-----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, Dl7UZW+hI7WqaAW57rfE4GaFnUZlyJcWHq62WJuDRx3Ih5/NJ94FknUYfnmR2u3b 5cYmi6pxxOMJgj7z+Pknew== 0001016843-96-000040.txt : 19961030 0001016843-96-000040.hdr.sgml : 19961030 ACCESSION NUMBER: 0001016843-96-000040 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDEAN DEVELOPMENT CORP CENTRAL INDEX KEY: 0000943184 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 650548697 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-90696 FILM NUMBER: 96649671 BUSINESS ADDRESS: STREET 1: 835 LAKESIDE DR CITY: BOCA RATON STATE: FL ZIP: 33434 BUSINESS PHONE: 4074826336 MAIL ADDRESS: STREET 1: 835 LAKESIDE DR CITY: BOCA RATON STATE: FL ZIP: 33434 SB-2/A 1 As filed with the Securities and Exchange Commission on October 29, 1996 Registration No. 33-90696 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM SB-2 AMENDMENT NO. 11 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ANDEAN DEVELOPMENT CORPORATION (Name of Small Business Issuer in its Charter) -------------------- FLORIDA 8700 65-0548697 (State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) 835 LAKESIDE DRIVE PEDRO PABLO ERRAZURIZ BOCA RATON, FL 33434 ANDEAN DEVELOPMENT CORPORATION (407) 482-6336 835 LAKESIDE DRIVE (Address and telephone number of BOCA RATON, FLORIDA 33432 principal executive offices and (407) 482-6336 principal place of business) (Address and telephone number of principal executive offices and principal place of business) -------------------- Please address a copy of all communications to: CHARLES B. PEARLMAN, ESQ. DAVID A. CARTER, P.A. ROXANNE K. BEILLY, ESQ. 355 W. PALMETTO PARK ROAD ATLAS, PEARLMAN, TROP & BORKSON, P.A. BOCA RATON, FLORIDA 33432 200 E. LAS OLAS BOULEVARD PHONE (561) 750-6999 FORT LAUDERDALE, FLORIDA 33301 FAX (561) 367-09670 PHONE (954) 763-1200 FAX (954) 523-1952 -------------------- Approximate date of proposed sale to the public: As soon as practicable after the Registration Statement is effective. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. =============================================================================== =============================================================================== (Registration Statement cover page cont'd) CALCULATION OF REGISTRATION FEE
======================================================================================================================= Title of Each Class of Amount to be Proposed Proposed Amount of Securities to be Registered Registered Maximum Maximum Registration Offering Price per Aggregate Fee Unit (1) Offering Price (1) - ----------------------------------------------------------------------------------------------------------------------- Common Stock (par value $.0001 per 1,320,000 $5.00 $6,600,000 $2,000.00 share)(2) - ----------------------------------------------------------------------------------------------------------------------- Warrants(3) 1,320,000 $0.125 $165,000 $50.00 - ----------------------------------------------------------------------------------------------------------------------- Common Stock issuable under 1,320,000 $5.00 $6,600,000 $2,000.00 Warrants(4) - ----------------------------------------------------------------------------------------------------------------------- Representative's Warrants 120,000 $.0002 $24.00 $.73 - ----------------------------------------------------------------------------------------------------------------------- Common Stock issuable under the Representative's Warrants and the Common Stock issuable under the Representative's Warrants(4) 240,000 $7.50 $1,800,000 $545.45 - ----------------------------------------------------------------------------------------------------------------------- Warrants issuable under the Representative's Warrants 120,000 $.1875 $22,500 $6.82 - ----------------------------------------------------------------------------------------------------------------------- TOTAL $4,603.00* ======================================================================================================================= (1) Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) Includes 120,000 shares of Common Stock issuable pursuant to the Representatives' Over-Allotment Option. (3) Includes 120,000 Warrants issuable pursuant to the Representatives' Over-Allotment Option. (4) Represents shares of Common Stock issuable upon exercise of the Warrants registered hereby together with such additional indeterminate number of shares as may be issued upon exercise of such Warrants by reason of the anti-dilution provisions contained therein. * Filing fee previously paid.
ii ANDEAN DEVELOPMENT CORPORATION -------------------- Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus 1. Front of Registration Statement and Facing Page of Registration Statement; Outside Outside Front Cover of Prospectus Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Inside Front and Outside Back Pages of Pages of Prospectus Prospectus 3. Summary Information and Risk Factors Summary; The Company; Risk Factors 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Risk Factors; Underwriting 6. Dilution Risk Factors; Dilution 7. Selling Security-Holders * 8. Plan of Distribution Inside Front Cover Page of Prospectus; Underwriting 9. Legal Proceedings Business 10. Directors, Executive Officers, Management Promoters and Control Persons 11. Security Ownership of Certain Principal Shareholders; Beneficial Owners and Management Management 12. Description of Securities Description of Securities 13. Interest of Named Experts and Counsel Experts; Legal Matters 14. Disclosure of Commission Position on Management - Indemnification Indemnification for Securities Act Liabilities of Officers and Directors 15. Organization within Last Five Years Business; Certain Transactions 16. Description of Business Prospectus Summary; Business 17. Management's Discussion and Analysis Management's Discussion and Analysis of or Plan of Operation Financial Condition and Results of Operations 18. Description of Property Business 19. Certain Relationships and Related Certain Transactions Transactions - --------------------
* Not applicable or answer in negative iii 20. Market for Common Equity and Risk Factors; Description of Securities Related Stockholder Matters 21. Executive Compensation Management 22. Financial Statements Financial Statements 23. Changes in and Disagreements with * Accountants on Accounting and Financial Disclosure
- -------------------- * Not applicable or answer in negative iv Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission, These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED OCTOBER 29, 1996 ANDEAN DEVELOPMENT CORPORATION 1,200,000 Shares of Common Stock and 1,200,000 Redeemable Common Stock Purchase Warrants -------------------- Andean Development Corporation (the "Company" or "ADC") is offering 1,200,000 shares of Common Stock, par value $.0001 per share (the "Common Stock") and 1,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants"). The Common Stock and the Warrants (collectively, the "Securities") are being offered separately and not as units, and each are separately transferable. Each Warrant entitles the holder to purchase one share of Common Stock at $5.00 per share (subject to adjustment) during the five-year period commencing on the date of this Prospectus. The Warrants are redeemable by the Company for $.05 per Warrant, on not less than thirty (30) nor more than sixty (60) days written notice if the closing bid price for the Common Stock for twenty-one (21) trading days during any thirty (30) consecutive trading day period ending not more than fifteen (15) days prior to the date that the notice of redemption is mailed, equals or exceeds $10.00 per share subject to adjustment under certain circumstances during a period of thirty (30) consecutive trading days ending not earlier than ten (10) days of the date of the Warrants are called for redemption and provided there is then a current effective registration statement under the Securities Act of 1933, as amended (the "Act") with respect to the issuance and sale of Common Stock upon the exercise of the Warrants. Any redemption of the Warrants during the one-year period commencing on the date of this Prospectus shall require the written consent of Barron Chase Securities, Inc., the representative of the Underwriters (the "Representative"). See "Description of Securities." Prior to this Offering, there has been no public market for the Common Stock or the Warrants. The initial public offering prices of the Common Stock and Warrants and the exercise price and other terms of the Warrants have been determined through negotiations between the Company and the Representative and are not related to the Company's assets, book value, financial condition or other recognized criteria of value. Although the Company has applied for the inclusion of the Common Stock and the Warrants on the National Association of Securities Dealers Automated Quotation System ("Nasdaq") National Market System under the symbols "ADCC" and "ADCCW," respectively, there can be no assurance that an active trading market in the Company's securities will develop or be sustained. -------------------- THESE ARE SPECULATIVE SECURITIES, AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGES 7-16 AND "DILUTION." ------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =============================================================================== Price to Underwriting Proceeds to Public Discount(1) Company(2)(3) - ------------------------------------------------------------------------------- Per Share........... $5.00 $.50 $4.50 - ------------------------------------------------------------------------------- Per Warrant......... $.125 $.0125 $.1125 - ------------------------------------------------------------------------------- Total (3)........... $6,150,000 $615,000 $5,535,000 =============================================================================== *SEE FOOTNOTES ON FOLLOWING PAGE The shares of Common Stock and the Warrants are being offered by the Underwriters on a firm commitment basis, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by their counsel and to certain other conditions. It is expected that delivery of the certificates representing the Common Stock and the Warrants will be made against payment therefor at the offices of the Representative at 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433 on or about _____________, 1996. ------------------- BARRON CHASE FIRST LONDON SECURITIES SECURITIES CORPORATION The date of this Prospectus is __________, 1996 (1) Does not include additional underwriting compensation to be received in the form of (i) a non-accountable expense allowance equal to 3% of the gross proceeds of the offering of which $30,000 has been paid to date; (ii) Representative's Purchase Warrants to purchase 120,000 shares of Common Stock and 120,000 Warrants exercisable for a five-year period commencing from the effective date of the offering at an exercise price of 150% of the price at which the Common Stock and the Warrants are sold to the public, subject to adjustment; and (iii) a financial advisory agreement for the Representative to act as an Investment Banker for the Company for a period of three (3) years at a fee of $108,000, payable at the closing of the Offering. In addition, the Company has granted to the Representatives certain registration rights with respect to registration of the shares of Common Stock and the Warrants underlying the Representatives' Purchase Warrants and the shares of Common Stock issuable upon exercise of the Warrants issuable upon exercise of the Representative's Purchase Warrants and to indemnify the Underwriters against certain liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $444,898, including the Representative's non-accountable expense allowance. (3) The Company has granted the Representative an option (the "Representative's Over-Allotment Option"), exercisable within 30 days from the date of this Prospectus, to purchase up to 120,000 additional shares of Common Stock and up to 120,000 additional Warrants at an exercise price of $5.00 solely to cover over-allotments, if any. If the Representatives' Over-Allotment Option is exercised in full, the total Price to Public, Underwriting Commissions, and Proceeds to Company will be $6,765,000, $676,500 and $6,088,500, respectively. See "Underwriting." AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2, pursuant to the Securities Act of 1933, as amended, with respect to the securities offered by this Prospectus. This Prospectus does not contain all of the information set forth in said Registration Statement, and the exhibits thereto. THE STATEMENTS CONTAINED IN THIS PROSPECTUS AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT IDENTIFIED AS EXHIBITS IN THIS PROSPECTUS ARE NOT NECESSARILY COMPLETE, AND IN EACH INSTANCE, REFERENCE IS MADE TO A COPY OF SUCH CONTRACT OR DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT, EACH STATEMENT BEING QUALIFIED IN ANY AND ALL RESPECTS BY SUCH REFERENCE. For further information with respect to the Company and the securities offered hereby, reference is made to such Registration Statement and exhibits which may be inspected without charge at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. Upon consummation of this Offering, the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934 and in accordance therewith will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at its New York Regional Office, Room 1400, 7 World Trade Center, New York, New York 10048; and at its Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such material can be obtained from the Public Reference Section at prescribed rates. The Company intends to furnish its shareholders with annual reports containing audited financial statements and such other reports as the Company deems appropriate or as may be required by law. The Company will provide without charge to each person who receives a Prospectus, upon written or oral request of such person, a copy of any of the information that was incorporated by reference in the Prospectus (not including exhibits to the information that was incorporated by reference unless the exhibits are themselves specifically incorporated by reference). Such requests may be directed to Pedro P. Errazuriz, President and Chief Executive Officer, c/o Andean Development Corporation, 835 Lakeside Drive, Boca Raton, Florida 33434, telephone number (407) 482-6336. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE REPRESENTATIVE'S OVER-ALLOTMENT OPTION, THE REPRESENTATIVE'S PURCHASE WARRANTS, THE WARRANTS, WARRANTS TO PURCHASE 21,000 SHARES OF COMMON STOCK (THE "BRIDGE WARRANTS") ISSUED TO A BRIDGE LENDER IN CONNECTION WITH CERTAIN BRIDGE FINANCING RECEIVED BY THE COMPANY IN APRIL, 1996 (SEE "BRIDGE FINANCING"), UP TO 250,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S STOCK OPTION PLAN OR DIRECTORS STOCK OPTION PLAN (SEE "MANAGEMENT - INCENTIVE AND NON-QUALIFIED STOCK OPTIONS PLAN"); (II) ASSUMES A PUBLIC OFFERING PRICE OF $5.00 PER SHARE OF COMMON STOCK AND $.125 PER WARRANT; AND (III) GIVES EFFECT AS OF DECEMBER 31, 1994, TO A REORGANIZATION (THE "REORGANIZATION") WHEREBY ERRAZURIZ Y ASOCIADOS INGENIEROS S.A. ("E&A") AND IGENOR ANDINA S.A. ("INA"), BOTH CORPORATIONS DOMICILED IN SANTIAGO, CHILE WILL BECOME SUBSIDIARIES OF THE COMPANY EFFECTIVE UPON CLOSING OF THIS OFFERING AND WHEREBY THE SHAREHOLDERS OF THESE AFFILIATED COMPANIES WILL EXCHANGE THEIR SHARES FOR SHARES IN THE COMPANY. THE COMPANY Andean Development Corporation was organized in 1994 as a holding company to acquire Errazuriz y Asociados Ingenieros S.A. ("E&A") and Igenor Andina S.A. ("INA"), both corporations domiciled in Santiago, Chile. Andean Export Corporation, ("ADX"), domiciled in Boca Raton, Florida, U.S.A., is a subsidiary of Andean Development Corporation. Andean Development Corporation, E&A, INA, and ADX are collectively referred to as the "Company" or "ADC". E&A, organized in February 1991, specializes, as an agent, in the sale of major electrical and mechanical equipment and the representation of foreign manufacturers of electrical and mechanical equipment in Chile. E&A also offers technical assistance to, and prepares tender (bid) documents on behalf of its customers in connection with turnkey and non-turnkey public works and development projects to be constructed in Chile. Since 1991, E&A has facilitated the sale of more than $415 million of equipment including generators, turbines and conveyors (see "Business - Major Projects"), which has generated more than $5 million of commissions for the Company. See "Business-Core Business." INA, organized in 1986, provides engineering, consulting and project management services for electric generating facilities and civil construction projects including hydroelectric and other electric power plans, tunneling projects and water treatment facilities located principally in Chile. Since 1986, INA alone and in conjunction with Norconsult International, A.S. of Norway ("Norconsult"), an international engineering company, has provided engineering, consulting and project management services relating to engineering projects valued at $19 million which services generated approximately $8.6 million in revenues for the Company. See "Business - Core Business." The Company's strategy is two-fold. First, the Company intends to continue to grow and expand its core business presently being conducted through E&A and INA. To facilitate this growth the Company will immediately establish a sales and marketing office in the United States and in the latter part of 1996 will establish a second sales and marketing office in Spain which may also be used for sales and marketing throughout Europe. The Company believes that its future growth will be a natural consequence of the Company's historical participation in the electric utility sector, ecology-oriented projects and the potable and waste water treatment fields. The Company intends to expand its marketing focus to include medium sized utilities, private mining companies and large industrial companies. The Company believes that these businesses will require the services of the Company, either to acquire new equipment, to optimize and/or upgrade their existing installations or to comply with the increasing ecological regulations of the government. The Company believes that creating a U.S. holding company and establishing a U.S. sales and marketing office will enhance its ability to do business with U.S. companies and other North American 3 companies. As part of this strategy, the Company will seek to take advantage of the relative stability of the Chilean peso to the U.S. dollar. The Company believes that, as a result of this relative stability, certain U.S., as well as Canadian and Mexican, manufactured equipment and products may now be marketed to customers in Chile at prices competitive with other foreign manufacturers(See "Exchange Rates"). The Company also believes that many U.S. manufacturers may be unfamiliar with the conditions and the qualifications required to bid on projects in Chile. By establishing a U.S. office, the Company believes that it will be able to act as a representative (both on an exclusive and non-exclusive basis) of U.S. manufacturers both in the U.S. and Chile for projects located in Chile by providing local expertise and understanding of the Chilean business environment. The Company currently intends to employ one engineer and one marketing person on a full-time basis in Boca Raton, Florida. Second, the Company intends to capitalize on opportunities in the current Chilean economy by acquiring equity interests in certain ecology-oriented and electrical utility-related projects in Chile as well as by providing management and other services to these projects. The Company also intends to take advantage of the continuing privatization of businesses in Chile, which has increased investment in Chile and increased Chilean industrial and agricultural output. As an example of this strategy, the Company, through an affiliate, has entered into an agreement with Empresa de Servicios de Antofagasta, S.A. ("ESSAN"), a Chilean government-owned corporation that provides water utility services to the municipality of Antofagasta, Chile, (See "Business - Bayesa Project") to invest in a waste water treatment facility located in Antofagasta, Chile (the "Bayesa Project"). In addition, the Company is exploring potential equity participation in other ecology-oriented and electric utility-related projects such as small to medium-sized hydroelectric generating plants, electrical utilities, waste water treatment facilities and other water-related projects. See "Business - Strategy for Equity Participation." As of the date of this Prospectus, however, the Company has not entered into any agreements with respect to acquiring equity interests in any projects other than the Bayesa Project. The Company, pending completion of its research and due diligence, intends to enter into formal negotiations in other ecology-oriented and electrical utility projects in Chile, leading to formal agreements. The Company was incorporated on October 19, 1994, under the laws of the State of Florida. The Company's offices are currently located at 835 Lakeside Drive, Boca Raton, Florida, U.S.A. and its telephone number is (407) 482-6336. 4
THE OFFERING Common Stock Offered..................1,200,000 Shares Warrants Offered......................1,200,000 Warrants Common Stock Outstanding: Before the Offering..........1,700,100(1)(2) After the Offering...........2,800,100 Shares(1)(2) Warrants Outstanding: Before the Offering..........None After the Offering...........1,200,000 Estimated Net Proceeds ...............$5,090,111(3) Use of Proceeds:......................Purchase equity interests in ecology-oriented and electric utility-related projects in Chile, establish offices in the U.S. and Spain, general and administrative expenses and additional working capital. See "Use of Proceeds." Proposed Nasdaq Symbols(4): Common Stock ................ADCC Warrants.....................ADCCW Risk Factors(5).......................The Common Stock and the Warrants offered hereby are speculative and involve a high degree of risk. Investors should carefully consider the risk factors enumerated hereafter before investing in the Common Stock and the Warrants. See "Risk Factors" and "Dilution."
- -------------------- (1) Gives effect to the Reorganization. The remaining 100 shares of Common Stock are promotional shares held by Mr. Pedro P. Errazuriz, the President, CEO and Chairman of the Board of ADC and were issued to comply with Chilean law. (2) Does not include Common Stock reserved for the Company's Stock Option Plan and Directors Plan. See "Management - Incentive and Non-Qualified Stock Option Plans." (3) After subtracting the Underwriting discounts and commissions and estimated offering expenses payable by the Company including a 3% non-accountable expense allowance to the Representative. (4) Nasdaq symbols do not imply that an established public trading market will develop for any of these securities, or if developed, that any such market will be sustained. (5) See "Risk Factors-Possible Applicability of Rules Relating to Low-Priced Stock; Possible Failure to Qualify for Nasdaq National Market Listing." 5 SUMMARY FINANCIAL INFORMATION The following table sets forth selected financial information concerning the Company qualified by reference to the historical consolidated financial statements and notes thereto included elsewhere in this Prospectus.
Year Ended December 31, Period ended June 30, -------------------------- ------------------------- (unaudited) 1994 1995 1995 1996 ----------- ----------- ----------- ----------- CONSOLIDATED EARNINGS DATA: Revenues $ 2,042,884 $ 2,717,341 $ 1,355,266 $ 1,472,037 Cost of Operations 296,896 697,599 266,753 318,167 Selling and Administrative Expenses 460,775 509,563 321,050 227,300 Other Income (Expenses) (223,963) (520,543) (350,758) (131,061) Income before Income Taxes 1,061,250 989,636 416,705 795,509 Income Taxes (Credit) 51,780 50,636 64,613 119,326 Net Income 1,009,470 939,000 352,092 676,183 Net Income per common share $ 0.67 $ 0.63 $ 0.24 $ 0.45 Weighted average shares outstanding 1,500,100 1,500,100 1,500,100 1,500,100
Period Ended Period Ended Period Ended June 30, 1996 December 31, 1995 June 30, 1996 As Adjusted(1) ----------------- ------------- -------------- (unaudited) (unaudited) SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA: Working capital $ 173,329 $ 753,121 $ 5,783,512 Total assets 3,960,481 4,415,134 9,445,525 Total long-term Liabilities 706,624 646,359 646,359 Total liabilities 2,194,564 1,897,434 1,832,434 Stockholders' equity 1,765,917 2,517,700 7,548,091 - ----------------------- (1) Adjusted to reflect sale of 1,200,000 shares of Common Stock and 1,200,000 Warrants offered hereby and the receipt of the net proceeds therefrom (assuming an initial public offering price of $5.00 per share of Common Stock and $.125 per Warrant, respectively, and after deducting underwriting discounts and commissions and estimated offering expenses). Does not include receipt of net proceeds from the exercise of the Warrants, the Representatives' Purchase Warrants, the Representative's Over-Allotment Option or the Bridge Warrants.
6 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. Statements contained in this Prospectus that are not historical facts are forward-looking statements that are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. A number of important factors could cause the Company's actual results for 1996 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors include, without limitation, those listed below in "Risk Factors." RISK FACTORS AN INVESTMENT IN THE COMMON STOCK AND THE WARRANTS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS (INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO), THE FOLLOWING FACTORS: LIMITED OPERATING HISTORY AND RISK OF INVESTMENT. ADC was recently organized as a holding company to acquire E&A and INA, both corporations domiciled in Chile. All the revenues shown in the financial statements are attributable to operations of E&A and INA during the relevant periods. By itself, the Company has only begun limited operations since its inception on October 19, 1994, and has no revenue through the date hereof although its operating companies, E&A and INA, have been in business for five years and ten years, respectively. The Company anticipates that it will have increased operating overhead as a result of its expanded operations resulting from the implementation of its planned business strategy, strategic plan to develop a stronger asset base, including acquisition of equity interests in the Bayesa Project and other projects, which may adversely impact the Company's profitability. Additionally, certain of the Company's proposed operations are subject to all risks inherent in the establishment of a new business enterprise in Chile. See "Business - Core Business and Strategy for Equity Participation." RISK OF NEW PHASE OF DEVELOPMENT Historically, the Company's operations and revenues have been based primarily on services provided in connection with the sale of major electrical equipment and engineering and other consulting services. While the Company has been profitable during the fiscal years ended December 31, 1994 and 1995 and the first and second quarters of the 1996 fiscal year, based upon its service-oriented business, the Company is dependent on the proceeds of this Offering to expand its operations in order to implement its strategic plan to develop a stronger asset base and establish its presence in the U.S. and expand its presence in Europe. "See Business - Major Projects." Results of operations in the future will be influenced by numerous factors, including market acceptance of the Company's future projects and investments in Chile, the Company's capacity to develop and manage the projects and businesses within which it invests, competition, and the ability of the Company to control costs. There can be no assurance that revenue growth will be sustained or that these projects or businesses will be profitable. Additionally, the Company will be subject to all the risks incidental to a business entering new markets in which such business has limited history or experience. Accordingly, there can be no assurances that the Company will be able to implement its business plan, expand its operations, or develop and sustain profitable operations following the completion of this Offering. See "Business." 7 NEED FOR ADDITIONAL FINANCING Based on the Company's internal projections and budgets, as well as its results for 1994, 1995, and the first and second quarters of 1996 the Company believes that the net proceeds of this Offering, in addition to funds generated from (i) anticipated cash flow from operations, (ii) additional equity participation by third parties in certain of the Company's projects, and (iii) project debt financing for certain of current projects, will enable the Company to satisfy all of its anticipated financing needs for at least 12 months following the closing of this Offering. See "Use of Proceeds" and "Business - Strategy for Equity Participation." The Company currently owns 4.5% of Bayesa S.A ("Bayesa"), the owner of the Bayesa Project, through its 45% equity interest in Aguas y Ecologia S.A. ("A&E"). A&E currently owns 10% of the equity in Bayesa. The Company will acquire an additional 2.25% interest in Bayesa by purchasing an additional 22.5% interest in A&E pursuant to an agreement to purchase A&E shares from Inversiones y Desarrollo Demco, S.A. ("Invdemco"), for $141,750, using a portion of the net proceeds from this Offering (See "Use of Proceeds"). The Company may also purchase additional equity in Bayesa from Biwater International Ltd. ("Biwater") depending on the cost of the shares compared to other potential projects. Biwater is a major international corporation domiciled in the U.K. and is engaged in, among other businesses, the construction and operation of waste water treatment facilities and currently owns 90% of the equity in Bayesa. It is estimated that the cost to complete the Bayesa Project is $8 million and that the Bayesa Project will be completed in approximately 14-16 months after the effective date of this Prospectus. Of the $8 million needed to complete the Bayesa Project, Bayesa has entered into a credit line agreement with Banco Security to finance $4 million. In addition, Empresa de Servicios Sanitarios de Antofagasta, S.A. ("ESSAN"), a governmentowned entity in charge of the water system for the Province of Antofagasta, Chile, will fund approximately $2 million through the payment of construction and management fees pursuant to the terms of the contract between ESSAN and Bayesa to construct and operate the Bayesa Project. Banco Security has been granted a lien on the flow of payments from ESSAN as well as the equipment and machinery contained in the Bayesa Project. During the term of its contract with ESSAN, Bayesa will receive a total of approximately $19 million plus an inflation factor from ESSAN over 150 months. The balance of approximately $2 million necessary for construction of the Bayesa Project has been funded by the shareholders of Bayesa, who include Biwater and A&E, in the form of equity contributions to Bayesa. Biwater has provided approximately $1,800,000, and A&E has provided $200,000. Following the purchase of additional shares in A&E from Invdemco using a portion of the proceeds from this Offering, the Company will be a 67.5% shareholder in A&E. The Company believes that Bayesa has sufficient commitments from financial institutions and other sources for both debt and equity financing for the Bayesa Project. There can be no assurances, however, that financing will be available for future projects when needed or, if available, that it will be on terms acceptable to the Company or in the best interests of its shareholders. See "Use of Proceeds," "Business - Strategy for Equity Participation," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements." RELIANCE ON THIRD PARTY MANUFACTURERS MAY DISRUPT OPERATIONS The Company does not manufacture or sell any equipment. In its core business, the Company, on a contract basis, relies on third-party manufacturers for the equipment sold. Reliance on such manufacturers may subject the Company to various risks associated with scheduling and timely production and delivery of equipment, availability of completed products, as well as administrative problems dealing with one or more manufacturers or suppliers. These risks include, among others, the possibility of a change in the amount of commission payable and a postponement when a commission owed to the Company may be due. While the Company has never been subject to any material disruptions in its operations, any such disruption could have a material adverse effect on the Company. See "Business - Core Business." 8 COMPETITION In its core business, the Company is engaged in a highly-competitive segment of an industry which is very active and consistently attracts new competitors. The Company competes directly or indirectly with a number of companies, many of which are larger, better capitalized, more established and have greater access to resources necessary to produce a competitive advantage. The Company's major competitors may be deemed to be those who represent well-known manufacturers in Chile and include Gildemeister S.A.C. (Caterpillar), Sigdo Koppers Comercial S.A.C. (Dresser International, Bridgestone), Pfeninger and Co. (Sulzer Escher Wyss, Joy Manufacturing) and the local offices of larger manufacturers or traders such as Marubeni, Babcock Wilcox, Mitsubishi, General Electric, and GEC Alsthom. The Company believes, however, that the majority of these competitors do not provide the range of services that the Company provides to its customers, including arranging financing, local support and procuring local materials and products, and coordinating suppliers with the customer engineering departments. See "Business - Major Projects; Selected Representations - Non-Exclusive; Competition." CONTROL BY MANAGEMENT AND PRESENT SHAREHOLDERS OF THE COMPANY Prior to this Offering, Mr. Pedro P. Errazuriz, the President, Chief Executive Officer and Chairman of the Board of ADC, and his immediate family, directly or indirectly, owned approximately 100% of the Company's issued and outstanding Common Stock. After this Offering, Mr. Errazuriz and his immediate family will directly or indirectly own approximately 71% of the outstanding shares of Common Stock. See "Principal Shareholders." Since holders of the Common Stock do not have any cumulative voting rights and directors are elected by plurality vote, Mr. Errazuriz is in a position to control the election of directors as well as the other affairs of the Company. See "Management" and "Principal Shareholders." DEPENDENCE ON KEY PERSONNEL The success of the Company is highly dependent upon the continued services of Mr. Pedro P. Errazuriz, who is the founder, President, CEO and Chairman of the Board of ADC, and of Mr. Jose Luis Yrarrazaval, Mr. Gonzalo Cordua, Mr. Juan Phillips and Mr. Juan Andres Errazuriz who are ADC's Treasurer and Secretary, Operations Vice President, Technical Vice President and General Manager, respectively. Although the Company currently has employment agreements with Mr. Pedro P. Errazuriz, Mr. Yrarrazaval, Mr. Phillips, Mr. Cordua and Mr. Juan Andres Errazuriz, the loss of the services of any of these individuals could eventually have a material adverse effect on the business of the Company. The Company intends to obtain a $1,000,000 key man life insurance policy, of which the Company will be the beneficiary, on the life of Mr. Pedro P. Errazuriz, effective as of the closing of the Offering. See "Management." With the implementation of the Company's business strategy, it may become necessary for the Company to hire additional experienced professional individuals to meet its expanding needs. The Company intends to use certain of its existing staff to perform a number of these duties and to participate in the selection of new personnel, as required. Such individuals may include engineers, technicians, management, marketing personnel or specialized consultants. While the Company believes that by offering competitive salaries and benefit packages, it will be able to solicit and hire qualified individuals, no assurances can be made that such individuals will accept employment with the Company or will continue to be employed by the Company, or that qualified individuals will always be available to the Company when needed. RELATED PARTY TRANSACTIONS The Company has entered into transactions and may do so in the future with officers, directors and shareholders of the Company, as well as their affiliated companies. The terms of these transactions were no less favorable to the Company than those available from and to unaffiliated parties. To the extent 9 that the Company enters into transactions with these affiliated persons and entities in the future, it will do so only on terms no less favorable to the Company than those available from and to unaffiliated parties. See "Certain Transactions." ASSETS AND USE OF PROCEEDS TO BE HELD OUTSIDE THE U.S.; ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS While ADC is a U.S. corporation, it is a holding company for E&A and INA, both domiciled in Chile. For the foreseeable future, substantially all of the assets of the Company, including approximately 87.5% of the net proceeds from this Offering, will be held or used outside the United States (primarily in Chile). See "Use of Proceeds" and "Business - Strategy For Equity Participation." Enforcement by investors of civil liabilities under the U.S. Federal securities laws may adversely be affected by the fact that while ADC is located in the U.S., two of its principal subsidiaries are located in Chile. The Company's current officers, directors and management are residents of Chile, and substantially all of the assets of the Company and of the officers, directors and management of the Company are located outside the United States. Additionally, the Company's major shareholders, Errazuriz y Asociados Arquitectos, Ltda. (which currently owns approximately 40% of the Company before the Offering) is domiciled in Chile and Igenor, Ingenierie et Gestion, S.A. (which currently owns approximately 60% of the Company before the Offering) is domiciled in Switzerland. See "Principal Shareholders." DISCRETION IN USE OF PROCEEDS The Company presently intends to use the net proceeds from this Offering for the purposes set forth in "Use of Proceeds." However, management of the Company has broad discretion to adjust the application and allocation of the net proceeds of this Offering in order to address changes in circumstances or opportunities. Up to approximately 44% of the net proceeds has been allocated to Bayesa and other projects. In addition, approximately 28% of the net proceeds are allocated to working capital, including expansion of marketing and sales and hiring of personnel. As a result of the foregoing, the success of the Company will be substantially dependent upon the discretion and judgment of the management of the Company with respect to the application and allocation of the net proceeds of this Offering. See "Use of Proceeds." IMMEDIATE AND SUBSTANTIAL DILUTION This Offering involves immediate dilution of approximately $2.20 per share of Common Stock (or approximately 44% dilution) to new investors, without giving effect to the exercise or issuance of the Warrants, the Representative's Over-Allotment Option, the Representative's Purchase Warrants, the Bridge Warrants, or up to 250,000 shares of Common Stock reserved for issuance under the Company's Stock Option Plan and Directors Plan. See "Dilution" and "Management - Incentive and Non-Qualified Stock Option Plans." ARBITRARY OFFERING PRICE AND EXERCISE PRICE OF WARRANTS The public offering price of the Common Stock and the Warrants and the exercise price of the Warrants, as well as the exercise price of the Representative's Purchase Warrants, have been determined solely by negotiations between the Company and the Representative. Among the factors considered in determining these prices were the Company's current financial condition and prospects, market prices of similar securities of comparable publicly-traded companies, and the general condition of the securities market. However, the public offering price of the Common Stock and the Warrants, and the exercise price of the Warrants and the Representative's Purchase Warrants do not necessarily bear any relationship to the Company's assets, book value, earnings or any other established criterion of value. See "Underwriting." 10 NECESSITY TO MAINTAIN CURRENT PROSPECTUS The shares of Common Stock issuable upon exercise of the Warrants and the Securities issuable upon exercise of the Representative Purchase Warrants have been registered with the Commission. The Company will be required, from time to time, to file post-effective amendments to its registration statement in order to maintain a current prospectus covering the issuance of such shares upon exercise of the Warrants. The Company has undertaken to make such filings and to use its best efforts to cause such post-effective amendments to become effective. If for any reason a required post-effective amendment is not filed or does not become effective or is not maintained, the holders of the Warrants may be prevented from exercising their Warrants. See "Description of Securities - Warrants." STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS Holders of the Warrants have the right to exercise the Warrants only if the underlying shares of Common Stock are qualified, registered or exempt from registration under applicable securities laws of the states in which the various holders of the Warrants reside. The Company cannot issue shares of Common Stock to holders of the Warrants in states where such shares are not qualified, registered or exempt. The Company has undertaken, however, to qualify on NASDAQ National Markets which provides for blue sky registration in substantially all states. See "Description of Securities - Warrants." CALLABLE WARRANTS AND IMPACT ON INVESTORS The Warrants are subject to redemption by the Company in certain circumstances. The Company's exercise of this right would force a holder of the Warrants to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holder to do so, to sell the Warrants at the then current market price when the holder might otherwise wish to hold the Warrants for possible additional appreciation, or to accept the redemption price, which is likely to be substantially less than the market value of the Warrants in the event of a call for redemption. Holders who do not exercise their Warrants prior to redemption by the Company will forfeit their right to purchase the shares of Common Stock underlying the Warrants. The foregoing notwithstanding, the Company may not call the Warrants at any time that a current registration statement under the Securities Act of 1933, as amended, is not then in effect. Any redemption of the Warrants during the one-year period commencing on the date of this Prospectus shall require the written consent of the Representative. See "Description of Securities - Warrants." REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET It is anticipated that a significant amount of the Common Stock and the Warrants will be sold to customers of the Representative. Although the Representative has advised the Company that it intends to make a market in the Common Stock and the Warrants, it will have no legal obligation to do so. The prices and the liquidity of the Common Stock and the Warrants may be significantly affected by the degree, if any, of the Representative's participation in the market. No assurance can be given that any market making activities of the Representative, if commenced, will be continued. See "Underwriting." 11 REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE COMPANY The Company has agreed that after the effective date of this Prospectus, the Representative may designate a person to attend meetings of the Board of Directors. POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE FAILURE TO QUALIFY FOR NASDAQ NATIONAL MARKET SYSTEM OR SMALLCAP MARKET LISTING The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5 per share, subject to certain exceptions. While the price at which the shares of Common Stock offered to the public pursuant to this Offering will be at $5.00, the Warrants offered hereby will initially be deemed to be "penny stocks" and thus will become subject to rules that impose additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors, unless the Common Stock and the Warrants are listed on the Nasdaq SmallCap Market or the Nasdaq National Market. There can be no assurance that the Company will be able to satisfy the listing criteria of the Nasdaq SmallCap Market or the Nasdaq National Market System or that the Common Stock or the Warrants will trade for $5 or more per security after the offering. Consequently, the "penny stock" rules may restrict the ability of broker/dealers to sell the Company's securities and may affect the ability of purchasers in this Offering to sell the Company's securities in a secondary market. Although the Company has applied for listing of the Common Stock and the Warrants on the Nasdaq National Market, there can be no assurance that such application will be approved or that a trading market for the Common Stock and the Warrants will develop or, if developed, will be sustained. Furthermore, there can be no assurance that the securities purchased by the public hereunder may be resold at their original offering price or at any other price. If the Common Stock and the Warrants are not approved for listing on the Nasdaq National Market, the Company intends to apply for listing of the Common Stock and the Warrants on the Nasdaq SmallCap Market, however, there can be no assurance that such application would be accepted. In order to qualify for initial listing on the Nasdaq SmallCap Market, a company must, among other things, have at least $4,000,000 in total assets, $2 million net worth, $1 million "public float," and a minimum bid price for its securities of $3 per share. For continued listing on the Nasdaq SmallCap Market, a company must maintain $2 million in total assets, a $200,000 market value of the public float and $1 million in total capital and surplus. In addition, continued inclusion requires two market-makers and a minimum bid of $1 per share; provided, however, that if a company falls below such minimum bid price, it will remain eligible for continued inclusion on the Nasdaq SmallCap Market if the market value of the public float is at least $1 million and the Company has $2 million in capital and surplus. The failure to meet these maintenance criteria in the future may result in the discontinuance of the inclusion of the Common Stock and Warrants on the Nasdaq SmallCap Market. If the Company is or becomes unable to meet the listing criteria (either initially or on a continued basis) of the Nasdaq SmallCap Market and is never traded or becomes delisted therefrom, trading, if any, in the Common Stock and the Warrants would thereafter be conducted in the over-the-counter market in the so-called "pink sheets" or, if then available, "Electronic Bulletin Board" administered by the National Association of Securities Dealers, Inc. (the "NASD"). In such an event, the market price of the Common Stock and the Warrants may be adversely impacted. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations as to the market value of the Common Stock and the Warrants. 12 SHARES ELIGIBLE FOR FUTURE SALE The sale of a substantial number of shares of Common Stock of the Company, or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. Upon completion of this Offering, the Company will have a total of 2,700,100 shares of Common Stock outstanding (without giving effect to the exercise of the Warrants, the Representatives' Over-Allotment Option, the Representative's Purchase Warrants, the Bridge Warrants, or up to 250,000 shares of Common Stock reserved for issuance under the Company's Stock Option Plan and Directors Plans), of which 1,500,100 represent shares of Common Stock which will be "restricted" securities within the meaning of Rule 144 under the Act and, generally, may be sold only in compliance with Rule 144 under the Act. Under Rule 144 a person who has held restricted securities for a period of two years may sell a limited number of such securities into the public market without registration of such securities under the Act. Rule 144 also permits, under certain circumstances, persons who are not affiliates of the Company to sell their restricted securities without quantity limitations once they have satisfied the Rule's three year holding period. See "Risk Factors - Shares Eligible for Future Sale." Sales made pursuant to Rule 144 by the Company's existing shareholders may have a depressive effect on the price of the shares of Common Stock in the public market, should a public market for the shares of Common Stock develop. Such sales could also adversely affect the Company's ability to raise capital at that time through the sale of its equity securities. No prediction can be made as to the effect, if any, that future sales of Common Stock, or the availability of Common Stock for future sales, will have on the market price of the Common Stock from time to time or the Company's ability to raise capital through an offering of its equity securities in the future. The holders of the Company's outstanding shares of Common Stock have agreed, however, not to sell or otherwise dispose of for a 24-month period from the date hereof any of the Common Stock without the prior consent of the Company and the Representative. The Representative has no agreements or understandings with respect to granting such consent and, in general, determine whether to grant such consent based on the facts and circumstances of a specific request. ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Articles of Incorporation and Bylaws may be deemed to have anti-takeover effects and may delay, defer or prevent a takeover attempt of the Company, which include when and by whom special meetings of the Company may be called. In addition, certain provisions of the Florida Business Corporation Act also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested shareholders. Additionally, the Company's Articles of Incorporation, Bylaws and Florida law authorize the Company to indemnify its directors, officers, employees and agents and limit the personal liability of corporate directors for monetary damages, except in certain instances. See "Description of Securities - Certain Florida Legislation; Anti-takeover Effects of Certain Provisions of the Company's Articles of Incorporation and Bylaws." EXERCISE OF REPRESENTATIVE'S PURCHASE WARRANTS In connection with this Offering, the Company will sell to the Representatives, for nominal consideration, warrants to purchase 120,000 shares of Common Stock and 120,000 Warrants from the Company. The Representative's Purchase Warrants will be exercisable for a five year period commencing from the effective date of the offering price of 150% of the price at which the Common Stock and the Warrants are sold to the public subject to adjustment. The Representative's Purchase Warrants may have certain dilutive effects because the holders thereof will be given the opportunity to profit from a rise in the market price of the underlying shares with a resulting dilution in the interest of the Company's other shareholders. The terms on which the Company could obtain additional capital during the life of the Representative's Purchase Warrants may be adversely affected 13 because the holders of the Representative's Purchase Warrants might be expected to exercise them at a time when the Company would otherwise be able to obtain comparable additional capital in a new offering of securities at a price per share greater than the exercise price of the Representative's Purchase Warrants. The Company has agreed that, at the request of the holders thereof under certain circumstances, it will register under federal and state securities laws the Representative's Purchase Warrants and/or the securities issuable thereunder. Exercise of these registration rights could involve substantial expense to the Company at a time when it could not afford cash expenditures and may adversely affect the terms upon which the Company may obtain additional funding and may adversely affect the price of the Common Stock. See "Underwriting." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SECURITIES PRICES Prior to this Offering, there has been no public market for the Common Stock or the Warrants. Although the Company has applied to list the Common Stock and the Warrants for quotation on the Nasdaq National Market System, there can be no assurance that a regular trading market will develop (or be sustained, if developed) for the Common Stock or the Warrants upon completion of this Offering, or that purchasers will be able to resell their Common Stock or Warrants or otherwise liquidate their investment without considerable delay, if at all. Recent history relating to the market prices of newly public companies indicates that, from time to time, there may be significant volatility in their market price. There can be no assurance that the market price of the Common Stock or the Warrants will not be volatile as a result of a number of factors, including the Company's financial results or various matters affecting the stock market generally. CONSIDERATIONS RELATING TO CHILE RISKS INHERENT IN INVESTING IN SOUTH AMERICAN COUNTRIES In the past, geopolitical frictions have existed between countries located in the southern area of South America, which includes Argentina, Brazil, Bolivia, Chile, Paraguay, Peru and Uruguay (the "Southern Cone" countries). This tension has resulted in difficulties in foreign trade, and particularly the inherent adverse effects that may develop when goods (including equipment sold through the Company) are delayed by customs. Additionally, there have been problems with citizens of one Southern Cone country freely traveling to other Southern Cone countries. Furthermore, countries have been reluctant to hire nationals of one country for executive positions in other Southern Cone countries. While over the past five years, travel and commerce among the Southern Cone countries have become increasingly easier and the Company has not been adversely affected by geopolitical, economical, legal or other problems inherent in doing business with foreign countries, there can be no assurances that such problems will not occur in the future. However, the Company currently does not import or export products or equipment from or to foreign countries (including Southern Cone countries). Nonetheless, to the extent that the Company does decide to become involved in projects in foreign countries and particularly with Southern Cone countries in the foreseeable future, it will do so primarily with Chilean-based companies that are developing projects outside of Chile, but who make their bidding decisions and payments in Chile. INFLATION A number of reforms have been introduced by the Chilean government over the past 20 years to achieve macroeconomic stability and to increase economic growth, while controlling inflation. The average annual inflation rate in Chile, as of December 1993, December 1994, and December 1995, has been 12.2%, 8.9% and 8.2% (based on information provided by the Banco Security). These economic and inflationary reforms which have had a direct impact on the country and, therefore, the Company 14 include (i) implementing a monetary stabilization program, which decreases the public sector deficit and keeps a tight control on monetary expansion while maintaining a flexible, but controlled, exchange rate with foreign currencies; (ii) privatization of public utilities; and (iii) trade, labor market and social security reforms including the free interchange of foreign and Chilean capital, elimination of many trade and custom barriers and modification and privatization of the Chilean social security system. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Based on its recent experience, the Company believes, but there can be no assurances, that moderate inflation in Chile will have no material adverse effect on the Company's operations because (i) substantially all of the Company's bids and agreements are made in UF (Unidad de Fomento), an indexing mechanism used in Chile that ties most of the payments and obligations owed to the Company to Chile's consumer price index; (ii) a number of agreements are tied to tariffs regulated by the Chilean government which also contain other indexing mechanisms intended to neutralize the effects of inflation; and (iii) other agreements include other inflationary controls in the event of a devaluation of the Chilean peso against other foreign currencies. See "Use of Proceeds," "Exchange Rates" and "Business." While Chilean inflation has not had a material adverse effect on the operations of the Company over the past three years, there can be no assurance that changes in the performance of the Chilean economy will not adversely affect the Company or the securities offered hereby. CURRENCY FLUCTUATIONS The Chilean government's economic policies and any future changes in the value of the Chilean peso against the U.S. dollar could adversely affect the value of the Common Stock and Warrants. The Chilean peso has been subject to large devaluations in the past and may be subject to significant fluctuations in the future. In the period from January 1, 1994 to March 31, 1996, the value of the peso relative to the U.S. dollar declined approximately 5% (from 397.87 to 411.61 Chilean pesos for one U.S. dollar) in nominal terms, based on the Tipo de Cambio Observado (Observed Exchange Rate), an exchange rate value supplied daily by the Central Bank of Chile which corresponds to the medium rate at which the U.S. dollars were freely sold or bought by the banks to any customer the day before. See "Exchange Rates." Currency fluctuations may have an effect on the Company's current activities by the fact that the Company's operational expenses (costs) are tied to the UF, while revenues are generally tied to the U.S. dollar or other foreign currencies (depending from whom equipment is purchased or for whom services are provided). See "Exchange Rates." A weakening of the U.S. dollar (or other foreign currencies) against the Chilean peso means that while the Company's revenues may remain unaffected by the weakening of the U.S. dollar against the Chilean peso, the Company's costs (which are paid in Chilean pesos) will increase. Conversely, if the Chilean peso is weak against foreign currencies, the cost of local goods and services are less expensive. While currency fluctuations have not had a material effect on the financial condition of the Company during the past three years (see "Financial Statements") because most of the Company's contracts and agreements (both with foreign and domestic entities) either are tied (i) directly to the UF; (ii) to both the UF and U.S. dollar in parity; or (iii) are regulated by government controlled tariffs with internal mechanisms to control currency fluctuations, no assurances can be made that any such currency fluctuation will not adversely affect the Company. See "Exchange Rates" and "Management's Discussion and Analysis of Financial Condition and Results of Operation." FOREIGN CORRUPT PRACTICES ACT Substantially all of the Company's operations are transacted in South America. To the extent that the Company conducts operations and sells its products outside the U.S., the Company is subject to the Foreign Corrupt Practices Act which makes it unlawful for any issuer to corruptly pay or offer to pay, any money or anything of value to any foreign official, foreign political party or official thereof or any candidate for foreign political office ("Foreign Officials") or any person with knowledge that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any Foreign Official. 15 While the Company has not made any offers, payments, promises to pay, or authorization of any money or anything of value to any foreign officials, the Company has implemented a policy to be followed by the officers, directors, employees and anyone acting on behalf of the Company, that no such payments can and will be made. The Company has made all employees cognizant of the need for compliance with the Foreign Corrupt Practices Act and any violation of the Company policy will result in dismissal. Further, the Company conducts periodic reviews of this policy with all employees to ensure full compliance. TAXES ON DIVIDENDS Upon distribution of a dividend, a foreign or a Chilean shareholder of a Chilean corporation is subject to a 35% percent withholding tax less a credit for any corporate taxes paid by the Chilean corporation. However, the payment of foreign (Chilean) taxes may be credited against U.S. federal income tax. Persons investing in Chilean corporations have the right to be exempt from any contribution, tax or other obligation on the net proceeds resulting from the sale of stock of such Chilean corporation or the sale or liquidation of entities acquired with proceeds of such investment, up to the amount of capital brought into Chile through the investment. This is accomplished by entering into a foreign investment contract with the Chilean government. In addition, persons investing in Chilean corporations have the right to opt for a system of tax invariability that fixes the tax laws applicable to the investment to the laws applicable at the time of the investment (See "Risk Factors - Restrictions on Repatriation with Respect to Investment in Underlying Shares"). Through the Reorganization and the use of net proceeds of this Offering by the Company to conduct operations in Chile, the Company will be making investments subject to the aforementioned taxes. Potential purchasers of the Common Stock and the Warrants should consult their own tax advisors regarding the impact of these taxes. RESTRICTIONS ON REPATRIATION WITH RESPECT TO INVESTMENTS IN UNDERLYING SHARES Equity investments in Chile by persons who are not Chilean residents are legally protected and cannot be generally subject to exchange-control regulations which restrict the repatriation of the investments, if not expressly agreed otherwise at the moment of investing in the country. Earnings follow the same rule, but are subject to profit taxes (See "Risk Factors - Chilean Taxes on Dividends"). Although there have been no cases of deviations from this rule for more than 21 years, there is no assurance that such a deviation could not occur in the future. The Company intends to enter into a foreign investment contract with the government which stays the laws concerning foreign investments as of the date of the contract and permits income to flow outside Chile. Through the Reorganization and the use of net proceeds of this offering to conduct operations in Chile, the Company will be making investments subject to the aforementioned restrictions. There can be no assurances that the aforementioned restrictions will not have a material adverse impact on the Company and its shareholders. See "Business - Government Regulations." It is not possible to foresee all risk factors which may affect the Company. Moreover, there can be no assurance that the Company will successfully effectuate its business plan. Each prospective investor should carefully analyze the risks and merits of an investment in the Common Stock and the Warrants and should take into consideration when making such an analysis, among others, the risk factors discussed above. 16 USE OF PROCEEDS The gross proceeds from the sale of the 1,200,000 shares of Common and 1,200,000 Warrants offered hereby are estimated to be $6,150,000 assuming an initial public offering price of $5.00 per share of Common Stock and $0.125 per Warrant. The proceeds of this Offering are estimated to be $5,090,111 after deducting from the gross proceeds of this Offering underwriting discounts and commissions, a non-accountable expense allowance payable to the Representative equal to 3% of such gross proceeds. This does not include Offering expenses payable by the Company estimated to be approximetely $260,961. Approximately $4,327,079 (85%) of the net proceeds will flow to Chile. The Company intends to use the proceeds of this Offering, during the 12 months following the date of this Prospectus, approximately as follows:
Anticipated Use of Net Proceeds Approximate Amount Percentage of Proceeds - ------------------------------- ------------------ ---------------------- Acquisition and Development of other Projects(1)(3)................................ $2,158,250 42.4% Purchase of Additional Shares of Bayesa(2).......... $ 141,750 3% Retirement of Debt(4)............................... $ 700,000 14% Establishment of a U.S. office(5).................. $ 425,000 8.3% Establishment of an office in Spain(5).............. $ 425,000 8.3% Repayment of Bridge Loan . ......................... $ 65,000 1% ---------- ---- Working capital(6).................................. $1,175,111 23% ---------- ---- Total............................................... $5,090,111 100% ========== ====
- ----------------- (1) The aggregate amount of proceeds that directly or indirectly flow to affiliates include the purchase of an additional equity interest in the Bayesa Project through the purchase of A&E shares from Invdemco for $141,750 and the retirement of the outstanding mortgage on the Villarrica Property ($700,000) upon the purchase of the Villarrica Property by Invdemco. Invdemco is owned by Mr. Errazuriz, President, CEO and Chairman of the Board of ADC, and other members of his family. Mr. Errazuriz is a 50% shareholder of Invdemco. See notes (2) and (4) herein and "Certain Transactions". (2) The Bayesa Project includes the design, construction and management of a waste water treatment facility in Antofagasta, Chile and the right to sell reclaimed industrial grade water. To facilitate the acquisition of an additional equity interest in Bayesa, the Company will purchase an additional 22.5% interest in A&E which translates into a 2.25% equity interest in Bayesa for $141,750, pursuant to an agreement to purchase A&E shares from Invdemco consummated in March of 1996 with the shareholders of Invdemco. Invdemco is owned by Mr. Errazuriz, President, CEO and Chairman of the Board of ADC, and other members of his family. Mr. Errazuriz is a 50% shareholder of Invdemco. During December, 1995, the Company completed a similar transaction, and purchased 45% of A&E which equals a 4.5% equity interest in Bayesa for $283,500. The valuation of the shares of A&E acquired and to be acquired from Invdemco was determined by an unrelated third party valuation consultant, Ingesis Ltd., and was based upon the projected revenues for the Bayesa Project. The Company may consider purchasing additional equity in Bayesa from Biwater depending on the cost of such equity as compared to other potential projects. The cost of the Bayesa Project is estimated to be $8 million, of which $6 million or 75% is expected to come from sources other than capital contributions to Bayesa, including bank financing ($4 million) and from the payment of construction and management fees ($2 million). The remaining $2 million for the Bayesa Project has been funded by the shareholders of Bayesa in the form of capital contributions to Bayesa ($1,800,000 by Biwater and $200,000 by A&E). See "Risk Factors - Need for Additional Financing." (3) The Company is presently reviewing various projects for acquisition and development. However, as of the date of this Prospectus, the Company has not entered into any agreements with respect to acquiring equity interests in any projects other than the Bayesa Project. (4) Retirement of Debt relates to retirement of the outstanding mortgage on the Villarrica Property which is being sold to Invdemco for $1,212,063. Invdemco is owned by Mr. Errazuriz, President, CEO and Chairman of the Board of ADC, and other members of his family. Mr. Errazuriz is a 50% shareholder of Invdemco. See "Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Certain Transactions" and "Supplemental Consolidated Financial Statements-Note 9." (5) A total of $850,000 will be used to establish Company offices in Spain and the U.S. (6) The working capital will be used, primarily, in Chile. The amounts set forth above are estimates developed by management of the allocations of the net proceeds of this Offering based upon the current state of the Company's business operations, its plans and current economic and industry conditions. The proposed application of the net proceeds is subject to changes in operating circumstances and financial conditions in general not presently anticipated and 17 not deemed to represent a substantial departure from the allocations set forth above. There can be no assurance that the Company's estimates will prove to be accurate or that unforeseen expenses will not occur. The Company expects that the net proceeds from this Offering, combined with funds generated from on-going business operations, will be sufficient to enable the Company to continue to pursue its present and proposed business activities for a period of at least 12 months from the date of the completion of this Offering. Any additional proceeds realized from the exercise of the Representative's Over-Allotment Option or the Warrants will be used for working capital in Chile to develop an equity participation by the Company in the hydroelectric sector in Chile. Pending use of the net proceeds of this Offering, the Company may make temporary investments in bank certificates of deposit, interest bearing savings accounts, prime commercial paper, United States Government obligations and money market funds. Any income derived from these short term investments will be used for working capital. DIVIDEND POLICY ADC has never paid dividends on its common stock since its inception on October 19, 1994; however, both INA and E&A paid dividends in the aggregate to their shareholders during 1993, 1994 and 1995, of $835,737, $866,256 and $300,000, respectively, based on net revenues and net income for those years. The Company does not intend to pay cash dividends in the foreseeable future. See "Principal Shareholders" and "Description of Securities." 18 DILUTION The net tangible book value of the common stock at June 30, 1996 was $2,517,700 or $1.68 per share. "Net tangible book value per share" represents the amount of total tangible assets less total liabilities, divided by the number of total shares of Common Stock outstanding. After giving effect to the sale of the 1,200,000 shares of Common Stock at an assumed initial public offering price of $5.00 per share, with no value being attributable to the Warrant, and the initial application of the estimated net proceeds therefrom, pro forma as adjusted net tangible book value of the Company at June 30, 1996, would have been $7,548,711 or $2.80 per share, representing an immediate increase in net tangible book value of $1.12 per share to existing shareholders and an immediate dilution of $2.20 per share (or approximately 44% dilution) to purchasers of shares of Common Stock in this Offering as illustrated in the following table: Assumed initial public offering price per share(1)............. $5.00 Net tangible book value per share before Offering............ $1.68 Increase in value per share attributable to new investors... 1.12 ---- Pro forma net tangible book value per share after Offering(2).. 2.80 ---- Dilution per share to new investors............................ $2.20 Percent of Dilution to new investors........................... 44% The following table sets forth as of June 30, 1996, (i) the number of shares of Common Stock purchased from the Company by the existing shareholders (giving effect to the exchange of shares of Common Stock for all of the issued and outstanding equity interests of INA and E&A to be effective upon closing of this Offering), the total consideration paid and the average price per share paid for such shares by the existing shareholders; and (ii) the number of shares of Common Stock to be sold by the Company in this offering, the total consideration to be paid and the average price per share.
Shares Purchased Total Cash Consideration Average Price ---------------- ------------------------ ------------- Number Percentage Amount Percentage Per Share ------ ---------- ------ ---------- --------- Existing Shareholders 1,500,110 56% $ 749,722 10.87% $ 0.50 New Investors 1,200,000 44% $6,150,000(2) 89.13% $5.125(1) --------- ---- ---------- ------ ====== Total 2,700,100 100% $6,899,722 100.0% $2.555 ========= ==== ========== ======
- ------------------- (1) Offering price before deduction of underwriting discounts and commissions payable by the Company. (2) Does not include exercise or issuance of the Warrants, the Representatives's Over-Allotment option, the Representative's Purchase Warrants, the Bridge Warrants, or up to 250,000 shares of common stock reserved for issuance under the Stock Option Plan or the Directors Plan. See "Management - Incentive and Non-Qualified Stock Option Plans." 19 CAPITALIZATION The following table sets forth as of June 30, 1996, the capitalization of the Company, actual and as adjusted for the issuance and sale of the 1,000,000 shares offered hereby assuming an initial public offering price of $6.00 per share of Common Stock and $.25 per Warrant and after deducting estimated offering expenses payable by the Company and underwriting discounts and commissions and after giving effect to the initial application of the net proceeds therefrom.
Historical Historical(1) As Adjusted(1)(2) ------------- ----------------- Long-term Debt(3)................................................... $628,243 $252,965 Retirement benefit obligation....................................... 18,116 18,116 Stockholders' equity: Common Stock ($.0001 par value) 20,000,000 shares authorized; 1,500,100 issued and outstanding (actual) and 2,700,100 (as adjusted)(2)................................................. 150 270 Additional paid-in capital.......................................... 749,722 5,856,213 Retained earnings................................................... 1,813,919 1,738,319 Cumulative translation adjustment................................... (46,091) (46,091) ---------- ---------- Total shareholders' equity.......................................... 2,517,700 7,548,711 Total capitalization............................................. $3,164,059 $7,819,789
- ------------------- (1) Gives effect to the Reorganization and excludes the issuance of (i) 1,200,000 shares of Common Stock upon exercise of the Warrants (ii) up to 120,000 shares of Common Stock issuable pursuant to the Representative's Over-Allotment Option or that underlie the Warrants contained therein; (iii) up to 120,000 shares issuable pursuant to the Representative's Purchase Warrants or that underlie the Warrants contained therein and (iv) up to 21,000 share of Common Stock issuable upon exercise of the Bridge Warrants and (v) up to 250,000 shares of Common Stock reserved for issuance under the Company's Stock Option Plans and Directors Stock Option Plan, of which no shares of Common Stock are currently subject to outstanding options. See "Underwriting," "Management - Incentive and Non-Qualified Stock Option Plans," and "Description of Securities. (2) Gives effect to the issuance of 1,200,000 shares of Common Stock and 1,200,000 Warrants offered hereby and the receipt of the net proceeds therefrom. (3) Includes the deduction of long-term debt on the Villarrica property. See "Supplemental Consolidated Financial Statements - Note 9." 20 EXCHANGE RATES Unless otherwise specified, references herein to "U.S. dollars", "dollars", "$", or "U.S.$" are to United States dollars and references to "Chilean pesos," "pesos" or "Ch$" are to Chilean pesos, the legal currency of Chile, and peso-denominated monetary unit. The Unidad de Fomento (UF) rate is set daily against the Chilean peso in advance based upon the changes in the previous month's inflation rate. The UF is a monetary unit indexed daily with the Chile Consumer Price Index (CPI). As of July 11, 1996, the exchange rate was 31.77 U.S. dollars to 1 UF. For the convenience of the reader, this Prospectus contains translations of certain peso amounts into U.S. dollars at specified rates. Unless otherwise indicated, information regarding the U.S. dollar equivalents of amounts in pesos is based on the Observed Exchange Rate (as defined herein under "Exchange Rate") reported by the Banco Central de Chile (the "Central Bank of Chile" or the "Central Bank") for July 11, 1996, which was Ch$411.29 = U.S.$1.00. The Federal Reserve Bank of New York does not report a noon buying rate for pesos. No representation is made that the peso or U.S. dollar amounts shown in this Prospectus could have been or could be converted into U.S. dollars or pesos, as the case may be, at such rate or at any other rate. Chile's Ley Organica Constitucional del Banco Central de Chile No. 18.840 (the "Central Bank Act") enacted in 1989, liberalized the rules that govern the ability to buy and sell foreign exchange. Prior to 1989, the law permitted the purchase and sale of foreign exchange only in those cases explicitly authorized by the Central Bank of Chile (the "Central Bank"). The Central Bank Act now provides that the Central Bank may determine that certain purchases and sales of foreign exchange may be exercised by the banks and other entities so authorized by the Central Bank. For the purposes of certain operations at the Formal Exchange Market, the Central Bank sets a reference exchange rate (dolar acuerdo) (the "Reference Exchange Rate"). The Reference Exchange Rate is reset monthly by the Central Bank, taking internal and external inflation into account, and is adjusted daily to reflect variations in parities between the peso and each of the U.S. dollar, the Japanese yen and the German mark. In January 1992, the Central Bank revalued the Reference Exchange Rate by 5%. The Central Bank, in order to keep the average exchange rate within certain limits, intervenes by buying or selling foreign exchange on the Formal Exchange Market. The daily observed exchange rate or spot rate for a given date (the "Observed Exchange Rate") is the average exchange rate at which commercial banks conduct authorized transactions on such date as determined by the Central Bank. The Central Bank is authorized to carry out its transactions at those rates. It generally carries out its transactions at the Reference Exchange Rate and at the spot market rate. However, when commercial banks exceed their own regulations and responsibilities and need to buy U.S. dollars from the Central Bank, or need to sell U.S. dollars to the Central Bank, such sales are made by the Central Bank not above 10% of the Reference Exchange Rate and such purchases are made by the Central Bank not below 10% of the Reference Exchange Rate. Authorized transactions by banks are generally transacted at the spot market rate which may fluctuate between 10% over and 10% under the Reference Exchange Rate as a maximum, but has a steady movement with daily fluctuations which usually do not exceed 0.5% of the previous day's price. Purchases and sales of foreign exchange which may be affected outside the Formal Exchange Market can be carried out in the Mercado Cambiario Informal (the "Informal Exchange Market"). The Informal Exchange Market and its predecessor, the "Unofficial Market," reflect the supply and demand for foreign currency. There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate. The Company estimates that since 1989, the rate of exchange for pesos into U.S. dollars on such markets has usually fluctuated between approximately 0.2% below and 1.5% above the Observed Exchange Rate. 21 The following table sets forth the annual high, low, average and year-end Observed Exchange Rate for U.S. dollars for each year starting in 1990 as reported by the Central Bank. The Federal Reserve Bank of New York does not report a noon buying rate for pesos. Year Observed Exchange Rates of Ch$ per U.S.$ ---- ---------------------------------------- Low(1) High(1) Average(2) Period End ------ ------- ---------- ---------- 1990 280.88 337.75 304.90 336.86 1991 336.67 374.87 349.21 371.93 1992 343.93 382.33 362.58 382.33 1993 382.12 431.04 404.17 431.04 1994 397.87 433.69 420.18 404.09 1995 385.78 409.40 396.73 395.89 1996 (1st Quarter) 404.76 413.86 410.35 411.61 Source: CENTRAL BANK OF CHILE - ------------------- (1) Exchange rates are the actual high and low, on a day-to-day basis, for each period. (2) The average monthly rates during the period. 22 SELECTED FINANCIAL DATA The following tables set forth below contain selected consolidated financial data as of and for the dates indicated, which have been derived from the Company's historical consolidated financial statements which have been audited by Mutnick & Associates, P.A., independent auditors for the years ended December 31, 1994 and 1995, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus.
Year Ended December 31, Period ended June 30, -------------------------- ------------------------- (unaudited) 1994 1995 1995 1996 ----------- ----------- ----------- ----------- CONSOLIDATED EARNINGS DATA: Revenues $ 2,042,884 $ 2,717,341 $ 1,355,266 $ 1,472,037 Cost of Operations 296,896 697,599 266,753 318,167 Selling and Administrative Expenses 460,775 509,563 321,050 227,300 Other Income (Expenses) (223,963) (520,543) (350,758) (131,061) Income before Income Taxes 1,061,250 989,636 416,705 795,509 Income Taxes (Credit) 51,780 50,636 64,613 119,326 Net Income 1,009,470 939,000 352,092 676,183 Net Income per common share $ 0.67 $ 0.63 $ 0.24 $ 0.45 Weighted average shares outstanding 1,500,100 1,500,100 1,500,100 1,500,100
Period Ended Period Ended Period Ended June 30, 1996 December 31, 1995 June 30, 1996 As Adjusted(1) ----------------- ------------- -------------- (unaudited) (unaudited) SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA: Working capital $ 173,329 $ 753,121 $ 5,783,512 Total assets 3,960,481 4,415,134 9,445,525 Total long-term Liabilities 706,624 646,359 646,359 Total liabilities 2,194,564 1,897,434 1,832,434 Stockholders' equity 1,765,917 2,517,700 7,548,091
- ----------------------- (1) Adjusted to reflect sale of 1,200,000 shares of Common Stock and 1,200,000 Warrants offered hereby and the receipt of the net proceeds therefrom (assuming an initial public offering price of $5.00 per share of Common Stock and $.125 per Warrant, respectively, and after deducting underwriting discounts and commissions and estimated offering expenses). Does not include receipt of net proceeds from the exercise of the Warrants, the Representative's Purchase Warrants, the Representative's Over-Allotment Option. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Prospectus. OVERVIEW The Company was organized in 1994 to acquire E&A and INA which, since 1991 and 1986, respectively, have been engaged in Chile in the sale, as agent, of foreign electrical and mechanical equipment, representation of foreign manufacturers of these types of equipment and products in Chile, and providing engineering, consulting and project management services in Chile. Commencing in or about 1991, the Company directly focused its efforts in the mining and energy sectors believing that representation and services in such areas would offer greater efficiency and profitability to the Company. To facilitate this change in focus which required more highly qualified technological services, the Company changed the composition of its personnel to include civil and industrial engineers with special expertise in the mining and energy areas. While the Company's revenues and earnings have increased from 1992 through June 30, 1996, management believes that in addition to growing its core business, it can maximize its growth and profitability, as well as increase its asset base, by establishing equity positions in various projects. Decisions by management have been made in the context of changes in the Chilean political and economic environment. Today, Chile is one of the fastest growing economies in Latin America, with a 6.9% growth rate in 1995 marking its 12th year of growth in a row. The transformation of the Chilean economy, which started in the mid-1970's following the assumption of power by the military government and a return to democracy in 1984, has continued over the past twenty years with reforms being made in various areas. As they relate to the Company, the more significant areas of reform include: 1. Monetary stabilization program aimed at reducing inflation; 2. Public sector reforms seeking to reach macroeconomic stability and improving the efficiency of the public sector and economy as a whole; 3. Privatization programs to remove the government from activities that the private sector could undertake and to expand activities where the public sector has a role to play such as basic health and education services; 4. Trade reforms to provide appropriate incentives to export oriented and import competing activities and increasing the integration of Chile with the rest of the world; and 5. Social security reforms. Coupled with these five areas, the Chilean government has attempted to grant foreigners greater access to all sectors and markets of the economy. As a result, the amount of foreign private investment has significantly increased, particularly during the 1990's. 24 The Chilean government is also pursuing various trade initiatives which are as follows: * EU (European Union) Market: The Chilean government has been advised by the committee of EU ambassadors that the EU organization is considering the request of the Chilean government for Chile to become an associate member of the EU. However, because the EU is presently focusing on agreements with eastern European countries, the Chilean government does not expect any actions to be taken by the EU in the near future. * MERCOSUR: The Chilean government has recently been admitted as a full member of Mercosur, an alliance of Argentina, Brazil, Paraguay and Uruguay that eliminates tariffs in order to create free trade among its member nations. However, as a precondition to its joining Mercosur, the Chilean government has required that the other member countries comply with the Chilean system, which is oriented to a market type of economy. This would mean that the Mercosur countries would diminish their custom duties to no more than 11% (with certain minor exceptions) and accept products from Chile consisting of imported components. The Chilean government has not received any indication that these conditions will occur within the foreseeable future. * NAFTA (the North American Free Trade Agreement): The Chilean government has anticipated that it will become a signatory to NAFTA which will bring the country into the U.S.-Mexican-Canadian free trade zone, once the treaty is resubmitted to and approved by the U.S. Congress to accept Chile as a signatory to NAFTA. As a result of the economic crisis in Mexico, during 1995 the current U.S. administration temporarily shelved the vote on Chile to become a member nation of NAFTA, and there are indications that it will be resubmitted following this year's U.S. elections. There can be no assurance, however, that such treaty will be approved by the U.S. Congress or the Chilean government in the foreseeable future. Management believes that the reforms and programs that have been implemented by the Chilean government over the past twenty years have been positive for the Company. Although increased competition may arise from companies providing similar services, the Company, for reasons stated herein, (see "Business Competition") believes that demand will continue for its services. As an example, the total amount of electrical power on line in Chile is approximately 5,500 megawatts (MW). It is projected that the need for electrical power will continue to increase by at least 5% annually, and the Company, which has historically been involved in the construction of most electrical generation projects in Chile, will continue to be so involved. Additionally, and as an adjunct to the growth of electrical generation projects in Chile, there are plans for two natural gas pipelines: one in the north and one in the south of Chile, to be used as a source for energy. The Company has received a written agreement from Westinghouse Electric Corporation, whereby the Company is to act as special agent on behalf of Westinghouse for the first of a number of electrical generation projects fueled by natural gas in Chile. The Company believes that, as a result of currency and other monetary reforms, the government of Chile has reduced the risk of fluctuations of currency on its business. Generally the Company's commission revenue is in the foreign currency of the primary manufacturer of the equipment (generally U.S. dollars or Swiss francs) although approximately one-third of its income comes from local sources and is received in foreign contracts denominated in pesos (typically UF). See "Exchange Rates." Moreover, should the various trade initiatives result in trade agreements, the Company believes that it will be well positioned to take advantage of these agreements, since the Company would have a wider array of potential manufacturers to represent on specific bids and there may be additional opportunities to sell products and services in South America. However, since the current import duty levied on goods and services 25 in Chile from most foreign manufacturers is 11%, the Company is not dependent on any of these initiatives resulting in a trade agreement(s). The Company has represented foreign manufacturers and engineering companies in the sale of products and services to the majority of the electric utilities, mining, oil and cellulose companies in Chile, which are both privately owned and government owned. In selling equipment and services to these companies, there is normally a pre-qualification process that results in a list of qualified bidders. Therefore, if the manufacturers and engineers represented by the Company have the proper qualifying credentials, the Company is assured of being able to present a bid on behalf of these companies. Additionally, while the concentration of potential customers is limited by the size of Chile per se, historically companies requesting bids have multiple bids throughout the course of the year. PLAN OF OPERATIONS In addition to the growth of its core business, the Company's plan of operation for the next 12 months involves the establishment of equity positions in some projects, as well as participation in the management of these projects. While requirements and issues of liquidity are described below, the Company does not expect a significant change in the number of employees after the closing of this Offering, except for the staffing of the U.S. and European offices and the Company does not anticipate the purchase or sale of plant and significant equipment. RESULTS OF OPERATIONS In the past, the Company's core operations have been focused on three areas (i) engineering services and the sale of minor equipment and parts for projects throughout Chile; (ii) project management and the sale, as agent, of major equipment for three to five large projects during any given year and (iii) the preparation of business for third parties. While the period between the payment by the Company for the goods and services and the receipt of revenues in connection with the goods and services described in (i) above is typically close in time, this is not necessarily so with regard to payments and receipts for those goods and services described in (ii) and (iii) above. Often the interval between payments by the Company for equipment and services for major projects and receipt of revenues in connection with the same equipment and services is spread out over a longer period of time. Thus, the fluctuation in the results of operations for each quarter may vary greatly, depending on the timing of payments for major equipment (both by and to the Company). DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994 Gross revenues for the fiscal year ended December 31, 1995, increased $674,457 over the fiscal year ended December 31, 1994 from $2,042,884 to $2,717,341, an increase of approximately 33%. This increase is due primarily to being awarded certain projects such as the Mitsubishi/Endesa Quillota Combined Cycle Gas powered electrical generating plant (the "Endesa Quillota Project") and the Westinghouse Gas Turbine in Peru and the billing for work associated with the research and design of the Macul Project. Cost of Operations for the fiscal year ended December 31, 1995, increased $400,703 from $296,896 to $697,599 for the fiscal year ended December 31, 1994, an increase of 135%. This significant increase in cost of operations and consequently the decrease in gross margins is attributable to start-up costs associated with the Macul Project (including engineering studies costing $75,000, and fencing and signage costs of $20,000), increased technical consulting services associated with the Endesa Quillota Project, and costs of other projects ;which required the use of outside consultants. (approximately $150,000). Selling and administrative expenses for the fiscal year ended December 31, 1995, were $509,563, versus $460,775 for fiscal year ended December 31, 1994, an increase of $48,788. This increase is attributable to the increase in total revenues which required an additional support staff for various bids and other core business projects. 26 Other expenses for the fiscal year ended December 31, 1995, were $520,543, versus $223,963 for fiscal year ended December 31, 1994, an increase of $296,580. This increase is attributable to an increase in interest payments on corporate debt and $276,506 in non-operating curtailed offering costs as reflected as a seperate line item in the financial statements. Net income for the fiscal year ended December 31, 1995, was $939,000, versus $1,009,470 for fiscal year ended December 31, 1994, an increase of $70,470. This decrease is attributable to the Company having a non-operating expenses of $276,506 associated with the curtailed public offering against the efforts of the Company successfully presenting bids for manufacturers it represented and receiving commissions and consulting fees for such work. SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30, 1995 Gross revenues for the six month period ended June 30, 1996, increased $106,771 from that of the six month period ended June 30, 1995, from $1,355,266 to $1,427,037 or 7%. This increase is attributable to the Company being awarded, contracts for the six month period ended June 30, 1996, including a contract on behalf of Siemens Corporation, of the Limache Combined Cycle Power Plant for Colbun S.A., which offset revenues from contracts that concluded in the first six month period end June 30, 1995. The result is an overall increase of $106,771. Because of the nature of the Compnay's business (based on the timing of regognition of revenues), it is possible that there can be significant differences from one quarter to the next. Cost of Operations for the six month period ended June 30, 1996, increased $51,414 over the same period ended June 30, 1995, from $266,753 to $318,167 or 21%. This increase is attributable to the use of outside consultants for the Colbun, S.A. projects. Selling and Administrative Expenses for the six month period ended June 30, 1996 were $227,300, a decrease of $93,750 or 29% over the amount of $321,050 for same period ended June 30, 1995. This decrease is attributable to a reduction in staffing that was required previously to develop and sell the Macul Project, and additionally because of the transfer of some of the staff from employment by the Company to employment by the new owners of the Macul Project. Other expenses for the period ended June 30, 1996 were $131,061 versus $350,758 of other expenses for the period ended June 30, 1995 or a decrease of $219,697 or 62.6%. This decrease is attributable to the fact during the six months of 1995, the Company was able to earn other income from rental charges it made to a non-affiliate in its establishment of a restaurant on the site of the Macul project and the Company had non-operating expenses of $276,506 associated with the curtailed public offering which resulted in a net of other expenses of $350,758 as reflected as a separate line item in the financial statements. Net income for the period June 30,1996, was $676,183 versus $352,092 for June 30, 1995, an increase of $324,091 or 92%. During the first six months ending June 30, 1996, there was other income of $59,267 associated with the Macul project and there was also an increase expense during the period of $15,886. This 92% increase is attributable to an overall increase in gross revenues. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, accounts receivable increased by $365,522 to $1,768,523 from $1,403,001 as of year ended December 31, 1995. The amount of the receivables outstanding and the number of days outstanding is attributable to the timing of recognition of revenues as compared to the date of payment. In particular, in the case of equipment sales, the Company recognizes revenues on the sale of the equipment or on a turnkey project, where the contract between the purchasing company and the manufacturer is signed by both parties or an "order to proceed" is issued by the buyer. While the schedule of payment is set by contract, the time of payment is determined by practices of the exporting country involved in the transaction as well as unanticipated delays caused by obtaining permits and export licenses and as a result, it is not unusual for a transfer of funds to take 60-180 days. The Company normally receives its commissions, which are fully earned at the time the award is made, 30 days after receipt of funds by the manufacturer it represents and generally payment terms conform to the payment schedule between the buyer and the seller. Therefore, as in the case of the Polpaico project, which was awarded to Mitsubishi in December of 1995 and which was initially in excess of $1,000,000, payment for this project which accounts for $537,927 of the outstanding receivables at June 30, 1996 was delayed because of changes in the export license. While 50% of the initial receivable of in excess of $1,000,000 was paid to the Company in June 1996, the Company anticipates that it will be paid the balance of the receivable from Mitsubishi in December 1996. In addition, at June 30,1996, the Company had a receibable from Siemens, A.G. of $1,022,038. Payment of $840,000 is to be received on or about September 15, 1996, while the balance of approximately $160,000 is to be paid in December 1996. The timing of the receipt of payment may from time to time affect the Company's liquidity. In the past, the Company has utilized its short term lines of credit to satisfy its financial requirements. In the future, the Company anticipates it will have proceeds from this offering which may be used in additon or in lieu of tis lines of credit. Based upon the historical collectability of its receivables and the nature of the companies and/or entities with which it engages in business (e.g. Mitsubishi Corporation and Siemens A.G., among others) management believes that all of its receivables are collectible. 27 Accounts payable decreased $119,824 from $384,282 as of fiscal year ended December 31, 1995 to $269,458 as of June 30, 1996. This decrease is attributable to receipt of certain outstanding accounts receivable. Due from related parties remained relatively unchanged from $5,696 at December 31, 1995 to $0 at June 30, 1996. Current obligations with banks increased to $387,361 at June 30, 1996 from $367,658 at December 31, 1995, a decrease of $12,206. This increase is attributable to the Company need for increased capital required for other projects. Short term obligations with banks are current as of June 30, 1996. Current other assets decreased to $91,961 at June 30, 1996 from $177,489 at December 31, 1995, a decrease of $85,528 or 48%. This decrease is attributable to a reduction in deposits to suppliers and other advances to subcontractors required for various core projects. Income taxes expense increased to $119,326 at June 30, 1996 from $50,636 at December 31, 1995, an increase of $68,690 or 136%. This increase is attributable to a reduction in foreign income and reflects the profit from the period ended June 30, 1996 being taxed at the maximum Chilean rate of 15%. The Company's balance sheet reflects undeveloped real estate in the amount of $481,278. This property, located in Villarrica, Chile, was previously categorized as "property for sale." The property as of March 31, 1996 has been taken off the market indefinitely, but may still be utilized for various bank guarantees. In addition to this undeveloped real estate, the Company owns real estate which includes a house (the "Villarrica Property") which has a carrying value of $1,212,063 (reflecting depreciation for the three months ended March 31, 1996). This property was formerly categorized as "under construction" has now been completed and has been used to secure various loans. Concurrent with the closing of this Offering, Mr. Errazuriz, the Company's President, Chief Executive Officer and Chairman of the Board will acquire this house and property from the Company for $1,212,063. The Company intends to pay off all outstanding mortgages on this property (approximately $700,000) from the proceeds of this Offering. Therefore, the Company will divest itself of a non-performing asset and will receive cash and a note which will enhance the Company liquidity. In December, 1995, the Company purchased a 45% interest in A&E for $283,500 which translates into a 4.5% equity interest in Bayesa. This investment is being accounted for on the financial statements of the Company using the equity method (See Note - to the Consolidated Financial Statements of the Company). In addition, during the period ended March 31, 1996, the Company sold the balance of its ownership in ITL (Macul Project) at its cost of $199,918. Management does not intend to invest in leisure projects in the future, although it may develop projects on a fee basis for unrelated third parties. With the exception of mortgage financing, the Villarrica Property, which debt will be repaid in conjunction with the sale of the Villarrica Property as described above, and other limited bank financing, the Company has financed its operations through internally generated funds. While the Company's core business can continue without additional financing, the Company has determined that to facilitate its plan of operations it will use certain of the proceeds of this Offering together with additional equity and bank financing for certain projects. Additionally, the Company's liquidity has been historically affected because of the distribution to its shareholders of dividends of $835,737, $866,256 and $300,000 during 1993, 1994 and 1995, respectively, as well as the cost of the non-performing Villarrica Property. Up to the closing of this Offering, the Company, which 28 built the Villarrica Property for the personal use of Pedro P. Errazuriz, the President, CEO and Chairman of the Board of ADC, and his family, also used the Villarrica Property as a guaranty for the payment of certain lines of credits and other short term debt financing. With the change in the Company's strategy to establish equity positions, together with the management and consulting services, the Company will be dependent upon the proceeds of this Offering and additional financing as described herein. The Company's cost of capital, to the extent determinable, is TAB plus 3% (TAB is the average rates Chilean banks pay on deposits which varies between 6%-8%. While cash flow from the Company's current business may provide a cushion vis-a-vis the operating expenses to be incurred in connection with its asset based expansion, management intends to provide separate sources of funding for the present and proposed projects. BAYESA PROJECT The Company participated with Biwater in the design of the Bayesa Project and the negotiations leading to the award of the Bayesa Project to Bayesa. The Company currently owns 4.5% of Bayesa, through its ownership of a 45% interest in A&E. To facilitate the acquisition of an additional equity interest in Bayesa in March 1996, the Company entered into an agreement with Invdemco to purchase A&E shares that would result in an additional 22.5% interest in A&E, which translates into an additional 2.25% interest in Bayesa for $141,750. The Company may also purchase additional equity in Bayesa from Biwater depending on the cost of such shares as compared to other potential projects. See "Use of Proceeds." It is estimated that the cost of completion of the Bayesa Project is $8 million and will be completed in approximately 14-16 months from the date of this Prospectus. Bayesa has entered into a credit line agreement with Banco Security to finance $4 million. ESSAN, the governmental entity in charge of the water system for the municipality of Antofagasta where the Bayesa Project is located, will fund approximately $2 million through the payment of construction and management fees pursuant to the terms of Bayesa's contract with ESSAN. The Banco Security credit line agreement provides in pertinent part for a nine-year term loan at TAB plus 3%. The bank has required a lien on the flow of payments from ESSAN, undertakings to specify that the Bayesa Project will be exclusive to ESSAN and that Bayesa's debt to equity ratio shall not exceed two until 1998 and shall be reduced thereafter. Additionally, Banco Security has received a security interest in and to the equipment and machinery owned by Bayesa Furthermore, the funding by Banco Security is subject to Bayesa receiving $2 million in equity contributions from its shareholders which funding has been received by Bayesa as discussed above. Commencing in January 1995 and continuing for 150 months thereafter, pursuant to its contract with ESSAN, Bayesa will receive monthly payments of $129,544 for the design and construction of the Bayesa Project. The total value of this aspect of its contract with ESSAN is approximately $19,431,600. Additionally, commencing in July 1995, Bayesa began receiving approximately $40,000 per month (which is adjustable) for 360 months, which amount covers Bayesa's costs which include personnel, electricity, repairs, etc. The total cost of design and construction for the Bayesa Project is estimated at approximately $8 million, plus interest and fees of approximately $2 million, for a total of approximately $10 million. Therefore, the net pre-tax profit for the design and construction is approximately $9 million (based upon $19,431,600 less $10 million). Additionally, commencing in July 1995, Bayesa began selling reclaimed water at the rate of 70 liters per second to new agricultural developments in the Antofagasta area of Chile. Commencing in January 1997, Bayesa anticipates that it will sell 220 liters per second and based upon these assumptions, the gross revenues will reach approximately $410,000 per month. The net pre-tax profit from the sale of this reclaimed water 29 at this assumed rate is anticipated to be approximately $125,000 per month or $1.5 million per year. Over the 28-year period, net profits are anticipated to be approximately $42 million. MACUL PROJECT In March 1995, the Company organized Inversiones Tiempo Libre S.A. ("ITL") as a wholly-owned subsidiary to develop, build, market, own and manage a family-oriented multi-faceted entertainment project. During November 1995, the Company sold 70% of its interest in this project and in March 1996 the balance of its interest was sold. OTHER INVESTMENTS The Company will use approximately $425,000 from the proceeds of this Offering to immediately establish a sales and marketing office in Boca Raton, Florida. The Company will also use approximately $425,000 of this Offering to establish an office in Spain during the latter part of 1996. The Company believes that this amount, in addition to cash generated from its core business, will be sufficient to operate these offices for at least 12 months. The Company believes that it will continue to operate its core business with cash generated from this aspect of the business. The Company does not have any plans to increase the operating costs of its core business in any material respects. Management does not foresee any need for additional financing as a result of the Company's equity participation in any of its currently proposed projects, either to purchase the Company's equity interest or to fund the proposed projects. Furthermore, the Company will not engage in hedging activities and does not intend to offer equity participation in any of these projects other than as set forth in the "Use of Proceeds". 30 BUSINESS INTRODUCTION Andean Development Corporation was organized in 1994 as a holding company to acquire E&A and INA, both corporations domiciled in Santiago, Chile. ADX, domiciled in Boca Raton, Florida, U.S.A., is a subsidiary of Andean Development Corporation. Andean Development Corporation, E&A, INA, and ADX are collectively referred to as the "Company" or "ADC". E&A, organized in February 1991, specializes, as an agent, in the sale of major electrical and mechanical equipment and the representation of foreign manufacturers of electrical and mechanical equipment in Chile. E&A also offers technical assistance and prepares tender (bid) documents for both turnkey and nonturnkey public works and development projects to be constructed in Chile. Since 1991, E&A has facilitated in the sale of more than $415 million of equipment including generators, turbines and conveyors (see "Major Projects" on p. 41), which has generated more than $5 million of commissions for the Company. See "Business - Core Business." INA, organized in 1986, focuses on providing engineering consulting services and project management for hydroelectric power plants and civil construction projects generally related to hydroelectric power plants, tunneling projects and water treatment plants in Chile. Since 1986, INA alone and in conjunction with Norconsult International, A.S. of Norway ("Norconsult") an international engineering company, has provided engineering, consulting and project management services relating to engineering projects valued at $19 million of which approximately $8.6 million was revenues the Company has realized. See "Business - Core Business." The Company's strategy is two-fold. First, the Company intends to continue to grow and expand its core business presently being conducted through E&A and INA. To facilitate this growth the Company will immediately establish a sales and marketing office in the United States and in the latter part of 1996 will establish a second sales and marketing office in Spain which may also be used for sales and marketing throughout Europe. Management of the Company believes that its future growth will be a natural consequence of the Company's historical participation in the electric utility sector, ecology oriented projects and the potable and waste water treatment fields. The Company intends to expand its marketing focus to include medium sized utilities, private mining companies and large industrial companies. Management believes these businesses will require the services of the Company, either to acquire new equipment, to optimize and/or upgrade their existing installations or to comply with the increasing ecological regulations of the government. The Company believes that creating a U.S. holding company and establishing a U.S. sales and marketing office will enhance its ability to do business with U.S. companies and other North American companies. As part of this strategy, the Company will seek to take advantage of the relative stability of the Chilean peso to the U.S. dollar. As a result of this relative stability, the Company believes that certain U.S., 31 as well as Canadian and Mexican, manufactured equipment and products are now available at prices competitive with other foreign manufacturers. See "Exchange Rates." The Company also believes that many U.S. manufacturers may be unfamiliar with the conditions and the qualifications required to bid on projects in Chile. By establishing a U.S. office, the Company believes that it will be able to act as a representative (both on an exclusive and non-exclusive basis) of U.S. manufacturers both in the U.S. and Chile for projects located in Chile by providing local expertise and understanding the Chilean business environment. The Company currently intends to employ one engineer and one marketing person on a full-time basis in Boca Raton, Florida. Secondly, the Company intends to capitalize on opportunities in the current Chilean economy by taking an equity position in certain ecology-oriented and electrical utility related projects in Chile as well as by providing management and other services to these projects. The Company also intends to take advantage of the continuing privatization of businesses in Chile, which has increased investment in Chile and increased industrial and agricultural output. As an example of this strategy, the Company, through an affiliate, has entered into an Agreement (See "Business - Bayesa Project") to invest in a waste water treatment facility located in Antofagasta, Chile (the "Bayesa Project"). In addition, the Company is exploring potential equity participation in ecology-related and electric utility-related projects such as small to medium-sized hydroelectric generating plants, electrical utilities and other water-related projects. See "Business - Strategy for Equity Participation." Although, as of the date of this Prospectus, the Company has not entered into any agreements with respect to acquiring equity interests in projects other than the Bayesa Project. The Company, pending completion of its research and due diligence, intends to enter into formal negotiations in other ecology-oriented and electrical utility projects in Chile, leading to formal agreements. E&A was organized on February 28, 1991, in Santiago, Chile as a limited partnership under the name "Errazuriz y Asociados Ingenieros Limitada." On September 21, 1994, pursuant to Chilean law, E&A was reorganized as a Chilean corporation and its name was changed to "Errazuriz y Asociados Ingenieros, S.A." INA was organized on June 11, 1986, in Santiago, Chile as a limited partnership under the name "Ingenieria Norconsult Andina Limitada." On September 15, 1994, pursuant to Chilean law, INA was reorganized from a limited partnership to a Chilean corporation, and its name was changed to "Igenor Andina S.A." The Company, under the name "Igenor U.S.A., Inc.," was incorporated on October 19, 1994, under the laws of the State of Florida. On January 10, 1995, its name was changed to "Andean Development Corporation." The Company's offices are currently located at 835 Lakeside Drive, Boca Raton, Florida, U.S.A. and its telephone number is (407) 482-6336. CORE BUSINESS E&A specializes as an agent in the sale of major electrical and mechanical equipment through the representation of foreign manufacturers of these types of equipment and products. A substantial amount of its sales are for equipment relating to the electrical utilities, mining, and materials handling industries which include medium and high voltage generators, transformers, controls, cables, gas and steam turbines and industrial boilers, as well as other materials such as cranes, unloading facilities, coal handling systems, crushers, air cleaning systems and ventilators. Additionally, E&A offers technical assistance to bidders during the preparation of tender (bid) documents for turnkey and non-turnkey projects as well as throughout a project, once bids have been awarded. E&A has been successful in obtaining and maintaining its representations of foreign equipment manufacturers by offering engineering and sales support by experienced civil and industrial engineers. These individuals are knowledgeable in both the technical and sales aspects of a project and also have the contacts and networks in Chile necessary to successfully compete with larger international companies. While many of the services offered by the Company are comparable to those of its competitors, because of the Company's historical presence in Chile and reputation for quality services, it can effectively compete with larger competitors and offer additional services not available from its competitors. See "Business - Core Business; Competition." 32 The services offered by E&A include, but are not limited to: 1. * Forecasting of market trends * Market research * Financing (expertise in local and foreign loans) * Packaging with other manufacturers * Knowledge of the decision making procedures and the scheduling of projects 2. * Local engineering support (by the Company's employees or through subcontractors) * Procurement of local materials and products * Construction and plant erection capabilities * Project managing capabilities * Coordination with customer and customer engineering While E&A does not charge any fee for the services described in item 1 above and funds the related operating costs, the services described in item 2 above are developed for a customer on a fee basis once a project is secured. Additionally, equipment manufacturers pay E&A a commission upon receipt of the award of the project. The commission is typically based on a percentage of the amount of the sale, which varies depending upon the size and scope of the project. In preparing bid documents for various projects, E&A has and will continue to form consortiums of various equipment manufacturers who provide products on competitive terms and conditions. E&A intends to assist in obtaining financing of projects through both domestic (Chile) and international financial institutions. INA was initially organized in 1986 as a joint venture between Norconsult, a worldwide engineering consulting company based in Oslo, Norway and Errazuriz y Asociados Arquitectos S.A. ("EAA"). EAA is a major shareholder of ADC whose shareholders include Berta Dominguez (58%), the Chairman and CEO of E&A and the wife of Pedro P. Errazuriz, the President, CEO and Chairman of the Board of ADC, and each of their six children (7% each). See "Principal Shareholders." Norconsult, which subsequently sold its participation to Igenor Ingenierie et Gestion, S.A. a holding company which is a majority shareholder of the Company and whose shareholders include Mr. Errazuriz (50%), his wife (49.25%), their son Pedro Pablo Errazuriz (.25%) and M. Claude Mermier (.25%) a director of ADC. See "Principal Shareholders." INA focuses primarily on providing engineering consulting services for hydroelectric plants and civil construction projects (tunneling projects). Most of the engineering services provided by INA result from INA's exclusive representation of Norconsult. Currently, one or two hydroelectric plants are built in Chile every year, while each year Norconsult participates world-wide in the design of 10 to 15 of such plants. As a result, INA's relationship with Norconsult provides INA with the ability to offer its customers state-of-the-art knowledge for these types of projects while, at the same time, associating with local engineering companies in preparing bid documents for such projects. INA also offers most services relating to hydroelectric power plants, from the pre-construction stage through the commissioning of the project. As an example, in conjunction with Cade-Idepe (Chile's largest engineering company), INA was recently awarded a feasibility study for the Rucue Project, a new hydroelectric power plant of 100 MW to be built by Colbun S.A., a government owned utility, in Chile. While Chile builds approximately 20 to 30 kilometers of tunnels each year, Norconsult has designed and inspected approximately 700 kilometers per year for the past 20 years. This experience, along with the sophistication of the projects in which Norconsult has been involved (which include water pressure tunnels), gives the Company an added advantage of having a knowledgeable resource for these types of projects in Chile. As an example, on May 15, 1995, INA and Norconsult had Andrade Gutierrez, a large Brazilian contractor and investor, design the pre-feasibility study for the first segment of 40 kilometers of pressure tunnels for a 400 MW hydropower project for Cortaderal. See "Major Projects" and "1995/1996 Proposed 33 Projects" for an overview of the types of services for which INA intends to provide both in connection with hydroelectric power plants and tunneling projects. Additionally, INA erects electro-mechanical installations and material handling systems. As a project manager, INA coordinates with a consortium of equipment manufacturers in the preparation and delivery of turnkey projects after a bid has been awarded. INA also provides local engineering support to its clients. Both E&A and INA believe they have built excellent reputations in their specific areas of expertise, having been involved in the greater majority of all hydroelectric plants built in Chile since 1985, as well as other major electro-mechanical projects. See "Major Projects." A major part of the Company's know-how is its understanding of the customer's needs and being able to offer its customers goods and services that deviate only to the extent that such deviations or substitutions make a bid more competitive. The Company believes that in order to be awarded a bid, a bidder needs to know the end-user and through the years, the Company has obtained this knowledge by working with the major companies in Chile (both private and public) who request these bids. See "Major Projects". With a portion of the proceeds of this Offering, the Company will seek to further grow its core business by expanding in North America and Europe as well as to seek additional representation of U.S. and other North American based companies for sales to be made in Chile. To facilitate this growth, the Company has decided to establish permanent offices located in Boca Raton, Florida and Spain. The Company believes that by establishing its presence in the U.S. and Europe, it will be more competitive because it will have more direct access to foreign manufacturers located in the U.S., as well as other countries in North America and in Europe. For example, manufacturers such as Rapid Power, Inc. (formerly represented exclusively by the Company), a U.S. based manufacturer of rectifiers, are well known in the U.S. as manufacturers of energy-related equipment, but to the Company's knowledge, many Chilean customers are not aware of companies such as Rapid Power. As a result, many of these U.S. manufacturers provide little, if any, documentation that explains their experience or the performance of their products to companies requesting bids for Chilean projects, and most Chilean companies will not qualify manufacturers in the list of bidders without such documentation. Because of the Company's understanding of these dynamics, it believes it is able to offer U.S. manufacturers as well as other foreign manufacturers who wish to enter into the Chilean market, expertise that other companies, who offer services similar to those of the Company, do not possess. MARKETING AND SALES The Company's marketing and sales are presently managed by the Company's management, in-house engineers and other technical employees. A substantial amount of the marketing accomplished is by word of mouth, personal visits and solicitations by the Company's management and employees. The Company uses brochures and does limited advertising in trade journals and publications in Chile. The Company will initiate a more formal sales and marketing program upon the opening of its new offices in the U.S. and Spain. HISTORY AND ECONOMIC OVERVIEW From the inception of INA in 1986, the Company has transitioned itself from small equipment sales into commercial work and procuring large turnkey projects as a consultant to and representative of international consortiums. Commencing in or about 1991, the Company has specialized in the energy and mining sector, as well as in port installations for coal and other material handling systems. In connection with these activities, the Company has also acted as a project manager and a supplier of specialized engineering services. Generally, all services related to engineering, design, consulting, supervising and inspecting of construction projects have been initiated by INA and those related to sale of equipment for construction projects have been initiated by E&A. 34 The Company has not experienced any significant differences between dealing with governmental agencies or with private companies, whether national or international, nor does the Company believe that the continuing trend of privatization in Chile will have an adverse effect on its core business and, in fact, will likely continue to affect its core business in a positive manner. The Company's services have historically been provided to both private companies and governmental agencies, with more than half of the Company's total revenues coming from the private sector during 1995. While prior to 1980 the greater majority of equipment for the mining and the utilities industries in Chile was purchased from U.S. manufacturers, due to the strength of the U.S. dollar in relationship to other currencies during the 1980's, the cost of goods and services from the U.S. became less competitive than that of other foreign manufacturers. Additionally, during the 1980's, many U.S. manufacturers reduced their international initiatives which made it very difficult to deal with U.S. manufacturers. However, due to both stabilization of the U.S. dollar and the Chilean peso in the late 1980's, prices of U.S. produced equipment became more competitive in Chile. Now with the possible inclusion of Chile as a signatory to NAFTA, which reduces tariffs among member nations and therefore increases trade, the potential for additional relationships between the Company and North American companies may increase. Regardless of whether Chile is included as a member of NAFTA, management believes that as a result of the privatization and growth of the Chilean economy, foreign investment (including from the U.S.) in Chile will continue to increase. To enhance its success rate in both private and public tenders (bids), the Company is seeking to obtain additional exclusive representation of U.S., Canadian and Mexican manufacturers in specific market areas. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview." With the establishment of a sales and 35 marketing office in Boca Raton, Florida, which will initially include at least one engineer and one marketing person, as well as an office in Spain, the Company will more aggressively pursue opportunities with North American and European manufacturers and other companies who wish to do business in Chile. While the Company acknowledges that large international power and utility companies have invested directly in Chile and that certain manufacturers have established local offices in Chile, management believes that the Company's growth should continue because of its local knowledge and experience with Chilean projects. In particular, the Chilean economy is currently at a point where several large international power and utilities companies including Southern Electric Corp. (USA), Transalta Corp. (Canada), Iberduero S.A. (Spain) and Andrade Gutierrez S.A. (Brazil) have invested directly in major hydro-electrical power plants in Chile. The Company believes that because of its experience in a majority of the hydro-electrical plants constructed in Chile over the past 10 years, the Company has and will continue to work with these large power and utilities companies by offering their engineering and sales services and support. Furthermore, international companies will not necessarily participate in smaller projects because of the economics of size and cost and the Company will continue to aggressively bid for these projects. Additionally, while several foreign manufacturers have established offices in Chile, the Company continues to represent these manufacturers on a case by case basis. For example, Babcock Wilcox Espanola hired E&A, as its representative, to sell its 150 MW coal fired thermopower plant to Southern Electric Corp. while maintaining a local office in Chile; Endesa S.A., the largest electric utility in Chile, has hired INA to provide engineering services for specialized projects in rock mechanics while maintaining their own in-house engineering staff through INGENDESA, the wholly-owned engineering subsidiary of Endesa S.A., of more than 350 engineers; and Biwater Ltd. (UK) has asked the Company to represent them and become equity partners in the Bayesa Project. See "Business-Strategy for Equity Participation and The Bayesa Project." Moreover, the trend in the private sector has been to specialize in a company's core business and subcontract for services and supplies from other companies that may be more efficient in those areas. For example, the Company has been a supplier of equipment, spare parts and engineering services for most of the largest utilities in Chile (ENDESA, S.A., Chilgener S.A., Minera, Valparaiso S.A., CREO (Cooperativa Regional Electrica de Osorno), and Edelnor S.A., which are private companies; and Codelco (Corporacion Nacional del Cobre de Chile), Colbun S.A., and Petrox S.A. (Electricidad del Aysen S.A.) which are government-owned). See "Major Projects." Management believes that the trend toward specialization, which includes segregating the generation, distribution and transmission of electricity, enhances the role of specialized companies such as E&A (as agents or representatives) and INA (as engineers). The ability of the Company to adapt to the changes in the Chilean economy has permitted it to develop new contacts with Westinghouse, Mitsubishi and Marubeni where the Company has participated in four new combined power cycle plant projects in Chile which are Renca 1 and 2 (Chilgener); Polpaico and Bocamina (Endesa) and El Rodeo, now called Limache (Colbun). The Company is also working with Westinghouse and Mitsubishi in a consultant capacity on projects in Argentina. 1995 PROJECTS During 1995, the Company was involved, in a consultant or representative capacity, in the following significant projects within their core business: RENCA I - CHILGENER The second largest utility in Chile had a tender offer for a combined cycle thermo-electric plant to be located in Santiago. Because of the scope and complexity of this tender, Mitsubishi engaged the Company to act as their consultant to advise as to the engineering interpretation of the tender documents, the development of a financial strategy and to act as their representative in all negotiations with Chilgener. Although Mitsubishi was not successful in this tender, the Company received a substantial fee for their consultancy. More importantly, this engagement marked the first time that the Company was engaged by a customer whereby the fee was not contingent on the success of the bid. 36 LOMA ALTA Empresa Electrica Hydrovevey Pehuenche, S.A., a subsidiary of Endesa, the largest electrical utility in Chile, requested tender offers for the supply and construction of a 80MW hydroelectric plant. The Company acted as the representative for the Siemens Hydrovevey Consortium, who were the successful bidders at approximately $16.7 million. ENDESSA The Company, in their representative capacity, successfully represented a joint venture on behalf of Mitsubishi/Westinghouse in a tender offer to Endesa S.A. for a 350MW natural gas-fired power plan to be installed 50 kilometers south of Santiago. The total value of this award winning turnkey bid was approximately $150 million. PUERTO VENTANAS CEMENT HANDLING PROJECT Cemento Melon, the leading cement company in Chile, called for tender offers to build a cement and clinker unloading system in Puerto Ventanas, 120 miles from Santiago, with a stock capacity of 45,000 metric tons and a value of $15 million. The contract has been awarded to General Electric Engineering Services, for which the Company acted as consultant. 1996 PROJECTS During 1996 the Company has identified and has submitted bids or intends to submit additional bids on behalf of various foreign manufacturers and/or consortiums. No assurance can be given, however, that the Company and the companies it represents will be awarded any bids. The various projects are listed below: PILMAIQUEN S.A. (RUCATAYO PROJECT) Pilmaiquen S.A. plans to construct a 60MW hydroelectric plant. The Company, as representative of Norconsult, has presented a bid for engineering services regarding the construction of a dam on the Pilmaiquen River. The Company, in a representative capacity, will also present a bid on behalf of Kvaener Turbine A.B., which will include one Kaplan Turbine. The total cost, as a turn-key project, is estimated to be $20 million. The anticipated date of the award for engineering services is August 30, 1996. The anticipated date for the award of the turnkey project is December 15, 1996. Moreover, should Norconsult and Kvaener be the successful bidders, then the Company would be in position to provide civil works support and construction management services. CHILQUINTA S.A. (TINQUIRIICA AND SAN JOSE PROJECTS) Chilquinta S.A., an electric utility, is developing plans to build two 98MW and one 12MW hydroelectric power plants. The Company has been consulted by potential investors from the U.S. who intend to develop a strategy and conduct negotiations with Chilquinta regarding a joint venture relative to these projects. ANDRADE GUTIERREZ S.A. (CORTADERAL/ALTO PROJECT) Andrade Gutierrez S.A. is developing a 400MW hydropower plant which is currently in the pre-construction stage. The Company represented Kvaener Energy A.S. for the sale of four (4) turbine generator sets and other relevant equipment estimated to be $60,000,000 to $70,000,000. The project was awarded to this group during September 1996. A contract was signed during September, 1996. 37 COLBUN S.A. (LIMACHE COMBINED CYCLE POWER PLANT) Colbun S.A. is building a combined cycle 350MW plant. The Company represents Siemens Corp. in this bid of $140,000,000. Siemens Corp. was awarded the bid by Colbun S.A. on May 8, 1996. HACIENDA SAN LORENZO S.A. (MAMPIL Y PEUCHEN POWER PLANT) Elecnor S.A., along with Iberdrola (Spain), have been awarded the bid for the construction, operation and partial ownership of a group of small power plants in the south of Chile. The Company has been invited to submit bids on behalf of Kvaerner Turbin A.B., Siemens, and Ateliers Mecaniques de Vevey S.A. for the equipment to be used in connection with the power houses. During October, the electrical side of the project was assigned to Siemens and the contract is pending the successful completion of contractual negotiations. CEMENTO MELON S.A. (PUERTO VENTANAS CEMENT HANDLING PROJECT) The Company successfully acted as a representative of General Electric Engineering Services in this bid, which was awarded to General Electric during 1995. In addition, during 1996, the Company, as consultant, will provide local project coordination and will continue to do so through completion of the project which is estimated to be April 1997. CENTRAL PUERTO S.A. (BUENOS AIRES, ARGENTINA) Chilgener S.A. is the majority owner of Central Puerto S.A. Chilgener, S.A. requested bids for the supply of a 350MW, gas-fired combined cycle powerstation estimated to have a value of approximately $150 million. Siemens requested the Company to be their representative for the presentation of this bid. The bid was submitted on June 30, 1996 and the estimated date of award is November, 1996. CENTRAL COSTANERA S.A. (BUENOS AIRES, ARGENTINA) This company, a subsidiary of Endesa S.A. of Chile, has called for bids to be submitted by August 30, 1996 for equipment similar to that of Central Puerto. The Company will represent Mitsubishi Corporation in this matter. PUERTO PATACHE CONCENTRATE AND COAL HANDLING SYSTEM Endesa is currently constructing a thermo-electrical plant to supply energy to the Collahuasi Copper Mine. A port, both for unloading coal for the thermo-electrical plant is going to be built and will be equipped with a coal unloading crane, conveyor belts and a solid/liquid separation plan to treat the concentrate. The project value is estimated to be $8 million. The Company has successfully participated in the tender for a turnkey project representing Babcock Wilcox of Spain ("BWE"). BWE was awarded this tender during October, 1996. CREO - LA FLOR A 12MW hydropower project upstream from the Capullo project, for which the Company is currently providing all electromechanical equipment on a turnkey project. La Flor has the same characteristics and dimensions as the Capullo project for which the Company founded a consortium and was project coordinator. The expected date of the award of the equipment is December 15, 1996, and the anticipated completion date is May 30, 1998. The estimated value of this project is $12 million. 38 MAJOR PROJECTS The following table is a representative list of the main equipment, turnkey projects and engineering sales made by the Company during the last 10 years.(1)(2)(3)
Equipment or Gross Value Name of Project Year Customer Supplier Service Sold Size US$ Millions - --------------- ---- -------- -------- ------------ ---- ------------ Los Quilos 1984 Guardia Vieja General Electric Company of England Generator 12.6 MVA 3.6 Los Bajos 1984-85 Caemsa General Electric Company of England Generator 2.2 MVA 0.8 Los Morros 1985 Carbomet Ateliers Mecaniques de Vevey S.A. (of Hydro Turbine 0.8 MW 1.2 Switzerland) in consortium with Mecanica de la Pena S.A. (of Bilbao, Spain) Tocopilla Cranes 1986 Codelco Tocopilla Boetticher y Navarro, S.A. 2 Level Luffin 2x750 T/hr 4.6 Cranes Trafo Andina 1986 Codelco Andina Sumitomo Corporation Transformer 25 MW 0.8 Colbun 1987 Colbun Machicura Boetticher y Navarro, S.A. Gate 17mx17m each 6.9 Int. Tocopilla 1987 Codelco Tocopilla Consonni, S.A.(4) Interchanger 0.8 mata Turbines TG. Chuqui 1987-88 Codelco Chuqui- Westinghouse Electric Revamping of 3 gas 0.4 camata turbines Submarine Cable 1988 Endesa Sumitomo Corporation Three Phases Cable 8.6 TG Methanex 1989 Capehorn Methanol Ruston Gas Turbines Inc., a subsidiary of Gas Turbine 6 MW 3.1 GEC, General Electric Company of England TG Petrox 1989-90 Petrox Ruston Gas Turbines Inc., a subsidiary of 2 Diesel Turbines 2x3 MW 3.2 General Electric Company of England Puerto Ventanas 1990 Chilgener Babcock & Wilcox Espanola S.A. 2 L. Luffin Cranes 2x750 T/hr 8.0 Cranes Puerto Ventanas 1991 Chilgener Babcock & Wilcox Espanola S.A. in System of 8 Belt 3000m/1500 2.1 Conveyors consortium with INGEMAS S.A. Conveyors T/hr Curillinque 1991 Pehuenche Hydro Vevey S.A. in consortium with Turn-key 85 MW 28.5 ABB, Asea Brown Bovery S.A. La Florida 1991-92 Canal de Maipo Kvaerner Energy A.S.(5) 2 Hydro Turbines 2x9.5 MW 3.0 Aconcagua I 1992 Minera Valparaiso Kvaerner Energy A.S.(5) Hydro Turbine 56 MW 3.6 Aconcagua II 1992 Minera Valparaiso Kvaerner Energy A.S.(5) Hydro Turbine 33 MW 3.1 Mejillones I 1992-93 Edelnor(6) Consortium formed by Babcock & Turn-key 150 MW 150.0 Wilcox Espanola S.A. and Siemens A.G. Capullo 1993 Creo Babcock Hydro S.A. Turn-key 15 MW 5.5 Pangue 1993-94 Endesa Kvaerner Energy A.S.(5) Turn-key 450 MW 69.3 Antofagasta 1994-95 Essan/Bayesa Biwater(7) Turn-key 600 1/seg 7.7 Renca I 1995 Mitsubishi Mitsubishi Combined Cycle TG Finance & 340 MW 120.0 Coordination Loma Alta 1995 Pehuenche S.A. Siemens/Hidrorevey Hydropower Plant Turn-key 80 MW 16.7 Quillota 1995 Endesa/San Isidro/ Mitsubishi Combined Cycle Gas Powered Turn-key 370MW 126.0 Electric Plant Limache 1995 Colbun/Mehueulo/ Siemens Combined Cycle Gas Turbine Coordinator 370MW 130.0 Santa Rosa, Peru 1995 Edegel Westinghouse Open Cycle Gas Turbine Turn-key 100MW 30.0
- ------------------- (1) There are approximately 40 major utilities and mining companies in Chile. Not all of these companies are noted above as the products purchased by some of these companies have been inconsequential to the Company's overall revenues. One of the reasons that the Company is expanding its business to include an asset base is to make it less dependent on the limited number of its major customers. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Result of Operations" and "Business - Introduction." 39 (2) Many of the bids awarded for the projects set forth above were awarded to a group of bidders forming a consortium. (3) As a general rule, for projects valued in excess of $100 million, the Company will earn a commission from between 0.03% to 1% of the bid price of the project; for projects valued between $20 million and $100 million, from 1% to 3.5%; and from $1 million to $20 million, between 3% and 5%. For sales less than $1 million, the commission ranges from between 5% and 10%. Factors that determine the amount of commission include the amount of engineering service provided and the difficulty and sophistication of the project. (4) Mr. Pedro P. Errazuriz, the President, CEO, and Chairman of the Board of ADC, owns 53% of Consonni, S.A., a Spanish corporation. (5) The Company is the exclusive agent for Kvaerner Energy A.S. in Chile and Mr. Pedro P. Errazuriz had the power of attorney in Chile to execute agreements and sign checks on behalf of Kvaerner Energy A.S. which he resigned in May of 1996. (6) One of the current directors of ADC was President of Edelnor from March 1990 through March 1994. 40
SALES OF ENGINEERING (DESIGN, ADVISING, SUPERVISION AND INSPECTION OF CONSTRUCTION): Gross Value Project Year Customer Supplier Equipment or Service Sold US$ Thousand - ------- ---- -------- -------- ------------------------- ------------ Alfalfal 1985-91 Chilgener Norconsult(1)(2)(3) Engineering, supervision & inspection of a 160 MW power 14,000 International A.S. plant and 30 miles of tunnels systems Pehuenche 1988 Pehuenche Norconsult(1)(2)(3) Design of the Inspection System for the construction of 340 International A.S. a 500 MW hydroelectric plant 1990 Pehuenche Norconsult(1)(2)(3) Design and inspection of measures in a case of rock 68 International A.S. explosion in their tunnel system 1992 Pehuenche Norconsult(1)(2)(3) Quality assessment and repair measures in the two Neyrpic 21 International A.S. Turbines (250MW each) Pehuenche 1991 Bank of INA Study of the profitability of the Pehuenche Project 12 America Maitenes 1988 Chilgener Norconsult(1)(2)(3) Study to modernize three power plants: Maitenes, Volcan 30 International A.S. and Queltehues in Maipo River Valley Alfalfal II 1989 Chilgener Norconsult(1)(2)(3) Pre-construction study for a 400 MW hydropower plant 120 International A.S. Mapocho River 1989 Biwater INA Study of the Mapocho contamination impact over Santiago region 70 Aconcagua 1992 Bank of INA Study of the profitability of Aconcagua Project 20 America Thermal Plants 1989 Chilgener Raytheon Company Study to upgrade three old thermal plants called: Renca, 35 Study Ventanas and Laguna Verde TG Chilgener 1989-90 Chilgener Raytheon Company Inspection and quality assessment of a Gas Turbogenerator 21 Canutillar 1990 Endesa Norconsult(1)(2)(3) Design and inspection of Underwater Lake piercing and 71 International A.S. intake for a hydropower plant 1993 Endesa Norconsult(1)(2)(3) Redesign of the tunnel reinforcements after some problems 65 International A.S. with their original design (10-mile tunnel) Ortiga Tunnel 1990 Exxon Norconsult(1)(2)(3) Design and inspection of the construction of a tunnel 170 International A.S. Conveyor Belts 1992 Chilgener INA Coordination and supervision for erection of a conveyor 60 Puerto Ventanas belt system and unloading facility Mejillones 1993 Babcock INA Rate of Exchange analysis and risk coverage for a US$ 90M 12 Power Plant Wilcox loan for Edelnor S.A. Capullo 1993-95 Creo INA Project management of the construction of a 15 MW plant 450 Pangue 1994-97 Endesa INA Coordination office and local engineering along the 389 construction of Pangue Power Plant, a project of US$ 70M in investments Pangue 1994-97 Endesa Norconsult(1)(2)(3) Coordination of Manufacturers 2,700 International A.S. Melon Tunnel 1995 Endesa Norconsult(1)(2)(3) Ventilation system study 20 International A.S. Alto Cachapoal 1995 Andrade Norconsult(1)(2)(3) Prefeasibility for Tunnel System 25 Gutierrez International A.S. Rucue 1995 Colbin S.A. INA Basic and detail engineering for power house 70 Ventana 1996 GEC INA Coordination of manufacturers 160
- -------------------- (1) The Company is the exclusive agent for Norconsult in Chile and Mr. Pedro P. Errazuriz had the power of attorney in Chile to execute contracts and sign checks on behalf of Norconsult which he resigned in May of 1996. (2) When the Company acts as the representative of Norconsult, the commissions paid to the Company range from 4% to 5%. (3) There are certain projects in which the engineering is performed by INA for which the entire fee is paid directly to the Company. 41
MAJOR REPRESENTATIONS (EXCLUSIVE): Name of Company Country of Origin Sector - --------------- ----------------- ------ Accusonic, Inc./O.R.E. U.S.A. Ecology & water treatment Intl. Inc. Berdal Stromme A.S. Norway Engineering Consonni S.A. Spain Energy and electricity Indar S.A. (AEG License) Spain Electricity Kvaerner Energy A.S. Norway Energy Kvaerner Turbin A.B. Sweden Mech. equipment for energy Linde A.G. Germany Mining processor, chemical plants Norconsult International A.S. Norway Engineering Trandes S.A. Spain Electricity Union Espanola de Explosivos Spain Mining explosives SELECTED REPRESENTATIONS (NON-EXCLUSIVE): Name of Company Country of Origin Name of Project - --------------- ----------------- --------------- ABB-Air Preheater U.S.A. Ventanas Power Plant ABB-Sweden Sweden Pangue ABB-Switzerland Switzerland Curillinque ABB-Solyvent Ventec Spain Various mines (Exxon) AEG Germany Pangue Babcock & Wilcox Cranes Division Spain Ventanas Cranes Babcock & Wilcox Espanola, S.A. Spain Mejillones Power Plant Baedeker y Navarro (BYNSA) Spain Tocopilla Cranes Combustion Engineering U.S.A. Chuquicamata G.E.C. Large Machines U.K. Guardia Vieja G.E.C. Mechanical Handling U.K. Cement Storage and Conveyor Ingemas Spain Ventanas Conveyor System Marubeni Corp. Japan Copper Concentrates Distr. Mitsubishi Japan Polpaico National Drying Machinery Co. U.S.A. Invertec Siemens A.G. Germany Mejillones Power Plant/Loma Alta Sumitomo Corp. Japan Submarine Cables Westinghouse Electric Company U.S.A. Turbines/Edegel, Peru
STRATEGY FOR EQUITY PARTICIPATION Although, both E&A and INA have been profitable for more than the past four years, the ability to expand their businesses and to increase profitability is limited by the nature of their core service businesses, as their activities depend exclusively on the number of bids that are awarded to each of them. Income from these businesses requires that first, new projects are developed; second, appropriate equipment is available to offer to the project at competitive prices; and third and most important, that the businesses are successful in selling the equipment and services. To expand the businesses of E&A and INA the Company through consolidation may require higher fixed costs and less flexibility. Alternatively, increasing the number of employees does not necessarily mean increased sales and profitability to the Company. Management believes that by establishing an equity position in certain projects, it will be able to grow a more solid asset base which will provide the Company with the following: (a) steady profitable growth; (b) stabilized cash flow; and (c) the ability to further capitalize on the dynamics of the Chilean economy. There are two emerging areas in which the Company intends to focus: ecology-related projects, specifically in sewage treatment and water supply, both of which are starting to be developed by and through private companies in Chile and projects primarily undertaken by smaller electric utilities. Therefore, in addition to its core business, the Company seeks to raise sufficient capital to establish equity positions in certain projects. See "Use of Proceeds." 42 WATER SUPPLY AND WASTEWATER TREATMENT FACILITIES While Chile has made significant economic gains over the past 10 years in terms of foreign trade, development of electrical utilities and export of agricultural and cellulose products, the efforts of the Chilean government to take actions in the sanitary services and waste water treatment have been slower in coming. The first steps toward waste water treatment commenced in 1987 when the Ministry of Public Works called for bids to clean the Mapocho River Systems (which account for 30% of all the waste water in Santiago), however a number of political stalemates halted development in this area until 1993. It is the announced intent of the Chilean government to privatize the water utility industry. As part of standard bid documents, the purchaser of various water utilities projects will be required to install water treatment facilities or subcontract to companies, such as the Company, specializing in this area. Since 1993, Chile has commenced an ecological-oriented development that includes not only waste water management, but also other areas of pollution control, committing large sums of money, particularly for the mining and oil refinery sector owned by the government. It is estimated that Corporacion del Cobre (Codelco), the state-owned copper mine company which owns Codelco Mining will spend $500 million over five years; Enami, the state-owned minerals refining company, will spend $200 million over five years; and the larger sanitary-related companies such as EMOS, in charge of the water system for Santiago, should spend $500 million to $1 billion over the next 10 years. Additionally, other areas close to Santiago and other major cities, are now starting to develop plans to develop water resources and install wastewater nets and treatment plants. In connection with this growth, the Chilean government has issued Decree Law 351 that regulates the constitutional right of a citizen to live in an environment free of contaminants and in particular, addresses issues concerning potable water. Realizing that there appeared to be an emerging business in water purification and treatment due to the Chilean government's announced plans to privatize the water utilities and its initiatives to ensure clean water and air for its citizens, the Company sought relationships with foreign entities that have experience in water purification. Effective January 1993, the Company entered into a representation agreement with Biwater, a major international company engaged in waste water treatment and facilities whose principal office is located in Surrey, England to develop one project in the waste water treatment in the North area of Chile. In connection with this Agreement, the Company researched and will continue to research and develop the market in the north of Chile for both its own services and those of Biwater's in Chile. The results of this research concluded that Chile was initially slow to react to its citizen's needs for better sanitary conditions. Additionally, based on its research, the Company believes that an investment of up to $2 billion by both the private and public sector over the next 10 years will be necessary in order to bring the sanitary facilities up to international standards (See discussion above). BAYESA PROJECT Late in 1993, Corporacion de Fomento ("CORFO"), the Chilean agency for the development of the country, decided to commence with three new waste water treatment facility projects which would place the treatment of water and the sale of reclaimed water in the private sector by means of a subcontract through a public entity. In April 1994, CORFO, through Empresa de Servicios Sanitarios de Antofagasta, S.A. ("ESSAN"), a wholly-owned subsidiary of CORFO in charge of the water system for the Province of Antofagasta, called for public bids to construct and manage a waste water treatment facility (the "Bayesa Project"). The Company, on behalf of Bayesa, S.A., a consortium owned by Biwater (90%) and A&E (10%), was the successful bidder for the Bayesa Project. The contract included design, construction and management of the waste water facility, as well as the right to sell reclaimed industrial grade water. During 1995 the Company acquired a 45% interest in A&E, which translates into a 4.5% interest in Bayesa from Invdemco and with a portion of the proceeds ($141,750) will acquire A&E shares from Invdemco an additional 22.5% interest in A&E, which will translate into an additional 2.25% interest in Bayesa The Company may also purchase additional equity in Bayesa from Biwater depending on the cost of the shares compared to other potential projects. See "Use of Proceeds" and "Certain Transactions." 43 The agreement dated September 1, 1994, between ESSAN and Bayesa is divided into three separate, although related, segments. The first is the construction of an interceptor of 3.6 miles of waste water recovery pipelines, pumping stations and a treatment plant connected to an emergency sea outfall. During this segment, Bayesa will act as a contractor, performing construction services for ESSAN. Income from ESSAN to Bayesa is based on 150 monthly installments, commencing in January 1995, of approximately $129,000 per month. The second part of the contract consists of the operation of the waste water disposal and treatment system. Income from ESSAN to Bayesa will be in fixed monthly installments of approximately $40,000 for a period of 30 years, plus a variable monthly rate based on the amount of treated water of $18.60 per 1,000 cubic meter. The third segment of the contract is the sale of treated (purified) waste water for irrigation and industrial purposes. The Company believes that upon completion of the pipelines and pumping station (estimated to be 14-16 months), Bayesa will be able to sell the industrial and agricultural grade water for $.60 per cubic meter. The drinkable water price is $1.10 per cubic meter. Bayesa has signed a letter of intent with the Antofagasta Municipality to provide water to local parks. Additionally, the Chilean Ministry of Agriculture is planning a new farming facility in this area which may purchase a significant amount of the industrial grade water to be produced by the Bayesa Project. However, there can be no assurance that Bayesa will be able to sell all the treated water for farming or industrial purposes that the sewage waste water facility of Antofagasta will be able to provide. 44 Additionally, the Company believes that anticipated profits to Bayesa from the sale of reclaimed water may also be significant because of the location of the Bayesa Project in Antofagasta. Antofagasta is a seaside city approximately 1,000 miles north of Santiago. It serves as the beach resort and the port for the Chuquicamata copper mine, currently the world's largest open pit copper mine, and many other large mines located approximately 200 miles to the east in or around the city of Calama. The Antofagasta region is primarily desert and therefore receives very little, if any, precipitation. The region, however, has had significant growth, more than doubling its mining activity and population over the past 10 years, and has an anticipated population growth rate of 3-5% per year. This population growth rate is directly attributable to the increased economic development in the area. In addition to the continual expansion of the Chuquicamata mine, there are now more than three additional copper mines under development, which are anticipated to be similar in size to the Chuquicamata mine. While the Chilean government is currently pursuing the implementation of pollution-control technologies in new state-owned and private mining companies to minimize the need for end-of-pipe solutions such as the Bayesa Project, these new technologies are geared to the mines themselves and not to the waste resulting from the cities that may surround these mines. Therefore, the Company believes that there will be a continued population growth that will create an increased need for more water which will be available through the Bayesa Project, and other future waste water and potable water projects on which the Company intends to bid. The Bayesa Project will terminate after 30 years of operation as the written agreement between the parties foresees the transfer of all installations to ESSAN for no consideration. The Company took the reversion of the Bayesa Project back to ESSAN into consideration when deciding to take an equity position in the Bayesa Project, and concluded to that it made economic sense to invest in the Bayesa Project because of its potential profitability during the 30-year term of the contract. The Company intends to participate, in a joint venture with Biwater, in bidding for the full property of ESSAN (or a percentage thereof), once the Chilean government and Parliament have determined the method to privatize the sanitary section of the government. The ability of the Company to participate in this bidding process will depend on its future cash flow. Bayesa typically will require the services of E&A for future engineering studies and administrative decisions related to the economy of the Bayesa Project, as well as to supply equipment and spare parts for the project. Additionally, Bayesa will require the support of E&A to sell treated water and will pay E&A a commission for these sales. There is no written obligation from Bayesa to continue to use E&A for these services. Nonetheless, because of its position as an equity participant in Bayesa, the Company 45 does not foresee any change in the current oral agreements between Bayesa and E&A. See "Use of Proceeds" and "Certain Transactions." IQUIQUE WATER PROJECT - "AGUAS DE IQUIQUE" The city of Iquique is located in the middle of a desert area, 1,100 miles north from Santiago. It is a fast growing city due to the copper, gold, Nitrate and Iodine mining projects that have been and are being constructed in the area. Water sources are as far away as 150 miles inland in the Andes Mountains. The Chilean Military owns a property 25 miles away from Iquique. This property contains underground streams that could produce 100 liters per second of water. The military, however, is precluded from any commercial activities. The Company is presently in negotiations with the Army to acquire the rights to the underground water. The basis of the potential contract is a concession for 25 years. During that period, the Company will be able to commercialize the water, selling it for housing or industrial purposes. The Company will pay the Army a tariff for each cubic meter sold (around .05 USD/m3). The Company will perform the works and provide the investment needed to carry the water to the consumption centers (digging wells, pumping, eventually treatment, piping). The current price of the water in Iquique is around $0.80 USD per cubic meter. Annual production is estimated to be $1,900,000. Net profit to the Company after taxes from this project could be more than $400,000 annually. Additionally, if more water resources are found in the Army's land, the Company intends to negotiate an option to include these sources in the future contract at the same price and conditions. The Company is currently in the process of studying the cost of the project in order to determine if it will proceed. If the Company makes a determination to proceed and depending on costs, it intends to seek additional equity partners for this project. In addition to those projects referenced above, Chilgener, the second largest electrical generating company in Chile, is developing a strategy to diversify its investments. Among the key areas that it is seeking to diversify into are water treatment, sewage treatment and water supply. In this regard, Chilgener has engaged the Company as a consultant to study various possibilities in this area. The Company has identified the following geographic areas for Chilgener. Antofagasta has a population of 250,000 in a desert area 1,000 miles to the north from Santiago. It is the center of the largest copper mining projects in the country and, as a consequence of the very active investments in this field, is growing at rate of 3% to 5% annually. The need for water resources, water supply and distribution and additional sewage treatment is anticipated to be very critical in the next few years and is seen as a significant business opportunity. Colina is one of the main suburbs for Santiago. Currently, many first class real estate projects are under development in this area. It is expected that, in 10 years the population will grow to 600,000. Water is currently a limitation and is expected to become a major problem in the near future. The Company has been asked to analyze a water business in this sector for Chilgener and will be interested in participating in that business, if one develops. A similar situation has occurred in Temuco, the fastest growing city in Chile. In 1995, the population increase in Temuco was 23% and currently it has around 300,000 inhabitants. Chilgener has requested the Company to investigate, a water supply project that could be developed in that city. These studies have recently begun and therefore while the Company would consider a joint venture and equity participation with Chilgener on any of these possibilities, it will require more research and analysis. ESSAT (ARICA WATER SUPPLY) The city of Arica, Chile's most northern city, has a potential water shortage of between 100 and 200 liters per second. However, the local farmers of the Azapa Valley situated in close proximity to Arica, 46 have between 400 and 600 liters per second of industrial grade water for farming that could be treated by Essat (the local water authority). The Company is organizing a plan to build a treatment plant, negotiate an agreement among the parties and a negotiate a contract with Essat to buy approximately 200 liters per second of potable water from the farmers and replace it with treated water from the city of Arica. Biwater, is expected to participate in this project. The anticipated date of the award is October 31, 1996, and the anticipated date of completion is March 30, 1998. If awarded the bid, the Company would provide engineering services as well as a fee. Additionally, the Company would consider purchasing an equity position in the project, which terms have not been determined. There are no current agreements at this time. PROJECTS RELATED TO ELECTRICITY EDELAYSEN S.A. During 1983, CORFO (the state-owned development corporation) incorporated Empressa Electrica de Aysen, S.A. (Edelaysen) to consolidate various electric grounding and distribution systems located in the south of Chile, into one company. Today, Edelaysen S.A. has a present demand of 9,000 KW and more than 19,000 customers. CORFO intends to sell this utility by public tender on or about August 30, 1996. The Company is currently reviewing various financial and other documents and anticipates that it will render a bid to purchase this utility. There cannot, however, be any assurances that the Company will be the successful bidder. COMPETITION The Company believes that each aspect of its business is competitive and that competition is based not only on price but also on quality of service. The Company's competitors include a number of international companies with local offices in Santiago, Chile, many of which are larger and better capitalized than the Company. While a majority of these larger competitors may bid on the same projects as the Company, and although there can be no assurances that the offers will be competitive, the Company believes that it has and will continue to participate effectively in the bid process. Most of the Company's competitors are Chilean based intermediaries with some "local" know-how with respect to the Chilean market, but who do not actively engage in the electric utility, mining and materials handling industries in Chile. More typically, the Company's competitors have local offices which consist of a small administrative and sales staff who, in most cases, are not engineers. To the Company's knowledge, these competitors rely on the engineering expertise of local subcontractors (such as the Company) or on engineers who are not Chilean-based. On the other hand, the Company's staff is comprised of Chilean-based civil and industrial engineers who have an understanding of the intricacies of bid documents, the nuances of Chilean projects, and who have the ability to source local manufacturers to complement the equipment to be purchased from foreign manufacturers, in order to present a competitively priced package. Additionally, the Company's engineers are also its sales force, so the Company is able to provide continued sales and engineering support throughout the entire scope of the project. The Company believes it has demonstrated its ability to seek and enter into relationships with those manufacturers whose products are most competitively priced, not only in terms of dollars, but also in terms of overall product efficiency and support for specific projects. Moreover, the Company has been successful in putting together consortiums of manufacturers, whereby it has been able to quote on the large multi-faceted projects. Nonetheless, the Company believes that each area of the new projects and investments in which the Company intends to become involved is highly competitive. Its competitors may be larger, better capitalized, may have more experienced management, and may have greater access to resources which may be deemed necessary to produce a competitive advantage and there can be no assurance that the Company will continue to operate at its current level, enabling it to be profitable. 47 GOVERNMENT REGULATIONS GENERAL The Company's business is subject to the full range of governmental regulation and supervision generally applicable to companies engaged in business in Chile, including labor laws, social security laws, public health, environmental laws, securities laws and anti-trust laws. ENVIRONMENTAL REGULATIONS Bayesa's agreement with the Municipality of Antofagasta for the Bayesa Project provides that certain water, once treated at the Bayesa Project, will be disposed of in the ocean. In order for the Bayesa Project to discard this water into the ocean, the amount of contaminants remaining must meet the requirements mandated by Chilean environmental laws. FOREIGN INVESTMENT LAWS AND REGULATIONS The Chilean Constitution establishes that any Chilean or foreigner may freely develop any activity in Chile so long as the activity does not contravene existing laws dealing with public morals, public safety or national security. It also establishes the principle of non-discrimination, thus guaranteeing foreign investors equal protection under Chilean law. Additionally, Chilean law prohibits any discretionary acts by the Chilean government or other entities against the rights of persons or property in derogation of this principle. Foreign investors may transfer capital and net profits abroad. There are no exchange control regulations which restrict the repatriation of the investment or earnings except that the remittance of capital may take place starting a year after the date the funds were brought into the country, but net profits can be remitted at any time. Therefore, equity investments in Chile by persons who are not Chilean residents follow the same rules as investments made by Chilean citizens. These principles are the basis for the Foreign Investment Law of 1974 (commonly known as DL 600) by which foreigners are guaranteed to receive equal treatment access to all segments of the economy subject to a limited number of internationally-accepted exceptions. Based on DL 600, the foreign investor and the government sign a legally-binding investment contract which may only be modified by mutual consent. The contract sets forth the current law as it relates to the specific investments by that investor in Chile. Thus, the investor is protected against any subsequent changes in the law which could adversely affect the investor or his investments in Chile. Although the Chilean Government has been successful in keeping this principle in place for the last 21 years, there is little information regarding the unilateral breach of an investment contract by the Government and there can be no assurances that a breach by the Government will not occur in the future or that it would not adversely affect the rights of the Company to do business in Chile. Moreover, while there has been no precedent that political changes had determined changes in these rules, no assurances can be made that such changes will not occur in the future. The Company intends to enter into an investment contract with the Government of Chile on or around the closing of this Offering. CONTROLS ON FOREIGN INVESTMENTS Equity investments in Chile by persons who are not Chilean residents follow the same rules as the investments of the citizens of the country. Foreign investors may transfer abroad capital and net profits that they generate. There are no exchange control regulations which restrict the repatriation of the investment or earnings therefrom except that the remittance of capital may take place starting a year after the date the funds were brought into the country, but net profits can be remitted at any time. Although there has been no precedent that political changes had determined changes in these rules, no assurance can be given that this situation will not occur in the future. EMPLOYEES As of June 15, 1996, the Company employed 18 full-time employees, nine of whom are managers/engineers and nine of whom are administrative staff. Employees of the Company are not represented by labor unions. The Company considers its relationship with its employees to be good. 48 PROPERTIES The Company leases a 3,300 square foot office in Santiago, Chile pursuant to a month-to-month lease at a monthly rate of $4,351.20 per month. The Company currently owns a house located near Villarrica in the south of Chile situated on approximately 13.5 acres. the Villarrica Property. As of March 31, 1996, the book value of the 13.5 acre Villarrica Property was $1,212,063 and had outstanding mortgages of approximately $700,000. The Company intends to sell the Property to a related entity (Invdemco), and will satisfy the outstanding mortgage on the property upon the closing of this Offering. See "Use of Proceeds" and "Certain Transactions." The Company, through INA, also owns a farm located in Villarrica consisting of two lots of an aggregate of approximately 107.75 acres. The farm is used as a guarantee for bank loans and other financing operations. LEGAL PROCEEDINGS The Company is not a party to any pending litigation. 49 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of ADC are as follows: Name Age Position - ---- --- -------- Pedro Pablo Errazuriz 59 President/Chief Executive Officer/Chairman of the Board Jose Luis Yrarrazaval 56 Chief Financial Officer/Treasurer/Secretary/ Director Alberto Coddou 57 Director Sergio Jimenez 60 Director Claude Mermier 60 Director PEDRO PABLO ERRAZURIZ has served as Chief Executive Officer and Chairman of the Board of Directors of Andean Development Corporation ("ADC") since October 19, 1994, and its President since January 11, 1995. He has also served as the President and sole Director of Andean Export Corporation since February 9, 1995. Mr. Errazuriz founded Ingenieria Norconsult Andina, the predecessor company of INA in 1986 as a continuation of his activities in the sales of equipment, project management and procurement for electricity generation projects and has served as its president since its inception and through March 20, 1995. In 1991, Mr. Errazuriz founded E&A and served as its president since its inception through March 20, 1995. Mr. Errazuriz has also served as Chairman of the Board of Kvaerner Chile S.A., a subsidiary of Kvaerner A.S., a Norwegian-based manufacturer of electrical and mechanical equipment) since 1992 and as the exclusive agent for Kvaerner Turbin A.B. (Sweden) since 1994. Since 1986, Mr. Errazuriz has acted as an exclusive agent in Chile for Norconsult. Mr. Errazuriz is a civil engineer, having received his engineering degree from the Catholic University of Chile in 1959. JOSE LUIS YRARRAZAVAL has been a member of the Board of Directors of ADC since March 20, 1995 and its Chief Financial Officer, Treasurer and Secretary since March 20, 1995. He also serves as Chief Executive Officer and a Director of INA and Chief Financial Officer, Treasurer, Secretary and a Director of E&A since March 20, 1995. Since November 1993, Mr. Yrarrazaval has served as the general manager of both E&A and INA, which responsibilities include all financial matters and personnel management. From April 1988 through October 1993, Mr. Yrarrazaval served as the project manager for INA, supervising the projects of INA. From 1973 through 1988, Mr. Yrarrazaval was a partner and technical manager of a construction company, including the construction of industrial plants, buildings, and housing developments. He also acted as supervisor in the construction of agro-industrial and cold storage plants. Mr. Yrarrazaval has a Civil Engineering and Construction Degree from the State Technical University in Santiago, Chile. ALBERTO CODDOU has served as a member of the Board of Directors of the Company since March 20, 1995, and as a member of the Board of Directors of E&A since March 20, 1995. Mr. Coddou has been a partner with the law firm of Figueroa & Coddou in Santiago, Chile since 1965. He has also been an Assistant Professor of Law at the University of Chile, School of Law from 1959 through 1982. In May 1995, Mr. Coddou was appointed Chairman of the Board and Legal Representative of Consorio Periodistico de Chile S.A., the owners and editors of a Chilean newspaper called La Epoca. SERGIO JIMENEZ has served on the Board of Directors of ADC since March 20, 1995. As of June 1995, Mr. Jimenez has been appointed as a member of the Board of ENAP (Empresa Nacional del Petroleo) the Chilean oil company owned by the government. Mr. Jimenez served as President of Edelnor S.A. from March 1990 to March 1994. Edelnor, which generates and transmits electricity in the northern regions of Chile, was a subsidiary of CORFO, the holding company of Chilean state-owned companies before it was privatized in 1994. From 1990 through 1992, Mr. Jimenez was President and Chief Executive Officer of Metro S.A., also a subsidiary of CORFO, which operates the Santiago subway system. Mr. Jimenez is also a partner and Managing Director of Consultora Jimenez y Zanartu Limitada, which consults on engineering projects for segments of the Chilean government related to public works. Mr. Jimenez is a civil engineer, having received his degree from the University of Chile, in Santiago and has a post graduate degree in project evaluation from the University of Chile. 50 CLAUDE MERMIER has served on the Board of Directors of ADC since March 20, 1995. Mr. Mermier has served as the Chairman of the Board of INA since March 20, 1995. Mr. Mermier has also served as Chairman of Igenor Ingenierie & Gestion S.A., a principal shareholder of the Company, since its inception in March 1992. Since 1979, Mr. Mermier has been the President of Compagnie Financiere pour le Commerce Exterieur S.A., a Swiss company involved in property development throughout Europe. Directors are elected at the Company's annual meeting of shareholders and serve for one year or until their successors are elected and qualified. Officers are elected by the Board of Directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the Board. All of the Company's executive officers are full-time employees of the Company. The Company intends to pay non-employee directors a fee of $1,000 per meeting attended, and will reimburse all directors for their expenses in connection with their activities as directors of the Company. Directors of the Company who are also employees of the Company will not receive additional compensation for their services as directors. The Company intends to purchase directors and officers insurance to the extent that it is available and cost effective to do so. The Company has agreed that after the effective date of this Prospectus, the Representative may designate a person to attend meetings of the Board of Directors. The Company may elect additional Board Members following the completion of this Offering. Upon completion of this Offering, the Company will establish separate audit and compensation committees consisting of at least two independent directors. DIRECTORS AND OFFICERS OF THE SUBSIDIARIES JUAN ANDRES ERRAZURIZ, age 28, has been a member of the Board of Directors of INA since March 20, 1995, and its Treasurer and Secretary since March 20, 1995. He has served as a member of the board of directors of Inversiones Tiempo Libre S.A. (ITL) since March 1995, the company which presently owns the Macul Project. Mr. Errazuriz joined INA in October 1993 as Development Manager and as a coordinator between the different areas and activities. Before joining the Company, Mr. Errazuriz worked as a manager of Chile's largest pulp and paper company (CMPC), executing feasibility and market studies for the company's projects from May 1992 through September 1993. He has prepared economic and financial feasibility studies for several companies in Chile and in Spain. From July 1991 through May 1992, Mr. Errazuriz was employed by Proyectos y Equipos, S.A., an affiliate of the Company as its marketing and strategy director. Mr. Errazuriz graduated from Catholic University of Chile in 1991, with a Civil Engineering Degree, specializing in industrial engineering systems, administration and finance. BERTA DOMINGUEZ, age 57, has served as the Chairman of the Board of E&A since 1988 and its Chief Executive Officer since March 20, 1995. Mrs. Dominguez has served as a Director of Errazuriz y Asociados Arquitectos Limitada, one of the principal shareholder of the Company since 1990. Mr. Juan Andres Errazuriz is the son of Mr. Pedro P. Errazuriz, the Chief Executive Officer, President, and Chairman of the Board of the Company and Mrs. Berta Dominguez, the Chairman of the Board and CEO of E&A. Mrs. Berta Dominguez is the wife of Mr. Pedro P. Errazuriz and the mother of Juan Andres Errazuriz. KEY EMPLOYEES GONZALO CORDUA, age 36, has been operations vice president in charge of all new projects undertaken by INA since July 1993. Since March 1995, he has served as president of Inversiones 51 Tiempo Libre S.A. (ITL), the company which presently owns the Macul Project. From December of 1992 through July 1993, Mr. Cordua was manager for industrial cooperation of Fundacion Empresarial Communidad Europea-Chile ("FECEC"), where his duties included the company's services to European business in Chile and to Chilean business in Europe. From August 1991 through November 1992, Mr. Cordua worked as an expert for FECEC in industrial cooperation as part of the team in charge of designing and implementing the project. From June 1990 through July 1991, he worked for the Agencia de Cooperacion Internacional as an expert in industrial cooperation where he was in charge of cooperation and development programs for the Chilean productive sectors. From August 1988 through May 1990, Mr. Cordua was employed as a project manager for INA. Mr. Cordua received his B.S. in Civil Engineering from the University of Chile, his M.S. in Civil Engineering from the University of California at Berkeley, his Masters of Engineering in Water Resources Management from the University of California at Berkeley and a degree in Business Administration from the Fonds Leon A. Bekaert, Brussels, Belgium. JUAN PHILLIPS, age 51, has been Technical Vice President and manager of engineering department of E&A. His duties have included project director of the Capullo Hydroelectric Power Generating Plant as well as procurement of equipment for that project. He also organized the liaison office for the Pangue Hydropower Plant equipment supply. From 1986 through 1989, Mr. Phillips was project manager for INA. Mr. Phillips received his degree in Civil Engineering from the Catholic University in Santiago, Chile. EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS The following table sets forth compensation awarded to, earned by or paid to the Company's Chief Executive Officer and each executive officer whose compensation exceeded 60,000 for the years ended 1995. The Company did not grant any stock options, restricted stock awards or stock appreciation rights or make any long-term incentive plan payments during 1995 and 1994. SUMMARY COMPENSATION TABLE
Other Annual Name and Principal Position Year Salary($)(1)(2) Bonus ($) Compensation($) - --------------------------- ---- --------------- --------- --------------- Pedro P. Errazuriz 1995 $97,801(3) $92,000 $79,104(4) Chief Executive Officer, 1994 $90,000 $78,481(5) $92,112(3) President, Chairman Jose L. Yrarrazaval 1995 $56,886(3) $30,000 $17,700(6) Chief Financial Officer/ 1994 $58,077(3) $30,000 $17,700(6) Treasurer/Secretary/Director Juan Andres Errazuriz 1995 $48,000(3) $12,000 None 52 Gonzalo Cordua Hoffman 1995 $48,000(3) $16,000 None Juan Phillips Davila 1995 $48,000(3) $16,000 None
(1) Payment of the compensation to the persons set forth above was apportioned among the following subsidiaries and affiliated companies as follows: E&A - 35%; INA 25%; Electromecanica Osorno S.A. - 20%, a Chilean corporation currently owned by Errazuriz y Asociados Arquitectos Ltda. ("EAA") and by Igenor, Ingenierie et Gestion, S.A. ("Igenor"), each principal shareholders of the Company; and Proyectos y Equipos, S.A. a Chilean corporation owned by EAA, Igenor, and a family member of Mr. Pedro P. Errazuriz, the Chief Executive Officer, President and Chairman of the Board of ADC. See "Principal Shareholders." The proportions established as compensation to be paid by the different companies was arbitrarily determined, intended to minimize tax payments and to indicate the involvement of the Company's executives in all related companies. Upon the closing of this Offering, the Company's management will be employed by ADC. (2) The gross salary includes social security and retirement benefits. Social Security in Chile was established as a private system, that requires all companies to retain 20% of the gross salaries of its employees which is used to pay both Administrators of Pension Funds Companies ("AFP") and Institutions of Previsional Health ("ISAPRE"). 53 The allocation of this 20% to each service is as follows: (a) 10% to the AFP: This amount is deposited in an individual interest-bearing account of each employee to cover their retirement. In Chile, the age of retirement is 60 years in case of women and 65 years for men. (b) 3% to the AFP: This amount covers any partial or permanent disability and, in the case of death, will provide a monthly amount to the deceased's spouse. The amount paid corresponds to 70% of an employee's average salary, based upon the last 10 years of the employee's life. Both items (a) and (b) are limited to approximately $1,700 per month. (c) 7% to the ISAPRE: This amount covers medical fees, hospitalization and clinical examinations, although in many instances it may be necessary to pay additional costs for health care. Chilean law requires the payment of one month salary for each year worked by the employee when he is dismissed. When the employee terminates his or her employment, no compensation is legally required. (3) Paid in full from the Company to the employee. (4) Includes an annual allowance of $15,000 for automobile costs and maintenance; an annual housing/vacation allowance of $10,500; $7,200 for domestic employees; and $46,404, based upon a percentage of profit of the Company. This profit percentage was based on 2% of the total net profits of all related companies for 1995, calculated to Chilean accounting standards. In the future, all accounting standards will be pursuant to U.S. GAAP. (5) Includes an annual allowance of $15,000 for automobile costs and maintenance; an annual housing/vacation allowance of $10,500; $7,200 for domestic employees and $45,781 based upon a percentage of profit of the Company for 1994. (6) Includes $15,000 car allowance. EMPLOYMENT AGREEMENTS On March 15, 1996, the Company entered into employment agreements with Messrs. Pedro P. Errazuriz, Jose Luis Yrarrazaval, Juan Phillips and Gonzalo Cordua. Each of the employment contracts are for one year. The salaries and social security benefits will not be less than those for fiscal year 1995, which shall be determined by the Company's Board of Directors. Additionally, these individuals will also be entitled to a bonus, as determined by the Company's Board of Directors. INCENTIVE AND NON-QUALIFIED STOCK OPTION PLANS Under the Company's Stock Option Plan (the "Stock Option Plan") and Directors Stock Option Plan (the "Directors Plan"), 175,000 shares of Common Stock and 75,000 shares of Common Stock, respectively, are reserved for issuance upon exercise of options. The Plans are designed to serve as an incentive for retaining qualified and competent employees and directors. Both the Stock Option Plan and the Directors Plan apply to Andean Development Corporation and each of its subsidiaries. No options have been issued under the Plans. The Company's Board of Directors, or a committee thereof, administers and interprets the Stock Option Plan and is authorized to grant options thereunder to all eligible employees of the Company, including officers and directors (whether or not employees) of the Company. The Stock Option Plan provides for the granting of "incentive stock options" (as defined in Section 422 of the Internal Revenue Code), non-statutory stock options and "reload options." Options may be granted under the Stock Option Plan on such terms and at such prices as determined by the Board, or a committee thereof, except that in the case of an incentive stock option granted to a 10% shareholder, the per share exercise price will not be less than 110% of such fair market value. The aggregate fair market value of the shares covered by incentive stock options granted under the Plans that become exercisable by a grantee for the first time in any calendar year is subject to a $100,000 limit. The purchase price for any option under the Stock Option Plan may be paid in cash, in shares of Common Stock or such other consideration that is acceptable to the Board of Directors or the committee thereof. If the exercise price is paid in whole or in part in Common Stock, such exercise may result in the issuance of additional options, known as "reload options," for the same number of shares of Common Stock surrendered upon the exercise of the underlying option. The reload option would be generally subject to the same provisions and restrictions set forth in the Stock Option Plan as the 54 underlying option except as varied by the Board of Directors or the committee thereof. A reload option enables the optionee to ultimately own the same number of shares as the optionee would have owned if the optionee had exercised all options for cash. Only non-employee directors are eligible to receive options under the Directors Plan. The Directors Plan provides for an automatic grant of an option to purchase 3,000 shares of Common Stock upon a person's election as a director of the Company and an automatic grant of an option to purchase 3,000 shares of Common Stock at each annual meeting through which a director's term continues. Upon consummation of this Offering, the Company will grant to each of Messrs. Coddou and Mermier options to purchase an aggregate of 6,000 shares of Common Stock under the Directors Plan at an exercise price equal to the initial public offering price of the Common Stock offered hereby. Options granted under the Stock Option Plan will be exercisable after the period or periods specified in the option agreement, and options granted under the Directors Plan are exercisable immediately. Options granted under the Plans are not exercisable after the expiration of five years from the date of grant and are not transferable other than by will or by the laws of descent and distribution. The Plans also authorize the Company to make loans to optionees to enable them to exercise their options. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Florida Business Corporation Act (the "Corporation Act") permits the indemnification of directors, employees, officers and agents of Florida corporations. The Company's Articles of Incorporation (the "Articles") and Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by the Corporation Act. Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. See "Principal Shareholders" for a listing of the shareholders of EAA and Igenor. CERTAIN TRANSACTIONS During 1995 the Company acquired a 45% interest in A&E, which translates into a 4.5% interest in Bayesa from an affiliate of the Company, Invdemco, a Chilean investment company. The Company has also agreed to purchase an additional 22.5% interest in A&E from A&E shares held by Invdemco, which translates into an additional 2.25% interest in the Bayesa Project for $141,750. The shareholders of Invdemco are Mr. Pedro P. Errazuriz (50%), President, CEO, and Chairman of the Board of ADC; Mr. Errazuriz' wife (45%), Berta Dominguez; and Berta Errazuriz (5%), a daughter of Mr. Errazuriz and Mrs. Dominguez. See "Use of Proceeds" and "Business - Strategy for Equity Participation - the Bayesa Project." A&E, as of the date of the closing of this Offering, will own 10% of Bayesa. Biwater, a major international company engaged in waste water treatment and facilities, owns 90%. The purchase price for Invdemco's interest in the Bayesa Project is based upon a valuation of the Invdemco stock prepared by an independent consultant, Ingesis Ltd. and was based upon the projected revenues from the Bayesa Project. As of the date of this Prospectus, the Company has not entered into any agreements with respect to acquiring equity interests on projects other than the Bayesa Project. The Company, pending completion of its research and due diligence, intends to enter into formal negotiations in other ecology-oriented and electrical utility projects in Chile, leading to formal agreements. At the closing of this Offering, the Company will sell to Invdemco a non-performing asset of the Company consisting of a house located near Villarrica, Chile in the south of Chile, situated on approximately 13.5 acres (the "Villarrica Property"). The Villarrica Property which is carried at a cost of approximately $1,212,063 on the financial statements of the Company at March 31, 1996, was subject to mortgages totalling approximately $663,045. However, the Villarrica Property is used as a guarantee 55 for payment of certain loans (similar to revolving or preferred line of credit or a home equity loan) and as of the closing of this Offering, it is estimated that the outstanding mortgages on the Villarrica Property will be approximately $700,000. See "Use of Proceeds" and "Financial Statements." At closing, the Company will transfer title to the Villarrica Property to Invdemco, and will satisfy the outstanding mortgages on the property. Invdemco will pay $606,031.50, (50% of the purchase price) of the Villarrica Property in cash at closing with the balance being paid in four annual installments of principal together with interest at the rate of 8-1/2% on the unpaid balance. EAA and Igenor, the principal shareholders of the Company, also own, in the aggregate, controlling interests in Proyectos y Equipos S.A. and Electromecanica Osorno S.A., two Chilean corporations which specialize in the sale of air compressors and ventilators and related products and small electrical equipment, respectively. The Company, from time to time, intends to enter into agreements with these companies to perform certain services, based upon competitive bids received from these companies. Mr. Pedro P. Errazuriz, the President, Chief Executive Officer and Chairman of the Board of Directors of ADC, also owns a 57% interest in Consonni, S.A., of Spain. Consonni manufactures and sells electronic controls and switchgear. The Company currently is the exclusive representative of Consonni in Chile. All transactions between the Company and its officers, shareholders and each of their affiliated companies have been made on terms no less favorable to the Company than those available from unaffiliated parties. In the future, the Company intends to handle transactions of a similar nature on terms no less favorable to the Company than those available from unaffiliated parties. Igenor Ingenierie et Gestion, S.A., a swiss corporation, and Errazuriz y Asociados Arquitectos, Limitada, a Chilean limited partnership, are shareholders of the Company. See "Principal Shareholders". Invdemco, a Chilean investment company, is involved in transactions relating to the Bayesa Project and the Villarrica Property. See "Business - Bayesa Project and Properties." Inversiones Tiempo Libre, S.A. was a Corporation organized for the Macul Project. The Company sold the balance of its ownership. See "Management Discussion and Analysis of Financial Condition - Results of Operations and Liquidity and Capital Resources." Norconsult has provided engineering, consulting and project services is conjunction with the Company. See "Business - Core Business." Mr Pedro P. Errazuriz was on the Board of Directors and had power of attorney for Kvaerner Chile, S.A. and Kvaerner Hydro, Agencia de Kvaerner Turbin Aguas y Ecologia, S.A., corporations involved in the manufacturing and selling of electrical materials. Mr. Errazuriz has resigned from the Board of Directors and has relinquished his power of attorney. Biwater is represented by the Company is various transactions and is involved in transactions relating to the Bayesa Project. See "Business - Bayesa Project and Strategy for Equity Participation." Tacora was previously represented by Mr. Pedro P. Errazuriz in a business relation with a French company with mining interests in Chile. They are no longer related to the Company. 56 BRIDGE FINANCING During April 1996, the Company borrowed $65,000 from LeNoble and Associates and First Capitol Resources, Inc. (the "Lenders"), the proceeds of which were used to pay certain expenses of this offering. The loan, which bears interest at the rate of 8-1/2% per annum, will be due at the earlier of January 15, 1997 or the effective date of this offering. In connection with the loan, the Lenders will also receive warrants (the "Bridge Warrants") to purchase 21,000 shares of the Company's Common Stock at 1/3 of the initial offering price. While the Company has granted certain registration rights, the Lenders have agreed that the shares underlying the warrants cannot be publicly sold until six months from the effective date of this Offering. PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the Company's common stock beneficially owned as of the date of this Prospectus (i) by each person who is known by the Company to own beneficially 5% or more of the Company's common stock; (ii) by each of the Company's directors; and (iii) by all executive officers and directors as a group. As of the date of this Prospectus, there were 1,500,100 shares of Common Stock outstanding, after giving effect to the Reorganization, which will be effective as of the date of closing of this Offering. See "Certain Transactions." The number of shares discussed below are all Common Stock. See "Description of Securities."
Number of Shares Percentage of Common Stock ----------------------- Name and Address of Beneficially Owned Before After(2)(3) Beneficial Owner(1) Before Offering Offering Offering - ------------------- --------------- -------- -------- IGENOR, INGENIERIE ET GESTION, S.A., a Swiss corporation(4)(5) 900,000 60% 36.6% ERRAZURIZ Y ASOCIADOS ARQUITECTOS, LIMITADA, a Chilean limited partnership(6) 600,000 40% 22.4% PEDRO P. ERRAZURIZ(7) President, CEO and Director 450,100 30% 16.8% BERTA DOMINGUEZ(8) 791,250 52.8% 29.5% CLAUDE MERMIER(4)(9) Director 2,250 (10) (10) SERGIO JIMENEZ Director -0- -0- -0- ALBERTO CODDOU(11) Director -0- -0- -0- All executive officers and directors as a group (5 persons)(12) 452,350 30.2% 16.9%
- -------------------- See footnotes on next page 57 (1) Unless otherwise indicated, the address of the following is Los Conquistadores 1700, Piso 21, Santiago, Chile. (2) Assumes no exercise of the Representative's Over-Allotment Option, (see "Underwriting") or options issued to Bridge Financing lenders. (3) Does not give effect to the exercise of Warrants into shares of Common Stock. (4) The address is c/o Etude Montavon-Mermier, 22, rue Etienne Dumont, 1211 Geneve 3, Switzerland. (5) The shareholders are Mr. Pedro P. Errazuriz (50%), the President, Chief Executive Officer and Chairman of the Board of ADC; Ms. Berta Dominguez (49.25%), the wife of Mr. Errazuriz and the Chairman, Chief Executive Officer and director of E&A; Mr. Pedro Pablo Errazuriz, a son of Mr. Errazuriz and his wife; Mr. Claude Mermier (.25%), a director of Andean Development Corporation; and Pierre Yves Montavon (.25%), an unrelated third party. (6) The partners are Ms. Berta Dominguez (58%), and the six children of Mr. Pedro P. Errazuriz and Ms. Dominguez, who each owns a 7% interest and who are (i) Pedro Pablo Errazuriz Dominguez, (ii) Berta Errazuriz Dominguez, (iii) Magdalena Errazuriz Dominguez, (iv) Juan Andres Errazuriz Dominguez, (v) Felipe Errazuriz Dominguez, and (vi) Arturo Errazuriz Dominguez. (7) Includes shares of Common Stock owned by Igenor, Ingenierie et Gestion, S.A. of which Mr. Errazuriz owns 50% of the outstanding equity and 100 shares of Common Stock were issued to him on October 19, 1994. (8) Mrs. Dominguez owns 49.25% of Igenor, Ingenierie et Gestion, S.A. and 58% interest in Errazuriz y Asociados Arquitectos, Ltda. She is the wife of Mr. Errazuriz, the President, CEO and Chairman of ADC. (9) M. Mermier owns a 0.25% interest in Igenor, Ingenierie et Gestion, S.A. (10) Less than 1%. (11) The address is Santa Lucia 280-OF, 12 Santiago, Chile. (12) All of these shares are held indirectly through either Igenor, Ingenierie et Gestion, S.A. and/or Errazuriz y Asociados Arquitectos, Ltda.(5) After giving effect to the Reorganization, all but one share of the outstanding stock of each of these subsidiaries will be held by ADC. The remaining one share of INA will be owned by E&A; the remaining one share of E&A will be owned by INA and thus there will be, at all times, at least two different entities having an ownership interest in E&A and in INA, a condition for Chilean corporations, which requires that a corporation have at least two different shareholders at any given time. 58 DESCRIPTION OF SECURITIES The Company is currently authorized to issue up to 20,000,000 shares of Common Stock, par value $.0001, of which 1,500,100 shares were outstanding as of the date of this Prospectus, after giving effect to the Reorganization, which will be effective as of the closing of this Offering. The Company has also reserved up to 250,000 shares of Common Stock pursuant to its Stock Option Plan and Directors Plan. COMMON STOCK Holders of shares of Common Stock are entitled to one vote per share on all matters to be voted on by the shareholders and do not have cumulative voting rights which means that the holders of more than 50% of the shares voting for the election of directors can elect all of the directors if they choose to do so, and in such event, the holders of the remaining shares will not be able to elect any directors. Following the Offering made hereby, the Company's management will own or have the ability to vote 1,500,100 shares or approximately 55.5% of the outstanding Common Stock (without giving effect to the exercise of the Representative's Over-Allotment Option, the Representative's Purchase Warrants, the Warrants or the Bridge Warrants). The Bylaws of the Company require that only a majority of the issued and outstanding shares of common stock of the Company need be represented to constitute a quorum and to transact business at a shareholders' meeting. Holders of shares of Common Stock are entitled to share, on a ratable basis, such dividends as may be declared by the Board of Directors out of funds legally available therefor. ADC has never paid dividends on its common stock since its inception on October 19, 1994; however, both INA and E&A paid dividends to their shareholders during 1993, 1994 and 1995 of (an aggregate of) $835,737, $866,256 and $300,000, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements." Upon liquidation, dissolution or winding up of the Company, after payment of creditors and holders of any senior securities of the Company, as applicable, the assets of the Company will be divided pro rata on a per share basis among the holders of the shares of Common Stock. The Common Stock has no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares. All outstanding shares of common stock are, and the shares of common stock offered hereby will be, upon completion of this Offering, fully paid and non-assessable. WARRANTS The Warrants will be issued in registered form pursuant to an agreement dated the date of this Prospectus (the "Warrant Agreement"), between the Company and American Stock Transfer and Trust Company as Warrant Agent (the "Warrant Agent"). The following discussion of certain terms and provisions of the Warrants is qualified in its entirety by reference to the Warrant Agreement. A form of the certificate representing the Warrants which form a part of the Warrant Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Each of the Warrants entitles the registered holder to purchase one share of Common Stock. The Warrants are exercisable at a price of $5.00 (which exercise price has been arbitrarily determined by the Company and the Representative) subject to certain adjustments. The Warrants are entitled to the benefit of adjustments in their exercise prices and in the number of shares of Common Stock or other securities deliverable upon the exercise thereof in the event of a stock dividend, stock split, reclassification, reorganization, consolidation or merger. The Warrants may be exercised at any time and continuing thereafter until the close of five years from the date hereof, unless such period is extended by the Company. After the expiration date, Warrant holders shall have no further rights. Warrants may be exercised by surrendering the certificate 59 evidencing such Warrant, with the form of election to purchase on the reverse side of such certificate properly completed and executed, together with payment of the exercise price and any transfer tax, to the Warrant Agent. If less than all of the Warrants evidenced by a warrant certificate are exercised, a new certificate will be issued for the remaining number of Warrants. Payment of the exercise price may be made by cash, bank draft or official bank or certified check equal to the exercise price. Warrant holders do not have any voting or any other rights as shareholders of the Company. The Company has the right at any time beginning six months from the date hereof to redeem the Warrants, at a price of $.05 per Warrant, by written notice to the registered holders thereof, mailed not less than thirty (30) nor more than sixty (60) days prior to the Redemption Date. The Company may exercise this right only if the closing bid price for the Common Stock for twenty-one (21) trading days during a thirty (30) consecutive trading day period ending no more than 15 days prior to the date that the notice of redemption is given, equals or exceeds $10.00 per share subject to adjustment. If the Company exercises its right to call Warrants for redemption, such Warrants may still be exercised until the close of business on the day immediately preceding the Redemption Date. If any Warrant called for redemption is not exercised by such time, it will cease to be exercisable, and the holder thereof will be entitled only to the repurchase price. Notice of redemption will be mailed to all holders of Warrants of record at least thirty (30) days, but not more than sixty (60) days, before the Redemption Date. The foregoing notwithstanding, the Company may not call the Warrants at any time that a current registration statement under the Act is not then in effect. Any redemption of the Warrants during the one-year period commencing on the date of this Prospectus shall require the written consent of the Representative. The Warrant Agreement permits the Company and the Warrant Agent without the consent of Warrant holders, to supplement or amend the Warrant Agreement in order to cure any ambiguity, manifest error or other mistake, or to address other matters or questions arising thereafter that the Company and the Warrant Agent deem necessary or desirable and that do not adversely affect the interest of any Warrant holder. The Company and the Warrant Agent may also supplement or amend the Warrant Agreement in any other respect with the written consent of holders of not less than a majority in the number of the Warrants then outstanding; however no such supplement or amendment may (i) make any modification of the terms upon which the Warrants are exercisable or may be redeemed; or (ii) reduce the percentage interest of the holders of the Warrants without the consent of each Warrant holder affected thereby. In order for the holder to exercise a Warrant, there must be an effective registration statement, with a current prospectus on file with the Commission covering the shares of Common Stock underlying the Warrants, and the issuance of such shares to the holder must be registered, qualified or exempt under the laws of the state in which the holder resides. If required, the Company will file a new registration statement with the Commission with respect to the securities underlying the Warrants prior to the exercise of such Warrants and will deliver a prospectus with respect to such securities to all holders thereof as required by Section 10(a)(3) of the Securities Act of 1933, as amended. See "Risk Factors - Necessity to Maintain Current Prospectus" and "State Blue Sky Registration Required to Exercise Warrants." CERTAIN FLORIDA LEGISLATION Florida has enacted legislation that may deter or frustrate takeovers of Florida corporations. The Florida Control Share Act generally provides that shares acquired in excess of certain specified thresholds will not possess any voting rights unless such voting rights are approved by a majority of a corporation's disinterested shareholders. The provisions of the "Control Share Act" apply to the Company. The Florida Affiliated Transactions Act generally requires super majority approval by disinterested shareholders of certain specified transactions between a public corporation and holders of more than 10% of the outstanding voting shares of the corporation (or their affiliates). The provisions of the Florida Affiliated Transactions Act do not apply to the Company as it has opted out of the provisions of the Affiliated Transactions Act. Florida law and the Company's Articles of Incorporation and Bylaws also authorize the Company to indemnify the Company's directors, officers, employees 60 and agents. In addition, the Company's Articles and Florida law presently limit the personal liability of corporate directors for monetary damages, except where the directors (i) breach their fiduciary duties and (ii) such breach constitutes or includes certain violations of criminal law, a transaction from which the directors derived an improper personal benefit, certain unlawful distributions or certain other reckless, wanton or willful acts or misconduct. ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS Certain provisions of the Articles of Incorporation and Bylaws of the Company summarized in the following paragraphs will become operative upon the closing of the Offering and may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt, including attempts that might result in a premium being paid over the market price for the shares held by shareholders. The following provisions may not be amended in the Company's Articles or Bylaws without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Common Stock. Such provisions could: (1) result in the Company being less attractive to a potential acquiror; (2) result in shareholders receiving less for their shares in the event of a take-over attempt. SPECIAL MEETING OF SHAREHOLDERS. The Articles and Bylaws provide that special meetings of shareholders of the Company may be called only by a majority of the Board of Directors, the Company's Chief Executive Officer or holders of not less than ten percent (10%) of the Company's outstanding voting stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock and Warrants is American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this Offering, the Company will have 2,700,100 shares of Common Stock outstanding (2,820,100 shares if the Representatives' Over-Allotment Option is exercised in full but without giving effect to the exercise of the Warrants) of which 1,500,100 shares of Common Stock outstanding are restricted securities as such term is defined under the Securities Act of 1933, as amended. Of the shares of Common Stock, 1,200,000 shares sold in this Offering (1,320,000 if the Representative's Over-Allotment Option is exercised in full) will be freely tradeable without restriction or further registration under the Act, except for any shares purchased by an "affiliate" of the Company (in general, a person who has a control relationship with the Company) which shares will be subject to the resale limitations of Rule 144 under the Act. An additional 1,200,000 shares of Common Stock have been registered (1,320,000 if the Representative's Over-Allotment Option is exercised in full) and reserved for issuance upon exercise of the Warrants. In general, Rule 144, promulgated under the Securities Act of 1933, as amended, permits a shareholder of the Company who has beneficially owned restricted shares of Common Stock for at least two years to sell without registration, within a three-month period, such number of shares not exceeding the greater of one percent of the then outstanding shares of Common Stock or, generally, the average weekly trading volume during the four calendar weeks preceding the sale, assuming compliance by the Company with certain reporting requirements of Rule 144. Furthermore, if the restricted shares of Common Stock are held for at least three years by a person not affiliated with the Company (in general, a person who is not an executive officer, director or principal shareholder of the Company during the three month period prior to resale), such restricted shares can be sold without any volume limitation. Since the Company was not organized until October 1994, as of the date hereof none of the Company's 61 Common Stock currently outstanding would have been deemed held for at least two years and will be eligible for sale upon consummation of this Offering, subject to the volume limitations and other restrictions of Rule 144. Any sales of shares by shareholders pursuant to Rule 144 may have a depressive effect on the price of the Company's Common Stock. Notwithstanding the foregoing, all of the Company's holders of Common Stock prior to the closing of this Offering (including shareholders of E&A and INA who will exchange their shares of INA and E&A for shares of ADC as of the closing of this Offering) have agreed not to, directly or indirectly, offer to sell, contract to sell, sell, transfer, assign, encumber, grant an option to purchase or otherwise dispose of any beneficial interest in such securities for a period of 24 months from the date hereof without the prior written consent of the Company and the Underwriter. An appropriate legend referring to these restrictions will be marked on the face of the certificates representing all such securities. UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below, for whom Barron Chase Securities, Inc. is acting as Representative, have severally agreed to purchase from the Company an aggregate of 1,200,000 Shares of Common Stock ("Shares") and 1,200,000 Warrants (collectively the "Securities"). The number of Shares and Warrants which each Underwriter has agreed to purchase is set forth opposite its name. NUMBER OF NUMBER OF NAME SHARES WARRANTS ---- --------- --------- Barron Chase Securities, Inc. ................. First London Securities Corp. ................. --------- --------- TOTAL..................................... 1,200,000 1,200,000 ========= ========= The Securities are offered by the Underwriters subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to approval of certain legal matters by counsel and certain other conditions. The Underwriters are committed to purchase all Securities offered by this Prospectus, if any are purchased. The Company has been advised by the Representative that the Underwriters propose initially to offer the Securities offered hereby to the public at the offering price set forth on the cover page of this Prospectus. The Representative has advised the Company that the Underwriters propose to offer the Securities through members of the National Association of Securities Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to certain dealers who are members of the NASD and who agree to sell the Securities in conformity with the NASD Conduct Rules. Such concessions shall not exceed the amount of the underwriting discount that the Underwriters are to receive. The Company has granted to the Representative options, exercisable for 30 days from the date of this Prospectus, to purchase up to an additional 120,000 Shares and an additional 120,000 Warrants at the public offering price less the underwriting discount set forth on the cover page of this Prospectus (the "Over-Allotment Option"). The Representative may exercise this option solely to cover over-allotments in the sale of the Securities being offered by this Prospectus. Officers and directors of the Company may introduce the Representative to persons to consider this offering and purchase Securities either through the Representative, other Underwriters, or through participating dealers. In this connection, officers and directors will not receive any commissions or any other compensation. The Company has agreed to pay the Representative a commission of ten percent (10%) of the gross proceeds of the offering (the "Underwriting Discount"), including the gross proceeds from the sale of the Over-Allotment Option, if exercised. In addition, the Company has agreed to pay to the Representative a non-accountable 62 expense allowance of three percent (3%) of the gross proceeds of this Offering, including proceeds from any Securities purchased pursuant to the Over- Allotment Option. The Representative's expenses in excess of the non-accountable expense allowance will be paid by the Representative. To the extent that the expenses of the Representative is less than the amount of the non-accountable expense allowance received, such excess shall be deemed to be additional compensation to the Representative. The Representative has informed the Company that it does not expect sales to discretionary accounts to exceed five (5%) of the total number of Securities offered by the Company hereby. The Company has agreed to engage the Representative as a financial advisor for a period of three (3) years from the consummation of this Offering, at a fee of $108,000, all of which is payable to the Representative on the closing date. Pursuant to the terms of a financial advisory agreement, the Representative has agreed to provide, at the Company's request, advice to the Company concerning potential merger and acquisition and financing proposals, whether by public financing or otherwise. Prior to the Offering, there has been no public market for the Shares of Common Stock or Warrants of the Company. Consequently, the initial public offering price for the Securities, and the terms of the Warrants (including the exercise price of the Warrants), have been determined by negotiation between the Company and the Representative. Among the factors considered in determining the public offering price were the history of, and the prospect for, the Company's business, an assessment of the Company's management, its past and present operations, the Company's development and the general condition of the securities market at the time of the offering. The initial public offering price does not necessarily bear any relationship to the Company's assets, book value, earnings or other established criterion of value. Such price is subject to change as a result of market conditions and other factors, and no assurance can be given that a public market for the Shares and/or Warrants will develop after the close of the Public Offering, or if a public market in fact develops, that such public market will be sustained, or that the Shares and/or Warrants can be resold at any time at the offering or any other price. See "Risk Factors." At the closing of the Offering, the Company will issue to the Representative and/or persons related to the Representative, for nominal consideration, Common Stock Representative Warrants and Warrant Representative Warrants (the "Representative's Warrants") to purchase up to 120,000 Shares and 120,000 Warrants ("Underlying Warrants"). The Representative's Warrants will be exercisable for a five year period commencing on the date of this Prospectus. The initial exercise price of each Common Stock Representative Warrant shall be $7.50 per share (150% of the public offering price). The initial exercise price of each Warrant Representative Warrant shall be $.1875 per Underlying Warrant (150% of the public offering price). Each Underlying Warrant will be exercisable for a five (5) year period commencing on the date of this Prospectus to purchase one Share of Common Stock at an exercise price of $7.50 per share of Common Stock. The Representative's Warrants will not be transferable for one year from the date of this Prospectus, except (i) to officers of the Representative, other Underwriters, and members of the selling group and officers and partners thereof; (ii) by will; or (iii) by operation of law. The Representative's Warrants contain provisions providing for appropriate adjustment in the event of any merger, consolidation, recapitalization, reclassification, stock dividend, stock split or similar transaction. The Representative's Warrants contain net issuance provisions permitting the holders thereof to elect to exercise the Representative's Warrants in whole or in part and instruct the Company to withhold from the securities issuable upon exercise, a number of securities, valued at the current fair market value on the date of exercise, to pay the exercise price. Such net exercise provision has the effect of requiring the Company to issue shares of Common Stock without a corresponding increase in capital. A net exercise of the Representative's Warrants will have the same dilutive effect on the interests of the Company's shareholders as will a cash exercise. The Representative's Warrants do not entitle the holders thereof to any rights as a shareholder of the Company until such Representative's Warrants are exercised and shares of Common Stock are purchased thereunder. The Representative's Warrants and the securities issuable thereunder may not be offered for sale except in compliance with the applicable provisions of the Securities Act of 1933. The Company has agreed that if it shall 63 cause a post-effective amendment, a new registration statement, or similar offering document to be filed with the Commission, the holders shall have the right, for seven years from the date of this Prospectus, to include in such registration statement or offering statement the Representative's Warrants and/or the securities issuable upon their exercise at an expense to the holders. Additionally, the Company has agreed that, upon request by the holders of 50% or more of the Representative's Warrants and Registrable Securities during the period commencing one year from the date of this Prospectus and expiring four years thereafter, the Company will, under certain circumstances, register the Representative's Warrants and/or any of the securities issuable upon their exercise. The Company has also agreed that if the Company participates in any merger, consolidation or other such transactions which the Representative has brought to the Company during a period of five years after the closing of this offering, and which is consummated after the closing of this offering (including an acquisiton of assets or stock for which it pays, in whole or in part, with Shares or other securities), or if the Company retains the services of the Representative in connection with any merger, consolidation or other such transaction, then the Company will pay for the Representative's services an amount equal to 5% of up to one million dollars of value paid or received in the transaction, 4% of the next million dollars of such value, 3% of the next million dollars of such value, 2% of the next million dollars of such value and 1% of the next million dollars and of all such value above $4,000,000. The Company has agreed to indemnify the Underwriters against any costs or liabilities incurred by the Underwriters by reasons of misstatements or omissions to state material facts in connection with the statements made in the Registration Statement and the Prospectus. The Underwriters have in turn agreed to indemnify the Company against any liabilities by reason of misstatements or omissions to state material facts in connection with the statements made in the Prospectus, based on information relating to the Underwriters and furnished in writing by the Underwriters. To the extent that this section may purport to provide exculpation from possible liabilities arising from the federal securities laws, in the opinion of the Commission, such indemnification is contrary to public policy and therefore unenforceable. The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to copies of each such agreement which are filed as exhibits to the Registration Statement. See "Additional Information." LEGAL MATTERS Legal matters in connection with the Common Stock and Warrants being offered hereby will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort Lauderdale, Florida. Atlas, Pearlman, Trop & Borkson, P.A. will own 10,000 shares effective as of the Closing of this Offering of the Common Stock. The Company is being represented as to matters of Chilean law by Figeroa & Coddou. Certain legal matters will be passed upon for the Underwriters by David A. Carter, P.A. EXPERTS The supplemental consolidated balance sheets of the Company and subsidiaries as of December 31, 1995, and the related supplemental consolidated statements of earnings, statements of shareholders' 64 equity and cash flows for each of the two years, in the period ended December 31, 1995, included in this Prospectus have been so included in reliance upon the report of Mutnick & Associates, P.A., independent accountants, given on authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2 under the Securities Act of 1933, as amended, with respect to the securities being offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. For further information about the Company and the securities offered hereby, reference is made to the Registration Statement and to the exhibits filed as a part thereof. The statements contained in this Prospectus as to the contents of any contract or other document identified as exhibits in this Prospectus are not necessarily complete, and in each instance, reference is made to a copy of such contract or document filed as an exhibit to the Registration Statement, each statement being qualified in any and all respects by such reference. The Registration Statement, including exhibits, may be inspected without charge at the principal reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Los Angeles, California Regional Office of the Commission, 5757 Wilshire Boulevard, Suite 500 East, Los Angeles, California 90036-3648, and copies of all or any part thereof may be obtained from the Commission upon payment of fees prescribed by the Commission from the Public Reference Section of the Commission at its principal office in Washington, D.C. set forth above. 65 ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED) TABLE OF CONTENTS Independent Auditors' Report F2 Supplemental Consolidated Balance Sheets F3 - F5 Supplemental Consolidated Statements of Income F6 Supplemental Consolidated Statements of Stockholders' Equity F7 - F8 Supplemental Consolidated Statements of Cash Flows F9 - F11 Notes to Supplemental Consolidated Financial Statements F12 - F26
F-1 INDEPENDENT AUDITORS' REPORT Board of Directors Andean Development Corporation Boca Raton, Florida We have audited the accompanying supplemental consolidated balance sheet of Andean Development Corporation and subsidiaries as of December 31, 1995 and the related supplemental consolidated statements of income, stockholders' equity and cash flows for each year in the two year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion. The supplemental consolidated financial statements give retroactive effect to the merger of Andean Development Corporation and Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A., which will be effectuated at the time of the closing of a public offering of Andean stock, which has been accounted for as a pooling of interests as described in Note 1 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not extend through the date of consummation, however; they will become the historical consolidated financial statements of Andean Development Corporation and subsidiaries after financial statements covering the date of consummation of the business are issued. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of Andean Development Corporation and subsidiaries as of December 31, 1995 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1995 in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combination. MUTNICK & ASSOCIATES, P.A. Pembroke Pines, Florida March 29, 1996, except for Note 15 to which the date is October 21, 1996 F-2
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS A S S E T S AS OF AS OF JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) ------------ ----------- CURRENT ASSETS: Cash $ 52,574 $ 49,073 Time deposits 18,361 18,189 Accounts receivable, net 1,403,001 1,768,523 Due from affiliated companies - 16,167 Due from related parties 5,696 - Deferred income taxes 4,148 4,148 Deferred financing charges - 75,600 Other current assets 177,489 72,496 ---------- ---------- TOTAL CURRENT ASSETS 1,661,269 2,004,196 ---------- ---------- FIXED ASSETS: Furniture and equipment 163,638 239,410 Less: Accumulated depreciation (69,328) (72,019) ---------- ---------- TOTAL FIXED ASSETS 94,310 167,391 ---------- ---------- OTHER ASSETS: Undeveloped real estate - held for investment 473,125 481,278 Real estate - held for sale 1,222,248 1,201,878 Capitalization of public offering costs - 244,009 Deferred income taxes 30,329 30,329 Investment in affiliated companies 476,859 283,500 Other assets 2,341 2,553 ---------- ---------- TOTAL OTHER ASSETS 2,204,902 2,243,547 ---------- ---------- TOTAL ASSETS $3,960,481 $4,415,134 ========== ==========
Please read accompanying notes to the financial statements. F-3
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED) L I A B I L I T I E S AS OF AS OF JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) ------------ ----------- CURRENT LIABILITIES: Obligations with banks $ 367,658 $ 387,361 Current portion of long-term debt 205,532 178,162 Accounts payable 384,282 247,830 Due to related parties 132,256 169,161 Income taxes payable 36,014 155,340 Accrued expenses and withholdings 39,599 16,855 Current portion of staff severance indemnities 22,599 31,366 Dividends payable 300,000 - Bridge loan payable - 65,000 ---------- ---------- TOTAL CURRENT LIABILITIES 1,487,940 1,251,075 ---------- ---------- LONG-TERM LIABILITIES: Long-term debt, excluding current portion 688,508 628,243 Staff severance indemnities, long-term portion 18,116 18,116 ---------- ---------- TOTAL LONG-TERM LIABILITIES 706,624 646,359 ---------- ---------- TOTAL LIABILITIES $2,194,564 $1,897,434 ========== ==========
Please read accompanying notes to the financial statements. F-4
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED) STOCKHOLDERS' EQUITY AS OF AS OF JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) ------------ ----------- STOCKHOLDERS' EQUITY: Common stock, $.0001 par value, 20,000,000 shares authorized, 2,500,100 issued and outstanding at December 31, 1995 and June 30, 1996, respectively $ 150 $ 150 Additional paid-in capital 674,122 749,722 Retained earnings 1,137,736 1,813,919 Cumulative translation adjustment (46,091) (46,091) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 1,765,917 2,517,700 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,960,481 $4,415,134 ========== ==========
Please read accompanying notes to the financial statements. F-5
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIOD (UNAUDITED) ENDED DECEMBER 31, PERIOD ENDED JUNE 30, 1994 1995 1995 1996 ---------- ---------- ---------- ---------- REVENUES FROM OPERATIONS: Revenues $2,042,884 $2,717,341 $1,355,266 $1,472,037 Cost of operations (296,896) (697,599) (266,753) (318,167) ---------- ---------- ---------- ---------- GROSS PROFIT 1,745,988 2,019,742 1,088,513 1,153,870 SELLING AND ADMINISTRATIVE EXPENSES (460,775) (509,563) (321,050) (227,300) ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 1,285,213 1,510,179 767,463 926,570 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSES): Interest income 1,456 - - - Interest expense (125,701) (213,618) (97,677) (113,563) Profit (loss) on foreign currency exchange (75,096) (9,692) (40,829) (12,347) Realized profit/(loss) on sale of assets (25,326) 8,909 8,909 18,923 Costs of curtailed public offering - (276,506) (276,506) - Other, net 704 (29,636) 55,345 (24,074) ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (EXPENSES) (223,963) (520,543) (350,758) (131,061) INCOME BEFORE INCOME TAXES 1,061,250 989,636 416,705 795,509 INCOME TAXES 51,780 50,636 64,613 119,326 ---------- ---------- --------- ---------- NET INCOME $1,009,470 $939,000 $ 352,092 $ 676,183 ========== ======== ========== ========== NET INCOME PER COMMON SHARE $0.67 $0.63 $0.24 $0.45 ===== ===== ===== ===== WEIGHTED AVERAGE SHARES OUTSTANDING 1,500,100 1,500,100 1,500,100 1,500,100 ========= ========= ========= =========
Please read accompanying notes to the financial statements. F-6
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIODS ENDED DECEMBER 31, 1994, 1995, AND JUNE 30, 1996 (UNAUDITED) ADDITIONAL CUMULATIVE TOTAL COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS' STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY ----------- ----------- ------------ ------------ -------------- Balance at December 31, 1993 $ 150 $ 542,704 $ 355,522 $ (97,217) $ 801,159 Additional paid-in capital - 131,418 - - 131,418 Net income - - 1,009,470 - 1,009,470 Dividends to stockholders - - (866,256) - (866,256) Translation adjustment - - - 91,532 91,532 ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1994 $ 150 $ 674,122 $ 498,736 $ (5,685) $1,167,323 ========== ========== ========== ========== ========== Balance at December 31, 1994 $ 150 $ 674,122 $ 498,736 $ (5,685) $1,167,323 Additional paid-in capital - - - - - Net income - - 939,000 - 939,000 Dividends to stockholders - - (300,000) - (300,000) Translation adjustment - - - (40,406) (40,406) ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1995 $ 156 $ 674,122 $1,137,736 $ (46,091) $1,765,917 ========== ========== ========== ========== ==========
Please read accompanying notes to the financial statements. F-7
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) FOR THE PERIODS ENDED DECEMBER 31, 1994, 1995 AND JUNE 30, 1996 (UNAUDITED) ADDITIONAL CUMULATIVE TOTAL COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS' STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY ----------- ----------- ------------ ------------ -------------- Balance at December 31, 1995 $ 150 $ 674,122 $1,137,736 $ (46,091) $1,765,917 Additional paid-in capital associated with detachable stock warrants - 75,600 - - 75,600 Net income - - 676,183 - 676,183 Dividends to stockholders - - - - - Translation adjustment - - - - - ---------- ---------- ---------- ---------- ---------- Balance at June 30, 1996 (unaudited) $ 150 $ 749,722 $1,813,919 $ (46,091) $2,517,700 ========== ========== ========== ========== ==========
Please read accompanying notes to the financial statements. F-8
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD (UNAUDITED) ENDED DECEMBER 31, PERIOD ENDED JUNE 30, 1994 1995 1995 1996 ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,009,470 $939,000 $ 352,092 $ 676,183 Adjustments to reconcile net income to net cash provided (used) by operating activities: Deferred income taxes (5,407) - - - Depreciation 23,582 20,277 8,086 23,061 Provision for vacations (3,941) 5,217 5,217 - Provision for severance indemnity (601) 14,025 13,848 8,767 Loss/(profit) on sale of fixed assets 750 (8,909) (8,909) - Other losses 1,676 20,968 6,670 - (Increase) decrease in accounts receivable (204,209) (1,198,792) (553,495) (365,522) (Increase) in due from sale of affiliated company stock - - (141,376) - (Increase) in other assets (50,539) (61,175) (257,202) (212) Increase in accounts payable 34,255 272,742 222,860 (136,452) Increase (decrease) in accrued expenses and withholdings 13,482 (7,958) (8,330) (22,744) Increase in income taxes payable 8,368 (5,022) 93,122 119,326 (Decrease) increase in deferred income (53,672) - - - ----------- ----------- ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 773,214 $ (9,627) $ (267,417) $ 302,407 =========== =========== =========== ==========
Please read accompanying notes to the financial statements. F-9
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE PERIOD (UNAUDITED) ENDED DECEMBER 31, PERIOD ENDED JUNE 30, 1994 1995 1995 1996 ---------- ---------- ---------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in prepaid expenses $ - $ - $ - $ 104,993 Purchase of fixed assets (62,712) - - (75,772) Payments for purchase of property under construction or land for sale (420,575) (89,347) (89,347) (8,153) Proceeds from sale of fixed assets 31,415 46,281 46,281 - Proceeds from sale of subsidiary (ITL) - 466,413 - 193,359 Investment in affiliated company (ITL) - (666,304) - - Investment in subsidiary (A & E) - (283,500) - - (Increase) decrease in time deposits 20,171 (4,890) (3,996) 172 ---------- ----------- ----------- ---------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (431,701) (531,347) (47,062) 214,599 ---------- ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Cost of public offering - - - (244,009) Proceeds from related parties - 310,174 23,417 42,601 Proceeds from (payments on) notes payable to banks 718,289 247,628 275,412 (67,932) Capital contributions 131,418 - - - Proceeds from bridge loan - - - 65,000 Dividends paid (866,256) - - (300,000) Payments to related parties (354,349) - (23,646) (16,167) ---------- ----------- ---------- ---------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (370,898) 557,802 275,183 (520,507) ---------- ---------- ---------- ----------
Please read accompanying notes to the financial statements. F-10
ANDEAN DEVELOPMENT CORPORATION SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE PERIOD (UNAUDITED) ENDED DECEMBER 31, PERIOD ENDED JUNE 30, 1994 1995 1995 1996 ---------- ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES $ 56,297 $ (31,402) $ 21,470 $ - ---------- ---------- ---------- ---------- NET INCREASE (DECREASE)IN CASH 26,912 (14,574) (17,826) (3,501) CASH AT BEGINNING OF PERIOD 40,236 67,148 67,148 52,574 ---------- ---------- ---------- ---------- CASH AT END OF PERIOD $ 67,148 $ 52,574 $ 49,322 $ 49,073 ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE: The Company paid $99,518, $169,854, $97,677 and $113,563 for interest and $97,930, $27,971, $18,617 and $-0- for income taxes in 1994, 1995, and for the six months ended June 30, 1995 and 1996, respectively. In April of 1996 the Company capitalized financing costs associated with the issuance of warrants at a total cost $75,600. This resulted in an increase in additional paid-in capital in the same amount. Please read accompanying notes to the financial statements. F-11 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED WITH RESPECT TO JUNE 30, 1996 AND 1995) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - Andean Development Corporation, (the "Company"), is a Florida corporation incorporated on October 19, 1994. The Company is in the business of providing engineering, technical assistance and equipment in the development of specialized projects throughout the country of Chile and more recently in Peru. BASIS OF PRESENTATION - The accompanying supplemental consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries, Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A., two Chilean service corporations. In addition, the equity method of accounting is used for the Company's 30% owned subsidiary Inversiones Tiempo Libre, S.A. "ITL", acquired in March 1995, and its 45% owned subsidiary A & E. The accompanying supplemental consolidated financial statements have been prepared in conformity with generally accepted accounting principles and all material intercompany transactions have been eliminated. In November of 1995, (subsequently revised in October of 1996), the Company entered into an agreement to acquire 100% of the issued and outstanding common stock of Errazuriz y Asociados Ingenieros, S.A. and Ingenor Andina, S.A., in exchange for 2,500,000 (subsequently revised to 1,500,000) shares of common stock which will be effective as of the closing of the initial public offering of the Company's stock. (See Note 13 for more details.) Generally accepted accounting principles prescribe giving effect to a consummated business combination accounted for by the pooling of interests method in financial statements that do not include the date of consummation. Accordingly, the supplemental consolidated financial statements for all periods presented have been prepared assuming the acquisition by the Company took place on January 1, 1992, that the Company was incorporated on that date, and the exchange of shares from 1,500,000 was effectuated at that time. Had the Company presented combined historical financial statements of the two subsidiaries only, the presentation would not materially differ from the supplemental consolidated presentation referred to above. In addition, these financial statements will become the historical consolidated financial statements of the Company and subsidiaries after financial statements covering the date of consummation of the business combination are issued. F-12 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The following table reflects the revenue, net income and intercompany transactions for the previously separate entities (Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A.) prior to the business combination.
(UNAUDITED) PERIOD ENDED AT DECEMBER 31, JUNE 30, 1994 1995 1995 1996 ---------- ---------- --------- ---------- REVENUE: Errazuriz y Asociados $1,337,940 $1,309,946 $808,450 $720,888 Igenor Andina 746,830 940,052 667,423 569,848 Revenues shared by E&A and I&A outside of Chile - 521,134 - 181,301 ---------- ---------- --------- --------- Sub total revenues 2,084,770 2,771,132 1,475,873 1,472,037 Less: Intercompany rev. (41,886) (53,791) (120,607) - ---------- ---------- ---------- --------- TOTAL REVENUES 2,042,884 2,717,341 1,355,266 1,472,037 ---------- ---------- --------- --------- NET INCOME: Errazuriz y Asociados 837,322 661,725 11,874 413,711 Igenor Andina 172,148 277,275 340,218 262,472 INTERCOMPANY TRANSACTIONS: Due from Igenor to Errazuriz 136,503 - - - Due from Errazuriz to Igenor - 5,661 - 148,486 Fees paid by Igenor to Errazuriz - - - - Purchase of land by Igenor from Errazuriz 480,655 - - - Gain on sale of land to Igenor 89,409 - - - Consulting services paid by Errazuriz to Igenor 41,886 53,791 120,607 -
F-13 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) FUNCTIONAL CURRENCY - The financial statements have been translated in accordance with the provisions set forth in Statement of Financial Accounting Standards No. 52, from Chilean pesos (the functional currency) into US dollars (the reporting currency). REVENUE RECOGNITION - The Company earns income in two basic ways; via commissions associated with the sale of major equipment items and from the performing of engineering services. In the case of equipment sales, the company earns a commission on the sale of equipment or turn-key jobs when the contract between the purchasing company (buyer of the equipment), is signed by both parties or an "Order of Proceed" is issued by the buyer. At this moment all the work of the Company has been completed and the commission has been earned regardless of any future developments between the supplier and the buyer. The time of payment of the commissions is determined by the practices of the countries involved in receiving and sending monies from and to other countries. As a result, it is not unusual for it to take 60-180 days for the funds to be transferred. Revenues associated with engineering services are recognized as services and are performed based on standard billing rates. TIME DEPOSITS - Time deposits are recorded at the original amount plus interest accrued at each year end. INCOME TAXES - In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. SFAS 109 requires a change from the deferred method of accounting for income taxes prescribed by APB Opinion 11, to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. During 1994 and 1995, the Company performed consulting services for European companies which resulted in income received by the Company in Europe. Income from European operations was $737,008 and $612,669 in 1994 and 1995, respectively. The make-up by country was $345,365, $231,643 and $160,000, in Sweden, Norway and England, respectively, for 1994, and $399,068, $203,601 and $10,000, in Germany, England and Norway, respectively, in 1995. No consulting services have been performed for F-14 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) European companies in 1996. As a result of the adoption of SFAS 109, the Company provides no deferred income taxes on its European earnings as the revenues will not be transferred to Chile or the United States; rather such earnings will be reinvested in European operations, thereby eliminating any deferred tax liability. A deferred tax asset was recognized at December 31, 1995 and for the six months ended June 30, 1996 of $34,477 and $34,477, respectively. Income tax expense totalled $51,780, $50,636, $64,613 and $119,326 for the years ended December 31, 1994 and 1995, and for the six months ended June 30, 1995 and 1996, respectively. FIXED ASSETS - Furniture and equipment are recorded at cost. Depreciation is provided on a straight-line method based on the estimated useful life of the asset. REAL ESTATE - Real estate is recorded at cost, which includes the cost of acquisition of land plus costs incurred in the construction of a house. These aggregate carrying costs do not exceed the net realizable value (selling price less any costs of completion and disposal) of the property under construction. This estimate was based on an independent appraisal of the real estate. The basis for this assessment is the existing contract between Invdemco (a company owned by Mr. Errazuriz who is Chief Executive Officer and member to the Board of the Company) and his wife to transfer the house at closing from the Company to Invdemco at its net book value. As the house has now been completed, (December 1995), the Company is depreciating it on the straight-line basis over 30 years with the quarterly depreciation beginning in March of 1996. STAFF SEVERANCE INDEMNITIES - The Company provides for certain lump sum severance indemnities to its employees at the end of their employment as required by Chilean law. The obligation is calculated based on the present value of the vested benefits to which an employee is entitled, the expected service lives of the employees and current salary levels. The Company believes that the above calculation is not materially different from the calculation required by SFAS 87, which would reflect expected future salary increases. CASH - Cash includes cash on hand. FOREIGN OPERATIONS - As the Company is a holding company for two existing Chilean companies, operating exclusively in South America, one must be aware of the potential for both economic and political change in the business environment, different than that of the United States. The success of the Company depends on the success of the Chilean operations and a stable economic and political environment. During 1995 the Company performed services for the Westinghouse Corporation in Peru. The total revenues from this transaction as reflected in the 1995 financial statements was $312,500 of commissions. There were no other foreign generated revenues. F-15 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EARNINGS PER COMMON SHARE - Earnings per share are based on the weighted average number of shares outstanding of 1,500,100 for each of the three years presented giving effect to the exchange of shares with the offering. RECENT PRONOUNCEMENTS - In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which established a fair value based method of accounting for those stock-based compensation plans and requires additional disclosures for those companies who elect not to adopt the new method of accounting. In its adoption of FASB 123, the Company has decided to retain the existing measurement values as prescribed under APB 25 and would provide additional proforma disclosure if and when such options are granted. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires the Company to review for impairment of long lived assets and certain identifiable assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. In certain situations, an impairment loss would be recognized. As a result, the Company has adopted FASB 121 effective January 1, 1996. The Company has studied the implications of FASB 121 and, based on its evaluation, has determined that its adoption does not have a material impact on the Company's financial condition or results of operations. At June 30, 1996, there were no impairments. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - TIME DEPOSITS Time deposits consist of funds totalling $18,361 and $18,189 at December 31, 1995 and at June 30, 1996, respectively, invested in a local Chilean bank with maturity dates ranging from 3 months to 1 year. These investments earn an annual rate of interest ranging from 1.44% to 3.60%. F-16 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - OTHER CURRENT ASSETS Other current assets consist of the following at December 31, 1995 and June 30, 1996, respectively: AT (UNAUDITED) DECEMBER 31, AT JUNE 30, 1995 1996 ------------ ------------- Prepaid expenses* $ 123,452 $ - Due from sale of timber 54,037 53,529 Recoverable taxes - 10,323 Other - 8,644 ---------- ---------- Total other current assets $ 177,489 $ 72,496 ========== ========== * - This represents payments to suppliers as advances against future services. NOTE 4 - RELATED PARTY TRANSACTIONS The Company conducts a substantial amount of its business with companies that are affiliated with shareholders common to the corporation. As a result, commissions have been received from both engineering and consulting services and have been paid for consulting services to and from these affiliated companies. Following is a list of those affiliated companies:
RELATION COMPANY NAME 1994 1995 1996 ------------ -------- -------- ------ Igenor Ingenierie et Gestion, S.A. Parent Parent Parent Inversiones y Desarrollo Demco, S.A. (Invdemco) Equity Related(1) Related Electromecanica Osorno, S.A. Equity Related(1) Related Errazuriz y Asociados Arquitectos, Ltda. Equity Equity Equity Inversiones Tiempo Libre, S.A. Equity Equity Not related(2) Proyectos y Equipos, S.A. Equity Related(1) Related Norconsult International, S.A. Related Related Not related(3) Kvaerner Chile, S.A. Related Not related(4) Not related Kvaerner Hydro, Agencia de Kvaerner Turbin Aguas y Ecologia, S.A. Not related Not related Related(5) Biwater International, L.T.D. Related Related(6) Related(7) Tacora Related Related Not related(8)
F-17 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - RELATED PARTY TRANSACTIONS (Continued) (1) To clarify the intercompany situation, Inversiones y Desarrollo Demco S.A., Electromecanica Osomo S.A. and Proyectos y Equipos S.A. sold their interest in INA and E & A and vice versa. At present, they are related only by shareholders that are common to each other. (2) All the equity of the Company in ITL was sold prior to June 30, 1996. (3) The CEO of the Company resigned his power of attorney for Norconsult A.S. (4) The CEO of the Company resigned to his place in the Board of Kvaerner Chile, S.A. (5) On December 1995, the Company bought 45% of Aguas y Ecologia S.A. (A&E). (6)&(7) During 1995, the CEO of the Company resigned his representation of Biwater, but ADC became related to Biwater as A&E is a partner of Bayesa, also owned by Biwater. (8) The CEO of the Company resigned his power of attorney for Tacora. Commissions received by the Company for the engineering of various projects totalled $470,589, $417,022, $-0- and $62,073 at December 31, 1994, 1995 and for the six months ended June 30, 1995 and 1996, respectively. Income received for consulting services totalled $237,754, $244,582, $-0- and $103,800 at December 31, 1994, 1995, and for the six months ended June 30, 1995 and 1996, respectively. Total fees charged to the Company for consulting services performed by the related companies at December 31, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 were $82,628, $54,794, $-0- and $-0-, respectively. In addition, fees charged to the Company for consulting services performed by its principal owners and immediate family totalled $4,495, $9,825, $-0- and $-0-, at December 31, 1994, 1995, and for the six months ended June 30, 1995 and 1996, respectively. The amounts due from the affiliated companies totalled $5,696 and $-0-, at December 31, 1995 and June 30, 1996, respectively. Funds payable to these companies totalled $46,035, and $160,645, at December 31, 1995 and June 30, 1996, respectively. The Company also carried out transactions with its management, shareholders and their immediate family. The total amount payable to them by the Company was $86,221 and $8,516, at December 31, 1995 and June 30, 1996, respectively. The amount they owed to the Company totalled $-0- and $-0- at December 31, 1995 and June 30, 1996, respectively. These balances are reflected in due from and due to related parties in the balance sheets. F-18 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 - RELATED PARTY TRANSACTIONS (Continued) The Company also carried some transactions with IGENOR, an affiliate company and shareholder based in Geneva, Switzerland, and with Bayesa, a company that became affiliated in January after the purchase of a participation in it through Aguas y Ecologia, S.A. The balances are reflected in "Due from affiliated companies" and total $-0- and $16,167 at December 31, 1995 and June 30, 1996, respectively. NOTE 5 - UNDEVELOPED REAL ESTATE - HELD FOR INVESTMENT The balance of property for sale relates to land near Villarrica, Chile, which was acquired for resale after being developed in a resort area and is being used in the meantime as a guarantee for some of the financial operations of the Company. The property is being carried at its cost (that value less than the net realizable value based on an independent appraisal of the real estate). The Company has no intention to sell the property in the near future and is treating it as investment property. NOTE 6 - REAL ESTATE - HELD FOR SALE The composition of the real estate - held for sale is as follows: AT AT DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- Land $ 46,233 $ 46,233 Cost of construction 1,176,015 1,176,015 Less: Depreciation - (20,370) ------------ ----------- $1,222,248 $1,201,878 ============ =========== In March 1996, the Company entered into an agreement with a Chilean Investment Company, [Inversiones y Desarrollo Demco, S.A. (Invdemco)], whose shareholders are Mr. Errazuriz, the Company's President and CEO, his wife, and one of his daughters, to sell them the non-performing asset real estate for a price of $1,212,063, the book value of it. Payment terms are 50% in cash at the closing of the public offering, and the balance in four annual installments with interest at 8-1/2% per year. F-19 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - FIXED ASSETS A detail of furniture and equipment is as follows: AT (UNAUDITED) DECEMBER 31, AT JUNE 30, 1995 1996 ------------ ------------- Vehicles $118,032 $193,804 Office equipment 42,644 42,644 Furniture and fixtures 2,962 2,962 ------------ ------------- Total furniture and equipment at cost 163,638 239,410 Less: Accumulated depreciation (69,328) (72,019) ------------ ------------- Net fixed assets $ 94,310 $167,391 ============ ============= Depreciation expense was $23,582, $20,277, $8,086 and $23,061 for the years ended December 31, 1994 and 1995, and for the six months ended June 30, 1995 and 1996, respectively. NOTE 8 - INCOME TAXES Deferred tax assets are summarized as follows: AT (UNAUDITED) DECEMBER 31, AT JUNE 30, 1995 1996 ------------ ------------ CURRENT ASSETS: Provisions for vacation $ 1,519 $ 1,519 Staff severance indemnities - current portion 1,163 1,163 Accrued bonuses 879 879 Other 587 587 -------- -------- 4,148 4,148 -------- -------- LONG-TERM ASSETS: Depreciation 16,175 16,175 Staff severance indemnities, long-term portion (1,920) (1,920) Property for sale under construction 5,419 5,419 Property for sale 2,884 2,884 Other 7,771 7,771 -------- -------- 30,329 30,329 -------- -------- TOTAL DEFERRED TAX ASSETS $ 34,477 $ 34,477 ========= ======== F-20 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 - INCOME TAXES (Continued) The Company is subject to income tax in Chile. Reconciliations between the statutory income tax rate in Chile, and the Company's effective income tax rate as a percentage of income before income taxes is as follows:
(UNAUDITED) AT DECEMBER 31, AT JUNE 30, 1994 1995 1995 1996 ------ ------ ------ ------ Chilean statutory tax rate 15.0% 15.0% 15.0% 15.0% Effect of European income (8.5) (9.9) 0.0 0.0 Other, net (1.6) 0.0 0.5 0.0 ------- ------- ------- -------- Effective income tax rate 4.9% 5.1% 15.5% 15.0% ======= ======= ======= ======== The provision for income taxes charged to the results of operations was as follows: (UNAUDITED) AT DECEMBER 31, AT JUNE 30, 1994 1995 1995 1996 -------- -------- -------- -------- Current tax expense $ 57,187 $ 50,636 $ 64,613 $119,326 Deferred tax expense (benefit) (5,407) - - - -------- -------- -------- -------- Total provision $ 51,780 $ 50,636 $ 64,613 $119,326 -------- -------- -------- --------
NOTE 9 - OBLIGATION WITH BANKS Obligations with banks consist of the following: (UNAUDITED) AT AT DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ Loans payable to bank for liens of credit due August 1996 with variable monthly interest. Currency: Chilean pesos $105,280 $102,192 F-21 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - OBLIGATION WITH BANKS (Continued) (UNAUDITED) AT AT DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------- Short-term loans due July 1996, with interest rates ranging from 7.6% to 12%. Currency: Chilean pesos and UF 262,378 285,169 -------- -------- Total obligations to banks $367,658 $387,361 ======== ======== Interest rates on all of these flexible rate loans are based on the Asociacion de Bancos y Entidades Financieras, (T.A.B.) rate, which represents a daily average of the interest paid by banks on its deposits. The rate is then adjusted upwards approximately 1.5% for the banks profit, and then an additional 1.0%-1.7% reflecting the individual risk of the bank on the individual loan. The actual resulting interest rates at December 31, 1994, 1995 and June 30, 1996 were 24%. There are no covenants or restrictions imposed on the aforementioned obligations with any of the banks involved. A line of credit for $105,280 and $102,192 at December 31, 1995 and June 30,1996, respectively, is secured by an assignment of the Company's term deposits and two cars owned by the Company. Total credit available on the lines of credit approximate the outstanding balances adjusted for fluctuations in the market values of the collateral being provided. $262,378 and $285,169 of short-term loans at December 31, 1995 and June 30, 1996, respectively, were collateralized by a mortgage on real estate held for sale. It is usual practice in Chile to include every outstanding loan with the relevant bank, be it short-term or long-term, in the mortgage of real estate held for sale in favor of that Bank. The Company has mortgaged the real estate held for sale (Villarrica House) in favor of Banco del Desarrolo, so all outstanding loans with this bank are guaranteed by such mortgage. As of June 30, 1996, the Company has the following loans outstanding with that bank: Long-term debts, (1) $2,999 at 11% interest payable in UF monthly and maturing in August 1996, (2) $342,128 at 9.5% interest payable in UF monthly and maturing the 1st of March 2006, (3) $73,235 at 11% interest, payable monthly in UF and maturing the 1st of January of 2005; and b) short-term debts as follows, (1) $218,253 at 2.5% monthly interest in pesos maturing the 31st of August 1996; and (2) $36,459 at 2.5% monthly interest in pesos maturing the 25th of September 1996, all totalling $673,074 in debt with Banco del Desarrollo of June 30, 1996. F-22 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - OBLIGATION WITH BANKS (Continued) In the same manner the Loncovaca Land (undeveloped real estate held for investment) is mortgaged to Banco Sudamericano and has two outstanding loans both of which are long-term. One is in the amount of $190,696 at 8.7% interest in UF payable monthly and maturing in December 2002, and the second for $173,024 at 2.5% interest payable monthly in pesos and maturing in April of 1998. NOTE 10 - LONG-TERM DEBT Long-term debt consists of the following:
(UNAUDITED) AT AT DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ Note payable, collateralized by land on the real estate held for sale, due January 2005 with interest at 11%, payable monthly. Currency: UF $ 75,622 $ 73,235 Note payable, collateralized by a mortgage on real estate held for sale, with interest at 9.5%, due March 2006, payable monthly. Currency: UF 350,979 342,128 Note payable, collateralized by mortgage on real estate held for sale, due August 1996, with interest at 11%, payable monthly. Currency: UF 27,629 2,999 Note payable, collateralized by mortgage on the undeveloped real estate held for investment, due December 2002 with interest at 8.7%, payable monthly commencing January 1995. Currency: UF 203,025 190,690 Note payable, secured by an assignment of a vehicle, due April 1997 with interest at 10.9%, payable monthly. Currency: UF 39,045 24,329 F-23 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10 - LONG-TERM DEBT (Continued) (UNAUDITED) AT AT DECEMBER 31, JUNE 30, 1995 1996 ------------ ------------ Note payable, collateralized by mortgage on undeveloped real estate held for sale, due April 1998 with interest at 2.5%. Currency: Pesos 197,740 173,024 ------------ ------------ Total notes payable 894,040 806,405 Less: Current portion (205,532) (178,162) ------------ ------------ Total long-term debt $688,508 $628,243 ============ ============
The UF is an indexed unit of account expressed in pesos and adjusted according to inflation (CPI). There are no covenants or restrictions imposed on the aforementioned obligations with any of the banks involved. During 1993, the Company repaid its then outstanding loan balance of $59,186 with the proceeds from a new loan. Subsequently in 1994, this loan was refinanced with the same bank. In 1994, the Company's short-term loans totalling $137,026 were refinanced into two larger long-term loans of $358,240 and $78,038 with the same bank. In 1995, two short-term loans and a line of credit were refinanced into a long-term loan of $197,740 with the same bank. Interest expense for the years ended December 31, 1994, 1995 and for the period ended June 30, 1995 and 1996 totalled $125,701, $213,618, $97,677 and $113,563, respectively. The following table reflects the annual payments due for the next five years for the long-term debt. YEAR ENDING DECEMBER 31, PAYMENTS ------------ -------- 1996 $205,532 1997 176,439 1998 106,727 1999 71,570 2000 and after 333,772 -------- Total $894,040 ======== F-24 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11 - STOCKHOLDERS' EQUITY In November of 1995, (subsequently revised in October of 1996), the Company entered into an agreement to exchange 2,500,000 (subsequently revised to 1,500,100) shares of $.0001 par value common stock for 100% of the then outstanding stock of Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A., to be effective as of the closing of the offering. During the years 1994 and 1995, the Company paid its shareholders dividends in the amount of $866,256 and $-0-, respectively. During 1995, the Company declared dividends in the amount of $300,000 to its shareholders, all of which was paid during the first quarter of 1996. NOTE 12 - COMMITMENTS AND CONTINGENCIES At December 31, 1993, the Company entered into a contract with Corporation de Fomento de la Produccion, a state owned corporation created to develop various industries and the technology of Chile, (CORDO). One such project is that of the design of a wave-maker for swimming pools. Under the terms of the contract, the Company can buy the exclusive rights to the results of the project by paying the corporation UF 1,102.80 (equivalent to US $30,658). This obligation would be payable over a maximum period of five years. In connection with the contract between the Company and the corporation, the Company has a letter of guarantee for CH $23,430,486 (equivalent to US $61,317) in case of non-performance under the terms of the contract. NOTE 13 - LEASE COMMITMENTS The Company rents office facilities of 3,300 sq. feet in Santiago, Chile under a month-to-month operating lease. Monthly rental payments were $4,351, $4,354 and $4,507 per month during 1994, 1995 and 1996, respectively. NOTE 14 - INVESTMENTS IN SUBSIDIARIES In March of 1995, Inversiones Tiempo Libre, S.A., (ITL), a newly formed company, owned in part by members of Mr. Errazuriz's family, paid the Company for all the engineering and research costs incurred by the latter to develop the amusement park project that will be managed by ITL. The payment was made with 100% of ITL stock, corresponding to the exact amount of the services billed, which totalled $666,305 at March 31, 1995. The Company's revenues for the first quarter of 1995 increased significantly by this transaction. During the same period, the Company sold 70% of the ITL stock at their face value, which was their carrying value. A "Due from sale of affiliated company stock" account was created to record the receivable of $466,413 at March 31, 1995. The remaining 30% investment has been accounted for using the equity method. Under this method the original investment is recorded at cost and is adjusted F-25 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - INVESTMENTS IN SUBSIDIARIES (Continued) periodically to recognize the investor's share of earnings or losses after the date of acquisition. At December 31, 1995 and June 30, 1996, the Company's share of profits from its investment in ITL totalled $-0-. During the fourth quarter of 1995, the Company put up for sale the remaining 30% investment of the ITL stock. This investment has been recorded as a current asset on the Company's financial statements. These shares were sold to members of Mr. Errazuriz's family during the first quarter of 1996 at their book value of $193,359. The Company purchased 45% of the stock of Aguas y Ecologiz, S.A. (A&E), which owns 10% of the stock in Bayesa, S.A. from a Chilean investment company. This equates to a 4.5% ownership of Bayesa, S.A. by an additional 22.5% of (A&E) 2.25% of Bayesa S.A., which it intends to purchase. Financial statements of A&E as prepared in accordance with GAAP are unavailable and impracticable to produce at this time. At December 31, 1995, the Company's share of profits from its investment in A&E totalled, $6,532. No income or loss was recognized at June 30, 1996. NOTE 15 - SUBSEQUENT EVENTS (a) The Company has entered into an oral agreement on a firm commitment basis to sell 1,200,000 shares of common stock (10,000,000 shares newly authorized, $.0001 par value), at $5.00; and 1 warrant convertible into 1 share of common stock at $5.00 per share within the first 60 months after the effective date of the offering. The Company anticipates raising approximately $6,150,000, exclusive of costs or over-allotments. Of the proceeds, approximately $3,000,000 will be used for the development of and investment in various capital projects; $700,000 to be utilized in the opening of offices in Spain and the United States; $1,650,500 will be held available for working capital and operating costs; and approximately $799,500 will be used for underwriting discounts and expenses of the offering. As a result, there will be 2,700,100 shares of common stock outstanding (1,500,000 par value .0001 common stock and 1,200,100 par value .0001 common stock), after the offering, without considering the over-allotment rights, and the shares to be interchanged with the warrants. (See "Use of Proceeds" and "Description of Securities" in Prospectus for details.) (b) During April 1996, the Company consummated loans in the amount of $65,000. The loans bear interest at the rate of 8-1/2% annually and will be repaid from the proceeds of the offering of stock, (see Note 13a above), or no later than January 15, 1997. The lender also received an aggregate of 21,000 warrants to purchase treasury stock at 33% of the offering price. The warrants were assigned a value of $3.60 per warrant, for a total of $75,600 which has been capitalized as a deferred financing charge, which will be amortized F-26 ANDEAN DEVELOPMENT CORPORATION NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 - SUBSEQUENT EVENTS (Continued) over the term of the loan, and resulted in an increase in additional paid-in capital on the balance sheet. If such warrants are exercised the common shares cannot be publically traded for six months from the effective date of the offering. (c) In November of 1995 (subsequently revised in October of 1996), the Company entered into an agreement to exchange 2,500,000 (subsequently revised to 1,500,000) shares of $.0001 par value common stock for 100% of the then outstanding stock of Errazuriz y Asociados Ingenieros, S.A. and Igenor Andina, S.A., to be effective as of the closing of the offering. F-27 ================================================================================ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. -------------------- TABLE OF CONTENTS Page Available Information....................................... 2 Prospectus Summary.......................................... 3 Risk Factors................................................ 7 Use of Proceeds ............................................ 17 Dividend Policy............................................. 18 Dilution.................................................... 19 Capitalization.............................................. 20 Exchange Rates.............................................. 21 Selected Financial Data..................................... 23 Management's Discussion and Analysis of Financial Condition Results of Operations.................................... 24 Business.................................................... 31 Management.................................................. 50 Certain Transactions........................................ 55 Principal Shareholders...................................... 57 Description of Securities................................... 59 Shares Eligible for Future Sale............................................... 61 Underwriting................................................ 62 Legal Matters............................................... 64 Experts .................................................... 64 Additional Information...................................... 65 Index to Financial Statements................................................ F-1 -------------------- UNTIL _________, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ 1,200,000 SHARES OF COMMON STOCK 1,200,000 REDEEMABLE WARRANTS ANDEAN DEVELOPMENT CORPORATION -------------------- PROSPECTUS -------------------- BARRON CHASE SECURITIES 7770 W. Camino Real Suite 200 Boca Raton, Florida 33433 (561) 347-1200 Atlanta, Georgia Beverly Hills, California Boston, Massachusetts Chicago, Illinois Clearwater, Florida Dallas, Texas Denver, Colorado East Boca Raton, Florida Hoopeston, Illinois Miami, Florida Middletown, New Jersey Minneapolis, Minnesota Oaklahoma City, Oklahoma Phoenix, Arizona Sarasota, Florida Tampa, Florida Tuls, Oaklahoma _______________, 1996 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Certificate of Incorporation of the Company provides that the Company shall indemnify to the fullest extent permitted by the Florida Business Corporation Act (the "Florida Law") any person whom it may indemnify thereunder. The Bylaws of the Company provide that indemnification shall be made by the Company. The provisions of Florida law that authorize indemnification do not eliminate the duty of care of a director, and in appropriate circumstances equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability for (a) violations of criminal laws, unless the director has reasonable cause to believe that his or her conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (b) deriving an improper personal benefit from a transaction, (c) voting for or assenting to an unlawful distribution and (d) willful misconduct or conscious disregard for the best interests of the Company in a proceeding by or in the right of the Company to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. The statute does not affect a director's responsibilities under any other law, such as the federal securities laws. The effect of the foregoing is to require the Company to indemnify the officers and directors of the Company for any claim arising against such persons in their official capacities if such person acted in good faith and in a manner that he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the Offering described in this Registration Statement. All amounts are estimated except the SEC Registration fee, the NASD fee and the Representatives' Non-Accountable Expense Allowance. SEC Registration fee.................................. $ 4,603.00 NASD fee.............................................. 2,798.00 NASDAQ application and listing fees................... 22,550.00 Printing Costs ....................................... 30,000.00 Accounting fees and expenses ......................... 25,000.00 Legal fees and expenses .............................. 155,000.00 Blue Sky fees and expenses ........................... 10,000.00 Representatives' Non-Accountable Expense Allowance.... 184,500.00 Transfer Agent fees and expenses ..................... 10,000.00 Miscellaneous ........................................ 1,000.00 ------------- Total ...................................... $445,451.00 ============= All of the above expenses of this Offering will be paid by the Company. II-1 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. EFFECTIVE AS OF DECEMBER 31, 1994, THE SHAREHOLDERS OF E&A AND INA EXCHANGED THEIR SHARES IN E&A AND INA FOR 2,500,100 SHARES OF COMMON STOCK, EFFECTIVE UPON CLOSING OF THIS OFFERING. THE REMAINING 100 SHARES OF COMMON STOCK ARE PROMOTIONAL SHARES HELD BY MR. PEDRO P. ERRAZURIZ, THE PRESIDENT, CEO AND CHAIRMAN OF THE BOARD OF ADC AND WERE ISSUED TO COMPLY WITH CHILEAN LAW. DURING APRIL 1996, THE COMPANY BORROWED $65,000 FROM TWO PRIVATELY-HELD CORPORATIONS, THE PROCEEDS OF WHICH WERE USED TO PAY CERTAIN EXPENSES OF THIS OFFERING. THE LOAN, WHICH BEARS INTEREST AT THE RATE OF 8-1/2% PER ANNUM, WILL BE DUE AT THE EARLIER OF JANUARY 15, 1997 OR THE EFFECTIVE DATE OF THIS OFFERING. IN CONNECTION WITH THE LOAN, THE LENDER WILL ALSO RECEIVE WARRANTS (THE "BRIDGE WARRANTS") TO PURCHASE 21,000 SHARES OF THE COMPANY'S COMMON STOCK AT 1/3 OF THE INITIAL OFFERING PRICE, THIS OFFERING MADE PURSUANT TO THE PRIVATE PLACEMENT EXEMPTION UNDER 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED. ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibit - ----------- ---------------------- 1.1 Form of Underwriting Agreement(2) 1.1(a) Revised Form of Underwriting Agreement(2) 1.1(b) Revised Form of Underwriting Agreement(3) 1.1(c) Revised Form of Underwriting Agreement(1) 1.2 Revised Form of Agreement Among the Representatives(2) 1.2(b) Revised Form of Agreement Among Representatives(3) 1.2(c) Revised Form of Agreement Among Underwriters(1) 1.3 Revised Form of Selling Group Agreement(2) 1.3(a) Selected Dealers Agreement(3) 1.3(b) Form of Selected Dealers Agreement(1) 2.1(a)(i) Share Exchange Agreement between the Shareholders of Errazuriz y Asociados Ingenieros S.A. and the Company(2) 2.1(a)(ii) First Modification to Share Exchange Agreement between the Shareholders of Errazuriz y Asociados Ingenieros S.A. and the Company dated June 15, 1995(2) 2.1(a)(iii) Second Modification to Share Exchange Agreement between the Shareholders of Errazuriz y Asociados Ingenieros S.A. and the Company dated June 30, 1995(2) 2.1(b)(i) Share Exchange Agreement between the Shareholders of Igenor Andina S.A. and the Company(2) 2.1(b)(ii) First Modification to Share Exchange Agreement between the Shareholders of Igenor Andina, S.A. and the Company dated June 15, 1995(2) 2.1(b)(iii) Second Modification to Share Exchange Agreement between the Shareholders of Igenor Andina, S.A. and the Company dated June 30, 1995(2) 3.1(a) Company's Amended and Restated Articles of Incorporation(2) 3.2 Company's Revised Amended and Restated Bylaws(2) 4.1 Form of Warrant Agreement together with the form of Warrant Certificate(2) 4.1(a) Revised Form of Warrant Agreement together with the form of Warrant Certificate(2) 4.2 Revised Form of Representatives' Warrant Agreement together with the revised Form of Representatives' Purchase Warrant Certificate(2) 4.2(a) Form of Representatives Warrant and Registration Rights Agreement together with the revised Form of Representative's Purchase Warrant Certificate(3) 4.2(b) Revised Form of Representative's Warrant Agreement together with the revised Form of Representative's Purchase Warrant Certificate.(1) 4.3 Specimen of Common Stock Certificate.(3) 4.4 Specimen of Warrant Certificate (to be included in the revised Form of Warrant Agreement in Exhibit 4.1(a) (3) 4.4(b) Specimen of Warrant Certificate (to be included in the revised Form of Warrant Agreement in Exhibit 4.2(b))(1) 5.1 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(2) 10.1 Stock Option Plan(2) 10.1(a) Revised Stock Option Plan(2) II-2 10.2 Directors Stock Option Plan(2) 10.2(a) Revised Directors Stock Option Plan(2) 10.3 Representation Agreement between Biwater and Errazuriz y Asociados Ingenieros Ltda.(2) 10.4 Agreement between ESSAN and Bayesa for the Final Disposal of the Antofagasta Sewage (New translation with Appendices No. 1-5 but without maps)(2) 10.5 Decree from the Municipality of Macul awarding the Land Grant to Igenor Andina S.A.(2) 10.6 Agreement Between the Municipality of Macul and Igenor Andina S.A. for the Land Grant (New translation)(2) 10.7 Agreement between Igenor Andina, S.A. and the owner of the restaurant "Donde la Cuca" to be located at the Macul Park (in English)(2) 10.8 Agreement between Canales, Errazuriz, Rodriguez, Arquitectos Asociados and TDS International concerning designing and consulting services for the Macul Project.(2) 10.9 Agreement between Capullo S.A. and Igenor Andina S.A. in Connection with the Capullo Hydroelectric Plant(2) 10.10 Form of Agreement Between Inversiones y Desarrollo Demco S.A. ("Invdemco") and Igenor Andina Sociedad Anonima to Exchange the Interest of Invdemco in Aguas y Ecologia S.A. for Certain and Real Property Near Villarrica, Chile(2) 10.11 Protocolization Request - Final Reception Certificate No. 61 for the Villarrica Property(2) 10.12 Lease Agreement between Juan Carlos Marti Medina, landlord, and Norconsult International A.S., tenant dated September 16, 1992(2) 10.13 Revised Employment Agreement between Andean Development Corporation and Pedro Pablo Errazuriz, President and CEO of ADC, and Messrs. Jose Luis Yrarrazaval Torrealba, Juan Phillips Davila, Gonzalo Cordua Hoffman, Juan Andres Errazuriz Dominguez and Pedro Pablo Errazuriz Ossa, dated March 15, 1995(2) 10.14 Employment Agreement between Ingenieria Norconsult Andina Limitada and Jose Luis Yrarrazaval Torrealba dated November 3, 1993 (in English)(2) 10.15 Employment Agreement between Errazuriz y Asociados Ingenieros Limitada and Juan Phillips Davila dated November 2, 1993 (in English)(2) 10.16 Employment Agreement between Ingenieria Norconsult Andina Limitada and Gonzalo Cordua Hoffman dated August 1, 1993 (in English)(2) 10.17 Employment Agreement between Ingenieria Norconsult Andina Limitada and Juan Andres Errazuriz Dominguez dated October 11, 1993 (in English)(2) 10.18 Employment Agreement between Errazuriz y Asociados Arquitectos Limitada and Pedro Pablo Errazuriz Ossa dated January 1, 1992 (in English)(2) 10.19 Letter from Westinghouse Electric Corporation to the Company acknowledging the parties' intent for the Company to act as an agent for Westinghouse for certain projects in Chile dated July 31, 1995.(2) 10.19(a) Special Sales Representative Agreement between Westinghouse Electric Company S.A. and Errazuriz Y Asociados Ingenieros S.A.(2) 10.20 Credit Line Agreement between Bayesa and Banco Security in connection with the Bayesa Project dated July 19, 1995.(2) 10.21 Commitment by Sociedad de Inversiones El Rincon S.A. to pay its remaining contribution of 20% in Inversiones Tiempo Libre S.A. dated April 26, 1995.(2) 10.22 Commitment by Inversiones Zukunft Ltda. to pay its remaining contribution of 34% in Inversiones Tiempo Libre S.A. dated April 26, 1995.(2) 10.23 Commitment by Margarita Maria Errazuriz to pay her remaining contribution of 13% in Inversiones Tiempo Libre S.A. dated April 26, 1995.(2) 10.24 Contract with Westinghouse.(2) 10.25 Contract with Mitsubishi.(2) 10.26 Contract between Invdemco and Company for Villarrica Property.(2) 10.27 Revised Shareholder Exchange Agreement(3) 10.28 Form of Financial Advisory Agreement(1) 10.29 Form of Merger and Acquisition Agreement(1) 21 Subsidiaries of Registrant(2) II-3 23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (to be included in its opinion filed as Exhibit 5.1)(2) 23.2 Consent of Mutnick & Associates, P.A.(1) 27 Financial Data Schedule incorporated by reference in the Financial Statements.
- ------------------------ (1) Filed herewith (2) Previously filed (3) To be filed by amendment ITEM 28. UNDERTAKINGS. The undersigned registrant hereby undertakes that: (a) it will file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) include any prospectus required by section 10(a)(3) of the Act; (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and (iii) include any additional or changed material information on the plan of distribution; (iv) for determining liability under the Act, it will treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time shall be deemed to be the initial bona fide offering. (v) it will file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the Offering. (vi) it will provide to the Representatives at the Closing of this Offering certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liability arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) The undersigned registrant hereby undertakes that: (i) For determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form II-4 of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (ii) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide Offering thereof. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing the this Amendment No. 11 on Form SB-2 and authorizes this Registration Statement to be signed on its behalf by the undersigned, in the City of Ft. Lauderdale, State of Florida, on this 29th day of October, 1996. ANDEAN DEVELOPMENT CORPORATION By: /s/Pedro P. Errazuriz Pedro P. Errazuriz President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Amendment to the Registration Statement was signed by the following persons in the capacities and on the dates stated. Signatures Title Date - ---------- ----- ---- /s/Pedro P. Errazuriz President and Chief Executive October 29, 1996 Pedro P. Errazuriz Officer and Director (Principal Executive Officer) /s/Jose Luis Yrarrazaval Chief Financial Officer October 29, 1996 Jose Luis Yrarrazaval (Principal Financial and Accounting Officer) and Director /s/Sergio Jimenez Director October 29, 1996 Sergio Jimenez /s/Alberto Coddou Director October 29, 1996 Alberto Coddou /s/Claude Mermier Director October 29, 1996 Claude Mermier II-6 EX-1.1(C) 2 EXHIBIT 1.1(c) ANDEAN DEVELOPMENT CORPORATION 1,200,000 SHARES OF COMMON STOCK AND 1,200,000 COMMON STOCK PURCHASE WARRANTS UNDERWRITING AGREEMENT Boca Raton, Florida _____________, 1996 Barron Chase Securities, Inc. 7700 West Camino Real, Suite 200 Boca Raton, Florida 33433 Gentlemen: Andean Development Corporation (the "Company"), on the basis of the representations, warranties, covenants and conditions contained herein, hereby proposes to issue and sell to such Underwriters as named in Schedule A (the "Underwriters") to the Underwriting Agreement (the "Agreement"), for whom Barron Chase Securities, Inc. is acting as a representative (the "Representative"), pursuant to the terms of this Agreement, on a "firm commitment" basis, 1,200,000 shares of Common Stock (the "Shares") at $5.00 per Share and 1,200,000 Redeemable Common Stock Purchase Warrants (the "Warrants") at $.125 per Warrant. The Shares and the Warrants are collectively referred to as the "Securities". Each Warrant is exercisable to purchase one (1) share of Common Stock (the "Common Stock") at the Initial Public Offering Price per share at any time during the period between the Effective Date and five (5) years from the Effective Date. The date upon which the Securities and Exchange Commission ("Commission") shall declare the Registration Statement of the Company effective shall be the "Effective Date". The Warrants are subject to redemption under certain circumstances. In addition, the Company proposes to grant to the Underwriters (or, at the option of the Representative, to the Representative, individually) the option referred to in Section 2(b) to purchase all or any part of an aggregate of 120,000 additional Shares and/or 120,000 additional Warrants (the "Option Securities"). You have advised the Company that you and the other Underwriters desire to purchase, severally, the Securities, and that you have been authorized by the Underwriters to execute this Agreement on their behalf. The Company confirms the agreements made by it with respect to the purchase of the Securities by the several Underwriters on whose behalf you are signing this Agreement, as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with each of the Underwriters as of the Effective Date (as defined above), the Closing Date (as hereinafter defined) and the Option Closing Date (as hereinafter defined) that: (a) A registration statement (File No. 33-90696) on Form SB-2 relating to the public offering of the Securities, including a preliminary form of the prospectus, copies of which have heretofore been delivered to you, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Commission thereunder, and has been filed with the Commission under the Act. The Company has prepared in the same manner and proposes to file, prior to the Effective Date of such registration statement, an additional amendment or amendments to such registration statement, including a final form of Prospectus, copies of which shall be delivered to you. "Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules and Regulations under the Act prior to the Effective Date. The registration statement (including all financial schedules and exhibits) as amended at the time it becomes effective and the final prospectus included therein are respectively referred to as the "Registration Statement" and the "Prospectus", except that (i) if the prospectus first filed by the Company pursuant to Rule 424(b) of the Rules and Regulations shall differ from said prospectus as then amended, the term "Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b), and (ii) if such registration statement or prospectus is amended or such prospectus is supplemented, after the effective date of such registration statement and prior to the Option Closing Date (as hereinafter defined), the terms "Registration Statement" and "Prospectus" shall include such registration statement and prospectus as so amended, and the term "Prospectus" shall include the prospectus as so supplemented, or both, as the case may be. (b) At the Effective Date and at all times subsequent thereto up to the Option Closing Date, if any, and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or Selected Dealers: (i) the Registration Statement and Prospectus will in all respects conform to the requirements of the Act and the Rules and Regulations; and (ii) neither the Registration Statement nor the Prospectus will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the Company makes no representations, warranties or agreement as to information contained in or omitted from the Registration Statement or Prospectus in reliance upon, and in conformity with, written information furnished to the Company by the Underwriters 2 specifically for use in the preparation thereof. It is understood that the statements set forth in the Prospectus with respect to stabilization, under the heading "Underwriting" and regarding the identity of counsel to the Underwriters under the heading "Legal Matters" constitute the only information furnished in writing by the Underwriters for inclusion in the Prospectus. (c) Each of the Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with full power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus and is duly qualified to do business as a foreign corporation and is in good standing in all other jurisdictions in which the nature of its business or the character or location of its properties requires such qualification, except where failure to so qualify will not materially affect the Company's business, properties or financial condition. (d) The authorized, issued and outstanding securities of the Company as of the date of the Prospectus is as set forth in the Prospectus under "Capitalization"; all of the issued and outstanding securities of the Company have been, or will be when issued as set forth in the Prospectus, duly authorized, validly issued and fully paid and non-assessable; the issuances and sales of all such securities complied in all material respects with applicable Federal and state securities laws; the holders thereof have no rights of rescission against the Company with respect thereto, and are not subject to personal liability by reason of being such holders; none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; except as set forth in the Prospectus, no options, warrants or other rights to purchase, agreements or other obligations to issue, or agreements or other rights to convert any obligation into, any securities of the Company have been granted or entered into by the Company; and all of the securities of the Company, issued and to be issued as set forth in the Registration Statement, conform to all statements relating thereto contained in the Registration Statement and Prospectus. (e) The Shares are duly authorized, and when issued, delivered and paid for pursuant to this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights of any security holder of the Company. Neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated in this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any securities of the Company, except as described in the Registration Statement. 3 The Warrants have been duly authorized and, when issued, delivered and paid for pursuant to this Agreement, will have been duly authorized, issued and delivered and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms and entitled to the benefits provided by the warrant agreement pursuant to which such Warrants are to be issued (the "Warrant Agreement"), which will be substantially in the form filed as an exhibit to the Registration Statement. The shares of Common Stock issuable upon exercise of the Warrants have been reserved for issuance and when issued in accordance with the terms of the Warrants and Warrant Agreement, will be duly and validly authorized, validly issued, fully paid and non-assessable, free of pre-emptive rights and no personal liability will attach to the ownership thereof. The Warrant exercise period and the Warrant exercise price may not be changed or revised by the Company without the prior written consent of the Representative. The Warrant Agreement has been duly authorized and, when executed and delivered pursuant to this Agreement, will have been duly executed and delivered and will constitute the valid and legally binding obligation of the Company enforceable in accordance with its terms. The Common Stock Representative Warrants, the Warrant Representative Warrants, the Underlying Warrants, the shares of Common Stock issuable upon exercise of the Common Stock Representative Warrants, and the shares of Common Stock issuable upon exercise of the Underlying Warrants (all as defined in the Representative's Warrant Agreement described in Section 12 herein), have been duly authorized and, when issued, delivered and paid for, will be validly issued, fully paid, non-assessable, free of pre-emptive rights and no personal liability will attach to the ownership thereof, and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms and entitled to the benefits provided by the Representative's Warrant Agreement. (f) This Agreement, the Warrant Agreement, the Financial Advisory Agreement, the Merger and Acquisition Agreement (the "M/A Agreement") and the Representative's Warrant Agreement have been duly and validly authorized, executed and delivered by the Company, and assuming due execution of this Agreement by the other party hereto, constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or other laws affecting the rights of creditors generally. The Company has full power and lawful authority to authorize, issue and sell the Securities to be sold by it hereunder on the terms and conditions set forth herein, and no consent, approval, authorization or other order of any governmental authority is required in connection with such authorization, execution and delivery or with the authorization, issue and sale of the Securities or the securities to be issued pursuant to the Representative's Warrant Agreement, except such as may be required 4 under the Act or state securities laws, or as otherwise have been obtained. (g) Except as described in the Prospectus, neither the Company nor any subsidiary is in material violation, breach of or default under, and consummation of the transactions herein contemplated and the fulfillment of the terms of this Agreement will not conflict with, or result in a breach of, or constitute a material default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of the Company or each subsidiary or any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or each subsidiary is a party or by which the Company or each subsidiary may be bound or to which any of the property or assets of the Company or each subsidiary is subject, nor will such action result in any material violation of the provisions of the articles of incorporation or by-laws of the Company or each subsidiary, as amended, or any statute or any order, rule or regulation applicable to the Company or subsidiary of any court or of any regulatory authority or other governmental body having jurisdiction over the Company or each subsidiary. (h) Subject to the qualifications stated in the Prospectus, the Company and each subsidiary have good and marketable title to all properties and assets described in the Prospectus as owned by each of them, free and clear of all liens, charges, encumbrances or restrictions, except such as are not materially significant or important in relation to its business; all of the material leases and subleases under which the Company or each subsidiary is the lessor or sublessor of properties or assets or under which the Company or each subsidiary holds properties or assets as lessee or sublessee as described in the Prospectus are in full force and effect, and, except as described in the Prospectus, neither the Company nor each subsidiary is in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to rights of the Company or each subsidiary as lessor, sublessor, lessee, or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company or each subsidiary to continued possession of the leased or subleased premises or assets under any such lease or sublease except as described or referred to in the Prospectus; and the Company and each subsidiary owns or leases all such properties described in the Prospectus as are necessary to its operations as now conducted and, except as otherwise stated in the Prospectus, as proposed to be conducted as set forth in the Prospectus. (i) Mutnick & Associates, P.A., who have given their report on certain financial statements filed and to be filed with the Commission as part of the Registration Statement, and which are included in the Prospectus, are with respect to the Company, 5 independent public accountants as required by the Act and the Rules and Regulations. (j) The financial statements and schedules, together with related notes, set forth in the Prospectus and the Registration Statement present fairly the financial position and results of operations and changes in financial position of the Company on the basis stated in the Registration Statement, at the respective dates and for the respective periods to which they apply. Said statements and related notes and schedules have been prepared in accordance with generally accepted accounting principles applied on a basis which is consistent during the periods involved. The Company's internal accounting controls and procedures are sufficient to cause the Company and each subsidiary to prepare financial statements which comply in all material respects with generally accepted accounting principles applied on a basis which is consistent during the periods involved. During the preceding five (5) year period, nothing has been brought to the attention of the Company's management that would result in any reportable condition relating to the Company's internal accounting procedures, weaknesses or controls. (k) Subsequent to the respective dates as of which information is set forth in the Registration Statement and the Prospectus and to and including the Option Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) neither the Company nor any subsidiary has incurred and will not have incurred any material liabilities or obligations, direct or contingent, and has not entered into and will not have entered into any material transactions other than in the ordinary course of business and/or as contemplated in the Registration Statement and the Prospectus; (ii) neither the Company nor any subsidiary has and will not have paid or declared any dividends or have made any other distribution on its capital stock; (iii) there has not been any change in the capital stock of, or any incurrence of long-term debt by, the Company or any subsidiary; (iv) neither the Company nor any subsidiary has issued any options, warrants or other rights to purchase the capital stock of the Company or any subsidiary; and (v) there has not been and will not have been any material adverse change in the business, financial condition or results of operations of the Company or any subsidiary, or in the book value of the assets of the Company or any subsidiary, arising for any reason whatsoever. (l) Except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company or any subsidiary, threatened, any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary, or any of the officers or directors of the Company or any subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or investigation, which might result in any material adverse change in the condition (financial or other), business 6 prospects, net worth, or properties of the Company or any subsidiary. (m) Except as disclosed in the Prospectus, each of the Company and each subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid all taxes shown as due thereon; and there is no tax deficiency which has been or to the knowledge of the Company might be asserted against the Company or any subsidiary that has not been provided for in the financial statements. (n) Except as set forth in the Prospectus, each of the Company and each subsidiary has sufficient licenses, permits and other governmental authorizations currently required for the conduct of its business or the ownership of its property as described in the Prospectus and is in all material respects in compliance therewith and owns or possesses adequate right to use all material patents, patent applications, trademarks, service marks, trade-names, trademark registrations, service mark registrations, copyrights, and licenses necessary for the conduct of such business and has not received any notice of conflict with the asserted rights of others in respect thereof. To the best of the Company's knowledge, none of the activities or business of the Company or any subsidiary are in violation of, or cause the Company or any subsidiary to violate, any law, rule, regulation or order of the United States, any state, county or locality, or of any agency or body of the United States or of any state, county or locality, the violation of which would have a material adverse impact upon the condition (financial or otherwise), business, property, prospective results of operations, or net worth of the Company and any subsidiary. (o) Neither the Company nor any subsidiary has, directly or indirectly, at any time (i) made any contributions to any candidate for political office, or failed to disclose fully any such contribution, in violation of law or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. (p) On the Closing Dates (herein defined) all transfer or other taxes (including franchise, capital stock or other tax, other than income taxes, imposed by any jurisdiction) if any, which are required to be paid in connection with the sale and transfer of the Securities to the several Underwriters hereunder will have been fully paid or provided for by the Company and all laws imposing such taxes will have been fully complied with. (q) All contracts and other documents which are required to be described in or filed as exhibits to the Registration Statement have been so described and/or filed. 7 (r) Except as described in the Registration Statement and Prospectus, no holders of Common Stock or of any other securities of the Company have the right to include such Common Stock or other securities in the Registration Statement and Prospectus. (s) Except as set forth in or contemplated by the Registration Statement and the Prospectus, neither the Company nor any subsidiary has any material contingent liabilities. (t) The Company has no subsidiary corporations except as disclosed in the Registration Statement and Prospectus, nor has it any equity interest in any partnership, joint venture, association or other entity except as disclosed in the Registration Statement or Prospectus. Except as described in the Registration Statement and Prospectus, the Company owns all of the outstanding securities of each of its subsidiaries. (u) The Commission has not issued an order preventing or suspending the use of any Preliminary Prospectus with respect to the offer and sale of the Securities and each Preliminary Prospectus, as of its date, has conformed fully in all material respects with the requirements of the Act and the Rules and Regulations and did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. (v) Neither the Company, nor, to the Company's knowledge, any of its officers, directors, employees or stockholders, have taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any of the securities of the Company. (w) Item 26 of Part II of the Registration Statement accurately discloses all unregistered securities sold by the Company within the three year period prior to the date as of which information is presented in the Registration Statement. All of such securities were sold in transactions which were exempt from the registration provisions of the Act and not in violation of Section 5 thereof. (x) Other than as set forth in the Prospectus, the Company has not entered into any agreement pursuant to which any person is entitled, either directly or indirectly, to compensation from the Company for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Underwriters against any losses, claims, damages or liabilities, joint or several, which shall include, but not be limited to, all costs to defend against any such claim, so long as such claim arises out of agreements made or allegedly made by the Company. (y) Based upon written representations received by the 8 Company, no officer, director or five percent (5%) or greater stockholder of the Company or any subsidiary has any direct or indirect affiliation or association with any member of the National Association of Securities Dealers, Inc. ("NASD"), except as disclosed to the Representative in writing, and no beneficial owner of the Company's unregistered securities has any direct or indirect affiliation or association with any NASD member except as disclosed to the Representative in writing. The Company will advise the Representative and the NASD if any five percent (5%) or greater shareholder of the Company or any subsidiary is or becomes an affiliate or associated person of an NASD member participating in the distribution. (z) The Company and each subsidiary is in compliance in all material respects with all federal, state and local laws and regulations respecting the employment of its employees and employment practices, terms and conditions of employment and wages and hours relating thereto. There are no pending investigations involving the Company or any subsidiary by the U.S. Department of Labor, or any other governmental agency responsible for the enforcement of such federal, state or local laws and regulations. There is no unfair labor practice charge or complaint against the Company or any subsidiary pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or to the knowledge of the Company, threatened against or involving the Company or any subsidiary or any predecessor entity. No question concerning representation exists respecting the employees of the Company or any subsidiary and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any subsidiary. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any subsidiary, if any. (aa) Neither the Company nor any subsidiary maintains, sponsors nor contributes to, nor is it required to contribute to, any program or arrangement that is an "employee pension benefit plan", an "employee welfare benefit plan", or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary maintained or contributed to a defined benefit plan, as defined in Section 3(35) of ERISA. (ab) Based upon written representations received from the officers and directors of the Company and each subsidiary, except as disclosed in the Prospectus, during the past five years, none of the officers or directors of the Company or any subsidiary have been: (1) Subject of a petition under the Federal bankruptcy laws or any state insolvency law filed by or 9 against them, or by a receiver, fiscal agent or similar officer appointed by a court for their business or property, or any partnership in which either or them was a general partner at or within two years before the time of such filing, or any corporation or business association of which either of them was an executive officer at or within two years before the time of such filing; (2) Convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) The subject of any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining either of them from, or otherwise limiting, any of the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with any such activity; (ii) engaging in any type of business practice; or (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities law or Federal Commodity laws. (4) The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated of any Federal or State authority barring, suspending or otherwise limiting for more than sixty (60) days either of their right to engage in any activity described in paragraph (3)(i) above, or be associated with persons engaged in any such activity; (5) Found by any court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any Federal or State 10 securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended or vacated; or (6) Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal Commodities Law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (ac) Based upon written representations received from the officers and directors of the Company, each of the officers and directors of the Company has reviewed the sections in the Prospectus relating to their biographical data and equity ownership position in the Company, and all information contained therein is true and accurate. 2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES. (a) Subject to the terms and conditions of this Agreement and upon the basis of the representations, warranties and agreements herein contained, the Company hereby agrees to issue and sell to the Underwriters an aggregate of 1,200,000 Shares at $4.50 per Share and 1,200,000 Warrants at $.1125 per Warrant, (the public offering price less ten percent (10%)), at the place and time hereinafter specified, in accordance with the number of Shares and/or Warrants set forth opposite the names of the Underwriters in Schedule A attached hereto (the "Securities") plus any additional Securities which such Underwriters may become obligated to purchase pursuant to the provisions of Section 9 hereof. The Securities shall consist of 1,200,000 Shares and 1,200,000 Warrants to be purchased from the Company, and the price at which the Underwriters shall sell the Securities to the public shall be $5.00 per Share and $.125 per Warrant. Delivery of the Securities against payment therefor shall take place at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433 (or at such other place as may be designated by the Representative) at 10:00 a.m., Eastern Time, on such date after the Registration Statement has become effective as the Representative shall designate, but not later than ten (10) business days (holidays excepted) following the first date that any of the Securities are released to you, such time and date of payment and delivery for the Securities being herein called the "Closing Date". (b) In addition, subject to the terms and conditions of this Agreement, and upon the basis of the representations, warranties and agreements herein contained, the Company hereby grants an option to the Underwriters (or, at the option of the Representative, to the Representative, individually) to purchase 11 all or any part of an aggregate of an additional 120,000 Shares and 120,000 Warrants at the same price per Share and Warrant as the Underwriters shall pay for the Securities being sold pursuant to the provisions of subsection (a) of this Section 2 (such additional Securities being referred to herein as the "Option Securities"). This option may be exercised within 30 days after the Effective Date of the Registration Statement upon notice by the Underwriters to the Company advising as to the amount of Option Securities as to which the option is being exercised, the names and denominations in which the certificates for such Option Securities are to be registered and the time and date when such certificates are to be delivered. Such time and date shall be determined by the Underwriters (or the Representative, individually) but shall not be later than ten (10) full business days after the exercise of said option, nor in any event prior to the Closing Date, and such time and date is referred to herein as the "Option Closing Date". Delivery of the Option Securities against payment therefor shall take place at the offices of the Representative. The Option granted hereunder may be exercised only to cover overallotments in the sale by the Underwriters of the Securities referred to in subsection (a) above. In the event the Company declares or pays a dividend or distribution on its Common Stock, whether in the form of cash, shares of Common Stock or any other consideration, prior to the Option Closing Date, such dividend or distribution shall also be paid on the Option Closing Date. (c) The Company will make the certificates for the Securities to be sold hereunder available to you for inspection at least two (2) full business days prior to the Closing Date at the offices of the Representative, and such certificates shall be registered in such names and denominations as you may request. Time shall be of the essence and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Company to each Underwriter. Definitive certificates in negotiable form for the Securities to be purchased by the Underwriters hereunder will be delivered by the Company to you for the accounts of the several Underwriters against payment of the respective purchase prices by the several Underwriters, by certified or bank cashier's checks in New York Clearing House funds, payable to the order of the Company or by wire transfer in New York Clearing House funds. In addition, in the event the Underwriters (or the Representative individually) exercises the option to purchase from the Company all or any portion of the Option Securities pursuant to the provisions of subsection (b) above, payment for such Securities shall be made payable in New York Clearing House funds at the offices of the Representative, or by wire transfer, at the time and date of delivery of such Securities as required by the provisions of subsection (b) above, against receipt of the certificates for such Securities by the Representative for the respective accounts 12 of the several Underwriters registered in such names and in such denominations as the Representative may request. It is understood that the Representative, individually and not as Representative of the several Underwriters, may (but shall not be obligated to) make any and all payments required pursuant to this Section 2 on behalf of any Underwriters whose check or checks shall not have been received by the Representative at the time of delivery of the Securities to be purchased by such Underwriter or Underwriters. Any such payment by the Representative shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. It is also understood that the Representative individually, rather than all of the Underwriters, may (but shall not be obligated to) purchase the Option Securities referred to in subsection (b) of this Section 2, but only to cover overallotments. It is understood that the several Underwriters propose to offer the Securities to be purchased hereunder to the public upon the terms and conditions set forth in the Registration Statement, after the Registration Statement is declared effective by the Commission. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) The Company, upon notification from the Commission that the Registration Statement has become effective, will so advise you and will not at any time, whether before or after the Effective Date, file any amendment to the Registration Statement or supplement to the Prospectus of which you shall not previously been advised and furnished with a copy or to which you or your counsel shall have objected in writing, acting reasonably, or which is not in compliance with the Act and the Rules and Regulations. At any time prior to the later of (i) the completion by the Underwriters of the distribution of the Securities as contemplated hereby; or (ii) 25 days after the date on which the Registration Statement shall have become or been declared effective, the Company will prepare and file with the Commission, promptly upon your request, any amendments or supplements to the Registration Statement or Prospectus which may be necessary or advisable in connection with the distribution of the Securities and as mutually agreed by the Company and the Representative. After the Effective Date and as soon as the Company is advised thereof, the Company will advise you, and confirm the advice in writing, of the receipt of any comments of the Commission, of the effectiveness of any post-effective amendment to the Registration Statement, of the filing of any supplement to the Prospectus or any amended Prospectus, of any request made by the Commission for amendment of the Registration Statement or for supplementing of the Prospectus or for additional information with respect thereto, of 13 the issuance by the Commission or any state or regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Preliminary Prospectus, or of the suspension of the qualification of the Securities for offering in any jurisdiction, or of the institution of any proceedings for any of such purposes, and will use its best efforts to prevent the issuance of any such order, and, if issued, to obtain as soon as possible the lifting thereof. The Company has caused to be delivered to you copies of each Preliminary Prospectus and Definitive Prospectus, and the Company has consented and hereby consents to the use of such copies for the purposes permitted by the Act. The Company authorizes the Underwriters and Selected Dealers to use the Prospectus in connection with the sale of the Securities for such period as in the opinion of counsel to the Underwriters the use thereof is required to comply with the applicable provisions of the Act and the Rules and Regulations. In case of the happening, at any time within such period as a Prospectus is required under the Act to be delivered in connection with sales by the Underwriters or Selected Dealers, of any event of which the Company has knowledge and which materially affects the Company or the securities of the Company, or which in the opinion of counsel for the Company or counsel for the Underwriters, should be set forth in an amendment to the Registration Statement or a supplement to the Prospectus, in order to make the statements therein not then misleading, in light of the circumstances existing at the time the Prospectus is required to be delivered to a purchaser of the Securities, or in case it shall be necessary to amend or supplement the Prospectus to comply with law or with the Act and the Rules and Regulations, the Company will notify you promptly and forthwith prepare and furnish to you copies of such amended Prospectus or of such supplement to be attached to the Prospectus, in such quantities as you may reasonably request, in order that the Prospectus, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state any material facts necessary in order to make the statements in the Prospectus, in the light of the circumstances under which they are made, not misleading. The preparation and furnishing of any such amendment or supplement to the Registration Statement or amended Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriters. The Company will comply with the Act, the Rules and Regulations thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules and regulations thereunder in connection with the offering and issuance of the Securities. (b) The Company will act in good faith and use its best efforts and cooperate with you and your counsel to qualify to register the Securities for sale under the securities or "blue sky" laws of such jurisdictions as the Representative may designate and 14 will make such applications and furnish such information as may be required for that purpose and to comply with such laws, provided the Company shall not be required to qualify as a foreign corporation or a dealer in securities or to execute a general consent to service of process in any jurisdiction in any action other than one arising out of the offering or sale of the Securities. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualification in effect for so long a period as the Underwriters may reasonably request. (c) If the sale of the Securities provided for herein is not consummated, the Company shall pay all costs and expenses incident to the performance of the Company's obligations hereunder, including, but not limited to, all such expenses itemized in Section 8(a) and 8(c) hereof, and the out-of-pocket expenses of the Representative, if the offering for any reason is terminated. For the purposes of this sub-paragraph, the Representative shall be deemed to have assumed such expenses when they are billed or incurred, regardless of whether such expenses have been paid. The Representative shall not be responsible for any expenses of the Company or others, or for any charges or claims relative to the proposed public offering if it is not consummated. (d) The Company will deliver to you at or before the Closing Date two signed copies of the Registration Statement, including all financial statements and exhibits filed therewith, and of each amendment or supplement thereto. The Company will deliver to or upon the order of the several Underwriters, from time to time until the Effective Date of the Registration Statement, as many copies of any Preliminary Prospectus filed with the Commission prior to the Effective Date of the Registration Statement as the Underwriters may reasonably request. The Company will deliver to the Underwriters on the Effective Date of the Registration Statement and thereafter for so long as a Prospectus is required to be delivered under the Act, from time to time, as many copies of the Prospectus, in final form, or as thereafter amended or supplemented as the several Underwriters may from time to time reasonably request. (e) For so long as the Company is a reporting company under either Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to the Representative during the period ending five (5) years from the Effective Date, (i) as soon as practicable after the end of each fiscal year, a balance sheet of the Company and any of its subsidiaries as at the end of such fiscal year, together with statements of income, surplus and cash flow of the Company and any subsidiaries for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent accountants; (ii) as soon as they are available, a copy of all reports (financial or other) mailed to security holders; (iii) as soon as they are available, a copy of 15 all non-confidential documents, including annual reports, periodic reports and financial statements, furnished to or filed with the Commission under the Act and the 1934 Act; (iv) copies of each press release, news item and article with respect to the Company's affairs released by the Company; and (v) such other information as you may from time to time reasonably request. (f) In the event the Company has an active subsidiary or subsidiaries, such financial statements referred to in subsection (e) above will be on a consolidated basis to the extent the accounts of the Company and its subsidiary or subsidiaries are consolidated in reports furnished to its stockholders generally. (g) The Company will make generally available to its stockholders and to the registered holders of its Warrants and deliver to you as soon as it is practicable, but in no event later than the first day of the sixteenth full calendar month following the Effective Date, an earnings statement (which need not be audited) covering a period of at least twelve consecutive months beginning with the Effective Date of the Registration Statement, which shall satisfy the requirements of Section 11(a) of the Act. (h) On the Closing Date, the Company shall have taken the necessary action to become a reporting company under Section 12 of the 1934 Act, and the Company will make all filings required to, and will have obtained approval for, the listing of the Shares and Warrants on The Nasdaq National Market System, and will use its best efforts to maintain such listing for at least seven (7) years from the date of this Agreement. (i) For such period as the Company's securities are registered under the 1934 Act, the Company will hold an annual meeting of stockholders for the election of Directors within 180 days after the end of each of the Company's fiscal years and, within 150 days after the end of each of the Company's fiscal years will provide the Company's stockholders with the audited financial statements of the Company as of the end of the fiscal year just completed prior thereto. Such financial statements shall be those required by Rule 14a-3 under the 1934 Act and shall be included in an annual report pursuant to the requirements of such Rule. (j) The Company will apply the net proceeds from the sale of the Securities substantially in accordance with its statement under the caption "Use of Proceeds" in the Prospectus, and will file such reports with the Commission with respect to the sale of the Securities and the application of the proceeds therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and pursuant to Rule 463 under the Act. (k) The Company will, promptly upon your request, prepare and file with the Commission any amendments or supplements to the 16 Registration Statement, Preliminary Prospectus or Prospectus and take any other action, which in the reasonable opinion of counsel to the Underwriters and the Company may be reasonably necessary or advisable in connection with the distribution of the Securities and will use its best efforts to cause the same to become effective as promptly as possible. (l) On the Closing Date, the Company shall execute and deliver to you the Representative's Warrant Agreement. The Representative's Warrant Agreement and Warrant Certificates will be substantially in the form of the Representative's Warrant Agreement filed as an Exhibit to the Registration Statement. (m) The Company will reserve and keep available for issuance that maximum number of its authorized but unissued securities which are issuable upon exercise of the Representative's Warrants outstanding from time to time. (n) All beneficial owners of the Company's securities (including Warrants, Options and Common Stock of the Company), as of the Effective Date, shall agree in writing, in a form satisfactory to the Representative, not to sell, transfer or otherwise dispose of any of such securities or underlying securities for a period of twenty-four (24) months from the Effective Date, or any longer period required by any State, without the prior written consent of the Representative. All sales of the Company's securities by officers and/or directors of the Company shall be effected through the Representative. (o) The Company will obtain, on or before the Closing Date, key person life insurance on the life of Pedro Pablo Errazuriz in an amount of not less than $1,000,000, and will use its best efforts to maintain such insurance for a period of at least five (5) years from the Effective Date. (p) Prior to the Closing Date, the Company shall, at its own expense, undertake to list the Company's securities in the appropriate recognized securities manual or manuals published by Standard & Poor's Corporation and such other manuals as the Representative may designate, such listings to contain the information required by such manuals and the Uniform Securities Act. The Company hereby agrees to use its best efforts to maintain such listing for a period of not less than five (5) years. The Company shall take such action as may be reasonably requested by the Representative to obtain a secondary market trading exemption in such states as may be reasonably requested by the Representative. (q) During the one hundred eighty (180) day period commencing on the Closing Date, the Company will not, without the prior written consent of the Representative, grant options or warrants to purchase the Company's Common Stock at a price less than the 17 initial per share public offering price. (r) Prior to the Closing Date, neither the Company nor any subsidiary will issue, directly or indirectly, without your prior consent, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering of the Securities other than routine customary advertising of the Company's products and services, and except as required by any applicable law or the directives of any relevant regulatory authority in any relevant jurisdiction. (s) At the Closing Date, the Company will engage the Representative as a non-exclusive financial advisor to the Company for a period of thirty-six (36) months commencing on the first day of the month following the Company's receipt of the proceeds of this offering, at an aggregate fee of $108,000, all of which shall be payable to the Representative on the Closing Date. The financial advisory agreement will provide that the Representative shall, at the Company's request, provide advice and consulting services to the Company concerning potential merger and acquisition proposals and the obtaining of short or long-term financing for the Company, whether by public financing or otherwise. (t) The Company shall employ the services of a firm of independent certified public accountants in connection with the preparation of the financial statements to be included in any registration statement or similar disclosure document to be filed by the Company hereunder, or any amendment or supplement thereto. For a period of five (5) years from the Effective Date, the Company, at its expense, shall cause its regularly engaged independent certified public accountants to review (but not audit) the Company's financial statements for each of the first three (3) fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's quarterly report and the mailing of quarterly financial information to stockholders. (u) The Company shall retain American Stock Transfer & Trust Company as the transfer agent for the securities of the Company, or such other transfer agent as you may agree to in writing. In addition, the Company shall direct such transfer agent to furnish the Representative with daily transfer sheets as to each of the Company's securities as prepared by the Company's transfer agent and copies of lists of stockholders and warrantholders as reasonably requested by the Underwriter, for a five (5) year period commencing from the Closing Date. (v) The Company shall cause the Depository Trust Company, or such other depository of the Company's securities, to deliver a "special security position report" to the Representative on a daily and weekly basis at the expense of the Company, for a five (5) year period from the Effective Date. 18 (w) Following the Effective Date, the Company shall, at its sole cost and expense, prepare and file such Blue Sky applications with such jurisdictions as the Representative shall designate and the Company may reasonably agree. (x) On the Effective Date and for a period of three (3) years thereafter, the Company's Board of Directors shall consist of a minimum of five (5) persons, two (2) of whom shall be independent and not otherwise affiliated with the Company or associated with any of the Company's affiliates. The Representative shall have the opportunity to invite an observer to attend Board of Directors meetings of the Company at the expense of the Company. (y) On the Closing Date, the Company shall execute and deliver to you a non-exclusive M/A Agreement with the Representative in a form satisfactory to the Representative, providing: (1) that the Representative will be paid a finder's fee, of from five percent (5%) of the first $1,000,000 ranging in $1,000,000 increments down to one percent (1%) of the excess, if any, over $4,000,000 of the consideration involved in any transaction introduced in writing by the Representative (including mergers, acquisitions, joint ventures, and any other business for the Company introduced by the Representative) consummated by the Company, as an "Introduced, Consummated Transaction", by which the Representative introduced the other party to the Company during a period ending five (5) years from the date of the M/A Agreement; and (2) that any such finder's fee due to the Representative will be paid in cash or stock as mutually agreed at the closing of the particular Introduced, Consummated Transaction for which the finder's fee is due. (z) After the Closing Date, the Company shall prepare and publish "tombstone" advertisements of at least 5 x 5 inches in publications to be designated by the Representative at a total cost not to exceed $20,000. (aa) For such period as any Warrants are outstanding, the Company shall use its best efforts to cause post-effective amendments to the Registration Statement or a new Registration Statement to become effective in compliance with the Act and without any lapse of time between the effectiveness of any such post-effective amendments and cause a copy of each Prospectus, as then amended, to be delivered to each holder of record of a Warrant and to furnish to each of the Underwriters and each dealer as many copies of each such Prospectus as such Underwriter or such dealer may reasonably request. Such post-effective amendments or new Registration Statements shall also register the Representative's Warrants and all the securities underlying the Representative's 19 Warrants. The Company shall not call for redemption of any of the Warrants unless a Registration Statement covering the securities underlying the Warrants has been declared effective by the Commission and remains current at least until the date fixed for redemption. In addition, the Warrants shall not be redeemable during the first year after the Effective Date without the written consent of the Representative. (ab) Until such time as the securities of the Company are listed or quoted on either the New York Stock Exchange or the American Stock Exchange, the Company shall engage the Company's legal counsel to deliver to the Representative a written opinion detailing those states in which the Shares and Warrants of the Company may be traded in non-issuer transactions under the Blue Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial Secondary Market Trading Opinion shall be delivered to the Representative on the Effective Date, and the Company shall continue to update such opinion and deliver same to the Representative on a timely basis, but in any event at the beginning of each fiscal quarter, for a five (5) year period, if required. (ac) As promptly as practicable after the Closing Date, the Company will prepare, at its own expense, hard cover "bound volumes" relating to the offering, and will distribute such volumes to the individuals designated by the Representative or counsel to the Representative. 4. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Securities which they have agreed to purchase hereunder from the Company are subject, as of the date hereof and as of the Closing Date and the Option Closing Date, to the continuing accuracy of, and compliance with, the representations and warranties of the Company herein, to the accuracy of statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder, and to the following conditions: (a) (i) The Registration Statement shall have become effective not later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such later time or on such later date as you may agree to in writing; (ii) at or prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and no proceeding for that purpose shall have been initiated or pending, or shall be threatened, or to the knowledge of the Company, contemplated by the Commission; (iii) no stop order suspending the effectiveness of the qualification or registration of the Securities under the securities or "blue sky" laws of any jurisdiction (whether or not a jurisdiction which you shall have specified) shall be threatened or to the knowledge of the Company contemplated by the authorities of any such jurisdiction or shall have been issued and in effect; (iv) any request for additional 20 information on the part of the Commission or any such authorities shall have been complied with to the satisfaction of the Commission and any such authorities, and to the satisfaction of counsel to the Underwriters; and (v) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Underwriters and the Underwriters did not object thereto. (b) At the Closing Date, since the respective dates as of which information is presented in the Registration Statement and the Prospectus, (i) there shall not have been any material change in the capital stock or other securities of the Company or any subsidiary or any material adverse change in the long-term debt of the Company or any subsidiary except as set forth in or contemplated by the Registration Statement, (ii) there shall not have been any material adverse change in the general affairs, business, properties, condition (financial or otherwise), management, or results of operations of the Company or any subsidiary, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Registration Statement or Prospectus; (iii) neither the Company nor any subsidiary shall have sustained any material interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Registration Statement and Prospectus; and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Act and the Rules and Regulations, and shall in all material respects conform to the requirements thereof, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstance under which they are made, not misleading. (c) Except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company or any subsidiary, threatened, any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary, or any of the officers or directors of the Company or any subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or investigation, which might result in any material adverse change in the condition (financial or other), business prospects, net worth, or properties of the Company or any subsidiary. (d) Each of the representations and warranties of the Company contained herein shall be true and correct as of this date and at the Closing Date as if made at the Closing Date, and all covenants 21 and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with. (e) At each Closing Date, you shall have received the opinion, together with copies of such opinion for each of the other several Underwriters, dated as of each Closing Date, from Atlas, Pearlman, Trop & Borkson, P.A., counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) the Company and each subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to own its properties and conduct its business as described in the Registration Statement and Prospectus and is duly qualified or licensed to do business as a foreign corporation and is in good standing in each other jurisdiction in which the ownership or leasing of its properties or conduct of its business requires such qualification except for jurisdictions in which the failure to so qualify would not have a material adverse effect on the Company and each subsidiary as a whole; (ii) the authorized capitalization of the Company is as set forth under "Capitalization" in the Prospectus; all shares of the Company's outstanding stock and other securities requiring authorization for issuance by the Company's Board of Directors have been duly authorized, validly issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus; the outstanding shares of Common Stock of the Company and other securities have not been issued in violation of the preemptive rights of any shareholder and the shareholders of the Company do not have any preemptive rights or, to such counsel's knowledge, other rights to subscribe for or to purchase securities of the Company, nor, to such counsel's knowledge, are there any restrictions upon the voting or transfer of any of the securities of the Company, except as disclosed in the Prospectus; the Common Stock, the Shares, the Warrants, and the securities contained in the Representative's Warrant Agreement conform to the respective descriptions thereof contained in the Prospectus; the Common Stock, the Shares, the Warrants, the shares of Common Stock to be issued upon exercise of the Warrants and the securities contained in the Representative's Warrant Agreement, have been duly authorized and, when issued, delivered and paid for, will be duly authorized, validly issued, fully paid, non-assessable, free of pre-emptive rights and no personal liability will attach to the ownership thereof; all prior sales by the Company of the Company's securities have been made in compliance with or under an 22 exemption from registration under the Act and applicable state securities laws and no shareholders of the Company have any rescission rights against the Company with respect to the Company's securities; a sufficient number of shares of Common Stock has been reserved for issuance upon exercise of the Warrants and the Representative Warrants, and to the best of such counsel's knowledge, neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any registration rights or other rights, other than those which have been waived or satisfied or described in the Registration Statement; (iii) this Agreement, the Representative's Warrant Agreement, the Warrant Agreement, the Financial Advisory Agreement and the M/A Agreement have been duly and validly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement by the Representative, are the valid and legally binding obligations of the Company, enforceable in accordance with their terms, except (a) as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in effect which effect creditors' rights generally; and (b) no opinion is expressed as to the enforceability of the indemnity provisions or the contribution provisions contained in this Agreement; (iv) the certificates evidencing the outstanding securities of the Company, the Shares, the Common Stock and the Warrants are in valid and proper legal form; (v) to the best of such counsel's knowledge, except as set forth in the Prospectus, there is not pending or, to the knowledge of the Company, threatened, any material action, suit, proceeding, inquiry, arbitration or investigation against the Company or any subsidiary or any of the officers of directors of the Company or any subsidiary, nor any material action, suit, proceeding, inquiry, arbitration, or investigation, which might materially and adversely affect the condition (financial or otherwise), business prospects, net worth, or properties of the Company or any subsidiary; (vi) the execution and delivery of this Agreement, the Representative's Warrant Agreement, the Warrant Agreement, the Financial Advisory Agreement and the M/A Agreement, and the incurrence of the obligations herein and therein set forth and the consummation of the transactions herein or therein contemplated, will not result in a violation of, or constitute a default under (a) the Articles of Incorporation or By-Laws of the Company and each subsidiary; (b) to the best of such counsel's knowledge, any material obligations, agreement, 23 covenant or condition contained in any bond, debenture, note or other evidence of indebtedness or in any contract, indenture, mortgage, loan agreement, lease, joint venture or other agreement or instrument to which the Company or any subsidiary is a party or by which it or any of its properties is bound; or (c) to the best of such counsel's knowledge, any material order, rule, regulation, writ, injunction, or decree of any government, governmental instrumentality or court, domestic or foreign; (vii) the Registration Statement has become effective under the Act, and to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for that purpose have been instituted or are pending before, or threatened by, the Commission; the Registration Statement and the Prospectus (except for the financial statements and other financial data contained therein, or omitted therefrom, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the Rules and Regulations; and (viii) no authorization, approval, consent, or license of any governmental or regulatory authority or agency is necessary in connection with the authorization, issuance, transfer, sale or delivery of the Securities by the Company, in connection with the execution, delivery and performance of this Agreement by the Company or in connection with the taking of any action contemplated herein, or the issuance of the Representative's Warrants or the Securities underlying the Representative's Warrants, other than registrations or qualifications of the Securities under applicable state or foreign securities or Blue Sky laws and registration under the Act. Such opinion shall also cover such matters incident to the transactions contemplated hereby as the Underwriter or counsel for the Underwriter shall reasonably request. In rendering such opinion, such counsel may rely upon certificates of any officer of the Company or public officials as to matters of fact; and may rely as to all matters of law, upon opinions of counsel satisfactory to you and counsel to the Underwriters. The opinion of such counsel to the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that the Representative and they are justified in relying thereon. Such counsel shall also include a statement to the effect that such counsel has participated in the preparation of the Registration Statement and the Prospectus and nothing has come to the attention of such counsel to lead such counsel to believe that the Registration Statement or any amendment thereto at the time it 24 became effective contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading or that the Prospectus or any supplement thereto contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make statements therein, in light of the circumstances under which they are made, not misleading (except, in the case of both the Registration Statement and any amendment thereto and the Prospectus and any supplement thereto, for the financial statements, notes thereto and other financial information and statistical data contained therein, as to which such counsel need express no opinion). (f) You and the several Underwriters shall have received on each Closing Date a certificate dated as of each Closing Date, signed by the Chief Executive Officer and the Chief Financial Officer of the Company and such other officers of the Company as the Underwriters may request, certifying that: (i) No Order suspending the effectiveness of the Registration Statement or stop order regarding the sale of the Securities in effect and no proceedings for such purpose are pending or are, to their knowledge, threatened by the Commission; (ii) They do not know of any litigation instituted or, to their knowledge, threatened against the Company or any subsidiary or any officer or director of the Company or any subsidiary of a character required to be disclosed in the Registration Statement which is not disclosed therein; they do not know of any contracts which are required to be summarized in the Prospectus which are not so summarized; and they do not know of any material contracts required to be filed as exhibits to the Registration Statement which are not so filed; (iii) They have each carefully examined the Registration Statement and the Prospectus and, to the best of their knowledge, neither the Registration Statement nor the Prospectus nor any amendment or supplement to either of the foregoing contains an untrue statement of any material fact or omits to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they are made, not misleading; and since the Effective Date, to the best of their knowledge, there has occurred no event required to be set forth in an amended or supplemented Prospectus which has not been so set forth; (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the 25 condition of the Company or any subsidiary, financial or otherwise, or in the results of its operations, except as reflected in or contemplated by the Registration Statement and the Prospectus and except as so reflected or contemplated since such date, there has not been any material transaction entered into by the Company or any subsidiary; (v) The representations and warranties set forth in this Agreement are true and correct in all material respects and the Company has complied with all of its agreements herein contained; (vi) Neither the Company nor any subsidiary is delinquent in the filing of any federal, state and municipal tax return or the payment of any federal, state or municipal taxes; they know of no proposed redetermination or reassessment of taxes, adverse to the Company or any subsidiary, and the Company and each subsidiary has paid or provided by adequate reserves for all known tax liabilities; (vii) They know of no material obligation or liability of the Company or any subsidiary, contingent or otherwise, not disclosed in the Registration Statement and Prospectus; (viii) This Agreement, the Representative's Warrant Agreement, the Warrant Agreement, the Financial Advisory Agreement and the M/A Agreement, the consummation of the transactions therein contemplated, and the fulfillment of the terms thereof, will not result in a breach by the Company of any terms of, or constitute a default under, its Articles of Incorporation or By-Laws, any indenture, mortgage, lease, deed or trust, bank loan or credit agreement or any other material agreement or undertaking of the Company or any subsidiary including, by way of specification but not by way of limitation, any agreement or instrument to which the Company or any subsidiary is now a party or pursuant to which the Company or any subsidiary has acquired any right and/or obligations by succession or otherwise; (ix) The financial statements and schedules filed with and as part of the Registration Statement present fairly the financial position of the Company as of the dates thereof all in conformity with generally accepted principles of accounting applied on a consistent basis throughout the periods involved. Since the respective dates of such financial statements, there have been no material adverse change in the condition or general affairs of the Company, financial or otherwise, other than as referred to in the Prospectus; (x) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, except as may otherwise be indicated therein, 26 neither the Company nor any subsidiary has, prior to the Closing Date, either (i) issued any securities or incurred any material liability or obligation, direct or contingent, for borrowed money, or (ii) entered into any material transaction other than in the ordinary course of business. The Company has not declared, paid or made any dividend or distribution of any kind on its capital stock; (xi) They have reviewed the sections in the Prospectus relating to their biographical data and equity ownership position in the Company, and all information contained therein is true and accurate; and (xii) Except as disclosed in the Prospectus, during the past five years, they have not been: (1) Subject of a petition under the Federal bankruptcy laws or any state insolvency law filed by or against them, or by a receiver, fiscal agent or similar officer appointed by a court for their business or property, or any partnership in which either or them was a general partner at or within two years before the time of such filing, or any corporation or business association of which either of them was an executive officer at or within two years before the time of such filing; (2) Convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) The subject of any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining either of them from, or otherwise limiting, any of the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with any such activity; (ii) engaging in any type of business practice; or 27 (iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities law or Federal Commodity laws. (4) The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated of any Federal or State authority barring, suspending or otherwise limiting for more than sixty (60) days either of their right to engage in any activity described in paragraph (3)(i) above, or be associated with persons engaged in any such activity; (5) Found by any court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended or vacated; or (6) Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal Commodities Law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. (g) The Underwriters shall have received from Mutnick & Associates, P.A., independent auditors to the Company, certificates or letters, one dated and delivered on the Effective Date and one dated and delivered on the Closing Date, in form and substance satisfactory to the Underwriters, stating that: (i) they are independent certified public accountants with respect to the Company within the meaning of the Act and the applicable Rules and Regulations; (ii) the financial statements and the schedules included in the Registration Statement and the Prospectus were examined by them and, in their opinion, comply as to form in all material respects with the applicable accounting requirements of the Act, the Rules and Regulations and instructions of the Commission with respect to Registration Statements on Form SB-2; (iii) on the basis of inquiries and procedures conducted by them (not constituting an examination in accordance with generally accepted auditing standards), including a reading of the latest available unaudited interim financial statements or other financial information of the Company (with an indication of the date of the latest available unaudited interim 28 financial statements), inquiries of officers of the Company who have responsibility for financial and accounting matters, review of minutes of all meetings of the shareholders and the Board of Directors of the Company and other specified inquiries and procedures, nothing has come to their attention as a result of the foregoing inquiries and procedures that causes them to believe that: (a) during the period from (and including) the date of the financial statements in the Registration Statement and the Prospectus to a specified date not more than five days prior to the date of such letters, there has been any change in the Common Stock, long-term debt or other securities of the Company (except as specifically contemplated in the Registration Statement and Prospectus) or any material decreases in net current assets, net assets, shareholder's equity, working capital or in any other item appearing in the Company's financial statements as to which the Underwriters may request advice, in each case as compared with amounts shown in the balance sheet as of the date of the financial statement in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or will occur; (b) during the period from (and including) the date of the financial statements in the Registration Statement and the Prospectus to such specified date there was any material decrease in revenues or in the total or per share amounts of income or loss before extraordinary items or net income or loss, or any other material change in such other items appearing in the Company's financial statements as to which the Underwriters may request advice, in each case as compared with the fiscal period ended as of the date of the financial statement in the Prospectus, except in each case for increases, changes or decreases which the Prospectus discloses have occurred or will occur; (c) the unaudited interim financial statements of the Company appearing in the Registration Statement and the Prospectus (if any) do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Rules and Regulations or are not fairly presented in conformity with generally accepted accounting principles and practices on a basis substantially consistent with the audited financial statements included in the Registration Statements or the Prospectus. (iv) they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements 29 and other financial information pertaining to the Company set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be derived from the general accounting records, including work sheets, of the Company and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and (v) they have not during the immediately preceding five (5) year period brought to the attention of the Company's management any reportable condition related to the Company's internal accounting procedures, weaknesses and/or controls. Such letters shall also set forth such other information as may be requested by counsel for the Underwriters. Any changes, increases or decreases in the items set forth in such letters which, in the judgment of the several Underwriters, are materially adverse with respect to the financial position or results of operations of the Company shall be deemed to constitute a failure of the Company to comply with the conditions of the obligations to the several Underwriters hereunder. (h) Upon exercise of the option provided for in Section 2(b) hereof, the obligation of the several Underwriters (or, at its option, the Representative, individually) to purchase and pay for the Option Securities referred to therein will be subject (as of the date hereof and as of the Option Closing Date) to the following additional conditions: (i) The Registration Statement shall remain effective at the Option Closing Date, and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending, or, to your knowledge or the knowledge of the Company, shall be contemplated by the Commission, and any reasonable request on the part of the Commission for additional information shall have been complied with to the satisfaction of counsel to the Underwriters. (ii) At the Option Closing Date, there shall have been delivered to you the signed opinion from Atlas, Pearlman, Trop & Borkson, P.A., counsel for the Company, dated as of the Option Closing Date, in form and substance satisfactory to counsel to the Underwriters, which opinion shall be substantially the same in scope and substance as the opinion furnished to you at the Closing Date pursuant to Section 4(e) hereof, except that such opinion, where appropriate, shall cover the Option Securities. 30 (iii) At the Option Closing Date, there shall have been delivered to you a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, dated the Option Closing Date, in form and substance satisfactory to counsel to the Underwriters, substantially the same in scope and substance as the certificate furnished to you at the Closing Date pursuant to Section 4(f) hereof. (iv) At the Option Closing Date, there shall have been delivered to you a letter in form and substance satisfactory to you from Mutnick & Associates, P.A., independent auditors to the Company, dated the Option Closing Date and addressed to the several Underwriters confirming the information in their letter referred to in Section 4(g) hereof and stating that nothing has come to their attention during the period from the ending date of their review referred to in said letter to a date not more than five business days prior to the Option Closing Date, which would require any change in said letter if it were required to be dated the Option Closing Date. (v) All proceedings taken at or prior to the Option Closing Date in connection with the sale and issuance of the Option Securities shall be satisfactory in form and substance to the Underwriters, and the Underwriters and counsel to the Underwriters shall have been furnished with all such documents, certificates, and opinions as you may request in connection with this transaction in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company or its compliance with any of the covenants or conditions contained herein. (i) No action shall have been taken by the Commission or the NASD, the effect of which would make it improper, at any time prior to the Closing Date, for members of the NASD to execute transactions (as principal or agent) in the Common Stock and no proceedings for the taking of such action shall have been instituted or shall be pending, or, to the knowledge of the several Underwriters or the Company, shall be contemplated by the Commission or the NASD. The Company represents that at the date hereof it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. The Company shall advise the Representative of any NASD affiliations of any of its officers, directors, or stockholders or their affiliates in accordance with paragraph 1(y) of this Agreement. (j) At the Effective Date, you shall have received from counsel to the Company, dated as of the Effective Date, in form and substance satisfactory to counsel for the Underwriter, a written Secondary Market Trading Opinion detailing those states in which the Shares and Warrants may be traded in non-issuer transactions under the Blue Sky laws of the fifty (50) states after the Effective Date, in accordance with paragraph 3(ab) of this Agreement. 31 (k) The authorization and issuance of the Securities and delivery thereof, the Registration Statement, the Prospectus, and all corporate proceedings incident thereto shall be satisfactory in all respects to counsel for the several Underwriters, and such counsel shall be furnished with such documents, certificates and opinions as they may reasonably request to enable them to pass upon the matters referred to in this sub-paragraph. (l) Prior to the Effective Date, the Representative shall have received clearance from the NASD as to the amount of compensation allowable or payable to the Representative, as described in the Registration Statement. (m) If any of the conditions herein provided for in this Section shall not have been fulfilled as of the date indicated, this Agreement and all obligations of the several Underwriters under this Agreement may be canceled at, or at any time prior to, the Closing Date and/or the Option Closing Date by the Representative and/or the Underwriters notifying the Company of such cancellation in writing or by telegram at or prior to the applicable Closing Date. Any such cancellation shall be without liability of the several Underwriters to the Company. 5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the Company to sell and deliver the Securities is subject to the following conditions: (i) The Registration Statement shall have become effective not later than 5:00 p.m., Eastern Time, on the date of this Agreement, or on such later time or date as the Company and the Representative may agree in writing; and (ii) At the Closing Date and the Option Closing Date, no stop orders suspending the effectiveness of the Registration Statement shall have been issued under the Act or any proceedings therefore initiated or threatened by the Commission. If the conditions to the obligations of the Company provided for in this Section have been fulfilled on the Closing Date but are not fulfilled after the Closing Date and prior to the Option Closing Date, then only the obligation of the Company to sell and deliver the Securities on exercise of the option provided for in Section 2(b) hereof shall be affected. 6. INDEMNIFICATION. (a) The Company indemnifies and holds harmless each Underwriter and each person, if any, who controls the Underwriter within the meaning of the Act against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include but not be limited to, all reasonable costs of defense and investigation and all attorneys' fees), to which the Underwriter or such controlling person may 32 become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in (i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company and filed in any state or other jurisdiction in order to qualify any or all of the Securities under the securities laws thereof (any such application, document or information being hereinafter called a "Blue Sky Application"), or arise out of or are based upon the omission or alleged omission to state in the Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or in any Blue Sky Application, a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such cases to the extent, but only to the extent, that any such losses, claim, damages or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Underwriters specifically for use in the preparation of the Registration Statement or any such amendment or supplement thereof or any such Blue Sky Application or any such Preliminary Prospectus or the Prospectus or any such amendment or supplement thereto. Notwithstanding the foregoing, the Company shall have no liability under this section if such untrue statement or omission made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus is not delivered to the person or persons alleging the liability upon which indemnification is being sought. This indemnity will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter, severally, but not jointly, indemnifies and holds harmless the Company, each of its directors, each nominee (if any) for director named in the Prospectus, each of its officers who have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees) to which the Company or any such director, nominee, officer or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated 33 therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statements or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by you or by any Underwriter through you specifically for use in the preparation thereof. Notwithstanding the foregoing, the Underwriters shall have no liability under this section if such untrue statement or omission made in a Preliminary Prospectus is cured in the Prospectus and the Prospectus is not delivered to the person or persons alleging the liability upon which indemnification is being sought through no fault of the Underwriter. This indemnity agreement will be in addition to any liability which the Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify in writing the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, subject to the provisions herein stated, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is an Underwriter or a person who controls such Underwriter within the meaning of the Act, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party or (ii) the named parties to any such action (including any impleaded parties) include both the Underwriter or such controlling person and the indemnifying party and in the reasonable judgment of the Representative, it is advisable for the Representative or such Underwriters or controlling persons to be represented by separate 34 counsel (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Underwriter or such controlling person, it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all such Underwriters and controlling persons, which firm shall be designated in writing by you). No settlement of any action against an indemnified party shall be made without the consent of the indemnifying party, which shall not be unreasonably withheld in light of all factors of importance to such indemnifying party. 7. CONTRIBUTION. In order to provide for just and equitable contribution under the Act in any case in which (i) each Underwriter makes claim for indemnification pursuant to Section 6 hereof but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that the express provisions of Section 6 provide for indemnification in such case, or (ii) contribution under the Act may be required on the part of any Underwriter, then the Company and each person who controls the Company, in the aggregate, and any such Underwriter shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) in either such case (after contribution from others) in such proportions that all such Underwriters are responsible in the aggregate for that portion of such losses, claims, damages or liabilities represented by the percentage that the underwriting discount per Share appearing on the cover page of the Prospectus bears to the public offering price appearing thereon, and the Company shall be responsible for the remaining portion, provided, however, that (a) if such allocation is not permitted by applicable law then the relative fault of the Company and the Underwriter and controlling persons, in the aggregate, in connection with the statements or omissions which resulted in such damages and other relevant equitable considerations shall also be considered. The relative fault shall be determined by reference to, among other things, whether in the case of an untrue statement of a material fact or the omission to state a material fact, such statement or omission relates to information supplied by the Company, or the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriters agree that it would not be just and equitable if the respective obligations of the Company and the Underwriters to contribute pursuant to this Section 7 were to be determined by pro rata or per capita allocation of the 35 aggregate damages (even if the Underwriters and their controlling persons in the aggregate were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the first sentence of this Section; and (b) that the contribution of each contributing Underwriter shall not be in excess of its proportionate share (based on the ratio of the number of Securities purchased by such Underwriter to the number of Securities purchased by all contributing Underwriters) of the portion of such losses, claims, damages or liabilities for which the Underwriters are responsible. No person ultimately determined to be guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who is not ultimately determined to be guilty of such fraudulent misrepresentation. As used in this paragraph, the term "Underwriter" includes any officer, director, or other person who controls the Underwriter within the meaning of Section 15 of the Act, and the word "Company" includes any officer, director, or person who controls the Company within the meaning of Section 15 of the Act. If the full amount of the contribution specified in this paragraph is not permitted by law, then the Underwriter and each person who controls the Underwriter shall be entitled to contribution from the Company, its officers, directors and controlling persons to the full extent permitted by law. This foregoing agreement shall in no way affect the contribution liabilities of any persons having liability under Section 11 of the Act other than the Company and the Underwriter. No contribution shall be requested with regard to the settlement of any matter from any party who did not consent to the settlement; provided, however, that such consent shall not be unreasonably withheld in light of all factors of importance to such party. 8. COSTS AND EXPENSES. (a) Whether or not this Agreement becomes effective or the sale of the Securities to the Underwriters is consummated, the Company will pay all costs and expenses incident to the performance of this Agreement by the Company including but not limited to the fees and expenses of counsel to the Company and of the Company's accountants; the costs and expenses incident to the preparation, printing, filing and distribution under the Act of the Registration Statement (including the financial statements therein and all amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or supplemented; the fee of the National Association of Securities Dealers, Inc. ("NASD") in connection with the filing required by the NASD relating to the offering of the Securities contemplated hereby; all state filing fees, expenses and disbursements and legal fees of counsel to the Company who shall serve as Blue Sky counsel to the Company in connection with the filing of applications to register the Securities under the state securities or blue sky laws; the cost of printing and furnishing to the several Underwriters copies of the Registration Statement, each Preliminary Prospectus, the Prospectus, this Agreement, the Selected Dealers 36 Agreement, the Agreement Among Underwriters, Underwriters Questionnaire, Underwriters Power of Attorney and the Blue Sky Memorandum; the cost of printing the certificates evidencing the securities comprising the Securities; the cost of preparing and delivering to the Underwriters and its counsel bound volumes containing copies of all documents and appropriate correspondence filed with or received from the Commission and the NASD and all closing documents; and the fees and disbursements of the transfer agent for the Company's securities. The Company shall pay any and all taxes (including any original issue, transfer, franchise, capital stock or other tax imposed by any jurisdiction) on sales to the Underwriters hereunder. The Company will also pay all costs and expenses incident to the furnishing of any amended Prospectus or of any supplement to be attached to the Prospectus. The Company shall also engage the Company's counsel to provide the Representative with a written Secondary Market Trading Opinion in accordance with paragraphs 3(ab) and 4(j) of this Agreement. (b) In addition to the foregoing expenses, the Company shall at the Closing Date pay to the Representative a non-accountable expense allowance equal to three percent (3%) of the gross proceeds received from the sale of the Securities, of which an advance of $30,000 has been paid to date. In the event the overallotment option is exercised, the Company shall pay to the Representative at the Option Closing Date an additional amount equal to three percent (3%) of the gross proceeds received upon exercise of the overallotment option. (c) Other than as disclosed in the Registration Statement, no person is entitled either directly or indirectly to compensation from the Company, from the Representative or from any other person for services as a finder in connection with the proposed offering, and the Company agrees to indemnify and hold harmless the Representative and the other Underwriters against any losses, claims, damages or liabilities, joint or several which shall, for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all attorneys' fees, to which the Representative or such other Underwriter may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon the claim of any person (other than an employee of the party claiming indemnity) or entity that he or it is entitled to a finder's fee in connection with the proposed offering by reason of such person's or entity's influence or prior contact with the indemnifying party. 9. SUBSTITUTION OF UNDERWRITERS. If any of the Underwriters shall for any reason not permitted hereunder cancel their obligations to purchase the Securities hereunder, or shall fail to take up and pay for the number of Securities set forth opposite their respective names in Schedule A hereto upon tender of such Securities in accordance with the terms hereof, then: 37 (a) if the aggregate number of Securities which such Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of Securities, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Securities which such defaulting Underwriter or Underwriters agreed but failed to purchase. (b) If any Underwriter or Underwriters so default and the agreed number of Securities with respect to which such default or defaults occurs is more than ten percent (10%) of the total number of Securities, the remaining Underwriters shall have the right to take up and pay for (in such proportion as may be agreed upon among them) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase. If such remaining Underwriters do not, at the Closing Date, take up and pay for the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase, the time for delivery of the Securities shall be extended to the next business day to allow the several Underwriters the privilege of substituting within twenty-four hours (including non-business hours) another Underwriter or Underwriters satisfactory to the Company. If no such Underwriter or Underwriters shall have been substituted as aforesaid, within such twenty-four period, the time of delivery of the Securities may, at the option of the Company, be again extended to the next following business day, if necessary, to allow the Company the privilege of finding within twenty-four hours (including non-business hours) another Underwriter or Underwriters to purchase the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase. If it shall be arranged for the remaining Underwriters or substituted Underwriters to take up the Securities of the defaulting Underwriter or Underwriters as provided in this Section, (i) the Company or the Representative shall have the right to postpone the time of delivery for a period of not more than seven (7) business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary; and (ii) the respective numbers of Securities to be purchased by the remaining Underwriters or substituted Underwriters shall be taken at the basis of the underwriting obligation for all purposes of this Agreement. If in the event of a default by one or more Underwriters and the remaining Underwriters shall not take up and pay for all the Securities agreed to be purchased by the defaulting Underwriters or substitute another Underwriter or Underwriters as aforesaid, and the Company shall not find or shall not elect to seek another Underwriter or Underwriters for such Securities as aforesaid, then this Agreement shall terminate. 38 If, following exercise of the option provided in Section 2(b) hereof, any Underwriter or Underwriters shall for any reason not permitted hereunder cancel their obligations to purchase Option Securities at the Option Closing Date, or shall fail to take up and pay for the number of Option Securities, which they become obligated to purchase at the Option Closing Date upon tender of such Option Securities in accordance with the terms hereof, then the remaining Underwriters or substituted Underwriters may take up and pay for the Option Securities of the defaulting Underwriters in the manner provided in Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters shall not take up and pay for all Option Securities, the Underwriters shall be entitled to purchase the number of Option Securities for which there is no default or, at their election, the option shall terminate, the exercise thereof shall be of no effect. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. In the event of termination, there shall be no liability on the part of any non-defaulting Underwriter to the Company, provided that the provisions of this Section 9 shall not in any event affect the liability of any defaulting Underwriter to the Company arising out of such default. 10. EFFECTIVE DATE. The Agreement shall become effective upon its execution except that you may, at your option, delay its effectiveness until 11:00 a.m., Eastern time, on the first full business day following the effective date of the Registration Statement, or at such earlier time after the effective date of the Registration Statement as you in your discretion shall first commence the public offering by the Underwriters of any of the Securities. The time of the public offering shall mean the time after the effectiveness of the Registration Statement when the Securities are first generally offered by you to the other Underwriters and Selected Dealers. This Agreement may be terminated by you at any time before it becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect notwithstanding such termination. 11. TERMINATION. (a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the Closing Date, and the option referred to in Section 2(b) hereof, if exercised, may be cancelled at any time prior to the Option Closing Date, by you if in your judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriters for the resale of the Securities agreed to be purchased hereunder by reason of: (i) the Company having sustained a material adverse loss, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) trading in securities on the New York Stock Exchange or the American Stock Exchange having been suspended or limited; (iii) material governmental restrictions having been imposed on trading in securities generally (not in force and effect on the date hereof); (iv) a banking moratorium having been declared by Federal 39 or New York or Florida state authorities; (v) an outbreak of major international hostilities or other national or international calamity having occurred; (vi) the passage by the Congress of the United States or by any state legislative body of similar impact, of any act or measure, or the adoption of any orders, rules or regulations by any governmental body or any authoritative accounting institute or board, or any governmental executive, which is reasonably believed likely by the Representative to have a material adverse impact on the business, financial condition or financial statements of the Company or the market for the securities offered hereby; (vii) any material adverse change in the financial or securities markets beyond normal market fluctuations having occurred since the date of this Agreement; (viii) any material adverse change having occurred, since the respective dates as of which information is given in the Registration Statement and Prospectus, in the earnings, business prospects or general condition of the Company, financial or otherwise, whether or not arising in the ordinary course of business; (ix) a pending or threatened legal or governmental proceeding or action relating generally to the Company's business, or a notification having been received by the Company of the threat of any such proceeding or action, which could, in the reasonable judgment of the Representative, materially adversely affect the Company; (x) except as contemplated by the Prospectus, the Company is merged or consolidated into or acquired by another company or group or there exists a binding legal commitment for the foregoing or any other material change of ownership or control occurs; or (xi) the Company shall not have complied in all material respects with any term, condition or provisions on their part to be performed, complied with or fulfilled (including but not limited to those set forth in this Agreement) within the respective times therein provided. (b) If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section, the Company shall be promptly notified by you, by telephone, telegram or facsimile, confirmed by letter. 12. REPRESENTATIVE'S WARRANT AGREEMENT. At the Closing Date, the Company will issue to the Representative and/or persons related to the Representative, for an aggregate purchase price of $10, and upon the terms and conditions set forth in the form of Representative's Warrant Agreement annexed as an exhibit to the Registration Statement, Representative Warrants to purchase up to an aggregate of 120,000 Shares and 120,000 Warrants, in such denominations as the Representative shall designate. In the event of conflict in the terms of this Agreement and the Representative's Warrant Agreement, the language of the form of Representative's Warrant Agreement shall control. 13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties and other statements of the Company and its principal officers, where appropriate, and the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the 40 Underwriters, the Company or any of its officers or directors or any controlling person and will survive delivery of and payment for the Securities and the termination of this Agreement. 14. NOTICE. All communications hereunder will be in writing and, except as otherwise expressly provided herein, will be mailed, delivered or telegraphed and confirmed: If to the Underwriters: Robert T. Kirk, President Barron Chase Securities, Inc. 7700 West Camino Real, Suite 200 Boca Raton, Florida 33433 Copy to: David A. Carter, P.A. 355 West Palmetto Park Road Boca Raton, Florida 33432 If to the Company: Pedro Pablo Errazuriz, President Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 Copy to: Charles B. Pearlman, Esq. Atlas, Pearlman, Trop & Borkson, P.A. 200 East Las Olas Boulevard Ft. Lauderdale, Florida 33301 15. PARTIES IN INTEREST. This Agreement herein set forth is made solely for the benefit of the several Underwriters, the Company and, to the extent expressed, any person controlling the Company or of the Underwriters, and directors of the Company, nominees for directors (if any) named in the Prospectus, its officers who have signed the Registration Statement, and their respective executors, administrators, successors, assigns and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser of the Securities, as such purchaser, from the several Underwriters. All of the obligations of the Underwriters hereunder are several and not joint. 16. APPLICABLE LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Florida applicable to contracts made and to be performed entirely within the State of Florida. The parties agree that any action brought by any party against another party in connection with any rights or obligations arising out of this Agreement shall be instituted properly in a federal or state court of competent jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the United States District Court for the Southern District of Florida, West Palm Beach Division. A party to this Agreement named as a Defendant in any action brought in connection with this Agreement in any court outside of the above named designated county or district shall have the right to have the venue of said action changed to the above designated county or district or, if necessary, have the case dismissed, requiring the 41 other party to refile such action in an appropriate court in the above designated county or federal district. 17. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 18. ENTIRE AGREEMENT. This Agreement and the agreements referred to within this Agreement constitute the entire agreement of the parties, and supersedes all prior agreement, understanding, negotiations and discussions, whether written or oral, of the parties hereto. 19. REPRESENTATIVE AS UNDERWRITER. In the event the Representative acts as the sole Underwriter ("Underwriter") in connection with the underwriting of the securities being offered pursuant to the Registration Statement, all references to the Representative in this Agreement shall be replaced by reference to the "Underwriter", and (i) any consents required to be obtained from the Representative shall be required to be obtained solely from the Underwriter; (ii) all compensation to be received by the Representative shall instead be received by the Underwriter; and (iii) the provisions of section nine (9) of this Agreement shall not apply. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return this Agreement, whereupon it will become a binding Agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, ANDEAN DEVELOPMENT CORPORATION BY: ___________________________________ Pedro Pablo Errazuriz, President The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. BARRON CHASE SECURITIES, INC. BY: ___________________________________ Robert T. Kirk, President For itself and as Representative of the several Underwriters 42 SCHEDULE A TO THE UNDERWRITING AGREEMENT UNDERWRITER SHARES - ----------- ------ Barron Chase Securities, Inc......................................... First London Securities Corp......................................... --------- 1,200,000 UNDERWRITER WARRANTS - ----------- -------- Barron Chase Securities, Inc.......................................... First London Securities Corp.......................................... --------- 1,200,000 43 EX-1.2(C) 3 EXHIBIT 1.2(C) ANDEAN DEVELOPMENT CORPORATION 1,200,000 SHARES OF COMMON STOCK AND 1,200,000 COMMON STOCK PURCHASE WARRANTS AGREEMENT AMONG UNDERWRITERS Boca Raton, Florida _____________, 1996 Barron Chase Securities, Inc. 7700 West Camino Real, Suite 200 Boca Raton, Florida 33433 Dear Sirs: 1. UNDERWRITING AGREEMENT. We understand that Andean Development Corporation (the "Company"), proposes to enter into an underwriting agreement attached hereto as Exhibit A (the "Underwriting Agreement") with Barron Chase Securities, Inc. (the "Representative") and the other underwriters named in Schedule A to the Underwriting Agreement (the "Underwriters"), acting severally and not jointly, with respect to the purchase of an aggregate of 1,200,000 Shares of Common Stock (the "Shares") and 1,200,000 Warrants (the "Warrants"). The Shares and Warrants are hereinafter also referred to collectively as the "Securities". The Securities and the terms under which they are to be offered for sale by the several Underwriters are more particularly described in the Registration Statement, Underwriting Agreement and Prospectus. Unless the context indicates otherwise, the term Securities shall also include an additional 120,000 Shares and an additional 120,000 Warrants (the "Option Securities"), all or any part of which the Representative and/or the Underwriters are entitled to purchase from the Company upon exercise of the Representative's over-allotment option referred to in Section 2(b) of the Underwriting Agreement. This is to confirm that we agree to purchase, in accordance with the terms hereof and of the Underwriting Agreement, the number of Securities set forth opposite our name in Schedule A, plus such number of Securities, if any, which we may become obligated to purchase pursuant to Section 2(b) of the Underwriting Agreement and Section 4 hereof ("our Securities"). The ratio which the number of our Securities bears to the total number of Securities purchased pursuant to the Underwriting Agreement is herein called "our underwriting proportion". 2. REGISTRATION STATEMENT AND PROSPECTUS. We have heretofore received and examined a copy of the registration statement, as amended to the date hereof, and the related prospectus in respect of the Securities, as filed with the Securities and Exchange Commission. The registration statement as 1 amended at the time it becomes effective, including financial statements and exhibits, is hereafter referred to as the "Registration Statement", and the prospectus in the form first filed with the Securities and Exchange Commission pursuant to its Rule 424(b) after the Registration Statement becomes effective is referred to as the "Prospectus". We confirm that the information furnished to you by us for use in the Registration Statement and in the Prospectus is correct and is not misleading insofar as it relates to us. We consent to being named as an Underwriter in such Registration Statement and we are willing to accept our responsibilities under the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we have authorized you to advise the Company on our behalf (a) as to the statements to be included in any Preliminary Prospectus and in the Prospectus under the heading "Underwriting" insofar as they relate to us and (b) that there is no other information about us required to be stated in the Registration Statement or Prospectus. We further confirm that, upon request by you as Representative, we have furnished a copy of any amended Preliminary Prospectus to each person to whom we have furnished a copy of any previous Prospectus, and we confirm that we have delivered, and we agree that we will deliver, all preliminary and final Prospectuses required for compliance with the provisions of Rule 15c2-8 under the Securities Exchange Act of 1934 (the "1934 Act"). 3. AUTHORITY OF THE REPRESENTATIVE. We authorize you, acting as Representative of the Underwriters, to execute and deliver on our behalf, the Underwriting Agreement, and to agree to any variation of its terms (except as to the purchase price and the number of our Securities) which, in your judgment, is not a variation which materially and adversely affects our rights and obligations. We also authorize you, in your discretion and on our behalf, with approval of counsel for the Underwriters, to approve the Prospectus and to approve of, or object to, any further amendments to the Registration Statement, or amendments or supplements to the Prospectus. We further authorize you to exercise all the authority and discretion vested in the Underwriters and in you by the provisions of the Underwriting Agreement and to take all such action as you in your discretion may believe desirable to carry out the provisions of the Underwriting Agreement and of this Agreement including the extension of any date specified in the Underwriting Agreement, the exercise of any right of cancellation or termination and to determine all matters relating to the public advertisement of the Securities; provided, however, that, except with the consent of Underwriters who shall have agreed to purchase in the aggregate 50% or more of the Securities, no extension of the time by which the Registration Statement is to become effective as provided in the Underwriting Agreement shall be for a period in excess of two business days. We authorize you to take such action as in your discretion may be necessary or desirable to effect the sale and distribution of the Securities, including, without limiting the generality of the foregoing, the right to determine the terms of any proposed offering, the concession to Selected Dealers (as hereinafter 2 defined) and the reallowance, if any, to other dealers and the right to make the judgments provided for in the Underwriting Agreement. 4. AUTHORITY OF REPRESENTATIVE AS TO DEFAULTING UNDERWRITERS. Until the termination of this Agreement, we authorize you to arrange for the purchase by other persons, who may include you or any of the other Underwriters, of any Securities not taken up by any defaulting Underwriter. In the event that such arrangements are made, the respective amounts of the Securities to be purchased by the non-defaulting Underwriters and by such other person or persons, if any, shall be taken as the basis for all rights and obligations hereunder; but this shall not in any way affect the liability of any defaulting Underwriter to the other Underwriters for damages resulting from its default, nor shall any such default relieve any other Underwriter of any of its obligations hereunder or under the Underwriting Agreement except as herein or therein provided. In the event of default by one or more Underwriters in respect of their obligations (a) under the Underwriting Agreement to purchase the Securities agreed to be purchased by them thereunder, (b) under this Agreement to take up and pay for any Securities purchased or (c) to deliver any Securities sold or over-allotted by you for the respective accounts of the Underwriters pursuant to this Agreement, or to bear their respective share of expenses or liabilities pursuant to this Agreement, and to the extent that arrangements shall not have been made by you for any persons to assume the obligations of such defaulting Underwriter or Underwriters, we agree to assume our proportionate share of the obligations of each defaulting Underwriter (subject in the case of clause (a) above to the limitations contained in the Underwriting Agreement) without relieving any such defaulting Underwriter of its liability therefor. 5. OFFERING OF SECURITIES. We understand that you will notify us when the public offering of the Securities is to be made and of the initial public offering price. We hereby authorize you to fix the concession to dealers and the reallowance to dealers and in your sole discretion after the public offering to change the public offering price, the concession and the reallowance. The offering price at any time in effect is hereinafter referred to as the "public offering price". We agree that we will not offer any of the Securities for sale at a price other than the public offering price or allow any discount therefrom except as herein otherwise specifically provided. We agree that public advertisement of the offering shall be made by you on behalf of the Underwriters on such date as you shall determine. We have not advertised the offering and will not do so until after such date. We understand that any advertisement we may then make will be on our own responsibility and at our own expense. We authorize you to reserve and offer for sale to institutions and other retail purchasers and to dealers (the "Selected Dealers") 3 to be selected by you (such dealers may include any Underwriter ) such of our Securities as you in your sole discretion shall determine. Any such offering to Selected Dealers may be made pursuant to a Selling Agreement, in the form attached hereto as Exhibit B, or otherwise , as you may determine. The form of Selling Agreement attached hereto as Exhibit B is satisfactory to us. We authorize you to make purchases and sales of the Securities from or to any Selected Dealers or Underwriters at the public offering price less all or any part of the concession and, with your consent, any Underwriter may make purchases or sales of the Securities from or to any Selected Dealer or Underwriter at the public offering price less all or any of the concession. We understand that you will notify each Underwriter promptly upon the release of the Securities for public offering as to the amount of Securities reserved for sale to Selected Dealers and retail purchasers. Securities not so reserved may be sold by each Underwriter for its own account, except that from time to time you may, in your discretion, add to the Securities reserved for sale to Selected Dealers and retail purchasers any Securities retained by an Underwriter remaining unsold. We agree to notify you from time to time upon request of the amount of our Securities retained by us remaining unsold. If all the Securities reserved for offering to Selected Dealers and retail purchasers are not promptly sold by you, any Underwriter may from time to time, with your consent, obtain a release of all or any Securities of such Underwriter then remaining unsold and Securities so released shall thereafter be deemed not to have been reserved. Securities of any Underwriter so reserved which remain unsold, or, if sold, have not been paid for at any time prior to the termination of this Agreement may, in your discretion or upon the request of such Underwriter, be delivered to such Underwriter for carrying purposes only, but such Securities shall remain subject to redelivery to you upon demand for disposition by you until this Agreement is terminated. We agree that in connection with sales and offers to sell the Securities, if any, made by us outside the United States or its territories or possessions, (a) we will furnish to each person to whom any such offer or sale is made such Prospectus, advertisement or other offering document containing information relating to the Securities or the Company as may be required under the laws of the jurisdiction in which such offer or sale is made and (b) we will furnish to each person to whom any such offer is made a copy of the then current Preliminary Prospectus and to each person to whom any such sale is made a copy of the Prospectus referred to in the Underwriting Agreement (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto). Any Prospectus, advertisement or other offering document (other than any such preliminary Prospectus or Prospectus) furnished by us to any person in accordance with the preceding sentence and all such additional offering material, if any, as we may furnish to any person (i) shall comply in all respects with the laws of the jurisdiction in which it is so furnished, (ii) shall be 4 prepared and so furnished at our sole risk and expense, and (iii) shall not contain information relating to the Securities or the Company which is inconsistent in any respect with information contained in the then current Preliminary Prospectus or in the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto), as the case may be. We recognize the importance of a broad distribution of the Securities among bona fide investors and we agree to use our best efforts to obtain such broad distribution and to that end, to the extent we deem practicable, to give priority to small orders. We agree that we will not sell to any account over which we exercised discretionary authority any of the Securities which we have agreed to purchase pursuant to the Underwriting Agreement. 6. COMPENSATION TO REPRESENTATIVE. We authorize you to charge to our account, as compensation for your services as Representative in connection with this offering, including the purchase from the Company of the Securities and the management of the offering, an amount equal to $ ______ per Share and/or $ per Warrant in respect to each of our Securities. 7. PAYMENT AND DELIVERY. At or about 9:00 a.m., Eastern Time, on the Closing Dates (including the first Closing Date and any Option Closing Date, as defined in the Underwriting Agreement), we agree to deliver to you at your office by wire transfer to the account of the Representative or by a certified or official bank check payable in New York Clearing House funds to your order in an amount equal to the initial public offering price, less the concession to the Selected Dealers in respect of that portion of our Securities which has been retained by or released to us for direct sales. In the event that our funds are not received by you when required, you are authorized, in your discretion, but shall not be obligated, to make payment for our account pursuant to the Underwriting Agreement by advancing your own funds. Any such payment by you shall not relieve us from any of our obligations hereunder or under the Underwriting Agreement. We authorize you to hold and deliver against payment any of our Securities which have been sold or reserved for sale to Selected Dealers or retail purchasers. Any of our Securities not sold or reserved by you as aforesaid, will be available for delivery to us at your office as soon as practicable after such Securities have been delivered to you. Upon the termination of this Agreement, or prior thereto at your discretion, you will deliver to us any of our Securities reserved by you for sale to Selected Dealers or retail purchasers but not sold and paid for against payment by us of an amount equal to the initial public offering price of such Securities, less the concession to the Selected Dealers in respect thereof. 5 8. AUTHORITY TO BORROW. We authorize you to arrange loans for our account and to execute and deliver any notes or other instruments in connection therewith, and to pledge as security therefor all or any part of our Securities, as you may deem necessary or advisable to carry out the purchase, carrying and distribution of the Securities, and to advance your own funds, charging current interest rates. 9. OVER-ALLOTMENT; STABILIZATION. We authorize you, for the account of each Underwriter, prior to the termination of this Agreement, and for such longer period as may be necessary to cover any short position incurred for the accounts of the several Underwriters pursuant to this Agreement, (a) to over-allot in arranging for sales of Securities to Selected Dealers and others and, if necessary, to purchase Securities (whether pursuant to exercise of the option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at such prices as you may determine for the purpose of covering such over-allotments, and (b) for the purpose of stabilizing the market in the Securities, to make purchases and sales of Securities on the open market or otherwise, for long or short account, on a when-issued basis or otherwise, at such prices, in such amounts and in such manner as you may determine; provided, however, that at no time shall our net commitment, either for long or short account, under this Section exceed 15% of the amount of our Securities. Such purchases, sales and over-allotments shall be made for the respective accounts of the several Underwriters as nearly as practicable to their respective underwriting proportions. We agree to take up on demand at cost any Securities so purchased for our account and deliver on demand any Securities so sold or over-allotted for our account. We authorize you to sell for the account of the Underwriters any Securities purchased pursuant to this Section, upon such terms as you may deem advisable, and any Underwriter, including yourselves, may purchase such Securities. You are authorized to charge the respective accounts of the Underwriters with broker's commissions or dealer's mark-up on purchases and sales effected by you. If pursuant to the provisions of the preceding paragraph and prior to the termination of this Agreement (or prior to such earlier date as you may have determined) you purchase or contract to purchase for the account of any Underwriter in the open market or otherwise any Securities which were retained by, or released to, us for direct sale, or any Securities which may have been issued in exchange for such Securities, we authorize you either to charge our account with an amount equal to the concession to Selected Dealers with respect thereto, which amount shall be credited against the cost of such Securities, or to require us to repurchase such Securities at a price equal to the total cost of such purchase, including transfer taxes and broker's commissions or dealer's mark-up, if any. In lieu of such action you may, in your discretion, sell for our account the Securities so purchased and debit or credit our account for the loss or profit resulting from such sale. You will notify us promptly if and when you engage in any stabilization transaction pursuant to this Section or otherwise and 6 will notify us of the date of termination of stabilization. We agree to file with you any reports required of us including "Not as Manager" reports pursuant to Rule 17a-2 under the 1934 Act not later than five business days following the date upon which stabilization was terminated, and we authorize you to file on our behalf with the Securities and Exchange Commission any reports required by such Rule. 10. LIMITATION ON TRANSACTIONS BY UNDERWRITERS. Except as permitted by you, we will not during the term of this Agreement bid for, purchase, sell or attempt to induce others to purchase or sell, directly or indirectly, any Securities other than (i) as provided in the Underwriting Agreement and in this agreement, (ii) purchases from or sales to dealers of the Securities at the public offering price less all or any part of the reallowance to dealers or (iii) purchases or sales by us of any Securities as broker or unsolicited orders for the account of others. We represent that we have not participated in any transaction prohibited by the preceding paragraph and that we have at all times complied with the provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable to this offering. We may, with your prior consent, make purchases of the Securities from and sales to other Underwriters at the public offering price, less all or any part of the concession to dealers. 11. ALLOCATION AND PAYMENT OF EXPENSES. We understand that all expenses of a general nature incurred by you, as Representative, in connection with the purchase, carrying, marketing and sale of the Securities shall be borne by the Underwriters in accordance with their respective share of the underwriting obligations. We authorize you to charge our account with our share, based on our underwriting obligation, of the aforesaid expenses including all transfer taxes paid of our behalf on sales or transfers made for our account. As promptly as possible after the termination of this Agreement, the accounts arising pursuant hereto shall be settled and paid. Your ascertainment of all expenses and the apportionment thereof shall be conclusive. Notwithstanding any settlement or settlements hereunder, we will remain liable for our share of all expenses and liabilities which may be incurred by or the accounts of the Underwriters, including any expenses and liabilities referred to in Sections 13 and 14 hereof, which shall be determined as provided in this Section. 12. TERMINATION. Unless this Agreement or any provision hereof is earlier terminated by you and except for provisions herein that contemplate obligations surviving the termination hereof as noted in the next paragraph, this Agreement will terminate at the close of business on the 45th day after the date hereof, but in your discretion may be extended by you for a further period not exceeding 30 days with the consent of the Underwriters who have agreed to purchase in the aggregate 50% or more of the 7 Securities. No termination or suspension pursuant to this Section shall affect your authority to cover any short position under this Agreement. Upon termination of this Agreement, all authorizations, rights and obligations hereunder shall cease, except (i) the mutual obligations to settle accounts under Section 11, (ii) our obligation to pay any transfer taxes which may be assessed and paid on account of any sales thereunder for our account, (iii) our obligation with respect to purchases which may be made by you from time to time thereafter to cover any short position incurred under this Agreement, (iv) the provisions of Sections 13 and 14 and (v) the obligations of any defaulting Underwriter, all of which shall continue until fully discharged. 13. LIABILITY OF REPRESENTATIVE AND UNDERWRITERS. Neither as Representative nor individually shall you be under any liability whatsoever to any other Underwriter nor shall you be under any liability in respect of any matters connected herewith or action taken by you pursuant hereto, except for the obligations expressly assumed by you in this Agreement. You shall be under no liability for or in respect of the value for the Securities or the validity of the form thereof, the Registration Statement, the Prospectus, or agreements or other instruments executed by the Company or others; or for or in respect of the delivery of the Securities; or for the performance by the Company or others of any agreement on its or their part. Nothing herein contained shall constitute the several Underwriters an association, or partners with us or with each other, or, except as herein expressly provided, render any Underwriter liable for the obligation of any other Underwriter. The rights, obligations and liabilities of each of the Underwriters are several, in accordance with their respective obligations, and not joint. Notwithstanding any settlement of accounts under this Agreement, we agree to pay our underwriting proportion of the amount of any claim demand or liability which may be asserted against and discharged by the Underwriters or any of them, based on the claim that the Underwriters constitute an association, unincorporated business or other entity, and also to pay our underwriting proportion of expenses approved by you incurred by the Underwriters, or any of them, in contesting any such claims, demands or liabilities. If the Underwriters shall be deemed to constitute a partnership for income tax purposes, it is the intent of each Underwriter to be excluded from the application of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each Underwriter elects to be so excluded and agrees not to take any position inconsistent with such election. Each Underwriter authorizes you, in your discretion, to execute and file on behalf of the Underwriters such evidence of election as may be required by the Internal Revenue Service. 14. INDEMNIFICATION AND FUTURE CLAIMS. (a) We agree to indemnify and hold harmless you and each 8 other Underwriter, and each person, if any, who controls you and such other Underwriter within the meaning of Section 15 of the Securities Act of 1933, and to reimburse their expenses, to the extent and upon the terms that we agree to indemnify and hold harmless the Company and to reimburse expenses as set forth in the Underwriting Agreement. Our indemnity agreement set forth in this Section remain in full force and effect regardless of any investigation made by or on behalf of such other Underwriter or controlling person and shall survive the delivery of and payment for the Securities and the termination of this Agreement. (b) In the event that at any time any claim or claims shall be asserted against you, as Representative, or otherwise involving the Underwriters generally, relating to the Registration Statement or any Preliminary Prospectus or the Prospectus, as such may be from time to time amended or supplemented, the public offering of the Securities or any of the transactions contemplated by this Agreement, we authorize you to take such other action as you shall deem necessary or desirable under the circumstances, including settlement of any such claim or claims if such course of action shall be recommended by counsel retained by you. We agree to pay to you on request, our underwriting proportion of all expenses incurred by you (including, but not limited to, disbursements and fees of counsel so retained) in investigating and defending against such claim or claims and our underwriting proportion of any liability incurred by you in respect of such claim or claims, whether such liability shall be the result of a judgment or as a result of any such settlement. 15. TITLE TO SECURITIES. The Securities purchased by, or on behalf of, the respective Underwriters shall remain the property of such Underwriters until sold, and title to any such Securities shall not in any event pass to the Representative by virtue of any of the provisions of this Agreement. 16. BLUE SKY MATTERS. It is understood that you assume no responsibility with respect to the right of any Underwriter or other person to offer or to sell Securities in any jurisdiction, not withstanding any information which you may furnish as to the jurisdictions under the securities laws of which it is believed the Securities may be sold. 17. APPLICABLE LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Florida. 18. CAPITAL REQUIREMENTS. We confirm that the incurrence by us of our obligation under this Agreement and under the Underwriting Agreement will not place us in violation of the net capital requirements of Rule 15c3-1 under the 1934 Act or of any applicable rules relating to capital requirements of any securities exchange to which we are subject. 19. MISCELLANEOUS. Any notice from you to us shall be deemed to have been duly given if telefaxed, telephoned or telegraphed, and confirmed by mail to us at the address set forth in the 9 Underwriters Questionnaire furnished by us to you. Any notice from us to you shall be deemed to have been duly given if telefaxed or telegraphed, and confirmed by mail to you at 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433. We understand that you are a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are actually engaged in the investment banking or securities business and are either (i) a member in good standing of the NASD or (ii) a dealer with its principal place of business located outside the United States, its territories and its possession and not registered as a broker or dealer under the 1934 Act who agrees not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein (except that we may participate in sales to Selected Dealers and others under Section 5 of this Agreement). We hereby agree that if we are members of the NASD, we will comply with all of the provisions of the NASD Conduct Rules. If we are a foreign dealer, we agree to comply with Rule 2740 of the NASD Conduct Rules. If we are a foreign dealer and not a member of the NASD, we agree to comply with the NASD's interpretation with respect to free-riding and withholding, as though we were a member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that applies to a non-member foreign dealer. In connection with sales and offers to sell Securities made by us outside the United States, its territories and possessions (i) we will either furnish to each person to whom any such sale or offer is made a copy of the then current Preliminary Prospectus or the Prospectus, as the case may be, or inform such person that such Preliminary Prospectus or Prospectus will be available upon request, and (ii) we will furnish to each person to whom any such sale or offer is made such Prospectus, advertisement or other offering document containing information relating to the Securities or the Company as may be required under the law of the jurisdiction in which such sale or offer is made. Any Prospectus, advertisement or other offering document furnished by us to any person in accordance with the preceding sentence and any such additional offering material as we may furnish to any person (i) shall comply in all respects with the law of the jurisdiction in which it is so furnished, (ii) shall be prepared and so furnished at our sole risk and expenses and (iii) shall not contain information relating to the Securities or the Company which is inconsistent in any respect with the information contained in the then current preliminary Prospectus or in the Prospectus, as the case may be. We understand that, in consideration of your services in connection with the public offering of the Securities, the Company has agreed with you individually, and not as Representative of the Underwriters (a) to sell to you the Representative's Warrants referred to in the Underwriting Agreement for the sum of $10; (b) to pay to you a non-accountable expense allowance referred to in the Underwriting Agreement; (c) to pay you a financial advisory fee referred to in the Underwriting Agreement; and (d) to enter into 10 the Merger and Acquisition Agreement (the "M/A Agreement") referred to in the Underwriting Agreement. In addition, you may, at your sole discretion, elect to exercise the over-allotment option individually. We confirm to you that we shall make no claim to the Representative's Warrants (or any offering of the Company's securities related thereto, or any right to participate in any capacity in any offering resulting therefrom), any rights related thereto, the Company's securities underlying the Representative's Warrants, the non-accountable expense allowance, the financial advisory fee, or, to the over-allotment option to the extent you elect to exercise such option individually, or the M/A Agreement. You confirm to us that we shall have no obligation or liabilities with respect to the purchase of the Representative's Warrants, the exercise thereof, the Company's securities underlying the Representative's Warrants (or any offering of the Company's securities related thereto, unless we shall subsequently agree to become an underwriter for, or otherwise participate in any such offering) or the non-accountable expense allowance, the financial advisory agreement, the M/A Agreement, or, the over-allotment option, to the extent you elect to exercise such option individually. Please confirm that the foregoing correctly states the understanding between us by signing and returning to us a counterpart hereof. Very truly yours, By: _______________________________________ (Attorney-in-fact for each of the several Underwriters named in Schedule A to the attached Underwriting Agreement.) Confirmed as of the date first above written: BARRON CHASE SECURITIES, INC. By:_________________________ Robert T. Kirk, President 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby irrevocably constitute and appoint Robert T. Kirk and/or Barron Chase Securities, Inc., the true and lawful agent and attorney-in-fact of the undersigned with respect to all matters arising in connection with the undersigned's acting as one of the Underwriters of the proposed offering of an aggregate of 1,200,000 Shares of Common Stock and 1,200,000 Common Stock Purchase Warrants of ANDEAN DEVELOPMENT CORPORATION (such securities being more fully described in the Registration Statement No. 33-90696 filed by Andean Development Corporation pursuant to the Securities Act of 1933) with full power and authority to execute and deliver for and on behalf of the undersigned all such agreements, consents and documents in connection therewith as said agent and attorney-in-fact may deem advisable. The undersigned hereby gives to said agent and attorney-in-fact full power and authority to act in the premises, including, but not limited to, the power an authority to execute and deliver an Agreement Among Underwriters relating to such financing, to agree to increase or decrease the size of the offering to an amount as shall be approved by Barron Chase Securities, Inc., as Representative of the Underwriters, and to appoint a substitute or substitutes to act hereunder with the same power and authority as said agent and attorney-in-fact would have if personally acting. The undersigned hereby ratifies and confirms all that said agent and attorney-in-fact, or any substitute or substitutes, may do by virtue hereof. WITNESS the due execution hereof at __________________________________ _______________________________________________________________________________ (Street) (City) this __________________day of __________________, 1996. ______________________________________ Firm Name ____________________________________ By: ______________________________________ Witness Partner, Officer or Sole Proprietor (indicate which) 12 CORPORATE ACKNOWLEDGEMENT STATE OF ) ) ss.: COUNTY OF ) On this __________ day of __________________ , 1996, before me personally came _____________________________________ , to me know, who being by me duly sworn, deposes and say that he resides at No. _______________________________________________________________: that he is the ______________________________________ of ____________________________________, the aforementioned corporation, which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; and that it was so affixed by order the Board of Directors of said corporation; and that he signed his name thereto by like order. _____________________________________ Notary Public My Commission Expires: PARTNERSHIP ACKNOWLEDGEMENT STATE OF ) ) ss.: COUNTY OF ) On this __________ day of __________________ , 1996, before me personally came _____________________________________ , one of the members of the firm of _________________________________________ , to me known and known to me to be the individual who executed the foregoing instrument and acknowledged that he executed, and was duly authorized to execute, the same as and for the act and deed of said firm. _____________________________________ Notary Public My Commission Expires: Unless prior to 5:00 p.m. Eastern Time, on the date immediately preceding the proposed public offering date, the Syndicate Department of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433 receives a telegram or letter from you revoking the Power of Attorney, the power and authority granted by such Power of Attorney may be exercised in accordance with the terms thereof. 13 EX-1.3(B) 4 EXHIBIT 1.3(b) ANDEAN DEVELOPMENT CORPORATION 1,200,000 Shares of Common Stock and 1,200,000 Common Stock Purchase Warrants SELECTED DEALER AGREEMENT Boca Raton, Florida ____________ , 1996 Gentlemen: 1. Barron Chase Securities, Inc. (the "Representative") and the other Underwriters named in the Prospectus (collectively the "Underwriters"), acting through us as the Representative, are severally offering for sale an aggregate of 1,200,000 Shares of Common Stock (the "Shares") and 1,200,000 Warrants (the "Warrants") (collectively the "Firm Securities") of Andean Development Corporation (the "Company"), which we have agreed to purchase from the Company, and which are more particularly described in the Registration Statement, Underwriting Agreement and Prospectus. In addition, the several Underwriters have been granted an option to purchase from the Company up to an additional 120,000 Shares and an additional 120,000 Warrants (the "Option Securities") to cover overallotments in connection with the sale of the Firm Securities. The Firm Securities and any Option Securities purchased are herein called the "Securities". The Securities and the terms under which they are to be offered for sale by the several Underwriters are more particularly described in the Prospectus. 2. The Securities are to be offered to the public by the several Underwriters at the price per Share and price per Warrant set forth on the cover page of the Prospectus (the "Public Offering Price"), in accordance with the terms of offering set forth in the Prospectus. 3. Some or all of the several Underwriters are severally offering, subject to the terms and conditions hereof, a portion of the Securities for sale to certain dealers who are actually engaged in the investment banking or securities business and who are either (a) members in good standing of the National Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers with their principal places of business located outside the United States, its territories and its possessions and not registered as brokers or dealers under the Securities Exchange Act of 1934, as amended (the "1934 Act"), who have agreed not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein (such dealers who shall agree to sell Securities hereunder being herein called "Selected Dealers") at the public offering price, less a selling concession 1 (which may be changed) of not in excess of $ _______ per Share and/or $ per Warrant payable as hereinafter provided, out of which concession an amount not exceeding $ ___________ per Share and/or $ __________ per Warrant may be reallowed by Selected Dealers to members of the NASD or foreign dealers qualified as aforesaid. The Selected Dealers who are members of the NASD agree to comply with all of the provisions of the NASD Conduct Rules. Foreign Selected Dealers agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules, and, if any such dealer is a foreign dealer and not a member of the NASD, such Selected Dealer also agrees to comply with the NASD's Interpretation with Respect to Free-Riding and Withholding, and to comply, as though it were a member of the NASD, with the provisions of Rules 2730 and 2750 of the NASD Conduct Rules, and to comply with Rule 2420 of the NASD Conduct Rules as that Rule applies to non-member foreign dealers. Some or all of the Underwriters may be included among the Selected Dealers. Each of the Underwriters has agreed that, during the term of this Agreement, it will be governed by the terms and conditions hereof whether or not such Underwriter is included among the Selected Dealers. 4. Barron Chase Securities, Inc. shall act as Representative on behalf of the Underwriters and shall have full authority to take such action as we may deem advisable in respect to all matters pertaining to the public offering of the Securities. 5. If you desire to act as a Selected Dealer, and purchase any of the Securities, your application should reach us promptly by telefax or telegraph at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433. We reserve the right to reject subscriptions in whole or in part, to make allotments, and to close the subscription books at any time without notice. The Securities allotted to you will be confirmed, subject to the terms and conditions of this Agreement. 6. The privilege of subscribing for the Securities is extended to you only on behalf of such of the Underwriters, if any, as may lawfully sell the Securities to Selected Dealers in your state or other applicable jurisdiction. 7. Any Securities to be purchased by you under the terms of this Agreement may be immediately reoffered to the public in accordance with the terms of offering as set forth herein and in the Prospectus, subject to the securities or Blue Sky laws of the various states or other jurisdictions. You agree to pay us on demand for the accounts of the several Underwriters an amount equal to the Selected Dealer concession as to any Securities purchased by you hereunder which, prior to the completion of the public offering as defined in paragraph 8 below, we may purchase or contract to purchase for the account of any Underwriter and, in addition, we may charge you with any broker's 2 commission and transfer tax paid in connection with such purchase or contract to purchase. Certificates for Securities delivered on such repurchases need not be the identical certificates originally purchased. You agree to advise us from time to time, upon request, of the number of Securities purchased by you hereunder and remaining unsold at the time of such request, and, if in our opinion any such Securities shall be needed to make delivery of the Securities sold or overallotted for the account of one or more of the Underwriters, you will, forthwith upon our request, grant to us for the account or accounts of such Underwriter or Underwriters the right, exercisable promptly after receipt of notice from you that such right has been granted, to purchase, at the Public Offering Price less the selling concession or such part thereof as we shall determine, such number of Securities owned by you as shall have been specified in our request. No expenses shall be charged to Selected Dealers. A single transfer tax, if payable, upon the sale of the Securities by the respective Underwriters to you will be paid when such Securities are delivered to you. However, you shall pay any transfer tax on sales of Securities by you and you shall pay your proportionate share of any transfer tax (other than the single transfer tax described above) in the event that any such tax shall from time to time be assessed against you and other Selected Dealers as a group or otherwise. Neither you nor any other person is or has been authorized to give any information or to make any representation in connection with the sale of the Securities other than as contained in the Prospectus. 8. The first three paragraphs of Section 7 hereof will terminate when we shall have determined that the public offering of the Securities has been completed and upon telefax notice to you of such termination, but, if not theretofore terminated, they will terminate at the close of business on the 30th full business day after the date hereof; provided, however, that we shall have the right to extend such provisions for a further period or periods, not exceeding an additional 30 days in the aggregate upon telefax notice to you. 9. For the purpose of stabilizing the market in the Securities, we have been authorized to make purchases and sales of the Securities of the Company, in the open market or otherwise, for long or short account, and, in arranging for sales, to overallot. 10. On becoming a Selected Dealer, and in offering and selling the Securities, you agree to comply with all the applicable requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act. You confirm that you are familiar with 3 Rule 15c2-8 under the 1934 Act relating to the distribution of preliminary and final prospectuses for securities of an issuer (whether or not the issuer is subject to the reporting requirements of Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and will comply therewith. We hereby confirm that we will make available to you such number of copies of the Prospectus (as amended or supplemented) as you may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act, or the rules and regulations thereunder. 11. Upon request, you will be informed as to the states and other jurisdictions in which we have been advised that the Securities are qualified for sale under the respective securities or Blue Sky laws of such states and other jurisdictions, but neither we nor any of the Underwriters assume any obligation or responsibility as to the right of any Selected Dealer to sell the Securities in any state or other jurisdiction or as to the eligibility of the Securities for sale therein. We will, if requested, file a Further State Notice in respect of the Securities pursuant to Article 23-A of the General Business Law of the State of New York. 12. No Selected Dealer is authorized to act as our agent or as agent for the Underwriters, or otherwise to act on our behalf or on behalf of the Underwriters, in offering or selling the Securities to the public or otherwise or to furnish any information or make any representation except as contained in the Prospectus. 13. Nothing will constitute the Selected Dealers an association or other separate entity or partners with the Underwriters, or with each other, but you will be responsible for your share of any liability or expense based on any claim to the contrary. We and the several Underwriters shall not be under any liability for or in respect of value, validity or form of the Securities, or the delivery of the certificates for the Securities, or the performance by anyone of any agreement on its part, or the qualification of the Securities for sale under the laws of any jurisdiction, or for or in respect of any other matter relating to this Agreement, except for lack of good faith and for obligations expressly assumed by us or by the Underwriters in this Agreement and no obligation on our part shall be implied herefrom. The foregoing provisions shall not be deemed a waiver of any liability imposed under the 1933 Act. 14. Payment for the Securities sold to you hereunder is to be made at the Public Offering Price less the above-mentioned selling concession on such time and date as we may advise, at the office of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433, by wire transfer to the account of the Representative or by a certified or official bank check in current New York Clearing House funds, payable to the order of Barron Chase 4 Securities, Inc., as Representative, against delivery of certificates for the Securities so purchased. If such payment is not made at such time, you agree to pay us interest on such funds at the prevailing broker's loan rate. 15. Notices to us should be addressed to us at the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida 33433, Attention: Robert T. Kirk. Notices to you shall be deemed to have been duly given if telephoned, telefaxed, telegraphed or mailed to you at the address to which this letter is addressed. 16. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without giving effect to the choice of law or conflicts of law principles thereof. 17. If you desire to purchase any Securities and act as a Selected Dealer, please confirm your application by signing and returning to us your confirmation on the duplicate copy of this letter enclosed herewith, even though you may have previously advised us thereof by telephone or telegraph. Our signature hereon may be by facsimile. Very truly yours, BARRON CHASE SECURITIES, INC. As Representative of the Several Underwriters BY:________________________________ Authorized Officer 5 Robert T. Kirk, President Barron Chase Securities, Inc. 7700 West Camino Real, Suite 200 Boca Raton, Florida 33433 We hereby subscribe for ____________ Shares and/or ____ Warrants of Andean Development Corporation in accordance with the terms and conditions stated in the foregoing Selected Dealers Agreement and letter. We hereby acknowledge receipt of the Prospectus referred to in the Selected Dealers Agreement and letter. We further state that in purchasing said Shares and/or Warrants we have relied upon said Prospectus and upon no other statement whatsoever, whether written or oral. We confirm that we are a dealer actually engaged in the investment banking or securities business and that we are either (i) a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); or (ii) a dealer with its principal place of business located outside the United States, its territories and its possessions and not registered as a broker or dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees not to make any sales within the United States, its territories or its possessions or to persons who are nationals thereof or residents therein. As a member of the NASD, we hereby agree to comply with all of the provisions of NASD Conduct Rules. If we are a foreign Selected Dealer, we agree to comply with the provisions of Rule 2740 of the Conduct Rules, and if we are a foreign dealer and not a member of the NASD, we agree to comply with the NASD's interpretation with respect to free-riding and withholding, and agree to comply, as though we were a member of the NASD, with provisions of Rules 2730 and 2750 of such Conduct Rules, and to comply with Rule 2420 thereof as that Rule applies to non-member foreign dealers. Firm:_________________________________ By:_________________________________ (Name and Position) Address:_________________________________ _________________________________ Telephone No.:_________________________________ Dated:______________, 19961 6 EX-4.2(B) 5 EXHIBIT 4.2(B) REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant Agreement" or "Agreement"), dated as of ____________ , 1996, between ANDEAN DEVELOPMENT CORPORATION (the "Company"), and BARRON CHASE SECURITIES, INC. (the "Representative"). W I T N E S S E T H: WHEREAS, the Representative has agreed, pursuant to the underwriting agreement (the "Underwriting Agreement") dated as of the date hereof between the Company and the Representative, to act as the Representative of the Underwriters in connection with the Company's proposed public offering of 1,200,000 shares of the Company's Common Stock at $5.00 per share and 1,200,000 Warrants ("Public Warrants") at $.125 per warrant (the "Public Offering"); and WHEREAS, the Company proposes to issue to the Representative and/or persons related to the Representative as those persons are defined in Rule 2710 of the NASD Conduct Rules (the "Holder"), 120,000 warrants ("Common Stock Representative Warrants") to purchase 120,000 shares of the Company's Common stock (the "Shares") and 120,000 warrants ("Warrant Representative Warrants") to purchase 120,000 Common Stock Purchase Warrants ("Underlying Warrants") exercisable to purchase 120,000 shares of the Company's Common Stock. The "Common Stock Representative Warrants" and the "Warrant Representative Warrants" are collectively referred to as the "Warrants". The "Shares" and the "Underlying Warrants" are collectively referred to as the "Warrant Securities"; and WHEREAS, the Warrants to be issued pursuant to this Agreement will be issued on the Closing Date (as such term is defined in the Underwriting Agreement) by the Company to the Holders in consideration for, and as part of the compensation in connection with, the Representative acting as Representative pursuant to the Underwriting Agreement. NOW, THEREFORE, in consideration of the premises, the payment by the Representative to the Company of TEN DOLLARS AND NO CENTS ($10.00), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. GRANT AND PERIOD. The Public Offering has been registered under a Registration Statement on Form SB-2 (File No. 33-90696) and declared effective by the Securities and Exchange Commission (the "SEC" or "Commission") on __________ , 1996 (the "Effective Date"). This Agreement, relating to the purchase of the Warrants, is entered into pursuant to the Underwriting Agreement between the Company and the Representative, as representative of the Underwriters, in connection with the Public Offering. 1 Pursuant to the Warrants, the Holders are hereby granted the right to purchase from the Company, at any time during the period commencing on the Effective Date and expiring five (5) years thereafter (the "Expiration Time"), up to 120,000 Shares at an initial exercise price (subject to adjustment as provided in Article 8 hereof) of $7.50 per share (150% of the public offering price) and/or 120,000 non-redeemable Underlying Warrants at an initial exercise price of $.1875 per warrant (150% of the public offering price) (the "Exercise Price" or "Purchase Price"), subject to the terms and conditions of this Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of Common Stock at $7.50 per share during the five (5) year period commencing on the Effective Date. Except as specifically otherwise provided herein, the Shares and the Underlying Warrants constituting the Warrant Securities shall bear the same terms and conditions as such securities described under the caption "Description of Securities" in the Registration Statement, and as designated in the Company's Articles of Incorporation and any amendments thereto, and the Underlying Warrants shall be governed by the terms of the Warrant Agreement executed in connection with the Company's public offering (the "Warrant Agreement"), except as provided herein, and the Holders shall have registration rights under the Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares, the Underlying Warrants, and the shares of Common Stock underlying the Underlying Warrants, as more fully described in paragraph seven (7) of this Representative's Warrant Agreement. In the event of any extension of the expiration date or reduction of the exercise price of the Public Warrants, the same such changes to the Underlying Warrants shall be simultaneously effected, except that the Underlying Warrants shall expire no later than five (5) years from the Effective Date. 2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant Certificate") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in the form of Warrant Certificate, attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. EXERCISE OF WARRANT. 3.1 FULL EXERCISE. (i) The Holder hereof may effect a cash exercise of the Common Stock Representative Warrants and/or the Warrant Representative Warrants and/or the Underlying Warrants by surrendering the Warrant Certificate, together with a Subscription in the form of Exhibit "A" attached thereto, duly 2 executed by such Holder to the Company, at any time prior to the Expiration Time, at the Company's principal office, accompanied by payment in cash or by certified or official bank check payable to the order of the Company in the amount of the aggregate purchase price (the "Aggregate Price"), subject to any adjustments provided for in this Agreement. The aggregate price hereunder for each Holder shall be equal to the exercise price as set forth in Section six (6) hereof multiplied by the number of Warrants, Underlying Warrants or Shares that are the subject of each Holder's Warrant (as adjusted as hereinafter provided). (ii) The Holder hereof may effect a cashless exercise of the Common Stock Representative Warrants and/or the Underlying Warrants by delivering the Warrant Certificate to the Company together with a Subscription in the form of Exhibit "B" attached thereto, duly executed by such Holder, in which case no payment of cash will be required. Upon such cashless exercise, the number of Shares to be purchased by each Holder hereof shall be determined by dividing: (i) the number obtained by multiplying the number of Shares that are the subject of each Holder's Warrant Certificate by the amount, if any, by which the then Market Value (as hereinafter defined) exceeds the Purchase Price; by (ii) the per share purchase price. In no event shall the Company be obligated to issue any fractional securities and, at the time it causes a certificate or certificates to be issued, it shall pay the Holder in lieu of any fractional securities or shares to which such Holder would otherwise be entitled, by the Company check, in an amount equal to such fraction multiplied by the Market Value. The Market Value shall be determined on a per Share basis as of the close of the business day preceding the exercise, which determination shall be made as follows: (a) if the Common Stock is listed for trading on a national or regional stock exchange or is included on the NASDAQ National Market or Small-Cap Market, the average closing sale price quoted on such exchange or the NASDAQ National Market or Small-Cap Market which is published in THE WALL STREET JOURNAL for the ten (10) trading days immediately preceding the date of exercise, or if no trade of the Common Stock shall have been reported during such period, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was so reported; or (b) if the Common Stock is not so listed, admitted to trading or included, the average of the closing highest reported bid and lowest reported ask price as quoted on the National Association of Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the National Daily Quotation Bureau for the first day immediately preceding the date of exercise on which the Common Stock is traded. 3.2 PARTIAL EXERCISE. The securities referred to in 3 paragraph 3.1 above also may be exercised from time to time in part by surrendering the Warrant Certificate in the manner specified in Section 3.1 hereof, except that with respect to a cash exercise, the Purchase Price payable shall be equal to the number of securities being purchased hereunder multiplied by the per security Purchase Price, subject to any adjustments provided for in this Agreement. Upon any such partial exercise, the Company, at its expense, will forthwith issue to the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in the aggregate for the number of securities (as constituted as of the date hereof) for which the Warrant Certificate shall not have been exercised, issued in the name of the Holder hereof or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct. 4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants and/or the Underlying Warrants, the issuance of certificates for the shares of Common Stock and/or other securities shall be made forthwith (and in any event within three (3) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the shares of Common Stock and/or other securities shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant Certificate, by acceptance thereof, covenants and agrees that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the Effective Date of the Public Offering, except (a) to officers of the 4 Representative or to officers and partners of the other Underwriters or Selected Dealers participating in the Public Offering; (b) by will; or (c) by operation of law. 6. EXERCISE PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICES. The initial exercise price of each Common Stock Representative Warrant shall be $7.50 per share (150% of the public offering price). The initial exercise price of each Warrant Representative Warrant shall be $.1875 per Underlying Warrant (150% of the public offering price). The initial exercise price of each Underlying Warrant shall be $7.50 per share. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. The Warrant Representative Warrants and the Underlying Warrants are exercisable during the five (5) year period commencing on the Effective Date. 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. REGISTRATION RIGHTS. 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants, the Shares, the Underlying Warrants and the shares of Common Stock issuable upon exercise of the Underlying Warrants (collectively the "Registrable Securities") have been registered under the Securities Act of 1933, as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants, certificates representing the Shares, the Underlying Warrants and/or the shares of Common Stock issuable upon exercise of the Underlying Warrants shall bear the following legend in the event there is no current registration statement effective with the Commission at such time as to such securities: The securities represented by this certificate may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act and applicable state securities laws is available. 5 7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the Effective Date of the offering and expiring seven (7) years thereafter, the Company prepares and files a post-effective amendment to the Registration Statement, or a new Registration Statement, under the Act, or files a Notification on Form 1-A or otherwise registers securities under the Act, or files a similar disclosure document with the Commission (collectively the "Registration Documents") as to any of its securities under the Act (other than under a Registration Statement pursuant to Form S-8), it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such Registration Document, to the Representative and to all other Holders of the Registrable Securities of its intention to do so. If the Representative and/or other Holders of the Registrable Securities notify the Company within twenty (20) days after receipt of any such notice of its or their desire to include any such Registrable Securities in such proposed Registration Documents, the Company shall afford the Representative and such Holders of such Registrable Securities the opportunity to have any Registrable Securities registered under such Registration Documents or any other available Registration Document. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.3 DEMAND REGISTRATION. (a) At any time commencing one (1) year after the Effective Date of the Public Offering, and expiring four (4) years thereafter, the Holders of Registrable Securities representing more than 50% of such securities at that time outstanding shall have the right (which right is in addition to the registration rights under Section 7.2 hereof), exercisable by written notice to the Company, to have the Company prepare and file with the Commission, on one occasion, a registration statement and/or such other documents, including a prospectus, and/or any other appropriate disclosure document as may be reasonably necessary in the opinion of both counsel for the Company and counsel for the Representative and Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Registrable Securities for nine (9) consecutive months (or such longer period of time as permitted by the Act) by such Holders and any other Holders of any of the Registrable Securities who notify the Company within ten (10) days after being given notice from the Company of such request. A Demand Registration shall not be counted as a Demand Registration hereunder until such Demand 6 Registration has been declared effective by the SEC and maintained continuously effective for a period of at least nine months or such shorter period when all Registrable Securities included therein have been sold in accordance with such Demand Registration, provided that a Demand Registration shall be counted as a Demand Registration hereunder if the Company ceases its efforts in respect of such Demand Registration at the request of the majority Holders making the demand for a reason other than a material and adverse change in the business, assets, prospects or condition (financial or otherwise) of the Company and its subsidiaries taken as a whole. (b) The Company covenants and agrees to give written notice of any registration request under this Section 7.3 by the majority of the Holders to all other registered Holders of any of the Registrable Securities within ten (10) days from the date of the receipt of any such registration request. (c) In addition to the registration rights under Section 7.2 and subsection (a) of this Section 7.3, at any time commencing one (1) year after the Effective Date of the offering, and expiring four (4) years thereafter, the Holders of a majority of the Registrable Securities shall have the right, exercisable by written request to the Company, to have the Company prepare and file, on one occasion, with the Commission a registration statement or any other appropriate disclosure document so as to permit a public offering and sale for nine (9) consecutive months (or such longer period of time as permitted by the Act) by any such Holder of Registrable Securities; provided, however, that the provisions of Section 7.4(b) hereof shall not apply to any such registration request and registration and all costs incident thereto shall be at the expense of the Holder or Holders participating in the offering pro-rata. (d) Any written request by the Holders made pursuant to this Section 7.3 shall: (i) specify the number of Registrable Securities which the Holders intend to offer and sell and the minimum price at which the Holders intend to offer and sell such securities; (ii) state the intention of the Holders to offer such securities for sale; (iii) describe the intended method of distribution of such securities; and (iv) contain an undertaking on the part of the Holders to provide all such information and materials concerning the Holders and take all such action as may be reasonably required to permit the Company to comply with all applicable requirements of the Commission and to obtain acceleration of the effective date of the registration statement. 7 (e) In the event the Company receives from the Holders of any Registrable Securities representing more than 50% of such securities at that time outstanding, a request that the Company effect a registration on Form S-3 with respect to the Registrable Securities and if Form S-3 is available for such offering, the Company shall, as soon as practicable, effect such registration as would permit or facilitate the sale and distribution of the Registrable Securities as are specified in the request. All expenses incurred in connection with a registration requested pursuant to this Section shall be borne by the Company. Registrations effected pursuant to this Section 7.3(e) shall not be counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof. 7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In connection with any registration under Section 7.2 or 7.3 hereof, the Company covenants and agrees as follows: (a) The Company shall use its best efforts to file a registration statement within forty-five (45) days of receipt of any demand pursuant to Section 7.3, and shall use its best efforts to have any such registration statement declared effective at the earliest practicable time. The Company will promptly notify each seller of such Registrable Securities and confirm such advice in writing, (i) when such registration statement becomes effective, (ii) when any post-effective amendment to such registration statement becomes effective and (iii) of any request by the SEC for any amendment or supplement to such registration statement or any prospectus relating thereto or for additional information. The Company shall furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each such amendment and supplement thereto (in each case including each preliminary prospectus and summary prospectus) in conformity with the requirements of the Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller. (b) The Company shall pay all costs (excluding transfer taxes, if any, and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of the selling discount or commissions), fees and expenses in connection with all registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and expenses in connection with any registration statement filed pursuant to Section 7.3(c). If the Company shall fail to comply with the provisions of Section 7.3(a), the Company shall, in addition to any other equitable or other relief available to the Holder(s), be liable for any or all 8 special and consequential damages sustained by the Holder(s) requesting registration of their Registrable Securities. (c) The Company shall prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be reasonably necessary to keep such registration statement effective for at least nine months (or such longer period as permitted by the Act), and to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers of Registrable Securities set forth in such registration statement. If at any time the SEC should institute or threaten to institute any proceedings for the purpose of issuing a stop order suspending the effectiveness of any such registration statement, the Company will promptly notify each seller of such Registrable Securities and will use all reasonable efforts to prevent the issuance of any such stop order or to obtain the withdrawal thereof as soon as possible. The Company will use its good faith reasonable efforts and take all reasonably necessary action which may be required in qualifying or registering the Registrable Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are required by the Holder(s), provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. The Company shall use its good faith reasonable efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities of the United States or any State thereof as may be reasonably necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities. (d) The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Representative as contained in the Underwriting Agreement. (e) If requested by the Company prior to the filing of any registration statement covering the Registrable Securities, each of 9 the Holder(s) of the Registrable Securities to be sold pursuant to a registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from written information furnished by such Holder, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in the Underwriting Agreement pursuant to which the Representative has agreed to indemnify the Company, except that the maximum amount which may be recovered from each Holder pursuant to this paragraph or otherwise shall be limited to the amount of net proceeds received by the Holder from the sale of the Registrable Securities. (f) Nothing contained in this Agreement shall be construed as requiring the Holder(s) to exercise their Warrants or Underlying Warrants prior to the filing of any registration statement or the effectiveness thereof. (g) The Company shall not permit the inclusion of any securities other than the Registrable Securities to be included in any registration statement filed pursuant to Section 7.3 hereof without the prior written consent of the Holders of the Registrable Securities representing a majority of such securities. (h) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (i) The Company shall deliver promptly to each Holder 10 participating in the offering requesting the correspondence and memoranda described below and the managing underwriter copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. ("NASD"). Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder shall reasonably request. (j) With respect to a registration statement filed pursuant to Section 7.3, the Company, if requested, shall enter into an underwriting agreement with the managing underwriter, reasonably satisfactory to the Company, selected for such underwriting by Holders holding a majority of the Registrable Securities requested to be included in such underwriting. Such agreement shall be satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders, if required by the Underwriter to be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities, may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of this Agreement, the Company shall not be required to effect or cause the registration of Registrable Securities pursuant to paragraph 7.2 or paragraph 7.3 hereof if, within thirty (30) days after its receipt of a request to register such Registrable Securities (i) counsel for the Company delivers an opinion to the Holders requesting registration of such Registrable Securities, in form and substance satisfactory to counsel to such Holder(s), to the effect that the entire number of Registrable Securities proposed to be sold by such Holder(s) may otherwise be sold, in the manner proposed by such Holder(s), without registration under the Securities Act, or (ii) the SEC shall have issued a no-action position, in form and substance satisfactory to counsel for the Holder(s) requesting registration of such Registrable Securities, to the effect that the entire number of 11 Registrable Securities proposed to be sold by such Holder(s) may be sold by it, in the manner proposed by such Holder(s), without registration under the Securities Act. (l) After completion of the Public Offering, the Company shall not, directly or indirectly, enter into any merger, business combination or consolidation in which (a) the Company shall not be the surviving corporation and (b) the stockholders of the Company are to receive, in whole or in part, capital stock or other securities of the surviving corporation, unless the surviving corporation shall, prior to such merger, business combination or consolidation, agree in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to "Registrable Securities" shall be deemed to include the securities which the Holders would be entitled to receive in exchange for Registrable Securities under any such merger, business combination or consolidation, provided that to the extent such securities to be received are convertible into shares of Common Stock of the issuer thereof, then any such shares of Common Stock as are issued or issuable upon conversion of said convertible securities shall also be included within the definition of "Registrable Securities". 8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. 8.1 ADJUSTMENT FOR DIVIDENDS, SUBDIVISIONS, COMBINATIONS OR RECLASSIFICATIONS. In case the Company shall (a) pay a dividend or make a distribution in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class), (b) subdivide its outstanding shares of Common Stock into a greater number of shares, (c) combine its outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company; then, and in each such case, the per share Exercise Price and the number of Warrant Securities in effect immediately prior to such action shall be adjusted so that the Holder of this Warrant thereafter upon the exercise hereof shall be entitled to receive the number and kind of shares of the Company which such Holder would have owned immediately following such action had this Warrant been exercised immediately prior thereto. An adjustment made pursuant to this Section shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this Section, the Holder of this Warrant shall become entitled to receive shares of two or more classes of capital stock of the Company, the Board of Directors of the Company (whose determination shall be conclusive) shall determine the allocation of the adjusted Exercise Price between or among shares of such class of capital stock. 12 Immediately upon any adjustment of the Exercise Price pursuant to this Section, the Company shall send written notice thereof to the Holder of Warrant Certificates (by first class mail, postage prepaid), which notice shall state the Exercise Price resulting from such adjustment, and any increase or decrease in the number of Warrant Securities to be acquired upon exercise of the Warrants, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 8.2 ADJUSTMENT FOR REORGANIZATION, MERGER OR CONSOLIDATION. In case of any reorganization of the Company or consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental Warrant agreement providing that the Holder of each Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by a holder of the number of shares of Common Stock of the Company for which such warrant might have been exercised immediately prior to such reorganization, consolidation, merger, conveyance, sale or transfer. Such supplemental Warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8 and such registration rights and other rights as provided in this Agreement. The Company shall not effect any such consolidation, merger, or similar transaction as contemplated by this paragraph, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing, receiving, or leasing such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Holders, the obligation to deliver to the Holders, such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase, and to perform the other obligations of the Company under this Agreement. The above provision of this Subsection shall similarly apply to successive consolidations or successively whenever any event listed above shall occur. 8.3 DIVIDENDS AND OTHER DISTRIBUTIONS. In the event that the Company shall at any time prior to the exercise of all of the Warrants and/or Underlying Warrants distribute to its stockholders any assets, property, rights, evidences of indebtedness, securities (other than a distribution 13 made as a cash dividend payable out of earnings or out of any earned surplus legally available for dividends under the laws of the jurisdictions of incorporation of the Company), whether issued by the Company or by another, the Holders of the unexercised Warrants shall thereafter be entitled, in addition to the shares of Common Stock or other securities and property receivable upon the exercise thereof, to receive, upon the exercise of such Warrants, the same property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such distribution as if the Warrants had been exercised immediately prior to such distribution. At the time of any such distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this subsection or an adjustment to the Exercise Price, which shall be effective as of the day following the record date for such distribution. 8.4 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of securities issuable upon the exercise of each Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of securities issuable upon exercise of the Warrants and/or the Underlying Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment of the Exercise Price shall be made if the amount of said adjustment shall be less than 5 cents ($.05) per Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 5 cents ($.05) per Share. 8.6 ACCOUNTANT'S CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or readjustment of the Exercise Price or the number of any securities issuable upon exercise of the Warrants and/or Underlying Warrants, the Company, at its expense, shall cause independent certified public accountants of recognized standing selected by the Company (who may be the independent certified public accountants then auditing the books of the Company) to compute such adjustment or readjustment in accordance herewith and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to any Holder of the Warrants and/or Underlying Warrants at the Holder's address as shown on the Company's books. 14 The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based including, but not limited to, a statement of (i) the Exercise Price at the time in effect, and (ii) the number of additional securities and the type and amount, if any, of other property which at the time would be received upon exercise of the Warrants and/or Underlying Warrants. 8.7 ADJUSTMENT OF UNDERLYING WARRANT EXERCISE PRICE. With respect to any of the Underlying Warrants whether or not the Underlying Warrants have been exercised (or are exercisable) and whether or not the Underlying Warrants are issued and outstanding, the Underlying Warrant exercise price and the number of shares of Common Stock underlying such Underlying Warrants shall be automatically adjusted in accordance with the Warrant Agreement between the Company and the Company's transfer agent, upon occurrence of any of the events relating to adjustments described therein. Thereafter, the Underlying Warrants shall be exercisable at such adjusted Underlying Warrant exercise price for such adjusted number of underlying shares of Common Stock or other securities, properties or rights. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTEREST. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants and/or Underlying Warrants, nor shall it be required to issue script or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests may be eliminated, at the Company's option, by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights, or in lieu thereof 15 paying cash equal to such fractional interest multiplied by the current value of a share of Common Stock. 11. RESERVATION AND LISTING. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants and the Underlying Warrants, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and/or the Underlying Warrants, and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Warrants and/or Underlying Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants and the Underlying Warrants to be listed and quoted (subject to official notice of issuance) on all securities Exchanges and Systems on which the Common Stock and/or the Public Warrants may then be listed and/or quoted, including Nasdaq. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon the Holders of the Warrants and/or Underlying Warrants the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrants and/or Underlying Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or 16 merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date of the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notices shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. UNDERLYING WARRANTS. The form of the certificate representing the Underlying Warrants (and the form of election to purchase shares of Common Stock upon the exercise of the Underlying Warrants and the form of assignment printed on the reverse thereof) shall be substantially as set forth in the exhibits to the Warrant Agreement. Subject to the terms of this Agreement, one (1) Underlying Warrant shall evidence the right to initially purchase one (1) fully-paid and non-assessable share of Common Stock at an initial purchase price of $7.50 during the five (5) year period commencing on the Effective Date of the Registration Statement, at which time the Underlying Warrants, unless the exercise period has been extended, shall expire. The exercise price of the Underlying Warrants and the number of shares of Common Stock issuable upon the exercise of the Underlying Warrants are subject to adjustment, whether or not the Warrants have been exercised and the Underlying Warrants have been issued, in the manner and upon the occurrence of the events set forth in the Warrant Agreement, which is hereby incorporated herein by reference and made a part hereof as if set forth in its entirety herein. Subject to the provisions of this Agreement and upon issuance of the Underlying Warrants, each registered holder of such Underlying Warrant shall have the right to purchase from the Company (and the Company shall issue to such registered holders) up to the number of fully-paid and non-assessable shares of Common Stock (subject to adjustment as provided in the Warrant Agreement) set forth in such Warrant Certificate, free and clear of all preemptive rights of stockholders, provided that such registered Holder complies with the terms governing exercise of the Underlying Warrant set forth in the Warrant Agreement, and pays the applicable exercise price, determined in accordance with the terms of the Warrant Agreement. Upon exercise of the Underlying Warrants, the Company shall forthwith issue to the registered Holder of any such 17 Underlying Warrant in his name or in such name as may be directed by him, certificates for the number of shares of Common Stock so purchased. Except as otherwise provided herein and in this Agreement, the Underlying Warrants shall be governed in all respects by the terms of the Warrant Agreement. The Underlying Warrants shall be transferrable in the manner provided in the Warrant Agreement, and upon any such transfer, a new Underlying Warrant certificate shall be issued promptly to the transferee. The Company covenants to send to each Holder, irrespective of whether or not the Warrants have been exercised, any and all notices required by the Warrant Agreement to be sent to holders of Underlying Warrants. 14. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given when personally delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered Holder of any of the Registrable Securities, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth below or to such other address as the Company may designate by notice to the Holders. Pedro Pablo Errazuriz, President Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 With a copy to: Charles B. Pearlman, Esq. Atlas, Pearlman, Trop & Borkson, P.A. 200 East Las Olas Boulevard Ft. Lauderdale, Florida 33301 15. ENTIRE AGREEMENT: MODIFICATION. This Agreement (and the Underwriting Agreement and Warrant Agreement to the extent applicable) contain the entire understanding between the parties hereto with respect to the subject matter hereof, and the terms and provisions of this Agreement may not be modified, waived or amended except in a writing executed by the Company and the Holders of at least a majority of Registrable Securities (based on underlying numbers of shares of Common Stock). Notice of any modification, waiver or amendment shall be promptly provided to any Holder not consenting to such modification, waiver or amendment. 18 16. SUCCESSORS. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. 17. TERMINATION. This Agreement shall terminate at the close of business on ____________, 2003. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination. 18. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Florida and for all purposes shall be construed in accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. The Company, the Representative and the Holders hereby agree that any action, proceeding or claim arising out of, or relating in any way to, this Agreement shall be brought and enforced in a federal or state court of competent jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the United States District Court for the Southern District of Florida, West Palm Beach Division, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Representative and the Holders hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Representative and the Holders (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 14 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. 19. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 20. CAPTIONS. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any 19 person or corporation other than the Company and the Representative and any other registered Holder(s) of the Warrant Certificates or Registrable Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Representative and any other Holder(s) of the Warrant Certificates or Registrable Securities. 22. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. ANDEAN DEVELOPMENT CORPORATION By: ________________________________ Pedro Pablo Errazuriz, President Attest: ________________________________ Jose Luis Yrarrazaval, Secretary BARRON CHASE SECURITIES, INC. By: ________________________________ Robert Kirk, President 20 WARRANT CERTIFICATE THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M, EASTERN TIME ON __________, 200 _____ NO. W- ______________ Common Stock ____________ Warrant Representative Representative Warrants Warrants or ____________ Underlying Warrants This Warrant Certificate certifies that _________________ , or registered assigns, is the registered holder of __________ Common Stock Representative Warrants and/or _________ Warrant Representative Warrants and/or ____________ Underlying Warrants of Andean Development Corporation (the "Company"). Each Common Stock Representative Warrant permits the Holder hereof to purchase initially, at any time from _______ , 1996 ("Purchase Date") until 5:30 p.m. Eastern Time on _________ , 2001 ("Expiration Date"), one (1) share of the Company's Common Stock at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $7.50 per share (150% of the public offering price). Each Warrant Representative Warrant permits the Holder hereof to purchase initially, at any time from the Purchase Date until five (5) years from the Purchase Date, one (1) Underlying Warrant at the Exercise Price of $.1875 per Underlying Warrant. Each Underlying Warrant permits the Holder thereof to purchase, at any time from the Purchase Date until five (5) years from the Purchase Date, one (1) share of the Company's Common Stock at the Exercise Price of $7.50 per share. 21 Any exercise of Common Stock Representative Warrants and/or Warrant Representative Warrants and/or Underlying Warrants shall be effected by surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Representative's Warrant Agreement dated as of _________ , 1996, between the Company and Barron Chase Securities, Inc. (the "Representative's Warrant Agreement"). Payment of the Exercise Price shall be made by certified check or official bank check in New York Clearing House funds payable to the order of the Company in the event there is no cashless exercise pursuant to Section 3.1(ii) of the Representative's Warrant Agreement. The Common Stock Representative Warrants, the Warrant Representative Warrants, and the Underlying Warrants are collectively referred to as "Warrants". No Warrant may be exercised after 5:30 p.m., Eastern Time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, hereby shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Representative's Warrant Agreement, which Representative's Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation or rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Representative's Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Representative's Warrant Agreement. Upon due presentment for registration or transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Representative's Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced 22 by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Representative's Warrant Agreement shall have the meanings assigned to them in the Representative's Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of _________________, 1996 ANDEAN DEVELOPMENT CORPORATION By: ________________________________ Pedro Pablo Errazuriz, President (Seal) Attest: ________________________________ Jose Luis Yrarrazaval, Secretary 23 EXHIBIT "A" FORM OF SUBSCRIPTION (CASH EXERCISE) (To be signed only upon exercise of Warrant) TO: Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 The undersigned, the Holder of Warrant Certificate number ______ (the "Warrant"), representing ____________Common Stock Representative Warrants and/or ____________ Warrant Representative Warrants and/or ____________Underlying Warrants of Andean Development Corporation (the "Company"), which Warrant Certificate is being delivered herewith, hereby irrevocably elects to exercise the purchase right provided by the Warrant Certificate for, and to purchase thereunder,____________ Shares and/or ____________ Underlying Warrants of the Company, and herewith makes payment of $____________ therefor, and requests that the certificates for such securities be issued in the name of, and delivered to,_____________________________________ , whose address is____________________ _______________________________________________________, all in accordance with the Representative's Warrant Agreement and the Warrant Certificate. Dated: ____________ ___________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate) ___________________________________ ___________________________________ (Address) 24 EXHIBIT "B" FORM OF SUBSCRIPTION (CASHLESS EXERCISE) TO: Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 The undersigned, the Holder of Warrant Certificate number ______the "Warrant"), representing ___________ Common Stock Representative Warrants and/or ____________ Underlying Warrants of Andean Development Corporation (the "Company"), which Warrant is being delivered herewith, hereby irrevocably elects the cashless exercise of the purchase right provided by the Representative's Warrant Agreement and the Warrant Certificate for, and to purchase thereunder, Shares of the Company in accordance with the formula provided at Section three (3) of the Representative's Warrant Agreement. The undersigned requests that the certificates for such Shares be issued in the name of, and delivered to,____________________________________________________________________ , whose address is,___________________________________________________________________, all in accordance with the Warrant Certificate. Dated:________________ __________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant Certificate) __________________________________ __________________________________ (Address) 25 (FORM OF ASSIGNMENT) (To be exercised by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED ____________________________________________________________ hereby sells, assigns and transfers unto (Print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ________________________________________________________ Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, and full power of substitution. Dated: Signature: __________________________________ ______________________________ (Signature must conform in all respects to name of holder as specified on the fact of the Warrant Certificate) ______________________________ (Insert Social Security or Other Identifying Number of Assignee) 26 EX-10.28 6 EXHIBIT 10.28 FINANCIAL ADVISORY AGREEMENT This Agreement is made and entered into as of the ___________ day of ________________, 1996, between Andean Development Corporation (the "Company") and Barron Chase Securities, Inc. (the "Financial Advisor"). W I T N E S S E T H : WHEREAS, The Company has engaged the Financial Advisor to act as the Underwriter in connection with the public offering of the Company's securities; and WHEREAS, the Financial Advisor has experience in providing financial and business advice to public and private companies; and WHEREAS, the Company is seeking and the Financial Advisor is willing to furnish business and financial related advice and services to the Company on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of, and for the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. PURPOSE. The Company hereby engages the Financial Advisor on a non-exclusive basis for the term specified in this Agreement to render financial advisory and consulting advice to the Company as an investment banker relating to financial and similar matters upon the terms and conditions set forth herein. 2. REPRESENTATIONS OF THE FINANCIAL ADVISOR AND THE COMPANY. The Financial Advisor represents and warrants to the Company that (i) it is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and that it is engaged in the securities brokerage business; (ii) in addition to its securities brokerage business, the Financial Advisor provides consulting advisory services; and (iii) it is free to enter into this Agreement and the services to be provided pursuant to this Agreement are not in conflict with any other contractual or other obligation to which the Financial Advisor is bound. The Company acknowledges that the Financial Advisor is in the business of providing financial services and consulting advice (of the type contemplated by this Agreement) to others and that nothing herein contained shall be construed to limit or restrict the Financial Advisor in conducting such business with respect to others, or rendering such advice to others. 3. DUTIES OF THE FINANCIAL ADVISOR. During the term of this Agreement, the Financial Advisor will provide the Company with consulting advice as specified below at the request of the Company, provided that the Financial Advisor shall not be required to undertake duties not reasonably within the scope of the consulting 1 advisory service in which the Financial Advisor is engaged generally. In performance of these duties, the Financial Advisor shall provide the Company with the benefits of its best judgment and efforts. It is understood and acknowledged by the parties that the value of the Financial Advisor's advice is not measurable in any quantitative manner, and that the amount of time spent rendering such consulting advice shall be determined according to the Financial Advisor's discretion. The Financial Advisor's duties may include, but will not necessarily be limited to: 1) Advice relating to corporate financing activities; 2) Recommendations relating to specific business operations and investments; 3) Advice relating to financial planning; and 4) Advice regarding future financings involving securities of the Company or any subsidiary. 4. TERM. The term of this Agreement shall be for thirty-six (36) months commencing on the first day of the month following the Company's receipt of the proceeds from the contemplated public offering (the "Commencement Date"); provided, however, that this Agreement may be renewed or extended upon such terms and conditions as may be mutually agreed upon by the parties hereto. 5. FEE. The Company shall pay the Financial Advisor a fee of $108,000 for the financial services to be rendered pursuant to this Agreement, all of which shall be payable at the Closing Date of the Company's proposed public offering. 6. EXPENSES. In addition to the fees payable hereunder, the Company shall reimburse the Financial Advisor, within five (5) business days of its request, for any and all reasonable out-of-pocket expenses incurred in connection with the services performed by the Financial Advisor and its counsel pursuant to this Agreement, including (i) reasonable hotel, food and associated expenses; (ii) reasonable charges for travel; (iii) reasonable long-distance telephone calls; and (iv) other reasonable expenses spent or incurred on the Company's behalf. All such expenses in excess of $500 shall be pre-approved by the Company. 7. INTRODUCTION OF CUSTOMERS, ORIGINATION OF LINE OF CREDIT AND SIMILAR TRANSACTIONS. In the event the Financial Advisor originates a line of credit with a lender or a corporate partner, the Company and the Financial Advisor will mutually agree on a satisfactory fee and the terms of payment of such fee. In the event the Financial Advisor introduces the Company to a joint venture partner or customer and sales develop as a result of the introduction, the Company agrees to pay a fee of five percent (5%) of total sales generated directly from this introduction during the first two years following the date of the first sale. Total sales 2 shall mean cost receipts less any applicable refunds, returns, allowances, credits and shipping charges and monies paid by the Company by way of settlement or judgment arising out of claims made by or threatened against the Company. Commission payments shall be paid on the 15th day of each month following the receipt of customers' payments. In the event any adjustments are made to the total sales after the commission has been paid, the Company shall be entitled to an appropriate refund or credit against future payments under this Agreement. All fees to be paid pursuant to this paragraph, except as otherwise specified, are due and payable to the Financial Advisor in cash at the closing or closings of any transaction specified in this paragraph. In the event that this Agreement shall not be renewed or if terminated for any reason, notwithstanding any such non-renewal or termination, the Financial Advisor shall be entitled to a full fee as provided under this paragraph for any transaction for which the discussions were initiated during the term of this Agreement and which is consummated within a period of twelve months after non-renewal or termination of this Agreement. Nothing herein shall impose any obligation on the part of the Company to enter into any transaction or to use any services of the Financial Advisor offered pursuant to this paragraph or this Agreement. 8. USE OF ADVICE BY THE COMPANY; PUBLIC MARKET FOR THE COMPANY'S SECURITIES. The Company acknowledges that all opinions and advice (written or oral) given by the Financial Advisor to the Company in connection with the engagement of the Financial Advisor are intended solely for the benefit and use of the Company in considering the transaction to which they relate, and the Company agrees that no person or entity other than the Company shall be entitled to make use of or rely upon the advice of the Financial Advisor to be given hereunder, and no such opinion or advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, nor may the Company make any public references to the Financial Advisor, or use of the Financial Advisor's name in any annual reports or any other reports or releases of the Company without the prior written consent of the Financial Advisor. The Company acknowledges that the Financial Advisor makes no commitment whatsoever as to making a public trading market in the Company's securities or to recommending or advising its clients to purchase the Company's securities. Research reports or corporate finance reports that may be prepared by the Financial Advisor will, when and if prepared, be done solely on the merits or judgment and analysis of the Financial Advisor or any senior corporate finance personnel of the Financial Advisor. 9. COMPANY INFORMATION; CONFIDENTIALLY. The Company recognizes and confirms that, in advising the Company and in fulfilling its engagement hereunder, the Financial Advisor will use and rely on data, material and other information furnished to the Financial Advisor by the Company. The Company acknowledges and agrees that in performing its services under this engagement, the 3 Financial Advisor may rely upon the data, material and other information supplied by the Company without independently verifying the accuracy, completeness or veracity of same. In addition, in the performance of its services, the Financial Advisor may look to such others for such factual information, economic advice and/or research upon which to base its advice to the Company hereunder as the Financial Advisor shall in good faith deem appropriate. Except as contemplated by the terms hereof or as required by applicable law, the Financial Advisor shall keep confidential all non-public information provided to it by the Company, and shall not disclose such information to any third party without the Company's prior written consent, other than such of its employees and advisors as the Financial Advisor determines to have a need to know. 10. INDEMNIFICATION. The Company shall indemnify and hold harmless the Financial Advisor against any and all liabilities, claims, lawsuits, including any and all awards and/or judgments to which it may become subject under the Securities Act of 1933, (the "Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act") or any other federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including costs, expenses, awards and/or judgments) arise out of or are in connection with the services rendered by the Financial Advisor or any transactions in connection with this Agreement, except for any liabilities, claims and lawsuits (including awards and/or judgments), arising out of willful misconduct or willful omissions of the Financial Advisor. In addition, the Company shall also indemnify and hold harmless the Financial Advisor against any and all reasonable costs and expenses, including reasonable counsel fees, incurred relating to the foregoing. The Financial Advisor shall give the Company prompt notice of any such liability, claim or lawsuit which the Financial Advisor contends is the subject matter of the Company's indemnification and the Company thereupon shall be granted the right to take any and all necessary and proper action, at its sole cost and expense, with respect to such liability, claim and lawsuit, including the right to settle, compromise and dispose of such liability, claim or lawsuit, excepting therefrom any and all proceedings or hearings before any regulatory bodies and/or authorities. The Financial Advisor shall indemnify and hold the Company harmless against any and all liabilities, claims and lawsuits, including any and all awards and/or judgments to which it may become subject under the Act, the 1934 Act or any other federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including costs, expenses, awards and/or judgments) arise out of or are based upon willful misconduct or willful omissions of the Financial Advisor. In addition, the Financial Advisor shall also indemnify and hold the Company harmless against any and all reasonable costs and expenses, including reasonable counsel fees, incurred relating to the foregoing. 4 The Company shall give the Financial Advisor prompt notice of any such liability, claim or lawsuit which the Company contends is the subject matter of the Financial Advisor's indemnification and the Financial Advisor thereupon shall be granted the right to take any and all necessary and proper action, at its sole cost and expense, with respect to such liability, claim and lawsuit, including the right to settle, compromise or dispose of such liability, claim or lawsuit, excepting therefrom any and all proceedings or hearings before any regulatory bodies and/or authorities. 11. THE FINANCIAL ADVISOR AS AN INDEPENDENT CONTRACTOR. The Financial Advisor shall perform its services hereunder as an independent contractor and not as an employee of the Company or an affiliate thereof. It is expressly understood and agreed to by the parties hereto that the Financial Advisor shall have no authority to act for, represent or bind the Company or any affiliate thereof in any manner, except as may be agreed to expressly by the Company in writing from time to time. 12. MISCELLANEOUS. (a) This Agreement between the Company and the Financial Advisor constitutes the entire agreement and understanding of the parties hereto, and supersedes any and all previous agreements and understandings, whether oral or written, between the parties with respect to the matters set forth herein. (b) Any notice or communication permitted or required hereunder shall be in writing and shall be deemed sufficiently given if hand-delivered or sent postage prepaid by certified or registered mail, return receipt requested, to the respective parties as set forth below, or to such other address as either party may notify the other in writing: If to the Company: Pedro Pablo Errazuriz, President Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 Copy to: Charles B. Pearlman, Esq. Atlas, Pearlman, Trop & Borkson, P.A. 200 East Las Olas Boulevard Ft. Lauderdale, Florida 33301 If to the Financial Advisor: Robert T. Kirk, President Barron Chase Securities, Inc. 7700 West Camino Real, Suite 200 Boca Raton, Florida 33433 Copy to: David A. Carter, P.A. 355 West Palmetto Park Road Boca Raton, Florida 33432 5 (c) This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors, legal representatives and assigns. (d) This Agreement may be executed in any number of counterparts, each of which together shall constitute one and the same original document. (e) No provision of this Agreement may be amended, modified or waived, except in a writing signed by all of the parties hereto. (f) This Agreement shall be construed in accordance with and governed by the laws of the State of Florida, without giving effect to conflict of law principles. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in Palm Beach County, Florida, and they hereby submit to the exclusive jurisdiction of the courts of the State of Florida located in Palm Beach County, Florida and of the federal courts in the Southern District of Florida with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth in paragraph 12(b) hereof. (g) This Agreement has been duly authorized, executed and delivered by and on behalf of the Company and the Financial Advisor. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. Very truly yours, ANDEAN DEVELOPMENT CORPORATION BY:________________________________ Pedro Pablo Errazuriz, President BARRON CHASE SECURITIES, INC. BY:________________________________ Robert T. Kirk, President 6 EX-10.29 7 EXHIBIT 10.29 _________________, 1996 Pedro Pablo Errazuriz, President Andean Development Corporation 835 Lakeside Drive Boca Raton, Florida 33432 RE: MERGER AND ACQUISITION AGREEMENT Gentlemen: You have agreed that Barron Chase Securities, Inc., (the "Finder") may act as a non-exclusive finder or financial consultant for you in various transactions in which Andean Development Corporation (the "Company") may be involved, such as mergers, acquisitions, joint ventures, debt or equity placements and similar or other on-balance or off-balance sheet corporate finance transactions. The Company hereby agrees that in the event that the Finder shall first introduce to the Company another party or entity, in writing, and that as a result of such introduction, a transaction between such entity and the Company is consummated ("Consummated Transaction"), then the Company shall pay to the Finder a finder's fee as follows: a. Five percent (5%) of the first $1,000,000 of the consideration paid in such transaction; b. Four percent (4%) of the consideration in excess of $1,000,000 and up to $2,000,000; c. Three percent (3%) of the consideration in excess of $2,000,000 and up to $3,000,000; d. Two percent (2%) of any consideration in excess of $3,000,000 and up to $4,000,000; and e. One percent (1%) of any consideration in excess of $4,000,000. The fee due the Finder shall be paid by the Company in cash and/or in stock at the closing of the Consummated Transaction as mutually agreed between the Company and the Finder, without regard to whether the Consummated Transaction involves payments in cash, in stock, or a combination of stock and cash, or is made on an installment sale basis. By way of example, if the Consummated Transaction involves securities of the acquiring entity (whether securities of the Company, if the Company is the acquiring party, or securities of another entity, if the Company is the selling party) having a value of $5,000,000, the consideration to be paid by the Company to the Finder at closing shall be $150,000. In the event that for any reason the Company shall fail to pay to the Finder all or any portion of the finder's fee payable hereunder when due, interest shall accrue and be payable on the unpaid balance due hereunder from the date when first due through and including that date when actually collected by the Finder, at a rate equal to two (2) points over the prime rate of Citibank, N.A. in New York, New York, computed on a daily basis and adjusted as announced from time to time. This agreement shall be effective on the date hereof and shall expire on the fifth anniversary of the date hereof. Notwithstanding anything herein to the contrary, if the Company shall, within 180 days immediately following the termination of the five year period provided above, conclude a Consummated Transaction with any party introduced by the Finder to the Company prior to the termination of said five year period, the Company shall also pay the Finder the fee determined above. The Company represents and warrants to the Finder that the engagement of the Finder hereunder has been duly authorized and approved by the Board of Directors of the Company and this letter agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company. This agreement has been executed and delivered in the State of Florida and shall be governed by the laws of such state, without giving effect to the conflicts of laws rules thereunder. This agreement shall be binding upon, and enforceable against, the successors and assigns of each of the undersigned. Please sign this letter at the place indicated below, whereupon it will constitute our mutually binding agreement with respect to the matters contained herein. Very truly yours, BARRON CHASE SECURITIES, INC. BY:________________________________ Robert T. Kirk, President Agreed to and Accepted: ANDEAN DEVELOPMENT CORPORATION By: __________________________________ Pedro Pablo Errazuriz, President 2 EX-23.2 8 EXHIBIT 23.2 MUTNICK & ASSOCIATES Certified Public Accountants (LETTERHEAD) CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion of this Amendment 11 to Form SB-2 being filed under the Securities Act of 1933 by Andean Development Corporation, of our report dated March 29, 1996 except for Note 15, to which the date is October 21, 1996, relating to our examination of the supplemental consolidated financial statements of Andean Development Corporation and subsidiaries, as at December 31, 1995 and for each of the two years in the period ended December 31, 1995 appearing in the prospectus. We also consent to the reference to our firm appearing under the caption "Experts" in the Prospectus. MUTNICK & ASSOCIATES, P.A. Certified Public Accountants Pembroke Pines, Florida October 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----