivered to the office of the lessor shall constitute sufficient notice to the lessor, to comply with the terms of this contract. EIGHTEENTH: The rights of the lessor under the foregoing shall be cumulative, and failure on the part of the lessor to exercise promptly any rights given hereunder shall not operate to forfeit any of the said rights. NINETEENTH: It is further understood and agreed between the parties hereto that any charges against the lessee by the lessor for services or for work done on the premises by order of the lessee or otherwise accruing under this contract shall be considered as rent due and shall be included in any lien for rent due and unpaid. TWENTIETH: It is hereby understood and agreed that any signs or advertising to be used, including awnings, in connection with the premises leased hereunder shall be first submitted to the lessor for approval before installation of same. TWENTY-FIRST: RADON GAS NOTIFICATION (the following notification may be required in some states): Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings. Additional information regarding radon and radon testing may be obtained from your county public health unit. 3 TWENTY-SECOND: Tenant shall have the right to cancel this lease by giving four months prior written notice to the Landlord. TWENTY-THREE: All notices shall be sent by certified mail. TWENTY-FOURTH: Lessee shall not, either in the course of its business or otherwise, cause to be released upon the leased premises any hazardous or toxic waste materials, nor shall lessee engage in illegal activities upon said premises. TWENTY-FIFTH: It is hereby understood that any repairs to the inside of the building will be the responsibility of the tenant, including oil/or grease stains in the concrete floor. TWENTY-SIXTH: The responsibility of the lessor will for the repair of the roof through normal wear. If the roof damage occurs through lessee negligence, then damage must be repaired by the lessee. **FROM FIFTH: The lessor, his agents or attorneys, shall have the right to enter said premises and remove all personal property from the premises and declare the rent for the entire balance of the term of this lease presently due and payable. IN WITNESS WHEREOF, the parties hereto have executed this instrument for the purpose therein expressed, the day and year above written. Signed, sealed and delivered in the presence of: /s/ John P. Germano - ------------------------------ ------------------------------ Witness Signature (as to Lessor) Lessor Signature John P. Germano - ------------------------------ ------------------------------ Printed Name Printed Name - ------------------------------ ------------------------------ Witness Signature (as to Lessor) Post Office Address - ------------------------------ Printed Name - ------------------------------ Witness Signature (as to Lessee) /s/ Paul I. Mansur CEO - ------------------------------ ------------------------------ Printed Name Lessee Signature - ------------------------------ Paul I. Mansur Witness Signature (as to Lessee) ------------------------------ Printed Name - -------------------------------- ------------------------------ Printed Name Post Office Address 4 LEASE AGREEMENT BETWEEN: Y.F.G. INC./MANSUR INDUSTRIES, INC. NO. 12940 S.W. 85TH AVENUE ROAD SEPTEMBER 1, 1996 STATE OF FLORIDA ____________________ ) I hereby Certify that on this day, COUNTY OF DADE ______________________ ) before me, an officer duly authorized to administer oaths and take acknowledgments, personally appeared Paul Mansur, known to me to be the person described in and who executed the foregoing instrument, who acknowledged before me that ______ executed the same, and an oath was not taken. (Check one;)[x] said person(s) is/are personally known to me. [ ] Said person(s) provided the following type of identification:___________________________________________________. /s/ Lydia Hubbell - ------------------------------ Lydia Hubbell - ------------------------------ Printed Name /Notary Rubber Stamp Seal/ Witness my hand and official seal in the County and State last aforesaid this 30th day of August, A.D. 1996. _____________________________ Notary Public _____________________________ Printed Name EX-10.25 7 Exhibit 10.25 LEASE THIS LEASE entered into this 15th day of September 1996, by and between BUSINESS ENTERPRISE OF PINELLAS LIMITED (hereinafter called "Owner") and MANSUR INDUSTRIES, INC. (hereinafter called "Tenant"), whose address is 8425 S.W. 129th Terrace, Miami, Florida 33156. W I T N E S S E T H: Article 1. - GRANT AND TERM 1.1 LEASED PREMISES. In consideration of the rents, covenants, and agreements herein set forth, Owner hereby leases to Tenant and Tenant hereby rents from Owner those certain premises containing approximately 1692 square feet of space MOL (hereinafter referred to as "Leased Premises"), located at 6561 44th Street North, Building 3, Unit 3004, Pinellas Park, Florida 33781. 1.2 USE OF COMMON AREAS. In addition to the Leased Premises, Tenant shall have the right of nonexclusive use, in common with others, of the hereinafter defined Common Area subject to this lease and to reasonable rules and regulation for use thereof as prescribed from time to time by Owner. 1.3 QUIET ENJOYMENT. Tenant shall have the right to quiet enjoyment of the Leased Premises subject to the terms, conditions, and covenants of this lease. 1.4 TERM. The initial Term shall be for a period of two (2) lease years and one-half lease month, as hereinafter defined plus the part of a month, if any, from the date of commencement of the term to the first day of the first full calendar month in the term. Commencement date will be September 15, 1996. Article 2. - RENT 2.1 BASIC RENT. Tenant agrees to pay to Owner as basic rent for the Premises, the sum of Twelve-thousand, nine-hundred, eighty-two and 50/100 Dollars ($12,982.50), payable $525.00 per month plus seven (7%) percent sales tax for a total monthly payment of $561.75 for year one and $535.00 per month plus seven (7%) sales tax for a total monthly payment of $572.45 for year two. Rent shall be due and payable on the first day of cash calendar month without demand, setoff, or deduction whatsoever, (except as herein provided) at the office of the Owner designated for notices. If the term shall commence upon a day other than the first day of a calendar month, then the rent payable in advance for such fraction of a month until the beginning of the first lease year shall be the monthly rent prorated on a daily basis. Tenant is to pay all utility charges attributable to its Premises, including all electricity, water and telephone charges. 2.2 PAST DUE RENT. If the Tenant shall fail to pay within five (5) days after the same is due and payable, any rent or other amounts or charges provided for in this lease, there shall become due and payable in additional rent, an amount equal to ten percent (10%) of the amount past due to cover the Owner's additional costs in handling delinquent charges. Article 3. - CONDUCT OF BUSINESS BY TENANT 3.1 USE OF PREMISES. The Leased Premises shall be used by Tenant solely for the purpose of conducting therein a business of storage, distribution and light manufacturing of recycling parts washers. NO OUTSIDE STORAGE. Tenant shall not suffer or permit all or any part of the Leased Premises to be used for any other business or purpose or by any other person without the prior written consent of Owner. 3.2 GOVERNMENTAL REGULATION. Tenant, at its expense, shall comply with all federal, state, and local laws, ordinances, orders, rules, regulations, all agreements and covenants of public record pertaining to any of the entire Premises now or hereafter in force, and all recommendations of the Fire Underwriters Rating Bureau, with respect to the use or occupancy of the Leased Premises by Tenant; however, Tenant shall not be required to effect any structural nature by reason of any such laws, ordinances, rules, regulations, covenants, or agreements, unless the conditions constituting a violation of any such provisions were created by improvements to or use of the Leased Premises by Tenant. In the event that Tenant's use of said premises constitutes a violation of any Federal, State or Local laws, ordinances, orders, rules, regulations, agreements and covenants of public record pertaining to any of or the entire premises now or hereafter in force, then in such event such violation, after notice duly given and if not cured within thirty (30) days, shall constitute a default hereunder. 3.3 WASTE OR NUISANCE. Tenant shall not commit or suffer to be committed any waste upon the Leased Premises or the Entire Premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant of the building or surrounding property owners. In the event that tenants use of said leased premises constitutes any waste upon the leased premises or the entire premises or any nuisance or other act or thing which may disturb the quiet enjoyment of any other tenant of the building or surrounding property owners, then in such event such violation after notice duly given shall be cured and corrected at Tenant's sole expense to Landlord's reasonable satisfaction, and if not cured within thirty days, shall constitute a default hereunder. Article 4. - SECURITY 4.1 AMOUNT AND USE OF DEPOSIT. At the commencement of the term of this lease, Tenant shall pay to Owner the sum of Five hundred, twenty-five and 00/100 ($525.00) Dollars as security for the performance by Tenant of all of the terms, covenants and conditions of this lease by said Tenant to be kept and performed during the term hereof, and shall be held without liability for interest. If at any time during the term of this lease, any of the rent herein reserved or any other sum payable by Tenant to Owner hereunder shall be overdue and unpaid, then Owner may, at its option, apply all or any portion of said deposit to the payment of such overdue rent or other sum. In the event the deposit or any portion thereof is so applied, Tenant shall, after written -2- request by Owner, remit to Owner a sufficient amount in cash to restore said security to the original sum deposited and Tenant's failure to do so within five (5) days after receipt shall constitute a breach of this lease. The deposit or any unexpended balance thereof shall be returned in full to Tenant upon the expiration of this lease or the earlier termination hereof. Article 5. - CONTROL AND USE OF COMMON AREAS 5.1 DESCRIPTION OF COMMON AREAS. Common Areas are all those areas and facilities including parking areas, driveways, sidewalks, landscaped areas, utility and drainage systems, utility rooms, hallways and improvements provided by the Owner for the general use, in common, of tenants, their officers, agents, employees, customers, or persons having business with tenants. 5.2 CONTROL OF COMMON AREAS BY OWNER. Common Areas are subject to the exclusive control and management of Owner, who shall have the right from time to time to establish, modify and enforce reasonable rules and regulations with respect to their use. Owner shall have the right to construct, maintain and operate lighting, refuse storage or removal, parking and other facilities, to restrict parking, to discourage parking by persons not having business with tenants, to temporarily close Common Areas, to close all or any portion of said areas or facilities to such extent as may, in the opinion of Owner's counsel, be legally sufficient to prevent a dedication thereof or the accrual of any rights to any person or the public therein, and to do and perform such other acts in and to said areas and improvements as, in the exercise of good business judgment, the Owner shall determine to be advisable with a view to the improvement of the convenience and use thereof by tenants and persons having business with tenants. The rights accruing to Owner pursuant to this section shall not imply any obligation on Owner to exercise them. Owner will operate and maintain the Common Areas to the extent that it, in its sole discretion, shall determine from time to time. Article 6. - MAINTENANCE OF LEASED PREMISES 6.1 MAINTENANCE BY TENANT. Tenant shall at all times keep the Leased Premises, (including exterior entrances, and all glass and windows), all floors, and all partitions, doors (including overhead doors), fixtures, equipment and appurtenances thereto, (including lighting, heating, plumbing fixtures and air conditioning equipment), in good order and repair, and in a clean and sanitary condition, and shall make all necessary repairs, ordinary and extraordinary, foreseen and unforeseen, including all necessary replacements, alterations, additions and betterments, using material and equipment of like kind and quality to the original improvements. If Tenant fails to repair property as required hereunder and to the reasonable satisfaction of Owner as soon as is reasonably possible, after written request, Owner shall hereby have the right to enter the Leased Premises as is necessary to effect repairs and to make such repairs at Tenant's expense, without liability to Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures, or other property or to Tenant's business by reason thereof except for owner negligence in performing its obligation under this Lease, and upon completion thereof, Tenant shall pay as additional rent Owner's costs for making such repairs, plus twenty percent (20%) for overhead, upon presentation of the bill therefore, which shall be conclusive evidence of the amount of such cost. -3- 6.2 MAINTENANCE OF BUILDING. Owner shall keep and maintain the structure and exterior walls, roof of the building and sprinkler system except such portion Tenant has altered, and the Common Areas in good order, condition provided that if Owner is required to make repairs to structure or exterior or Tenant walls, or roof portions of the building by reason of Tenant's negligent act or omission to act, or if the presence of waste or rubbish in the Common Areas is caused by Tenant, its officers, agents, employees or invitees, Owner may charge the cost of such repairs or the removal of such waste or rubbish to the Tenant, which charge shall thereafter become due and payable as additional rent. Upon the expiration of the tenancy hereby created, Tenant shall surrender the Leased Premises in the same condition as existing upon delivery of possession thereof under this lease, reasonable wear and tear and damage by unavoidable casualty excepted, and shall surrender all keys for the Leased Premises to Owner at its place then fixed for the payment of rent. Tenant shall remove all its trade fixtures, and any alterations or improvements which have not become the property of the Owner pursuant to Section 7.2 hereof, before surrendering the Premises as aforesaid and shall repair any damage to the Leased Premises or building caused thereby. Tenant's obligation to observe or perform this covenant shall survive the expiration or termination of the term of this lease. 6.3 RULES AND REGULATIONS. The Rules and Regulations adopted by Owner are hereby made a part of this lease, and Tenant's failure to keep and observe said rules and regulations shall constitute a breach of the terms of this lease in the manner as if the same were contained herein as covenants. Owner reserves the right from time to time to add to, amend, or supplement said rules and regulations. Any such Rules and Regulations and amendments and supplements shall be given to Tenant in writing and Tenant agrees thereupon to comply therewith, provided the same shall apply uniformly to all Tenants of the building. Article 7. - FIXTURES, ALTERATIONS, REPLACEMENTS, IMPROVEMENTS 7.1 APPROVAL BY OWNER. Tenant shall not, without the prior written approval of Owner, install or permit to be installed any fixture or improvement or make any alterations, replacement or repair upon the Leased Premises or building, including signs, HVAC systems, electrical apparatus, or cutting or drilling into any part of the Leased Premises or building or securing any fixtures, apparatus or equipment of any kind to any part of the Leased Premises or building. Tenant shall present to Owner plans and specifications for such work at the time approval is sought, and when approval is granted, shall cause all work to be done according to said plans and specifications, in compliance with all codes, ordinances, rules and regulations of any authority, and in a neat and workmanlike manner. The cost of repair of any damage resulting from any such approved work shall be borne by Tenant. 7.2 OWNERSHIP OF IMPROVEMENTS. All alterations, heating and air conditioning systems, replacements and improvements permanently affixed to the Leased Premises by Tenant shall become the property of the Owner upon termination of this Lease or any extension or renewal and shall remain on the Leased Premises in absence of a written agreement of the Owner to the contrary. Upon expiration of this Lease, or any renewal term thereof, any property belonging to -4- the Tenant, which the tenant has failed to remove from the Leased Premises shall forthwith become the property of the Owner and Tenant shall be liable for the cost of removal thereof. 7.3 TENANT SHALL DISCHARGE ALL LIENS. Tenant shall promptly pay all contractors and materialmen working on the Leased Premises on his account, so as to minimize the possibility of a lien attaching to any of the Entire Premises. Should any such lien be made or filed, Tenant shall notify Owner immediately and bond against or discharge the same within ten (10) days after such lien is made or filed. Article 8. - EXTERIOR APPEARANCE 8.1 CONTROL BY OWNER. The exclusive right is reserved to the Owner to control the exterior appearance of the Entire Premises, including but not limited to all signs, decoration, lettering and advertising visible from the exterior of the building, (including those on the interior or on windows or doors), shades, awnings, window coverings, exterior or interior lights, antennae, canopies, or anything whatsoever affecting the visual appearance of the building. Tenant will not place or suffer to be placed or maintained any item of any kind on or in any of the Entire Premises affecting the exterior appearance of the building of common areas without first obtaining Owner's written approval and consent. Tenant further agrees to maintain any said item as may be approved in good condition and repair at all times. Article 9. - INSURANCE AND INDEMNITY 9.1 LIABILITY INSURANCE. Tenant will keep in force at its own expense throughout the term of this lease, public liability insurance with respect to the Leased Premises and business operated by Tenant in such companies and in such form as are acceptable to Owner with minimum limits with respect to bodily injury of One Hundred Thousand Dollars ($100,000) per person, and Three Hundred Thousand Dollars ($300,000) per accident or occurrence, and with respect to property damage, Fifty Thousand Dollars ($50,000). Tenant will have all such public liability policies endorsed to show the Owner as an additional insured with respect to occurrences upon the Leased Premises. The Tenant's insurance policy will further provide for at least thirty (30) days notice to Owner before substantial reduction of policy limits, cancellation, or any other policy changes adverse to the Owner's interests. Tenant will furnish Owner with a copy of policy or policies of such insurance or certificates thereof, within ten (10) days of a request therefor by Owner. If Tenant shall not comply with the provision of this Section 9.1, Owner may at its option, cause insurance as aforesaid to be issued, and in such event, Tenant agrees to pay the premium for such insurance promptly upon Owner's demand. Nothing herein contained shall require the Owner to be liable for any loss occasioned by fire or other casualty to personal property or fixtures of the Tenant, its agents, employees, assignees, subleases, bailors, invitees or of any other person, firm or corporation upon any part of the Leased Premises. 9.2 INCREASE IN FIRE OR CASUALTY INSURANCE PREMIUM. In the event Tenant's occupance causes any increase of premium for the fire, extended coverage, or other casualty or liability insurance on the building or any part thereof above, the rate for the least hazardous type of occupancy legally permitted in the Leased Premises, the Tenant shall pay the additional premiums on the casualty or liability insurance policies by reason thereof. The Tenant shall also pay in such event its prorata share of any additional premium on the rent insurance policy that may be carried -5- by the Owner for its protection against rent loss through casualty. Bills for such additional premiums shall be rendered by Owner to Tenant at such times as Owner may elect, shall be due from and payable by Tenant when rendered, and the amount thereof shall be paid as additional rent. 9.3 INDEMNITY BY TENANT. Tenant shall indemnify, save harmless and defend Owner from and against any and all suits, claims, actions, damages, liability and expense, including reasonable attorneys' fees in connection with loss of life, personal injury and/or damage to property arising from or out of the occupancy or use by Tenant of the Entire Premises or any part thereof or occasioned wholly or in part by any act or omission of Tenant, its officers, agents, servants, contractors or employees. 9.4 EMPLOYER'S LIABILITY INSURANCE. Tenant shall, throughout the term of this lease or any renewal thereof, maintain such workmen's compensation or employer's liability insurance as may be required by law and shall indemnify and hold harmless the Owner against loss, claim or demand of employees, agents, contractors and subcontractors of the Tenant. Article 10. - ASSIGNMENT AND SUBLETTING 10.1 CONSENT REQUIRED. Tenant shall not sell, assign, sublease, or in any manner transfer this Lease or any estate or interest therein, nor rent the leased premises or any part or parts thereof, nor grant any license or concessions therein, without the prior written consent of Owner, which shall not be unreasonably withheld. Notwithstanding consent, such assignment or subletting shall not relieve Tenant of any obligations imposed on him under the terms and conditions of the written Lease, and Tenant shall remain primarily liable for rent for the balance of the term. Owner's rights to sell, assign, or otherwise transfer this Lease are and shall remain unqualified. Article 11. - DEFAULT OF TENANT 11.1 RIGHT TO RE-ENTER. In the event of any failure of Tenant to pay any rental due hereunder within ten (10) days after the same shall be due, or any failure to perform any other of the terms, conditions or covenants of this lease to be observed or performed by Tenant for more than fifteen (15) days after written notice of such default shall have been given to Tenant, or if Tenant or any guarantor of this lease shall become bankrupt or insolvent or file any debtor proceedings or take or have taken against Tenant of this lease in any court pursuant to any statute either of the United States or any state, a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee or all or a portion of Tenant's or any such guarantor's property, or if Tenant or any such guarantor makes any assignment for the benefit of creditors, or petitions for or enters into an arrangement, or if Tenant shall abandon said Leased Premises or suffer this lease to be taken under any writ of execution, the Owner, besides other right or remedies it may have, shall have then immediate right to re-enter and may remove all persons and property from the Leased Premises and such property may be removed and stored in public warehouse or elsewhere at the cost of and for the account of Tenant, all without service -6- of notice or resort to legal process and without being guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. 11.2 LEGAL EXPENSES. In case suit be brought for recovery of possession of the Leased Premises, for the recovery of rent or any other amount due under the provisions of this lease, or because of the breach of any other covenant herein contained on the part of the Tenant to be kept or performed, and a breach shall be established, Tenant shall pay to Owner all expenses incurred therefor, including reasonable attorneys fees and attorney's fees on appeal. Article 12. - ACCESS BY OWNER 12.1 RIGHT OF ENTRY - Owner or Owner's agents shall have the right to enter the Leased Premises during business hours and during emergencies to examine the same and to show them to prospective purchasers of the building, and to make such repairs, alterations, improvements or additions to the building as Owner may deem necessary or desirable, and Owner shall be allowed to take all material into and upon said Premises that may be required therefor without the same constituting an eviction of tenant in whole or in part and the rent reserved shall abate pro-rata according to the diminution of tenants use of said Leases Premises while said repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant, or otherwise. During the 30-day period prior to the expiration of the term of this lease or any renewal term, Owner may exhibit the Leased premises to prospective tenants during reasonable business hours, and place upon the Premises the usual "For Rent" notices, which notices Tenant shall permit to remain thereon without molestation. If Tenant shall not be personally present to open and permit an entry into said Leased Premises during business hours or when, for any reason an entry therein shall be necessary or permissible, Owner or Owner's agents may enter the same by master key, or may forcibly enter the same, without rendering Owner or agents liable therefor and without in any manner affecting the obligations and covenants of this lease. Nothing herein contained, however, shall be deemed or construed to impose upon Owner any obligation, responsibility or liability whatsoever, for the care, maintenance or repair of the building or any part thereof; except as otherwise herein specifically provided. Article 13. - TENANT'S PROPERTY. 13.1 TAXES ON TENANT'S LEASEHOLD - Tenant shall be responsible for and shall pay before delinquency, all municipal, county, state, and federal taxes assessed during the term of this lease against personal property of any kind, owned by or placed in, upon or about the Leased Premises by the Tenant. 13.2 LOSS AND DAMAGE - Owner shall not be liable for any damage to property of Tenant or others located on the Leased Premises, nor for the loss of or damage to any property of Tenant or of others by theft or otherwise. Owner shall not be liable to Tenant for and Tenant shall hold Owner harmless from and indemnify Owner against any claims arising from injury to or death of person or damage to property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, flood, air pollution, rain or leaks from any part of the Leased Premises or from the pipes, appliances or plumbing works or by dampness or by any other cause of whatever nature. Owner shall not be liable to Tenant for such damage caused by other tenants or person in the Leased -7- Premises, occupants of any of the Entire Premises or adjacent property, or the public or caused by operations in construction of any private, public or quasipublic work unless such damage shall be caused by the willful act or gross neglect of Owner. 13.3 NOTICE BY TENANT - Tenant shall give immediate notice to Owner in case of fire or other casualty or accidents in the Leased Premises or in the building, or of defects therein or in any fixtures or equipment. Article 14. - HOLDING OVER, SUCCESSORS. 14.1 HOLDING OVER - This lease and the tenancy hereby created shall cease and terminate at the end of the original term hereof, or any extension or renewal thereof, without the necessity of any notice from either Owner or Tenant to terminate the same, and Tenant hereby waives notice to vacate the premises and agrees that Owner shall be entitled to the benefit of all provisions of law respecting the summary recovery of possession of premises from a Tenant holding over to the same extent as if statutory notice had been given. Any holding over after the expiration of the term hereof, with the consent of the Owner, shall be construed to be a tenancy from month to month at a rent five percent (5%) greater than the basic, added and additional rent herein specified, (prorated on a monthly basis) and shall otherwise be on the terms and conditions herein specified, so far as applicable. 14.2 SUCCESSORS - All rights and liabilities herein given to or imposed upon, the parties hereto shall insure to the benefit of and be binding upon their respective heirs, executors, administrators, successors and assigns, and if there shall be more than one Tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall insure to the benefit of any assignee of Tenant unless the assignment to such assignee has been approved by Owner in writing as provided elsewhere in this lease. Article 15. - CONDEMNATION. 15.1 CONDEMNATION - If during the term of this lease or any renewal thereof, the whole of the Leased Premises of such a portion thereof as will make these Leased Premises unusable for the purpose leased, be condemned or taken in any manner for public use, then in either event the term hereby granted shall cease and come to an end as of the date of the vesting of title in such public authority. The Owner shall be entitled to the entire award for such taking except for any claim of the Tenant for injury, damage or destruction of Tenant's business accomplished by such taking. If a portion of the Leased Premises unusable for the purposed lease, this lease will not be terminated but shall continue. In no event shall Owner be liable to Tenant for any business interruption, diminution in use or for any value of any unexpired term of this lease. Article 16. - MISCELLANEOUS. 16.1 WAIVER - The waiver by Owner of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Owner shall not be deemed to be A waiver of any -8- previous breach by Tenant of any term, covenant, or condition of this lease, other than the failure of the Tenant to pay the particular rental so accepted, whether or not Owner had knowledge of such previous breach at the time of acceptance of such rent. No covenant, term or condition of this lease shall be deemed to have been waived by Owner, unless Owner waives the same in writing. 16.2 ACCORD AND SATISFACTION - No payment by Tenant or receipt by Owner of an amount less tan the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or in any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Owner may accept such check or payment without prejudice to Owner's right to recover the balance of such rent or pursue any other remedy provided in this lease. 16.3 ENTIRE AGREEMENT - This lease and the Riders attached hereto and forming a part hereof set forth all the covenants, promises, agreements, conditions and understandings between Owner and Tenant concerning the Leased Premises and there are no covenants, promises, agreements, conditions, or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration amendment, change or addition to this lease shall be binding upon Owner or Tenant unless reduced to writing and signed by them. 16.4 NOTICES - Any notice, demand, request, or other instrument which may be or is required to be given under this lease shall be delivered in person or sent by United States certified mail postage prepaid, return receipt requested, and shall be addressed (a) if to Tenant, at the Leased Premises or at such other address as the Tenant shall designate by written notice and, (b) if to Owner, RYON & ASSOCIATES, INC., 2203 NORTH LOIS AVENUE, SUITE 704, TAMPA, FLORIDA 33607 or at such other address as Owner may designate by written notice. 16.5 CAPTIONS, AND SECTION NUMBERS - The captions, section numbers and article numbers and an index appearing in this lease are inserted only as a matter of convenience and in no way define, limit, constitute or describe the scope of intent of such sections or articles of this lease nor in any way affect this lease. 16.6 TENANT DEFINED, USE OF PRONOUN - The word "Tenant" shall be deemed and taken to mean each and every person or party mentioned as Tenant herein, be the same one or more, and if there shall be more than one such person or party, any notice required or permitted by the terms of this lease may be given by or to any one thereof. The use of the neuter singular pronoun to refer to Owner or Tenant shall be deemed a proper reference even though Owner or Tenant may be an individual, a partnership, a corporation or a group of two or more individuals or corporations. The necessary grammatical changes required to make the provisions of this lease apply in the plural sense where there is more than one Owner or Tenant and to either corporations, associations, partnerships or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. 16.7 PARTIAL INVALIDITY - Of any term, covenant, or condition of this lease, the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the -9- remainder of this lease or the application of such terms, covenants or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this lease shall be valid and be enforced to the fullest extent permitted by law. 16.8 FLORIDA LAWS TO GOVERN - This lease shall be construed according to the laws of the State of Florida. 16.9 INTEREST OF MORTGAGE - Tenant understands and agrees that this Lease shall be subject and subordinate to any mortgage. This provision shall be self-operative but Tenant will execute and deliver any additional instruments which may be required by the holder of the Mortgage to evidence such subordination. 16.10 SPECIFIC PERFORMANCE OF LEASE - Owner shall have the right to enforce Tenant's specific performance of each and every covenant, condition and other provision of this lease. 16.11 WAIVER OF RIGHT OF REDEMPTION - Tenant hereby waives all right of redemption to which Tenant or any person under Tenant might be entitled by any law nor or hereafter in force. 16.12 OTHER REMEDIES - Owner's pursuit of any remedy hereunder are in addition to any other remedy allowed by law or in equity and shall not preclude the pursuit of any other remedies herein provided. Article 17. - DESTRUCTION OF PREMISES 17.1 TOTAL DESTRUCTION - If the Leased Premises are substantially or totally destroyed by fire or other casualty, both the Tenant and Owner shall have the option of terminating this lease upon thirty (30) days written notice. 17.2 PARTIAL DESTRUCTION - If such Leased Premises are partially damaged by fire or other casualty, the rents shall be prorated accordingly during the term the Premises are untenable, and the Owner shall have an option to determine whether to undertake to rebuild the premises or terminate this lease within thirty (30) days after said event, by written notice to Tenant. 17.3 The Owner shall not be liable for any inconvenience or interruption of business of the Tenant occasioned by fire or other casualty. Article 18. - ESTOPPEL CERTIFICATES - Tenant hereby covenants and agrees that it shall, without charge, and at any time from time to time within ten (10) days after request by Owner, deliver a written instrument to Owner or to any person, firm or corporation specified by Owner, which written instrument shall state the following information: (a) That this lease is unmodified and in full force and effect, or if there have been any modifications, that the same is in full force and effect as so modified, and identifying any such modifications; -10- (b) Whether there are any existing defaults by Owner with respect to the terms of this lease known to Tenant, and if any such defaults are known, specifying the same; (c) The dates to which rental and all other charges under this lease have been paid. Article 19. - AD VALOREM TAX INCREASE - In the event there is any increased during any year of the term of this lease in the City, County or State real estate taxes over and above the amount of such taxes assessed for the tax year during which the term of this lease commences, whether because of increased rate or valuation, Lessee shall pay to Lessor upon presentation of paid tax bills an amount equal to the Pro Rata % of the increase in taxes upon the land and building in which the leased premises are situated. In the event that such taxes are assessed for a tax year extending beyond the term of the lease, the obligation of Lessee shall be proportionate to the portion of the lease term included in such year. IN WITNESS WHEREOF, Owner and Tenant have signed and sealed this lease as of the day and year first above written. WITNESSES: OWNER ____________________________________ BUSINESS ENTERPRISE OF PINELLAS LIMITED ____________________________________ By:________________________________ As to Owner TENANT MANSUR INDUSTRIES, INC. ____________________________________ By:________________________________ ____________________________________ By:________________________________ As to Tenant -11- ENTERPRISE BUSINESS PARK RULES AND REGULATIONS AS OF AUGUST 12, 1994 1) Tenant is to park only in parking spaces directly in front of their leased unit. 2) No pets of any kind allowed on the premises. 3) No outside storage will be permitted. This includes non-conforming vehicles. 4) No dumping of any kind in the business park dumpster. 5) The usage of the lake is prohibited for swimming, fishing, littering and social gatherings. =============================================================================== These rules are subject to change at any time. =============================================================================== -12- EX-23.2 8 EXHIBIT 23.2 The Board of Directors Mansur Industries Inc.: We consent to the use of our report dated January 19, 1996 of Mansur Industries Inc. included herein in this registration statement on Form S-1 of Mansur Industries Inc. and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG PEAT MARWICK LLP Miami, Florida September 24, 1996 -----END PRIVACY-ENHANCED MESSAGE-----