-----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, R+Ayy3+3885umP2FQUD9udoELE1av21Y/8eStY1hKw17DnVR2j9omP7Cxo2+YiH2 WL699RmmBxSVLowdy+jLOw== 0001013762-98-000017.txt : 19980604 0001013762-98-000017.hdr.sgml : 19980604 ACCESSION NUMBER: 0001013762-98-000017 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19980603 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIDE AUTOMOTIVE GROUP INC CENTRAL INDEX KEY: 0001004124 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 980157860 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-44131 FILM NUMBER: 98641361 BUSINESS ADDRESS: STREET 1: PRIDE HOUSE WARFORD METRO CENTRE TOLPITS STREET 2: WALFORD HERTORDSHIRE CITY: WDI 8SB ENGLAND STATE: X0 ZIP: 0000 BUSINESS PHONE: 8006986590 MAIL ADDRESS: STREET 1: PRIDE HOUSE WATFORD METRO CTR TOLPITS LN STREET 2: WATFORD HERTFORDSHIRE WD1 8SB ENGLAND SB-2/A 1 D:\WP51P\PRIDE\COMPARE\SB-2A.FIN As filed with the Securities and Exchange Commission on ^June 3, 1998 Registration No. ^333-44131 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NUMBER 1 TO THE FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PRIDE AUTOMOTIVE GROUP, INC. (Exact name of Registrant as specified in Charter)
Delaware 7510 98-0157860 (State of (Primary standard industrial I.R.S. employer Incorporation) classification code) Identification No.
Pride House, Watford Metro Centre, Tolpits Lane Watford Hertfordshire, WD1 8SB England (800) 698-6590 (Address and Telephone Number of Principal Executive Offices) Alan Lubinsky, President Pride House, Watford Metro Centre, Tolpits Lane Watford Hertfordshire, WD1 8SB England (800) 698-6590 (Name, Address and Telephone Number of Agent for Service) Copies To: Mitchell Lampert, Esq. Jay M. Kaplowitz, Esq. Lampert & Lampert Gersten Savage Kaplowitz 10 East 40th Street & Fredericks, LLP New York, New York 10016 101 East 52nd Street, 9th Fl. (212) 889-7300 New York, New York 10168 (212) 752-9700 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If any of the securities being registered on this Form SB-2 are to be offered on a continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [x] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of a prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. CALCULATION OF REGISTRATION FEE
=================================================================================================================================== Maximum Maximum Amount of Title of Each Class Amount Being Offering Price Aggregate Registration of Securities Registered Per Security (1) Offering Price (1) Fee Being Registered - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, Par Value $.001(2)............... 1,437,500 $(3) $5,750,000 $1,982.60 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, Par Value $.001 (4)...... 95,000 7.50 712,500 245.67 - ----------------------------------------------------------------------------------------------------------------------------------- Warrants (4)......... 200,000 0.15 30,000 10.34 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, Par Value $.001 (4)...... 200,000 5.75 1,150,000 396.52 - ----------------------------------------------------------------------------------------------------------------------------------- Underwriters Warrants to Purchase Shares of Common Stock (5)............ 125,000 10.00 nil nil(6) - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock, Par Value $.001.......... 125,000 (7) 600,000 206.88 - ----------------------------------------------------------------------------------------------------------------------------------- Totals $8,242,500 $2,842.01(8) ===================================================================================================================================
^(1) Estimated solely for the purpose of determining the registration ^fee pursuant to Rule 457. (2) Includes (i) ^170,000 shares of Common Stock being sold by certain Selling Shareholders (the "Selling Shareholders"), and (ii) 187,500 shares of Common Stock, subject to sale upon exercise of the ^Over-allotment Option granted to the ^Underwriter by the Company. (3) For the purposes of calculating the ^registration fee, the Company has assumed an offering price of $4.00 per Share. ^(4) Represents the shares of Common Stock and Warrants being sold by the Selling Securityholder, not through the Underwriter in this Offering. (5) The Company has agreed to sell to the Underwriter, for aggregate consideration of $10, 125,000 shares of Common Stock (the "Underwriter's Warrants"). (6) Pursuant to Rule 457(g), no fee is payable thereon. (7) For the purposes of calculating the registration fee, the Company has assumed an offering price of $4.00 per share of Common Stock and an exercise price of $4.80 per share of Common Stock for the Underwriter's Warrants. (8) A total fee of $2,474.14 was paid, therefore an additional $367.87 fee is required, with respect to the changes in the securities being registered. ii Cross Reference Sheet Pursuant to Rule 404 (a) Showing the Location In Prospectus of Information Required by Items of Form SB-2
Item in Form SB-2 Prospectus Caption 1. Forepart of the Registration Cover Page and Cover Page of Registration Statement and Outside Front Statement Cover Page of Prospectus 2. Inside Front and Outside Continued Cover Page, Table of Contents Back Cover Pages of Prospectus 3. Summary Information and Prospectus, Summary, Risk Factors, Risk Factors Summary Financial Information 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Cover Page, Underwriting, Risk Factors Price 6. Dilution Risk Factors, Dilution 7. Selling Securityholders Principal and Selling Stockholders 8. Plan of Distribution Cover Page, Underwriting 9. Legal Proceedings Business 10. Directors, Executive Officers Management Promoters and Certain Control Persons 11. Security Ownership of Principal and Selling ^Shareholders Certain Beneficial Owners and Management iii 12. Description of Securities Description of Securities 13. Interest of Named Experts Legal Opinions, Experts and Counsel 14. Disclosure of Commission Position Management and Item 24. Indemnification on Securities Act Liabilities Officers and Directors 15. Organization Within Five Years Prospectus Summary, Business, Principal and Selling Stockholders, Certain Relationships and Related Transactions, Risk Factors 16. Description of Business Business 17. Management's Discussion Management's Discussion and Analysis of and Analysis or Plan of Operation Financial Condition and Results of Operations 18. Description of Property Business 19. Certain Relationships and Related Certain Relationships and Related Transactions Transactions 20. Market for Common Equity Not Applicable and Related Stockholder Matters 21. Executive Compensation Management 22. Financial Statements Financial Statements 23. Changes in and Disagreements Not Applicable with Accountants and Financial Disclosure
iv Preliminary prospectus subject to completion, dated ^June , 1998 PROSPECTUS PRIDE AUTOMOTIVE GROUP, INC. ^ 1,250,000 Shares of Common Stock ^ Offering Price: $ per Share This Prospectus relates to an offering of ^1,250,000 Shares of Common Stock, par value $.001 per share (the "Common ^Stock" or the "Shares") of Pride Automotive Group, Inc. (the ^"Company"). All of the 1,250,000 Shares will be offered and sold through Mason Hill & Co., Inc. ("Mason Hill"), as representative of the several underwriters (collectively referred to as the "Underwriters"). Of the 1,250,000 Shares being offered hereunder, 1,080,000 Shares will be sold by the Company, with the balance of the 170,000 Shares being sold by certain Selling Shareholders (the "Selling Shareholders"). This Registration Statement also relates to the offer and sale of an aggregate of ^95,000 shares of Common Stock and 200,000 Common Stock Purchase Warrants by certain Selling Securityholders (collectively the "Selling Securityholders' ^Securities"), which securities are issuable upon exercise of an underwriter's warrant which the Selling Securityholders received as partial compensation for acting as underwriters for the Company in its 1996 public offering of Securities. The Selling Securityholder ^Securities may be sold from time to time by the Selling Securityholders. The Company will not receive any proceeds from the sale of any securities sold by the Selling ^Securityholders or by the Selling Shareholders. The shares of Common Stock are sometimes referred to as the "Securities." See "Description of Securities" and "Principal and Selling Securityholders." THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION TO INVESTORS. SEE "RISK FACTORS" 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 Discounts and Proceeds to the Proceeds to Public Commission (1) Company (2) the Company (2) - -------------------------------------------------------------------------------------------------------------------------- Per (3)$ $ $ $ Share.......... - -------------------------------------------------------------------------------------------------------------------------- Total $ $ $ $ (4)........... ========================================================================================================================== (footnotes on following page)
MASON HILL & CO., INC. 110 Wall Street New York, NY 10005 The date of this Prospectus is_______________, 1998. (1) Does not include additional compensation to be received by the Underwriters, including (i) a non-accountable expense allowance equal to 3% of the gross proceeds of the Offering; (ii) warrants entitling the Underwriters to purchase from the Company ^125,000 shares of the Company's Common Stock (the "Underwriters' Warrants") at 120% of the public offering price, exercisable for a period of four years commencing one year from the date of the Prospectus; and (iii) a three year consulting fee of $36,000 per year, to be paid in advance at the closing of this Offering. The Company ^and the Selling Shareholders have also agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deduction of expenses of the Offering, all or which are payable by the Company, estimated at $400,000, which includes the Underwriters' non-accountable expenses allowance, the financial consulting fee as well as filing, legal, accounting, printing and other costs and expenses. (3) It is currently anticipated that the offering price will be ^$4.00 per share. It is currently anticipated that the proceeds to the Company and the Selling Shareholders will be $3,888,000 and $612,000, respectively. (4) The Company has granted the Underwriters an option, exercisable within forty-five days from the date of this Prospectus, to purchase up to an additional ^187,500 Shares, on the same terms set forth above, solely for the purpose of covering over-allotments. If such options are exercised in full, the total Price to the Public, Underwriting Discounts and ^Commission, Proceeds to Company and Proceeds to ^the Selling Shareholders will be $5,750,000, ^$575,000, $4,563,000, and $612,000 respectively. See "Underwriting". Prior to this Offering, there has been a limited public market for the Company's Common Stock and ^Warrants. The Company's Common Stock and Warrants are currently listed on the Nasdaq SmallCap Stock Market ("Nasdaq") under the symbols "LEAS" and "LEASW" and on the Boston Stock Exchange ("BSE") under the symbols "LES" and "LESW". Quotation on Nasdaq or BSE does not imply that a meaningful, sustained market for the Company's Securities will develop or if developed that it will be sustained for any period of time. In the event the Company's Securities do not continue to be listed on Nasdaq or the BSE, the Company's Securities will be available for trading only in the over-the-counter market on the OTC Electronic Bulletin Board. The offering price of the ^Shares has been determined in negotiations between the Company and the Underwriters on an arbitrary basis and bears no direct relationship to the assets, earnings or any other recognized criteria of value. Factors considered in determining such prices, in addition to prevailing market conditions, included the history of and the business prospects for the Company and an assessment of the net worth and financial condition of the Company, as well as such other factors as were deemed relevant, including an evaluation of management and the general economic climate. The prices should in no event, however, be regarded as an indication of any future market price of the Common Stock. See "Risk Factors." The Securities are being sold by the Company through Mason Hill & Co., Inc. as representative of the several underwriters (collectively referred to as the "Underwriters"), on a "firm commitment" basis subject to prior sale, when, as and if accepted by the Underwriters and subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and reject any order in whole or in part. It is expected that delivery of certificates representing the Securities being sold hereby will be made against payment therefor at the offices of Mason Hill & Co., Inc., 110 Wall Street, New York, New York on or about ____________, 1998. 2 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY DISCONTINUE AT ANY TIME. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form SB-2 under the Securities Act, with respect to the shares of Common Stock to which this Prospectus relates. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the Securities offered hereby, reference is made to the Registration Statement, including the exhibits thereto, which may be copied and inspected at the Public Reference Section of the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C., 20549 or at its regional office at 7 World Trade Center, New York, New York or at its website, http://www.sec.gov/. The Company's fiscal year end is November 30. The Company is subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files periodic reports, proxy statements and other information with the Commission. At present, the Company is current in its filings under the Exchange Act. In the event the Company's obligation to file such periodic reports, proxy statements and other information is suspended, the Company will voluntarily continue to file such information with the Commission. The Company distributes to its stockholders, annual reports containing audited financial statements, together with an opinion by its auditing accountants. In addition, the Company may, in its discretion, furnish quarterly reports to stockholders containing unaudited financial information for the first three quarters of each year. 3 SUMMARY The following summary is intended to set forth certain pertinent facts and highlights from material contained in the body of this Prospectus. The summary is qualified in its entirety by the detailed information and financial statements appearing elsewhere in this Prospectus. This Prospectus contains forward looking statements that involve risks an uncertainties. The Company's actual results may differ significantly from the results discussed in these forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in "Risk Factors." THE COMPANY Pride Automotive Group, Inc., a Delaware corporation (the "Company") was formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all of the outstanding shares of common stock of Pride Management Services, Plc., an English corporation ("PMS"), in a transaction which was accounted for as a reorganization (the "Reorganization"). Prior to the Reorganization, PMS was a wholly owned subsidiary of Pride. These companies jointly engage in the business of leasing new automobiles to businesses, servicing such automobiles during the lease term and remarketing the automobiles upon the expiration of the lease term, which arrangement is described as a "contract hire." The Company's sales policy emphasizes leasing to financially sound clients and requires certain financial disclosures prior to executing any lease agreements. Customer accounts are targeted from profitable, growing, medium-sized corporate companies. The Company purchases each vehicle pursuant to its client's specifications, finances its purchase and pays for all the maintenance on the vehicle during the lease term. Typically, the term of the loan corresponds with the term of the lease, whereby, upon the completion of the lease term the automobiles are fully paid and owned by the Company. The following is a list of the PMS subsidiaries, their dates of formation and their business operations:
Date of Name Formation Business Operations Pride Vehicle Contracts Limited 12/23/86 Conducts all administrative functions for the Company, including paying salaries and all operational expenses of the Company. Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker Hire Contracts Limited, acquired in May 1990, which operations are primarily in Wales and the south west region of England. Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited and Master (UK) Limited Vehicle Contracts Limited in February 1992 and March 1994, respectively. Pride Leasing Limited 02/22/89 Vehicle leasing. Owned property and a building in Croydon, England, which was sold in November 1997. Pride Vehicle Management 02/14/90 Operates the Company's fleet management services. Limited Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for all the Limited Company's leasing operations.
4 The Company has servicing agreements with automobile dealers and service centers, which specify pricing schedules for maintenance and repair work to be performed, all of which require the prior consent of the Company. The lessees monthly lease payment is determined by a computer program which takes into account estimated service costs, new vehicle pricing, manufacturer bonuses, rebates and options, potential residual value at lease end as well as other variable information including interest rates and other current and anticipated future economic variables. The monthly lease payments are usually sufficient to pay the financing costs and servicing costs on the vehicles during the lease term, with the bulk of the profits, if any, coming on the resale of the automobile. Upon the expiration of the lease, the Company remarkets the automobiles through various distribution channels including, but not limited to, used car wholesalers or used car retailers. The lessee is responsible for maintaining full comprehensive insurance on each vehicle, of which the Company is a beneficiary and payee in the event the vehicle is damaged. The Company also engages in fleet management services for certain of its clients who choose to own the vehicle(s) directly. Customarily, these clients purchase the automobiles through the Company in order to take advantage of the Company's bulk purchase discounts. The Company maintains these vehicles on such clients behalf pursuant to a monthly management fee, usually $15 per automobile and disposes of the vehicles thereafter on behalf of the client. These clients pay all costs associated with the purchase, maintenance and resale of the automobiles. In April 1996, the Company sold 950,000 shares of its common stock (inclusive of 440,000 shares sold by certain Selling Stockholders) to the public at a price of $5.00 per share and 2,000,000 redeemable common stock purchase warrants at a price of $.10 per warrant in a public offering underwritten by the Underwriter. The warrants are exercisable at a price of $5.75 per share, subject to adjustment, beginning April 24, 1997 and expiring April 23, 2001. Additionally, the Company sold 142,500 shares of its common stock (inclusive of 60,000 shares sold by certain Selling Stockholders) and 300,000 redeemable common stock purchase warrants pursuant to the exercise of an Over-allotment Option granted to the Underwriter by the Company and certain Selling Stockholders. The Company's securities are currently traded on the Nasdaq SmallCap Stock Market and the Boston Stock Exchange, Inc. In ^November 1996, the Company's then majority owned subsidiary, AC Automotive Group, Inc., ("Automotive"), a Delaware Company, through its wholly-owned subsidiary, AC Car Group Limited ("AC"), a company incorporated under the laws of England and Wales, acquired all of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited ("Autokraft") (the "Asset Purchase"), two companies incorporated under the laws of England and Wales, respectively. AC Cars and Autokraft are specialty automobile manufacturers that had been in administrative receivership since March 1996. AC Cars is the oldest automobile company in continuous existence in England and currently manufactures two automobiles, the Superblower (which is a continuation of the AC Cobra) and the Ace, a newly developed automobile of which less than 50 prototype cars have been sold to date. The Superblower has a current list price of (pound)69,000 ($115,575) and the Ace has a current list price of (pound)75,000 ($125,625). In order to finance the costs of such acquisition, the Company engaged in a private placement, whereby it issued an aggregate of ^$1,700,000 of promissory notes and ^170,000 shares of Common Stock. ^Mason Hill acted as placement agent in such private placement. Additionally, Mason Hill loaned the Company $100,000 of which $29,000 has been repaid. In connection with such private offering, AC sold an aggregate of 1,028,700 shares to ^Beth-Anne Kinsley, Victor 5 and Marion Durchhalter and Bridget Staff, each of whom are associated persons of Mason Hill, for aggregate consideration of $1,030^, which at such time represented 30% of the issued and outstanding common stock of Automotive. Such persons currently own approximately 5% of the issued and outstanding common stock of Automotive. See "Use of Proceeds" and "Certain Relationships and Related Transactions". On February 12, 1998, the Board of Directors of Automotive authorized the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a company affiliated with Alan Lubinsky, the President, Chief Executive Officer and a Director of the Company and Automotive, for aggregate consideration of $6,130. In addition, on such date Automotive authorized the issuance of 176,520, 176,520 and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and Marion Durchhalter and Bridget Staff, respectively, for consideration of $177, $177 and $89, respectively. After the foregoing issuances, there was a total of 10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk Factors" and "Certain Relationships and Related Transactions." On March 24, 1998, the Board of Directors of Automotive authorized a one for four reverse split of its common stock and issued (1) 525,000 shares of its common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for aggregate consideration of $526; (ii) 651,000 shares of its common stock to the Company for aggregate consideration of $2,248,460 which consideration was paid by the capitalization of debt of $2,248,460 owed by Automotive to the Company. On March 31, 1998, the Board of Directors of Automotive authorized the following issuances of its common stock (i) 2,352,000 shares of its common stock to Michael Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury Company, Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL (1996) Ltd. and a further 367,500 shares of its common stock to Autokraft for a total consideration of $1,675,000, which consideration was paid by the capitalization of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In connection with such share issuances, Michael Hall and Kingsbury Company, Ltd. loaned the sum of (pound)1,000,000 and (pound)500,000 to AC, respectively. In October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000, which note is payable on demand. During March and April 1998, Mr. Lubinsky further loaned AC (pound)21,750 of which (pound)9,400 was repaid in May 1998. See "Certain Relationships and Related Transactions". The foregoing issuance of shares reduced the ownership of AC Automotive Group, Inc. by the Company to under 50%. Accordingly, future financial statements of the Company will be issued on an unconsolidated basis. The Company's executive offices are located at Pride House, Watford Metro Centre, Tolpits Lane Watford, Hertfordshire, WD1 8SB England, phone number (800) 698-6590. 6 THE OFFERING(1)
Securities Offered (2): 1,^250,000 Shares of Common Stock Price Per Share: $(4) Securities Outstanding Prior to the Offering: Common Stock 2,8^22,500 Shares Warrants (5) 2,300,000 Warrants Securities Outstanding After the Offering: Common Stock 3,^902,500 Shares Warrants (5) 2,300,000 Warrants Use Of Proceeds The net proceeds of this Offering, estimated at $^3,488,000, will be used as follows: (i) $1,^857,250 to repay the notes issued in the December 1996 Private Placement and (ii) $71,000 to repay the loan to the Underwriter and (iii) $^1,559,750 to repay lines of credit to the bank. See "Use of Proceeds." Risk Factors An investment in the Securities offered hereby involves a high degree of risk and immediate substantial dilution to investors. Potential purchasers should not invest in these securities unless they can afford the risk of losing their entire investment. See "Risk Factor" and "Dilution."
7
Symbols (4) Nasdaq Common Stock .........LEAS Warrants .................LEASW BSE Common Stock..........LES Warrants..................LESW
(1) Unless otherwise indicated, no effect is given in this Prospectus to the exercise of (i) the Underwriters' Over-allotment Option to purchase up to an additional ^187,500 Shares; (ii) the Underwriters' Warrants to purchase 125,000 Shares; (iii) options exercisable on the issuance of restricted shares under the Company's Senior Management Incentive Plan in the aggregate of 300,000 shares, of which options to purchase 199,665 shares of Common Stock have been granted or (iv) up to 1,250,000 shares which may be issued to Pride pursuant to the Special Warrant. See "Description of Securities. (2) The 95,000 shares of Common Stock and 200,000 Warrants being registered hereunder are not being underwritten and may be sold from time to time by the Selling Securityholders pursuant to a separate prospectus. (3) It is currently anticipated that the offering price will be $^4.00 per Share. (4) The Company's Common Stock and Warrants are currently listed on Nasdaq and the BSE and the Company has applied for additional listing of the Shares being offered hereby, on both Nasdaq and BSE. Quotation on Nasdaq and/or BSE does not imply that a meaningful, sustained market for the Company's Securities will develop or if developed that it will be sustained for any period of time. In addition, continued inclusion on Nasdaq and/or the BSE is subject to certain maintenance criteria. The failure to meet these criteria in the future may result in the discontinuance of the listing of the Company's Securities which in turn may have a material adverse effect on the market for the Company's Securities. See "Risk Factors". (5) Represents Warrants exercisable at $5.75 per share which were issued in the Company's 1996 initial public offering. The warrants expire on April 23, 2001. 8 SUMMARY FINANCIAL INFORMATION Set forth below is the historical summary financial information with respect to the Company and its subsidiaries for the years ended November 30, ^1997 and 1996 and the unaudited ^three month periods ended ^February 28, 1998 and February 28, 1997. The historical financial data for the years ended November 30, ^1996 and 1997 is derived from the audited consolidated financial statements of the Company and its subsidiaries which have been reported upon by Civvals, Chartered Accountants. The summary historical financial data presented below should be read in conjunction with the audited financial statements of the Company and its subsidiaries and related notes thereto included elsewhere in this Prospectus. ^Statement of Operations Data:
================================================================================================================= For the Year For the Three Months Ended Ended - ----------------------------------------------------------------------------------------------------------------- November 30, November 30, February 28, February 28, 1996 1997 1997 1998 - ----------------------------------------------------------------------------------------------------------------- Revenues $12,884,018 $17,459,275 $3,735,283 $3,580,971 - ----------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ (600,622) $(4,455,400) $(569,345) $(194,647) - ----------------------------------------------------------------------------------------------------------------- Earnings (loss) per Common Share $(.25) $(1.59) $(.21) $(.07) - ----------------------------------------------------------------------------------------------------------------- Weighted Average Shares Outstanding 2,405,760 2,801,075 2,759,167 2,822,500 =================================================================================================================
Balance Sheet Data:
- ------------------------------------------------------------------------------------------------------------- November 30, 1997 February 28, 1998 February 28, 1998 - ------------------------------------------------------------------------------------------------------------- Actual Actual As Adjusted (1) - ------------------------------------------------------------------------------------------------------------- Tangible Assets $31,210,429 $31,807,181 $31,807,181 - ------------------------------------------------------------------------------------------------------------- Intangible Assets $9,090,156 $8,917,186 $8,971,186 - ------------------------------------------------------------------------------------------------------------- Total Assets $40,300,585 $40,724,367 $40,724,367 - ------------------------------------------------------------------------------------------------------------- Total Liabilities $32,890,207 $28,808,663 $25,320,663 - ------------------------------------------------------------------------------------------------------------- Stockholders' $7,410,378 $11,915,704 $15,403,704 Equity =============================================================================================================
(1) Gives effect to the sale by the Company of ^1,080,000 shares of Common Stock in this Offering, and the application of net proceeds therefrom. Does not give effect to the exercise of the Over-allotment Option ^the Underwriters' Warrants or the Special Warrant. See "Use of Proceeds" and "Description of Securities". 9 RISK FACTORS The securities offered hereby are speculative and involve a high degree of risk. In addition to the other information contained in this Prospectus, the following factors should be carefully considered before purchasing the securities offered by this Prospectus. The purchase of these Securities should not be considered by anyone who cannot afford the risk of loss of his entire investment. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those projected in the forward-looking statements discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section, as well as in the sections entitled "Plan of Operation" and "Business." 1. Negative Cash Flow; Loss from Operations; Accumulated Deficit; Need for Capital. The proceeds raised in this Offering will be used primarily to repay existing indebtedness to private lenders and commercial banks. The Company's operations have historically been depicted by negative cash flow. In entering into a new lease agreement, the Company (i) purchases the automobile, which usually requires a 10% down payment, (ii) pays down the note on the purchase including principal and interest during the lease term and (iii) pays all maintenance costs during the term of the lease, all of which require the outlay of operating capital. The lease payments received from the customer, over the term of the lease, typically are sufficient to pay the Company's monthly obligations on the vehicle. However, due to the timing of the payment of expenses versus the receipt of lease payments, the Company has continuously experienced negative cash flow problems. This problem increases as the Company expands operations. Historically, the Company has financed its negative cash flow by borrowing from a secured line of credit through its bank, Midland Bank Plc. ^In February 1998, the Company entered into a new agreement with the bank. This new line of credit of $5,862,500, of which $5,297,687 had been drawn down as of February 28, 1998, is payable on demand and is secured by all assets of the Company other than the building and revenue producing vehicles which are already pledged (See Notes 6b and 7 to the Financial Statements). Interest is payable at rates between 2% and 4% in excess of the bank's base rate (7 1/2% as of November 30, 1997). The agreement is due for renewal November 1998. There can be no assurance that the line of credit will be renewed. See "Risk Factors". There can be no assurance that the Company will be able to secure the necessary financing if one of the aforementioned events comes to pass. The Company realizes most of its profit on the lease of a vehicle, if any, from the proceeds of the resale of the vehicle at the end of the lease term. Prior to November 1992, the Company's financing arrangements in the purchase of its vehicles required monthly payments of interest and a balloon payment of the principal amount borrowed being made at the end of the lease term. This financing strategy enabled the Company to have more cash available for operations during the term of the lease, but the higher financing fees and interest expense limited the profit margin over the lease term. In November 1995, the Company began to receive back the vehicles it first financed using its current financing method. Due to the nature of the Company's business, namely contract leasing of motor vehicles which are fixed long-term assets, the Company's balance sheet has been prepared on an unclassified basis. Accordingly, there is no classification of current assets, current liabilities or working capital. As vehicles are returned each month, they are sold by the Company and the cash received increases cash flow. However, in trying to increase the number of leases each month, the cash flow from the resale of returned vehicles has not been sufficient to enable the Company to purchase the number of additional vehicles needed. The Company incurred losses of ^$4,455,400 (of which $3,625,344 is related to AC Car Group Ltd.) and $194,647, after goodwill amortization, for the year ended November 30, ^1997 and 10 the ^three months ended ^February 28, 1998, respectively. In addition, the Company had an accumulated deficit of ^$5,857,987 (of which $3,762,790 is related to AC Car Group Ltd.) and $2,289,844 as of November 30, ^1997 and February 28, 1998 respectively. In the event that the Company has continuous losses from operations, cannot meet its current capital needs, is unable to finance the purchase of new vehicles for its clients or defaults in the payment of any of its financing arrangements, all or any of the above could materially adversely affect the operations of the Company. In the event the Company is required to seek additional financing, there can be no assurance that such additional financing will be available to the Company in the future, or if available, at such times, or upon such terms and conditions acceptable to the Company. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business - Financing and Collections." 2. Competition. The Company's business is highly competitive, with relatively insignificant barriers to entry and with numerous firms competing for the same customers. The Company is in direct competition with local (includes the ^county of Hertfordshire and the surrounding areas including Watford), regional (includes London and surrounding areas) and national (includes the entire United Kingdom inclusive of England, Wales, Scotland and Northern Ireland) automotive leasing companies, many of which have greater resources and more extensive distribution and marketing than the Company. The Company also competes in the automobile financing industry with providers of other forms of financing. The Company primarily competes on the basis of both pricing and service. Many of its competitors have significantly greater financial and marketing resources than the Company. The wholesale of used automobiles is highly competitive, with the Company's competition coming from individuals, other leasing companies, independent used automobile wholesalers and dealerships and rental car companies. In the event of a decrease in the demand for or market value of used automobiles or the models leased and resold by the Company, the Company may not be able to resell such vehicles at prices it had anticipated when entering into the lease agreements. Such conditions would have a material adverse affect on the business of the Company and its profitability. There can be no assurance that the Company will be able to compete successfully in this market. See "Risk Factor - Decrease in Automotive Resale Market; Decrease in Profitability" and "Business - Competition." 3. Dependence on Suppliers and Service Centers. The Company purchases all of the automobiles that it leases to its clients from automotive dealerships, usually several at any one time. For the year ended November 30, ^1997 and the ^three months ended ^February 28, 1998, General Motors and Ford were the manufacturers of approximately ^15% and 16%, respectively and ^15% and 16%, respectively, of the vehicles which it leased. The Company does not depend on any one dealership for its purchase of automobiles and does not have any written agreements or arrangements with any of the dealerships it purchases vehicles from. The Company has servicing agreements with over 1,400 automotive dealerships and independent service centers in its areas of operations. The Company believes that there are a sufficient number of dealerships of the models its purchases, so that it will continue to be able to purchase automobiles at competitive prices and terms in the future. A portion of the Company's profit margin is based on discounts received on the purchase of vehicles from the dealerships as well as rebates received directly from the manufacturers. However, the Company has no assurances that it will be able to acquire automobiles at favorable prices or receive such rebates in the future. No assurance can be given that an uninterrupted and adequate supply of automobiles or service centers will be available to the Company in the future, although, the Company believes that there are a sufficient number of automobile dealerships and independent service centers so that in the event any individual or 11 group of dealerships or service centers can no longer service the Company's needs, the Company will be able to find other dealerships and service centers at competitive prices. In the event the Company cannot obtain automobiles or maintenance of such vehicles on similar terms as is presently available to it or the production of automobiles ceases or is significantly reduced, the Company would be materially adversely affected. See "Business - Suppliers." 4. Concentration of Lease Agreements; Lease Defaults; Economic Conditions in England. For the year ended November 30, ^1996 and 1997, the Company had two unaffiliated customers, Westbury Homes Plc. and Campbell Distillers Limited, which companies accounted for in the aggregate approximately ^29% and 24%, respectively, of the Company's total revenues. For the ^three months ended ^February 28, 1997 and February 28, 1998, revenues from these customers accounted for approximately ^ 27% and 20%, respectively of total revenues. The Company is dependent on client loyalty and the continued increase in the number of its leases. The Company's profitability is dependent on the number of leases entered into each year due to the small profit margin realized on each individual lease. The discontinuance or default by the above clients or of any group of leases or a continued or general economic downturn in England would have a material adverse affect on the Company's results of operations. See "Business - Leasing, Maintenance and Resale." 5. Decrease in Automotive Resale Market; Decrease in Profitability. The automotive resale market is highly competitive, with model, mileage and condition being the basis for a vehicle's resale value. Recently, the market for used automobiles has increased due to the increase in the prices for new vehicles. The Company is dependent on its ability to resell the vehicles which are returned to it at the end of the lease term quickly and profitably. Pursuant to the Company's current financing arrangements, at the end of a lease term the Company owns the automobile. The Company does not currently do repairs on the returned vehicles and attempts to sell such vehicles immediately upon their return. In the event the market for used automobiles decreases, the models or conditions of the vehicles returned to the Company decrease their resale value or vehicles are returned pursuant to defaults in the lease agreements, such events may adversely affect the Company's business and profitability. See "Business - Leasing, Maintenance and Resale." 6. Foreign Currency and Foreign Exchange Regulation. Fluctuations in exchange rates of the English Pound against foreign currencies could adversely affect the Company's results of operations. The Company intends to convert the net proceeds of this Offering (exclusive of funds being repaid to private U.S. investors) into pounds immediately upon consummation of the Offering. The Company will experience the risk of currency fluctuations with respect to the conversion of dollars into pounds. In the event that the conversion rate of dollars into pounds decreases, the Company will receive less proceeds than expected. Similarly, in the event that the Company issues cash dividends in the future, the proceeds of such dividend will be subject to the risk of currency fluctuations. 7. Government Regulation. The Company is subject to regulation by the United Kingdom Department of Trade and Industry (the "Department of Trade"). The Department of Trade establishes general rules and regulations with respect to the operation of a business in the United Kingdom. The Department of Trade has not established any regulations or licensing requirements specifically regulating the leasing of automobiles to companies. There is no license required for a company to lease automobiles to a company. There can be no assurances that such will be the case in the future or that if licensing or other forms of regulation is required in order to engage in the Company's business that it will be 12 successful in obtaining such licenses or in meeting the requirements of such regulations. In addition, the Company must comply with a wide range of national, regional and local rules and regulations applicable to its business, including regulations covering labor relations, safety standards, affirmative action and the protection of the environment. Continued compliance with the broad regulatory network of the United Kingdom is essential and costly and the failure to comply with such regulations may have an adverse effect on the Company's operations. See "Business - Government Regulations." 8. Control by Management and Alan Lubinsky. Upon the sale of the Securities offered hereby, Mr. Lubinsky will have voting control of approximately ^36.8% of the outstanding shares of Common Stock by virtue of his family's trust ownership of approximately 65% of Pride, which prior to the Offering owned ^53.1% of the Company. The trustee is Elfin Trust Company Limited, located on the Island of Guernsey, Channel Islands. Although Mr. Lubinsky disclaims beneficial ownership of the shares of Pride owned by New World Finance, Limited, which company is wholly owned by New World Trust, the beneficiaries of which are members of Mr. Lubinsky's family, it may be expected that such entity will vote its respective shares in favor of proposals espoused by Mr. Lubinsky. Accordingly, Mr. Lubinsky through his family, will in all likelihood be able to elect the entire board of directors of the Company and to direct the affairs of the Company. In April 1998, a Special Warrant was issued to Pride under which Pride may acquire up to 1,250,000 shares of the Company's Common Stock at a purchase price of $4.40 per share. If fully exercised, Pride would own approximately 51% of the Company's issued and outstanding Common Stock. See "Management" and "Principal and Selling Securityholders." 9. Conflicts of Interest. Mr. Lubinsky is an officer and director of the Company, Pride, AC, Automotive, PMS and each of PMS's subsidiaries. ^In addition, Mr. Lubinsky has been involved in transactions with the Company and its subsidiaries. Neither Mr. Lubinsky nor the Board of Directors sought outside advice as to the value or the fairness of such transactions and there can be no assurance that the Company and/or Mr. Lubinsky resolved the inherent conflicts of interest which exist under such circumstances. In addition, there may arise conflicts of interest with respect to matters concerning the ^Company, its subsidiaries and affiliates. Although no specific measures to resolve conflicts of interest have been formulated, the officers and directors of the Company have a fiduciary obligation to deal fairly and in good faith with the Company. The directors ^are required to exercise reasonable judgment and take such steps as they deem necessary under all of the circumstances in resolving any specific conflict of interest which may ^occur. There can be no assurance that the Company will employ any of such measures or that conflicts of interest will be resolved in the best interest of the stockholders of the Company. See "Management" and "Certain Relationships and Related Transactions." 10. Dependence on Management. The Company is dependent upon the personal efforts and abilities of Alan Lubinsky, the President, Secretary and Chairman of the Board of Directors of the Company, Pride, ^AC, Automotive and PMS. Pursuant to the terms of his employment agreement, Mr. Lubinsky will devote all of his business time to the affairs of the Company and its subsidiaries. The loss of the services of Mr. Lubinsky would adversely affect the business of the Company. Although PMS has a key-man insurance policy of $750,000 on the life of Mr. Lubinsky, neither the Company nor AC currently have any such policy and have no current intent to obtain any such insurance. See "Management." 13 11. Non-U.S. Resident Management May Result in Special Risks. Alan Lubinsky, Allan Edgar, Ian Satill and Ivan Averbuch, the officers and directors of the Company, are residents of England, Switzerland, Australia and England, respectively, and are not residents of the United States. Accordingly, the enforcement of civil liabilities against Mr. Lubinsky, Mr. Edgar, Mr. Satill or Mr. Averbuch by investors may be adversely affected. Investors may have difficulty effecting service of process within the United States and judgments against Mr. Lubinsky, Mr. Edgar or Mr. Averbuch in United States courts may be difficult or impossible to enforce. In addition, there can be no assurance that foreign courts would enforce such judgments, either predicated upon the civil liability provisions of the federal securities laws or otherwise. 12. Immediate Substantial Dilution. The purchasers of the Securities offered hereby will incur immediate substantial dilution from their purchase price in the net tangible book value of each share of Common Stock of approximately ^$2.34 per share or ^58.5% of their initial investment. The present stockholders of the Company will own approximately ^72.3% of the Company's outstanding shares of Common Stock upon completion of this Offering and will realize an immediate increase in the net tangible book value of their shares of approximately ^$.60 per share. Accordingly, Pride will be the primary beneficiary of this Offering. If the Company's future operations are unsuccessful, the persons who purchased the Securities offered hereby will sustain the principal losses. See "Use of Proceeds," "Certain Relationships and Related Transactions," "Dilution" and Note 11 of Notes to the Financial Statements. 13. Possible Future Dilution. The Company has authorized capital stock of 10,000,000 shares of Common Stock, par value $.001 per share and 2,000,000 shares of Preferred Stock, none of which have been issued. In addition, the Company has issued Pride a Special Warrant pursuant to which it may acquire up to 1,250,000 shares at a price of $4.40 per share. If fully exercised, Pride would own approximately 51% of the Company's issued and outstanding Common Stock. Inasmuch as the Company may use authorized but unissued shares of Preferred Stock or issue shares of Preferred Stock which are convertible into shares of Common Stock, without stockholder approval, there may be further dilution of the stockholders' interests. See "Description of Securities." 14. No Dividends and None Anticipated. To date, the Company has not paid any cash dividends on its Common Stock and does not expect to declare or pay any cash or other dividends in the foreseeable future. The Company anticipates that any profits from operations will be reinvested in the Company. See "Dividend Policy." 15. Authorization of Preferred Stock. The Company's certificate of incorporation authorizes the issuance of 2,000,000 shares of preferred stock, $.01 par value, which shares may be issued in classes and series, pursuant to the rights, designations and preferences as determined by the board of directors. Accordingly, the board of directors is empowered, without obtaining stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in the control of the Company. See "Description of Securities - Common Stock." 16. Arbitrary Determination of Offering Price. The offering price of the ^Shares has been determined by negotiations between the Company and the Underwriter on an arbitrary basis and bears 14 no direct relationship to the assets, earnings or any other recognized criteria of value. Factors considered in determining such prices, in addition to prevailing market conditions and the current price of the Company's Common Stock, included the history of and the business prospects for the Company, an assessment of the net worth and financial condition of the Company, an evaluation of management and the general economic climate of the United Kingdom. The prices should in no event, however, be regarded as an indication of any future market price of the Common Stock. Prior to this Offering, there has been only a limited public market for the Common Stock. See "Dilution" and "Underwriting." 17. Limited Public Market for the Securities. At present, only a limited public market exists for the Company's Common Stock and Warrants. There is no assurance that a regular trading market will develop for the Shares or Warrants at the conclusion of this Offering, or if one does develop, that it will be sustained. Therefore, purchasers of the Securities offered herein may be unable to resell said Securities at or near their original offering price or at any price. Furthermore, it is unlikely that a lending institution will accept the Company's securities as pledged collateral for loans even if a regular trading market develops. 18. Restrictions on Exercise of Warrants; Necessity for Updating Registration Statement. So long as the Warrants or Underwriter's Warrants are exercisable, or in the event that the Company reduces the exercise price or exercise period of any of such warrants, the Company would be required to file one or more Post-Effective Amendments to its Registration Statement to update the general and financial information contained in this Prospectus. These obligations could result in substantial expense to the Company and could be a hindrance to any future financing. Warrants may not be exercised at any time in which the Company's Registration Statement is not current. Although the Company has not updated its Registration Statement, it intends to do so shortly after the completion of this Offering. Although the Company has undertaken and intends to keep its Registration Statement current, there is no assurance that the Company will keep its Registration Statement current, and if for any reason it does not do so, the Warrants will not be exercisable. See "Description of Securities-Warrants." 19. Shares Available for Resale. Of the ^2,822,500 shares of the Company's Common Stock outstanding, 1,560,000 shares were issued in March 1995. All of such shares were issued as "restricted securities" which may be sold upon compliance with Rule 144 adopted under the Securities Act, or any other exemption from the registration requirements of the Securities Act. 500,000 shares of Common Stock were issued in the Company's Private Placement in December 1995, all of which were registered and sold in the Company's initial public offering in April 1996. ^170,000 shares of the Company's Common Stock were issued in the Company's Private Placement of December 1996. All ^170,000 shares issued in the December Private Placement are being registered and underwritten in this ^Offering. In addition, 95,000 shares of common stock and 200,000 Initial Warrants are being registered herein on behalf of the Selling Securityholders and may be sold from time to time by ^such Securityholders. Rule 144 provides, in essence, that a person holding "restricted securities" for a period of two years may sell every three months in brokerage transactions an amount equal to the greater of: (a) one percent of the Company's outstanding shares of Common Stock; (b) the average weekly reported volume of trading for the securities on all national exchanges and/or through the automated quotation system of a registered securities association during the four calendar week period preceding each transaction; or (c) the average weekly trading volume in the securities reported through the consolidated transaction 15 reporting system during the four calendar week period. Rule 144 also requires that current information about the securities must be available to stockholders and brokers. Therefore, after taking into account the shares to be sold in this Offering (and without giving effect to any shares of Common Stock which may be issued upon exercise of the Warrants) in each three-month period commencing January 1998, at least ^39,025 (40,900 shares if the Underwriters' Over-allotment option is exercised in full) shares may be publicly sold under Rule 144 by each holder of "restricted securities" who has held such shares for at least one year. Persons who are not "affiliates" of the Company, as that term is defined under the Securities Act, who have been non-affiliates for the 90 days immediately preceding the sale, and who have owned their shares for a period of at least two years, may sell such shares without limitation. ^See "Shares Eligible for Future Sales." All officers, directors and owners of 5% or more of the Company's Common Stock, except the Selling Securityholders, have agreed to "lock-up" and not sell, publicly, privately or otherwise dispose of any shares of Common Stock for a period of two years from the date of this Prospectus, whereby these stockholders cannot sell, publicly, privately or otherwise dispose of any of their shares without the prior written consent of the Underwriter. ^20. Possible Delisting of Securities from Nasdaq System; Risks of Low Priced Stocks. The Commission has approved rules imposing more stringent criteria for listing of the Securities on the Nasdaq SmallCap Stock Market ("Nasdaq"). In order to continue to be listed on the Nasdaq the Company would be required to maintain (i) net tangible assets of at least $2,000,000, or market capitalization of $35,000,000 or $500,000 in net income for two of the last three years (ii) total stockholders' equity of $1,000,000, (iii) a minimum bid price of $1.00, (iv) two market makers, (v) 300 stockholders, (vi) at least 500,000 shares in the public float, (vii) a minimum market value for the public float of $1,000,000 and (viii) compliance with the Corporate Governance Standards. In the event the Company's Securities are delisted from the Nasdaq, and not traded on the Boston Stock Exchange ("BSE") or other exchange, trading, if any, in Securities would thereafter be conducted in the over-the-counter market on the OTC Bulletin Board. Consequently, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of the Company's Securities. The Company has applied for the additional listing of its Securities on Nasdaq and the BSE. Quotation on Nasdaq and/or the BSE does not imply that a meaningful, sustained market for the Company's Securities will develop or if developed that it will be sustained for any period of time. In December 1997, the Company was notified by Nasdaq that it was in danger of falling out of compliance with Nasdaq's continued listing requirements. Specifically, the Company was advised that its net tangible assets were below the minimum prescribed amount and that the Company needed to add an additional independent director. The Company was advised that it had until February 24, 1998 to correct these ^deficiencies, which deficiencies have been addressed and corrected. Additionally, the Company ^has added an additional independent director and ^it is now in compliance with Nasdaq's corporate governance requirements. There can be no assurance that the Company will remain in compliance with Nasdaq requirements or that Nasdaq will not change its listing and/or maintenance requirements in the future. 16 If the Company's securities ^become subject to the existing or proposed regulations on penny stocks, the market liquidity for the Company's Securities could be severely and adversely affected by limiting the ability of broker/dealers to sell the Company's Securities and the ability of purchasers in this Offering to sell their securities in the secondary market. See "Certain Transactions". ^21. Penny Stock Regulation. Broker/dealer practices in connection with transactions in "penny stocks" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker/dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker/dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If the Company's Securities become subject to the penny stock rules, investors in this Offering may find it more difficult to sell their Securities. ^22. Underwriters' Warrants. The Underwriters will acquire, for nominal consideration, the Underwriters' Warrants to purchase ^125,000 Shares at price of ^$4.80 per Share during the four year period commencing one year from the date of this Prospectus. The Securities issuable upon exercise by the Underwriters of the Underwriters' Warrants are identical to the Securities being offered hereby. The Company has agreed to register the Underwriters' Warrants and the underlying securities at its expense, one time only, upon request of holders of a majority of the Underwriters' Warrants or underlying securities. In addition, the Company has agreed, for a period of seven years following the date of this Prospectus, to give advance notice to the holders of the Underwriters' Warrants or underlying securities of its intention to file a registration statement, and in such case the holders of the Underwriters' Warrants and underlying securities shall have the right to require the Company to include the Underwriters' Warrants and underlying securities in such registration statement at the Company's expense. These obligations could be a hindrance to any future financing of the Company. Furthermore, in the event the Underwriters exercise their registration rights to effect the distribution of the ^Securities underlying the Underwriters' Warrants, the Underwriters and any holder of such Warrants who is a market maker in the Company's Securities, prior to such distribution, will be unable to make a market in the Company's Securities for up to a period ^up to five days prior to the commencement of such distribution and until such distribution is completed. If the Underwriters cease to make a market, the market and market prices for the Securities may be adversely affected, and the holders thereof may be unable to sell such Securities. See "Underwriting." ^23. Underwriters' Possible Ability to Dominate or Influence the Market for the Securities. A significant number of the Securities offered in the Offering may be sold to customers of the Underwriters. Such customers subsequently may engage in transactions for the sale or purchase of the 17 Securities through or with the Underwriters. Although they have no obligation to do so, all or any individual Underwriter may exert a dominating influence on the market, if one develops, for the Company's Securities. The price, liquidity and price volatility of the Company's Securities may be significantly affected by the degree, if any, of an Underwriter's participation in such market. See "Underwriting." ^24. Limited Experience of Underwriters. Mason Hill & Co., Inc., has previously managed and completed ^three public offerings inclusive of the Company's initial public offering. The Underwriter is a relatively small firm and there can be no assurance that it will be able to make a meaningful market in the Company's Securities or that another broker/dealer will make a meaningful market in the Company's Securities. See "Underwriting." ^25. Indemnification of Officers and Directors. The Certificate of Incorporation of the Company provides indemnification to the fullest extent permitted by Delaware law for any person whom the Company may indemnify thereunder, including directors, officers, employees and agents of the Company. In addition, the Certificate of Incorporation, as permitted under the Delaware General Corporation Law, eliminates the personal liability of the directors to the Company or any of its stockholders for damages for breaches of their fiduciary duty as directors. As a result of the inclusion of such provision, stockholders may be unable to recover damages against directors for actions taken by them which constitute negligence or gross negligence or that are in violation of their fiduciary duties. The inclusion of this provision in the Company's Certificate of Incorporation may reduce the likelihood of derivative litigation against directors and other types of stockholder litigation, even though such action, if successful, might otherwise benefit the Company and its stockholders. See "Management." ^26. Potential Adverse Effect of Exercise of Special Warrant owned by Pride. Pride owns a special warrant under which it may acquire up to 1,250,000 common shares of the Company at a price of $4.40 per share during the twenty-four month period commencing on the date of this Prospectus (the "Special Warrant"). The Special Warrant allows Pride to purchase only such number of the Company's common shares to increase its percent ownership of the Company's common shares to no more than 51%. If the Special Warrant was to be exercised in full by Pride, it would result in Pride owning in excess of 50% of the issued and outstanding common stock of the Company and would enable Pride to control the Company. The exercise by Pride of the Special Warrant may result in dilution to the shareholders of the Company It may be expected that Pride will exercise the Special Warrant at such time, if any, as it deems the common stock to be worth in excess of $4.40. Such exercise would in all likelihood result in dilution to the Company's shareholders and result in a diminution in the value of the Shares and the Warrants. See "Description of Securities" and "Certain Relationships and Related Transactions." Risks related to the business of AC Car Group Limited - Although the Company's ownership of Automotive (and indirectly AC) has been reduced to 16%, the following risks have been described to give investors information relative to the risks associated with the Company's ownership of Automotive. ^27. Losses from Operations. When AC completed its acquisition of AC Cars and Autokraft in November 1997, AC Cars had been experiencing operating losses for several years and in fact had been placed in administrative receivership in March 1996. If AC continues to incur operating losses, the business of AC could be materially adversely affected. There can be no assurance that AC will ever be able to operate at a profit. See "Business - Acquisition of AC Car Group, Ltd. ^28. Dependence on Retention of AC Employees. Since its acquisition of AC Cars, AC has attempted to retain most if not all of the former employees of AC Cars, however, there can be no 18 assurance that any or all of such employees will continue to work for AC. If some or all of the former employees of AC Cars refuse to work for AC, there can be no assurance that it will be able to locate or attract personnel with the requisite talent and skills necessary to build, manage, engineer and/or market AC automobiles. In addition, if the Company decides to move the current manufacturing facilities of AC, there can be no assurance that any employees of AC will relocate. See "Properties" and "Business." ^29. Limited Market for AC Automobiles; Low Production Manufacturer. The market for AC automobiles is limited to a select group of purchasers. AC automobiles are typically purchased by successful business and professional individuals. Accordingly, the Company is dependent on a small, affluent segment of the population to purchase its products. If this segment should alter its interests or spending habits, if the economy or tax laws are such that these persons or entities are negatively impacted, either financially or otherwise, the Company may be unable to sell a sufficient number of automobiles, if any, to continue in operation. See "Business." ^30. Product Liability Claims; Insurance. As a result of the purchase of AC, the Company will face the inherent business risk of exposure to product liability claims as a manufacturer of new automobiles. At present, AC maintains product liability insurance through Lloyds of London. The limit of the indemnity is (pound)2,000,000 ($3,350,000) for each instance. Although the Company has procured this insurance policy, there can be no assurance that it will be able to maintain such insurance, that such insurance will be sufficient to cover claims, if any, or that such insurance will continue to be available at commercially reasonable terms. If the Company is unable to maintain products liability insurance for the automobiles that it manufactures, it would adversely affect the business of the Company and could potentially cause it to discontinue operations. See "Business." ^31. Regulation. As a manufacturer of automobiles, AC is subject to regulation by the Vehicle Certification Agency (VCA). The VCA prescribes standards for the safe manufacturing of automobiles for sale in the United Kingdom. The costs of compliance with these requirements are significant. AC will be subject to inspections by the VCA and may be subjected to fines and other penalties (including orders to cease production) for noncompliance with VCA regulations. The failure of AC to adhere to the standards prescribed by the VCA could have a material adverse affect on AC's ability to continue its operations. See "Business - Governmental Regulation." ^32. Lack of Experience of Current Management in Operation of Automobile Manufacturing. Management of the Company and AC do not have any prior experience in the manufacturing of automobiles. Management will be dependent on employees and consultants to render advise on modifying, improving and manufacturing automobiles for AC. The lack of experience in manufacturing automobile could adversely affect AC and the Company. ^33. Competition. AC is a low volume, specialty manufacturer which ^manufactures a limited number of hand made, relatively expensive, sports cars. AC is in direct competition with other well financed manufacturers such as Mercedes Benz, BMW, Aston Martin, as well as others. All aspects of AC's business are and will continue to be highly competitive. AC will compete in a mature marketplace which is well established and heavily capitalized. Most of the entities with which AC will compete have substantially greater sales, personnel and financial resources than that of AC. Moreover, there can be no assurance that other companies will not enter the marketplace or that other companies will not produce products superior to AC's. See "Competition." 19 DIVIDEND POLICY The Company has not paid cash dividends on its Common Stock and intends to retain earnings, if any, for use in its activities. Payment of cash dividends in the future will be wholly dependent upon the Company's earnings, financial condition, capital requirements and other factors deemed relevant by the board of directors. It is not likely that cash dividends or other dividends will be paid in the foreseeable future. DILUTION As of ^May 25, 1998, there were outstanding ^2,822,500 shares of the Company's Common Stock. The Company's Common Stock ^as of ^February 28, 1998 had a net tangible book value per share of approximately ^$1.06, based upon a total of ^2,822,500 shares issued and outstanding. Net tangible book value per share represents the amount by which the Company's total tangible assets exceed its total liabilities, divided by the number of shares of its Common Stock outstanding. After giving effect to the sale of the ^1,080,000 Shares of Common Stock by the ^Company offered hereby and the application of the net proceeds therefrom (after deducting estimated underwriting discounts and commissions and other expenses of the Offering) there would be outstanding a total of ^3,902,500 shares of the Company's Common Stock with a net tangible book value per share of approximately ^$1.66. This would represent an immediate increase in net tangible book value of ^$0.60 per share to existing stockholders and an immediate dilution of ^$2.34 or 58.5% of the offering price per share to new investors. Dilution is determined by subtracting net tangible book value per share after the Offering from the amount paid by new investors per share of Common Stock.
The following table illustrates the per share dilution: Public offering price per share (1) $4.00(1) Net tangible book value per share prior to this offering $1.06 Increase attributable to new investors(2) $0.60 Net tangible book value per share after this Offering $1.66 Dilution per share to new investors $2.34 =====
(1) Assumes the offering price is ^$4.00 per share. (2) Does not include funds which may be received upon exercise of the Underwriters' Warrants^, the Underwriters' Over-allotment Option, the Warrants or the Special Warrant. 20 The following table sets forth at ^May 25, 1998 the difference between the existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the price per share paid.
Shares Total Average Purchased Consideration Paid Consideration Paid Number Percent Amount Percent Per Share Existing Stockholders 2,822,500 (1)(2) 72.3% $14,124,986 76.6% $5.00 New Investors 1,080,000 (2) 27.7% $4,320,000 23.4% $^4.00 (3) --------- ---------- ----- 3,902,500 100% $18,444,988 100.0% ========= ==== =========== =======
(1) Includes 1,500,000 shares owned by Pride pursuant to the Reorganization, 60,000 shares of Common Stock issued in March 1995 and 500,000 shares of Common Stock issued in the December 1995 Private Placement and ^170,000 shares issued in the December 1996 Private Placement. See "Capitalization" and "Certain Relationships and Related Transactions." (2) No effect is given to the possible exercise of (i) the Underwriters' Warrants to purchase ^125,000 Shares, ^ (ii) the Underwriters' Over-allotment Option, to purchase from the Company ^187,500 Shares, or (iii) up to 1,250,000 shares of Common Stock issuable upon the exercise by Pride of its Special Warrant. ^ USE OF PROCEEDS The net proceeds to the Company from the sale of the Securities offered hereby after deducting underwriting discounts and estimated expenses of the Offering payable by the Company, which have been estimated at ^$400,000 ($422,500 if the Underwriters' Over-allotment Option is exercised in full) is ^$3,488,000 ($4,140,500 if the Underwriters' Over-allotment Option is exercised in full). The net proceeds of this Offering are intended to be used as follows:
Percent of Use of Proceeds Amount of Proceeds Net Proceeds Repayment of Notes (1) $1,857,250 53.2% Repayment of Lines of Credit to Bank (1)(2) $1,559,750 44.7% Repayment of Loan to Underwriter (1) $71,000 2.1% ---------- ---- Total $3,488,000 100.0% ========== ======
(Footnotes listed on the next page) 21 (1) See "Business - Financing and Collections." (2) The Company intends to use whatever proceeds are remaining after repayment of the Notes to pay down existing credit lines, which as ^of January 9, 1998 aggregated (pound)3,250,000 ($5,200,000) to the banks. Given this, the Company may need to draw upon its lines of credit for working capital in the future. The Company believes that the proceeds of this Offering will be sufficient to meet its anticipated cash requirements for the 12 months subsequent to the closing of this Offering. It is not anticipated that the Company will be required to raise any additional capital within the next twelve months. If for any reason such estimates prove inaccurate, the Company may be forced to seek additional financing. There can be no assurances that such financing will be available, and if available, that it will be on terms acceptable to the Company. None of the proceeds of this Offering will be paid to members of the National Association of Securities Dealers, Inc. (the "NASD") or associates or affiliates thereof, except for the proceeds being paid to the Underwriters as described in this Prospectus and the repayment of a $71,000 loan to Mason Hill. See "Underwriting" and "Certain Relationships and Related Transactions". Any additional proceeds received from the purchase of additional securities by the Underwriters to cover over-allotments, will be added to the Company's working capital. In the event the Underwriters exercise the Underwriters' Over-allotment Option in full, the net proceeds to the Company would be approximately ^$4,140,500. No proceeds from this Offering will be paid to any officer or director of the Company, or affiliates or associates for expenses of the Offering or for any type of fee or remuneration except. A portion of the proceeds may be used to pay salaries in the event the Company's income from operations does not meet its cash requirements. The Company will not make any loans to any officer, director, affiliate or associate with the proceeds of the Offering. 22 CAPITALIZATION The following table sets forth (i) the capitalization of the Company at ^February 28, 1998 and (ii) such capitalization as adjusted to reflect the sale of ^1,250,000 Shares in this Offering and the application of the net proceeds thereof. As Actual Adjusted(1) Bank Debt and Other Liabilities(2) $2,363,900 $584,900 Bank Line of Credit (2) 5,489,924 3,780,924 Stockholders' Equity: Preferred Stock, $.01 par value, 2,000,000 shares authorized, none issued or outstanding -- -- Common Stock, $.001 par value, 10,000,000 shares authorized; issued and outstanding, 2,822,500 shares at February 28, 1998, 3,902,500 shares as adjusted 2,823 3,093 Additional Paid-In Capital 14,122,165 17,609,085 Deferred Financing Costs (123,750) (123,750) Retained Earnings (deficit) (2,289,844) (2,289,844) Foreign Currency Translation 204,310 204,310 Total Stockholders' Equity 11,915,704 15,403,704 Total Capitalization $19,769,528 $19,769,528 (1) Does not include (i) ^up to 1,250,000 shares issuable upon the exercise of the Special Warrant, (ii) ^187,500 shares of Common Stock issuable upon the exercise of the Underwriters' Over-allotment Option, (iii) ^125,000 shares of Common Stock reserved for issuance upon the exercise of the Underwriters' Warrants and (iv) 300,000 shares of Common Stock reserved for issuance under the Company's Senior Management Incentive Plan, of which an option to purchase ^199,665 shares have been granted by the Company. (2) Does not include additional liabilities reflected on the balance sheet of approximately $22,849,778 which consists of accounts payable, equipment financing, loans payable-directors, bank overdrafts and miscellaneous liabilities. 23 MARKET FOR COMMON EQUITY The Company's Common Stock is currently quoted on the Nasdaq SmallCap Stock Market and the Boston Stock Exchange. The following table sets forth representative high and low closing bid quotes as reported by ^the Nasdaq SmallCap Stock Market during the periods stated below. Bid quotations reflect prices between dealers, do not include resale mark-ups, mark-downs, or other fees or commissions, and do not necessarily represent transactions.
Common Stock Warrants Calendar Period Low High Low High 1996 4/24/96 to 5/31/96 7 1/2 8 1/4 3 4 1/8 6/1/96 to 8/31/96 8 8 1/8 2 7/8 4 9/1/95 to 11/30/96 5 6 7/8 1 1/8 1 1/2 12/1/96 to 2/29/96 1 3/4 4 11/16 5/16 1 1/2 1997 03/01/97 - 05/31/97 2 2 1/2 5/16 5/8 06/01/97 - 08/31/97 1 1/4 2 5/16 5/16 3/8 09/01/97 - 11/30/97 2 1/4 3 1/2 13/32 13/32 12/01/97 - 02/28/98 27/8 3 1/2 5/32 3/4 1998 03/01/98 - 5/15/98 3 7/16 4 1/2 5/16 3/4
(1) The Company effected an initial public offering of its Common Stock and Warrants on April 24, 1996. As of ^May 15, 1998, there were 32 holders of record of the Company's Common Stock, although the Company believes that there are approximately 1,000 additional beneficial owners of shares of Common Stock held in street name. As of ^May 15, 1998, the number of outstanding shares of the Company's Common Stock was ^2,822,500. As of ^May 15, 1998, there were 9 holders of the Company's Warrants, although the Company believes that there are approximately 400 additional beneficial owners of the Company's Warrants held in street name. As of ^May 15, 1998, the number of outstanding Warrants was 2,300,000. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ^ The following is management's discussion and analysis of significant factors which have affected the Company's financial position and operations during the years ended November 30, 1997 and 1996. Pride Automotive Group, Inc. (the "Company") was incorporated in the State of Delaware in March 1995. Pursuant to the terms and conditions of a reorganization agreement entered into in March 1995, the Company issued 1,500,000 shares of its Common Stock to Pride, Inc. (an entity incorporated in the State of Delaware), in exchange for all the issued and outstanding shares of PMS, thereby making the Company a majority owned subsidiary of Pride and PMS a wholly-owned subsidiary of the Company. PMS is the holding company for six wholly-owned subsidiaries, operating as one unit, located in the United Kingdom. PMS and its wholly-owned subsidiaries are located in the United Kingdom and follow generally accepted accounting principles in the United Kingdom. For purposes of the consolidated financial statements of the Company, the statements have been converted to the generally accepted accounting principles in the United States. Pride, the Company's parent, is an entity reporting under the Exchange Act, and its reports may be obtained and reviewed by either contacting the Company or the Securities and Exchange Commission. Pride, Inc., on its own has virtually no operations. As such, its financial viability is represented by the financial statements of the Company. Pride was incorporated as L.H.M. Corp. in the State of Delaware on May 10, 1988 as a "blank check" company, for the purpose of seeking potential business ventures through acquisition or merger. In April 1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with International Sportsfest, Inc. ("ISI"), a company formed to engage in and establish sports expositions in sports merchandise such as clothing and equipment. ISI never engaged in any business operations. In January 1994, ISI entered into an Agreement and Plan of Reorganization with PMS, whereby PMS became a wholly-owned subsidiary of ISI and ISI changed its name to Pride, Inc. Pride also owns 100% of the capital stock of Watford Investments, a South African company with minimal operations. This Company was formed in March 1995. The six wholly-owned subsidiaries of PMS are Pride Vehicle Contracts Limited, Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited, Pride Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle Deliveries Limited, which comprise the majority of the operations of the Company. Unless the context otherwise requires, all references to the "Company" include its wholly-owned subsidiary, PMS, and PMS's wholly-owned subsidiaries. These companies jointly engage in the business of leasing new automobiles to businesses, servicing such automobiles during the lease term and remarketing the automobiles upon the expiration of the lease term, which arrangement is described as a "contract hire." The Company purchases each vehicle pursuant to its clients' specifications, finances its purchase and pays for all the maintenance on the vehicle during the lease term. The Company has servicing agreements with automobile dealers and service centers, which specify pricing schedules for maintenance and repair work to be performed, all of which require the prior consent of the Company. Typically, the term of the loan corresponds with the term of the lease, whereby, upon the completion of the lease term, the automobiles are fully paid and owned by the Company. Upon the expiration of the lease, the Company remarkets the automobiles through various distribution channels including, but not limited to, used car wholesalers or used car retailers. Each client's monthly lease payment is determined by a computer program which takes into account estimated service costs, new 25 vehicle pricing, manufacturer bonuses, rebates and options, potential residual value at lease end, as well as other variable information including interest rates and other current and anticipated future economic variables. The monthly lease payments are usually sufficient to pay the financing and servicing on the vehicles during the lease term, with the bulk of the profits, if any, coming on the resale of the automobile. The Company's principal operations are conducted by PMS which reflects its financial statements in British pounds. As a result, most assets and liabilities of the foreign operations are translated into U.S. dollars using current exchange rates in effect at the balance sheet date. Fixed assets and intangible assets are translated at historical exchange rates. Revenue and expense accounts are translated using an average exchange rate during the period except for those expenses related to assets and liabilities which are translated at historical exchange rates. These expenses include depreciation and amortization which are translated at the rates existing at the time the asset was acquired. Any resulting gains or losses due to the translation are reflected as a separate item of stockholders' equity. In December 1995, the Company consummated a private placement offering of common stock of 500,000 shares, which reduced Pride's ownership interest to 72.8%. In April 1996, the Company completed an initial public offering of 592,500 shares of common stock at $5.00 per share and 2,000,000 redeemable common stock warrants at a price of $.10 each. The effort of the offering was to reduce Pride's ownership interest to 56.55%. On November 29, 1996, the Company, through its newly formed majority owned subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car Group Limited (registered in the United Kingdom), acquired certain of the assets of AC Cars Limited and Autokraft Limited. These two companies were engaged in the manufacture and sale of specialty automobiles. The purchase price of approximately $6,000,000 was financed by the sale of common stock and by loans. The acquisition involved the purchase of plant and equipment, the brand name, inventories and an aircraft and was recorded using the purchase method of accounting (see also Note 1 - notes to financial statements). On February 12, 1998, the Board of Directors of AC Automotive Group, Inc. authorized the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a company affiliated with Alan Lubinsky, the President and Chief Executive Officer and director of the Company and AC Automotive Group, Inc., for aggregate consideration of $6,130. In addition, 441,300 shares were issued to other unrelated parties for aggregate consideration of $443. Following further restructure and the foregoing issuance of shares, the ownership of AC Automotive Group, Inc. by the Company has been reduced to 16%. Results of Operations - Years Ended November 30, 1997 and November 30, 1996: Contract Hire/Fleet Management Revenues, including those from other group companies, for the year ended November 30, 1997 were approximately $17,294,000 compared to approximately $12,884,000 for the year ended November 30, 1996, an increase of $4,410,000 or 34%. The primary reason for this 34% increase was due to an increase in revenues from contract hire, sale of vehicles at lease maturity and the selling of vehicles at low margins to take advantage of dealer bonuses. 26 For the year ended November 30, 1997, 550 new vehicles were acquired as against 385 in the year ended November 30, 1996. The average monthly rental of new contracts written was $541 per vehicle as against an average of $569 per vehicle for the previous year. The average monthly rental is dependent on the type of vehicle being rented and the terms of the contract. For the year ended November 30, 1997, 153 vehicles were disposed of on termination of contracts at an average profit of $1,529 per vehicle. For the year ended November 30, 1996, 157 vehicles were disposed of on termination of contracts at an average profit of $2,233 per vehicle. The average profit per disposal is dependent on the type of vehicle sold and current market value of vehicles. As of November 30, 1997, 1,740 vehicles were under lease and management compared to 1,409 vehicles as at November 30, 1996. Cost of sales increased in actual dollars but decreased as a percent of sales, when comparing the years ended November 30, 1997 and 1996. These costs increased by approximately $3,193,000 or 31%, which is less than the increase in revenues. As a percent of sales, cost of sales for 1997 was 77.7% versus 79.5% for 1996. General and administrative expenses increased from $1,802,000 for 1996 to $1,858,000 for 1997, an increase of $56,000 or 3%. As a percent of sales these expenses represented 11% of sales for 1997 and 14% for 1996. Management believes that they can continue to increase revenues while keeping general and administration costs under control. Interest expense increased from $860,000 in 1996 to $1,747,000 in 1997. Management attributes this increase to the large increase in new business written and the associated increase in funding of vehicles, providing financial support to AC Cars (see below) and the costs associated with the raising of finances to fund the acquisition of AC Cars. The loss on sale of fixed assets resulted from the sale of a property to the tenant who exercised their option to purchase. The loss amounted to approximately $455,000. Income (loss) before taxes for the years ended November 30, 1997 and 1996, prior to amortization of goodwill for the period ($632,000 and $635,000, respectively) aggregated $256,000 and ($20,000), respectively. AC Cars The Company, on November 29, 1996, through its newly formed 70% owned subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car Group Limited, completed the acquisition of certain assets of AC Cars Limited and Autokraft Limited. These two companies are engaged in the manufacture and sale of sports cars among which the famous AC Cobra sells for approximately $100,000 each. The Company acquired the business out of administrative receivership and for most of the year has devoted most of its resources to resurrecting operations. This has involved upgrading of production facilities, improving efficiency, appointing new dealerships, installing systems and controls and appointing new management where necessary. New dealerships have been appointed in the United Kingdom and a distributor has been appointed in Australia. 27 Revenues, including those from other group companies, for the year ended November 30, 1997, were approximately $1,633,000. Other income of $701,000 resulted mainly from the sale of the option to purchase the property occupied by the operation. Cost of sales amounted to approximately $1,573,000 on the above revenues. General and administration expenses amounted to approximately $2,589,000. Rent and property taxes of approximately $865,000 and salaries of $282,000 accounted for 44% of the above costs. Depreciation of plant, machinery, tooling, equipment and fixtures amounted to approximately $400,000. Interest amounted to approximately $462,000 for the year. Interest was incurred on a bank line of credit of $195,000, on bank debt of $80,000 and on acquisition debt of $187,000. The Hurricane aircraft which was acquired as part of the assets at acquisition, was disposed of at a loss of approximately $299,000. AC Cars is in a developmental stage and certain specific expenses have been classified as research and development costs. These costs relate to research and development incurred on the manufacture and distribution of the AC Cobra and AC Ace and are separately disclosed. Management believes it is more prudent to write off these costs immediately as they occur. Research and development costs amounted to approximately $983,000 for the current year. (Loss) before tax for the year ended November 30, 1997 on the AC business aggregated $4,111,000. In February 1998, subsequent to the end of the Company's current fiscal year, AC Automotive issued additional shares to certain individuals and an entity affiliated with the Company's President for aggregate cash of $6,573, thereby diluting the Company's ownership in this subsidiary to 16%. See Note 1 of Notes to the Financial Statements for additional information. Consolidated For the year ended November 30, 1997, the Company reported a net loss of $4,455,400 or $1.59 per share. For the year ended November 30, 1996, the Company reported a net loss of $600,622 or $.25 per share. Results of Operations - Contract Hire - Three Months Ended February 28, 1998 and 1997 Contract hire and fleet management income increased by $1,004,955 when comparing the quarter ended February 28, 1998 to the quarter ended February 28, 1997. This 57% increase is due to the net growth in the fleet of 379 vehicles over the past year. Vehicle sales decreased by $914,704 when comparing the two quarters due to less contracts terminating and less sales of vehicles. During the quarter, 96 new contracts were written at an average rental of $695 per vehicle compared with 117 new contracts in the corresponding period in 1997 at an average rental of $525 per vehicle. The average monthly rental is dependent on the type of vehicle being rented and the terms of the contract. 28 During the quarter, 37 vehicles were disposed on termination of contracts at an average profit of $734 per vehicle. During the corresponding quarter in 1997, 40 vehicles were disposed of at an average profit of $2,363 per vehicle. The average profit per vehicle on disposal is dependent on the type of vehicle sold and current market value of vehicles. As of February 28, 1998, 1,757 vehicles were under lease and management compared to 1,492 vehicles as at February 28, 1997. Costs of sales relating to sales of vehicles decreased from $1,614,633 to $789,954 when comparing the quarter ended February 28, 1998 with the quarter ended February 28, 1997. This decrease is due to less contracts terminating and a decrease in the sales of vehicles. Cost of sales, including depreciation, relating to contract hire and fleet management income increased from $1,228,579 to $1,762,589 or 43% when comparing the two quarters ended February 28, 1997 to 1998, respectively. This increase is in line with the 57% increase in contract hire and fleet management income. Cost of sales, including depreciation, as a percentage of contract hire and fleet management income decreased from 69.8% to 63.8%, when comparing the two quarters. This resulting increase in gross margin of approximately 6% has enabled the Company to absorb the increases in other overheads when comparing the results of the two quarters ended February 28, 1998 and 1997, respectively. General and administrative expenses increased by $113,559 when comparing the quarters ended February 28, 1998 and 1997, respectively. This increase of 30% is in line with the growth in contract hire income of 57% over the past year, and represents 13.67% of revenue as against 10.47% for the corresponding period. Interest expense increased by $296,498 when comparing the two quarters ending February 28, 1998 and 1997, respectively. The reason for this increase is due to the significant growth in new business which requires increased funding, the cost of the increase in the bank overdraft line of credit utilized to fund the AC Car operations and additional working capital requirements to fund the growth. For the three months ended February 28, 1998 and 1997, the Company reported, prior to amortization of goodwill ($157,680 for both periods) losses from operations of $36,967 and $7,829, respectively, for the contract hire operations. Liquidity and Capital Resources Due to the nature of the Company's business, namely contract leasing of motor vehicles which are fixed long-term assets, the balance sheet has been prepared on an unclassified basis. Accordingly, there is no classification of current assets and current liabilities. At November 30, 1997 and February 28, 1998, the Company's balance sheet reflected cash of $77,000 and $14,000, respectively, accounts receivable of $2,002,000 and $4,243,000, respectively, and total assets of $40,301,000 and $40,724,000, respectively. The principal reason for the increase in total assets is an increase in contract hire vehicles available for lease. In December 1995, the Company completed a private placement offering selling 20 units, each unit consisting of 25,000 shares of Common Stock, at $6,000 per unit for aggregate gross proceeds of $120,000 ($.24 per share). In April 1996, the Company successfully completed an initial public offering of its common stock, which yielded net proceeds to the Company of approximately $2,166,000. 29 The Company's total assets as of November 30, 1997 and 1996 include intangible assets of approximately $9,090,000 and $9,722,000, respectively. These intangible assets consist of the unamortized portion of the costs over net assets acquired in acquisitions, which are being amortized over periods ranging from 10 to 20 years. When adjusted for these intangible assets, the net tangible book value of the Company at November 30, 1997 and 1996 would be approximately ($1,680,000) and $2,235,000, respectively. During the years ended November 30, 1997 and 1996, the Company generated cash flows from operating activities aggregating approximately $1,572,000 and $489,000, respectively. Investing activities reflect uses of cash for the years ended November 30, 1997 and 1996 of $11,911,000 and $8,759,000, respectively. These uses of cash are the result of the purchases of fixed assets (primarily revenue producing vehicles) net of the proceeds received from the sale of vehicles at lease expiration dates and the acquisition described above. In order to replenish its fleet of revenue producing vehicles, annually, the Company is required to purchase from 300 to 400 new vehicles at an average cost of approximately $25,000 each. At the time of purchase, the Company typically makes a cash deposit of approximately 10% and finances the balance. The Company has funding lines with several financing institutions for this purpose which aggregate approximately $23,677,500 at November 30, 1997. At November 30, 1997, there was approximately $18,342,000 outstanding under these lines. These lines are typically open for between 24 and 60 months depending on the terms, the most important term being the interest rate. Therefore, the principal amount of the Company's current credit lines is constantly changing. Since the Company's funding lines are asset based (secured by the vehicles purchased), there is generally no difficulty obtaining funding lines, however, the Company is continuously seeking to find the best terms and rates. Typically financing institutions authorize credit lines with a fixed interest rate, which line is to be open for a certain period of time. During the term of the line, the Company may draw down on such line in order to finance the purchase of vehicles to lease. When the time for drawing down on the line expires, the Company can no longer draw down on such line to finance additional vehicles, however, the amount drawn is repaid pursuant to the terms of such line. For the year ended November 30, 1997, the Company provided cash from financing activities ($10,208,000) primarily due to financing provided by bank lines of credit ($4,012,000) plus the increases in financing of new vehicles ($19,492,000) net of the amounts needed to reduce hire purchase contract financing ($12,185,000). For fiscal 1996, the Company provided cash from financing activities of approximately $9,240,000 primarily as a result of an IPO ($2,200,000) and the financing needed to acquire new vehicles ($11,500,000) net of the amounts utilized to pay hire purchase contract financing ($6,100,000). Other than the annual acquisitions of revenue producing vehicles as mentioned above, there are no material planned capital expenditures at the present time. The Company believes that its cash flow from operations, and its available funding lines for the acquisition of revenue producing vehicles will be sufficient for at least the ensuing 12 month period. This report contains forward-looking statements and information that is based on management's beliefs and assumptions, as well as information currently available to management. When used in this document, the words "anticipate, "estimate," "expect," "intend," and similar expressions are intended to identify forward- looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or expected. 30 BUSINESS History Pride Automotive Group, Inc., a Delaware corporation (the "Company") was formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all of the outstanding shares of common stock of Pride Management Services, Plc., an English corporation ("PMS"), which has been accounted for as a "Reorganization." Prior to the Reorganization, PMS was a wholly owned subsidiary of Pride. Pride was incorporated as L.H.M. Corp. in the State of Delaware on May 10, 1988, as a "blank check" company for the purpose of seeking potential business ventures through acquisition or merger. In April 1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with International Sportsfest, Inc. ("ISI"), a company formed to engage in and establish sports expositions in sports products such as clothing and sports related equipment. At such time L.H.M. Corp. changed its name to ISI. ISI never engaged in any business operations. In November 1992, the Company effected a 1 for 200 reverse split of its issued and outstanding shares of Common Stock. In January 1994, ISI entered into an Agreement and Plan of Reorganization with Pride Management Services, Plc. ("PMS"), an English corporation, whereby PMS became a wholly owned subsidiary of ISI and ISI changed its name to Pride, Inc. ^ Pursuant to the terms and conditions of the Reorganization in March 1995, between the Company, PMS and Pride, the Company issued 1,500,000 shares of its Common Stock to Pride in exchange for all of the issued and outstanding shares of PMS. In connection with the Reorganization and formation of the Company, PMS became a wholly owned subsidiary of the Company which, prior to the Company's initial public offering, was approximately 72.8% owned by Pride. PMS is a holding company which has six wholly owned subsidiaries which engage in the Company's operations. PMS's wholly-owned subsidiaries include; Pride Vehicle Contracts Limited, Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited, Pride Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle Deliveries Limited. These companies operate as one unit, with the same management and facilities. Unless the context otherwise requires, all references to the "Company" are to its wholly owned subsidiary, PMS and PMS's six wholly owned subsidiaries. See "--Subsidiaries." Public Offering of Pride Automotive Group, Inc. In April 1996, the Company completed an underwritten initial public offering of its securities. The securities were registered with the Securities and Exchange Commission ("SEC") pursuant to a registration statement on Form SB-2. The initial public offering was declared effective by the SEC on April 24, 1996. In the offering, the Company sold 592,500 shares of its common stock to the public at a price of $5.00 per share and 2,300,000 redeemable common stock purchase warrants at a price of $.10 per warrant. The warrants are exercisable at a price of $5.75 per share, subject to adjustment, beginning April 24, 1997 and expiring April 23, 2001. In connection therewith, the Company also granted to the underwriters of the offering, Mason Hill & Co., Inc.,^ the Thornwater Group, Inc., and J.W. Barclay warrants to purchase an aggregate of 95,000 shares of the Company's common stock at a purchase price of $7.50 and 200,000 redeemable common stock purchase warrants at a price of $0.15 per warrant, each warrant exercisable to purchase one share of common stock at a purchase price of $7.50 per share. Other than with respect to the exercise price, the terms of the warrants granted to the underwriter are identical to those described above. The securities underlying such warrants are being registered hereunder. The 31 Company's securities are currently traded on the Nasdaq SmallCap Stock Market and the Boston Stock Exchange, Inc. See "Principal and Selling Securityholders". Business of Pride Management Services, Plc. The Company engages in the business of leasing new automobiles to businesses, servicing such automobiles during the lease term and remarketing the automobiles upon the expiration of the lease. The Company's business strategy is to (i) provide personal and attentive service to its clientele, (ii) lease primarily to high-quality credit applicants in order to continue to build a lease portfolio with low delinquency and credit loss rates, (iii) finance its lease portfolio with competitive credit terms and (iv) manage its residual risk relating to the Company's resale of automobiles after the expiration of the lease term. The leasing, financing and servicing of the vehicles is described as a "contract hire." The Company purchases each automobile pursuant to the specifications of its clients, finances the purchase and pays for all the maintenance and repairs on the vehicle during the term of lease. Typically, the Company pays off the purchase price of the vehicles during the term of the lease and then resells the automobile at the end of the lease term. Acquisitions The Company has expanded its operations in the past several years through acquisition. In May 1990, the Company formed Baker Vehicle Contracts Limited ("Baker") to acquire certain assets, including the right to the name and contracts of Baker Hire Limited, an English company. At the time of its acquisition, Baker was a division of W.H. Baker Limited, which company had filed for bankruptcy protection. Baker's vehicle leasing is primarily in Wales and the southwest region of England. In December 1990, PMS was contracted to run the business of County Contract Hire Limited ("County"), which at that time comprised approximately 3,500 leased vehicles. In February 1992, the Company purchased County from Berisford International Plc., an English public company, pursuant to a stock purchase agreement, whereby PMS acquired all of the outstanding shares of County and changed County's name to Pride Vehicle Contracts (UK) Limited. In October 1994, the Company acquired certain assets of Master Vehicle Contracts Limited ("Master"), an English company, pursuant to the terms of an asset purchase agreement. The assets purchased included vehicles, vehicle lease agreements and customer lists. At the time of the sale, Master was in receivership, whereby the sale was entered into by PMS and the court appointed receivers. In connection with this purchase, the Company acquired the rights to use the name Master Vehicle Contracts Limited. Industry Overview Companies have a variety of financing alternatives available to them in acquiring the use of a new automobile, either through the purchase or lease of such vehicle. In financing the purchase of a vehicle there are various loan alternatives including, fully amortizing, balloon payment, no money down, low down payment and business equity loans. In terms of leasing vehicles, there are various options including, payment schedules, term, maintenance and repurchase rights. The primary benefit of leasing over purchasing is that leasing typically provides a consumer with the opportunity to acquire the use of a new automobile at a lower monthly payment than financing the purchase of such vehicle, usually without a significant initial cash outlay, and enables the return of the automobile without any further liability at the 32 end of the lease term. Companies which provide employees with automobile transportation typically lease such vehicles and expense the costs. The increase in new vehicle prices in relation to annual median family income has been a contributing factor in the growth in the leasing and used automobile markets. This has provided the Company with a further opportunity for revenue growth through the resale of its vehicles after the term of the lease or in the event there are defaults of the leases. Business Objectives The Company's primary goal is to expand its leasing and fleet management operations, increase and obtain better terms with respect to the financing of the vehicles it leases and to increase the profitability of its vehicle remarketing program. The Company's strategy for continued growth is to (i) increase lease origination by (a) increased name recognition, (b) acquisition of similar companies or their assets, (c) the development, expansion and retention of existing clients, and (d) the expansion into new geographic markets, (ii) further develop and market its fleet management services, (iii) increase and improve the terms of its financing arrangements, (iv) further develop and increase the profitability of its used automobile remarketing operations, and (v) lease primarily to high quality credit applicants in order to continue to build a lease portfolio with low delinquency and credit loss rates. Subsidiaries The following table lists all the wholly owned subsidiaries of PMS, the date of their formation and business operations. These companies operate as one unit in conducting the business affairs of the Company.
Date of Name Formation Business Operations Pride Vehicle Contracts Limited 12/23/86 Conducts all administrative functions for the Company, including paying salaries and all operational expenses of the Company. Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker Hire Contracts Limited, acquired in May 1990, which operations are primarily in Wales and the south west region of England. Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited and Master (UK) Limited Vehicle Contracts Limited in February 1992 and March 1994, respectively. Pride Leasing Limited 02/22/89 Vehicle leasing. Owned property and a building in Croydon, England, which was sold in November 1997. Pride Vehicle Management 02/14/90 Operates the Company's fleet management services. Limited Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for all the Limited Company's leasing operations.
33 Leasing, Maintenance and Resale The Company purchases each vehicle pursuant to its client's specifications; finances its purchase and pays for all the maintenance on the vehicle during the term of the lease. The Company usually finances the purchase of each vehicle to correspond with the term of the lease, such that upon the completion of the lease term the automobiles are fully paid. As of January 1, 1998, the Company had approximately ^1,477 vehicles under lease. The term of the leases average generally between 24 and 48 months, with the average lease being 36 months. In addition to setting forth the lease term, the amount of the rental payments and the mileage allowance, each lease requires the lessee to pay all fees, taxes, fines and other costs relating to the use of the vehicle. Generally, the lessee pays the first and last two months lease payment in advance of the lease term. The lessee is required to maintain liability and casualty insurance on each vehicle at specified limits and to name the Company as an additional insured and loss payee. The Company will only approve policies which have a maximum deductible of $500. The Company's sales policy emphasizes leasing to financially sound clients and requires certain financial disclosures prior to executing any lease agreement. Customer accounts are targeted from profitable, growing, medium-sized corporate companies. For the years ended November 30, ^1996 and 1997, the Company had two unaffiliated customers, Westbury Homes Plc. and Campbell Distillers Limited, which companies accounted for in the aggregate approximately ^29% and 24%, respectively, of the Company's total revenues. For the ^three month period ended ^February 28, 1997 and February 28, 1998, revenues from these two unaffiliated customers aggregated ^27% and 20%, respectively, of total revenues. The Company also leases vehicles to the following local government agencies; Swansea Council in Wales, Brent Council in London and Mid Glarmorgan Council in Wales. Each lease applicant must provide information regarding, among other things, corporate history, length of time in business, ability to pay based both on income level and certain debt to income ratios developed by the Company and credit history, including comparable borrowing experience. Review of financial statements, audited where obtainable, allows for the independent verification of the Company's financial position and past history. The foregoing procedures provide the general basis for the Company's credit decisions, but the ultimate determination is in the discretion of the Company's credit analysts. Accordingly, certain of the leases entered into by the Company may not meet each of the Company's credit guidelines. The Company has servicing agreements with over 1,400 automotive dealerships and independent service centers in its areas of operations. Since all of the leased vehicles are new, there are warranties typically ranging from 12 to 36 months or 20,000 to 60,000 miles, which ever comes first, with the average being 24 months or 40,000 miles. ^Each lease has mileage limitation and additional fees for overages. Therefore, the Company does not incur significant expenses for repairs. Maintenance is regularly performed on all vehicles, pursuant to negotiated pricing schedules. No work is permitted to be performed on any vehicle, unless performed by one of the Company's contracted service centers with the prior consent of the Company. The monthly lease payment which the Company charges its clients is determined by a computer program which takes into account estimated service costs, new vehicle pricing, manufacturer bonuses, 34 rebates and options, potential residual value at lease end as well as other variable information including interest rates and other current anticipated future economic variables. The client is responsible for maintaining its own insurance, of which the Company is the beneficiary, in the event the vehicle is damaged. The Company typically attempts to match the financing term with the lease term, whereby at the end of the lease term the Company owns the automobile. The Company does not currently perform repairs or refurbishing on the returned vehicles, rather, the Company attempts to resell such vehicles immediately upon their return in the same condition as they are returned in. This enables the Company to increase its cash flow, though the Company believes it could obtain higher prices for the used vehicles in the event minor repairs were performed prior to resale. The Company manages its residual risk by focusing on the leasing of vehicle models which it believes will have a broad appeal in the used automobile market at the end of the lease term and by utilizing multiple remarketing channels including, but not limited to used car wholesalers and used car retailers. The Company upon pricing the lease of a new vehicle reviews the listed wholesale price as listed in several pricing guides, predominantly the Current Auction Prices ("CAP") book, which gives the current wholesale price of the model being leased. The Company currently attempts to get at least 85% of the CAP listed wholesale price upon the resale of the vehicle. The Company believes that with increased working capital and cash flow from operations, the Company can make minor repairs and refurbishings on the automobiles performed and seek higher prices on resales of up to 110% of the wholesale price on popular models. The Company sells its used vehicles through used automobile wholesalers and retailers, automobile auctions, unaffiliated dealers and pursuant to sales to related parties of the lessees. In the event the market for used automobiles decreases the models or conditions of the vehicles returned to the Company decrease their resale value or vehicles are returned pursuant to defaults in the lease agreements, such events may adversely affect the Company's cash flow, profitability and business operations. See "-- Financing and Collections" and "-- Competition." Fleet Management Services In 1994, the Company opened its fleet management division, which division manages the automobiles for certain of its corporate clients who choose to own the vehicle(s) directly. Customarily, these clients purchase the automobiles through the Company in order to take advantage of the Company's bulk purchase discounts. The Company maintains these vehicles on behalf of such clients pursuant to a monthly management fee, usually $15 per automobile and disposes of the vehicles thereafter on behalf of the client. The client pays all costs associated with the purchase, maintenance and resale of the automobiles. The Company estimates that for the year ended November 30, ^1997 less than 5% of the Company's revenues were from fleet management services. Suppliers The Company purchases all of the automobiles that it leases to its clients from automotive dealerships, usually several at a time. For the ^years ended November 30, 1996 and ^November 30, 1997, General Motors and Ford were the manufacturers of approximately 17% and 16%, respectively and 15% and 16%, respectively, of the vehicles which it leased. The Company does not depend on any individual dealership for the purchase of any vehicle brand. The Company has no written agreements with any dealership it purchases vehicles from, though it does receive yearly rebates from manufacturers based on quantity of automobiles purchased. Management believes that the price it pays and the terms 35 it receives for the automobiles it purchases are more favorable than it would receive if it was purchasing automobiles on an individual basis. The Company believes that it will continue to be able to purchase automobiles at competitive prices and terms into the future. A portion of the Company's profit margin is based on rebates received directly from the automobile manufacturers on a yearly basis. The Company receives a rebate on most vehicles purchased based upon the quantity of automobiles purchased from said manufacturer each year. This rebate is usually between $100 and $400 per vehicle. However, the Company has no assurances that it will be able to acquire automobiles at favorable prices in the future or receive such rebates in the future. No assurance can be given that an uninterrupted and adequate supply of automobiles will be available to the Company in the future, although ^ the Company believes that there are a sufficient number of automobile dealerships, so that in the event any individual or group of dealerships can no longer service the Company's needs, the Company will be able to find other dealerships at competitive prices. In the event the Company cannot obtain the automobiles of any specific manufacturer or automobiles in general or is not able to purchase such automobiles on similar terms as is presently available to it, the Company may be materially adversely affected. Financing and Collections The Company provides new automobiles to its clients pursuant to each individual client's specifications, with personal and attentive service to include all of its clients needs. The Company's sales representatives have ^ experience in the automobile finance and leasing industry and work closely with the clients to meet their driving and financial needs. Since November 1992, when entering into new lease agreements, the Company purchases the automobile, which usually requires a 10% down payment and pays down the note on the purchase, including principal and interest, during the term of the lease. Prior to November 1992, the Company would finance the purchase of automobiles through promissory notes which required the payment of interest during the term of the loan and the repayment of the principal in a balloon payment at loan maturity, which is coincident with the end of the lease term. This financing strategy enabled the Company to increase its cash flow during the term of the lease, but the higher financing fees and interest expense reduced the Company's profit on the resale of the vehicles. The Company has asset funding lines to acquire revenue producing vehicles with several institutions in England in the aggregate amount of ^$23,667,500 of which the Company has borrowed approximately ^$18,341,778 as of November 30, 1997^. The ^ Company's asset funding line ^has increased as a result of ^ equity raised in the Company's initial public offering in April 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Under the lease agreements, the lessees generally have no right to terminate their leases prior to the end of their scheduled term. In the event that any lease terminates prior to the end of its scheduled term (whether by way of default, the destruction or theft of the vehicle), the lessee is liable to the Company for the amount by which the lessee's default termination liability under the lease agreement exceeds the realized value of such vehicle, which may be obtained through the proceeds of the sale of the vehicle (including a sale following repossession) or the proceeds of any applicable insurance on the vehicle. Under the terms of the lease, the term "default termination liability" includes; (i) all payments due under the lease agreement up to the termination date, inclusive of interest, (ii) future rental payments due from 36 termination date until the contracted lease termination date, less maintenance and a 5% discount and (iii) the difference between the amount received pursuant to the sale of the vehicle and the estimated residual value, if such sale price is less than the estimated residual value. Under its agreements with the lessee, the Company pays the sale or insurance proceeds to its lender up to the amount of the then remaining balance of the note payable related to the vehicle. Any shortfall is a credit loss and is borne by the lessee, and any excess is retained by the Company. ^ On August 31, 1997, the Company's line of credit with its bank under which it finances its general working capital requirements, expired. In February 1998, the Company entered into a new agreement with the bank. This new line of credit of $5,862,500, is payable on demand and is secured by all assets of the Company other than building and revenue-producing vehicles which are already pledged (see Notes 6b and 7 to the Notes to the Financial Statements). Interest is payable at rates between 2% and 4% in excess of the bank's base rate (7 1/2% as of November 30, 1997). The agreement is due for renewal November 1998. There can be no assurance that the line of credit will be renewed. See "Risk Factors". The Company attempts to enhance the performance of its leases and thereby minimize its financial risks by maintaining timely, consistent and direct customer contact. When a default does occur, collections and repossessions are handled by the Company's collection department. Upon a lease payment default and after the passage of three days, the Company mails a written notice to the defaulting customer and attempts to contact the customer directly by phone. Once contact is established, the collection department will work with the customer until the default is cured. If contact is not made or the default is not satisfactorily cured, the Company will proceed to repossess the vehicle. The Company will repossess the vehicle upon a determination that there is a risk of not recovering the vehicle. In the event repossession is required, it typically will take place within 20 days after the initial default. Pursuant to English law, a company can repossess a vehicle for non payment in the event payment is not received within two days of the due date, however, the Company's lease agreements provide for a seven day grace period. No notice is required and no demand for payment need be made prior to repossession. The Company, as the vehicles owner, has all key numbers with respect to the vehicles it leases. In the event the Company deems repossession necessary it sends an employee to physically drive the vehicle away from the lessee. Repossessed vehicles are offered by the Company at public sale, after the giving of notice, and sold by the Company in a commercially reasonable manner. There were no repossessions of vehicles in fiscal 1996. In 1997, there were eight repossessions, however six of those repossessions were re-leased. There have been none to date in 1998.^ Competition The Company's business is highly competitive, with relatively insignificant barriers to entry and with numerous firms competing for the same customers. The Company is in direct competition with local (includes the ^county of Hertfordshire and the surrounding areas), regional (includes London and the surrounding areas) and national (includes all of the United Kingdom, inclusive of England, Wales, Scotland and Northern Ireland) automotive leasing companies, many of which have greater resources and more extensive distribution and marketing than the Company. The largest leasing companies in direct competition with the Company are ^Arriva and Lex Vehicle Leasing Limited, each of which claim to have presently on lease approximately 65,000 vehicles. As of January 1, 1998, the Company had ^1,477 vehicles under lease. The Company also competes in the automobile financing industry with providers of other forms of financing. Other competitors include finance companies affiliated with automobile 37 manufacturers, a variety of local, regional and national finance companies, commercial banks, savings and loans, and other consumer lenders such as industrial thrifts and credit unions. The automobile leasing business is highly competitive and the Company competes for business on the basis of both pricing and service. The Company believes that the main concern of the lessee or buyer of a new automobile is the amount of the monthly payment and of any down payment. Many of the Company's competitors have significantly greater financial, technical and marketing resources and market share than the Company. Automobile finance companies affiliated with automobile manufacturers, from time to time offer aggressive leasing and financing programs at below market pricing to promote the sale of certain vehicle models. Many of the national leasing companies have extensive advertising campaigns which develop and reinforce brand recognition. In addition, many of such manufacturers have agreements with vehicle leasing entities to jointly advertise and market their products and services. The used automobile sales business is highly fragmented and competitive, with competition coming from individuals, independent used automobile wholesalers and dealerships and used automobile lots operated by new automobile dealers and rental car companies. Marketing and Sales The sales policies of the Company have emphasized quality of business rather than volume, both in its own new business contracts and its acquired contracts. This controlled and conservative approach to growth allows the Company to write what it considers to be good quality, profitable contract hires. Customer service and satisfaction is then emphasized as a high priority, to ensure that the group's premium pricing policies can be maintained for repeat business. Customer accounts are targeted from profitable, growing, medium-sized corporate companies together with public sector referrals. ^The Company attempts to take^ a balanced, portfolio approach to risk management with a variety of company sizes to balance credit risk against profit margin. The Company executes a finance company standard hire purchase agreement for each lease and the finance company takes a registered charge (security interest) over the underlying agreement between the Company and its customer. The security of the lender is further increased by the Company's down payment on the vehicles and the monthly payments of principal and interest during the term of the lease. The Company has all required liens and security interests appropriately filed and recorded. As part of its obligations, the Company performs all administrative functions in the acquisition, registration and leasing of the automobile and controls and pays for all required servicing of its vehicles. The Company obtains appropriate vehicle registrations and titles for all lease vehicles, tracks compliance with insurance requirements, negotiates and handles all claims with insurance companies and remits all appropriate sales taxes on lease payments to the taxing authority. Government Regulations The Company is subject to regulation by the United Kingdom Department of Trade and Industry (the "Department of Trade"). The Department of trade establishes general rules and regulations with respect to the operation of a business in the United Kingdom. The Department of Trade has not established any regulations or licensing requirements specifically regulating the leasing of automobiles to companies. 38 There can be no assurances that such will be the case in the future or that if licensing or other form of regulation is required in order to engage in the Company's business that the Company will be successful in obtaining such licenses or in meeting the requirements of such regulations. The Department of Trade, in accordance with the credit agreement act, requires the issuance of a license in order to lease vehicles to individuals, which license the Company has obtained^. However, the Company never has nor does it presently intend to lease vehicles to individuals. In addition, the Company must also comply with a wide range of other state and local rules and regulations applicable to its business, including regulations covering labor relations, safety standards, affirmative action and the protection of the environment. Continued compliance with the broad regulatory network of the United Kingdom is essential and costly and the failure to comply with such regulations may have an adverse effect on the Company's operations. In August 1995, the British Government passed a law allowing leasing companies to be reimbursed by the Government for the value added tax "VAT" which is added to all consumer goods including automobiles. The VAT tax is currently at 17.5%. Reimbursement of the VAT tax will allow the Company to charge lower lease rates. Employees As of May 25^, 1998, the Company employed 19 full-time persons, ^six of which are in management (three of which are officers), ^ nine administrative, ^two sales representative and two drivers. None of the employees are represented by a union, and the Company considers employee relations to be good. Properties The Company maintains 6,000 square feet of executive office space in a modern, free standing building at Pride House, Watford Metro Centre, Tolpits Lane Watford Hertfordshire, WD1 8SB England. The building was purchased by PMS in December 1992 at a cost of approximately $895,000. The annual cost of servicing the building's mortgage and taxes is approximately $80,000 and $18,000, respectively. Pride Leasing Limited ^owned a building in Croydon, England, which it purchased in 1991 at a cost of approximately $825,000. The Company sold this ^property in ^November 1997 for ^$400,000. Pending Litigation The Company is not a party to any material pending litigation which, if decided adversely to the Company, would have a significant negative impact on the business, income, assets or operation of the Company, and the Company is not aware of any material threatened litigation which might involve the Company. In England, the owner of the automobile is not considered liable for the acts of the driver where there is a lease arrangement. AC is not a party to any material litigation. ^Although the Company acquired the assets of AC Cars and Autokraft and does not believe that it will have any exposure to liability claims for automobiles built by AC Cars and Autokraft, there can be no assurance that the Company is correct in such belief. Any such claim relating to new automobiles built by AC or to automobiles built by AC Cars and Autokraft could have an adverse effect on the Company. 39 Acquisition of AC Car Group Limited In November 1996, the Company, through its ^subsidiary, AC Automotive Group, Inc. ("Automotive") and its England subsidiary, AC Car Group Limited, acquired all of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited ("Autokraft"), two companies incorporated under the laws of England and Wales, respectively. AC Cars and Autokraft are specialty automobile manufacturers that had been in administrative receivership since March 1996. In March 1998, Automotive issued additional shares of its common stock to various parties, thereby reducing the Company's ownership to a minority interest (approximately 16% of the issued and outstanding common stock). Notwithstanding the foregoing and despite the fact that Automotive is not expected to have a material impact on the affairs or financial statements of the Company, a discussion has been included herein regarding the business of AC (the operating entity owned by Automotive) to give investors an understanding of such entity and the Company's investment therein. Business of AC Car Group Limited AC Car Group Limited was incorporated in England and Wales on June 28, 1996, as Paradehaven Limited. The name was changed to AC Car Group Limited on August 30, 1996. Automotive was incorporated under the laws of the state of Delaware in January 1997 to act as a holding company for AC and to effect a private offering to raise capital to complete the acquisition of AC Cars and Autokraft. See "Certain Relationships and Related Transactions." AC Cars was formed in 1901 as ^Autocarriers Limited and has been in continuous operations ever since. AC Cars is Britain's oldest independent manufacturer. Today, Autokraft and AC Cars manufacture ^two automobiles on a limited basis, namely, the Superblower (a continuation of the AC Cobra) and the AC Ace. The AC Cobra is a high-powered, hand built sports car with an aluminum body. The automobile is manufactured today using the same traditional coach building methods and original Cobra tooling which were used on the original manufactured Cobras in the 1960s. Historically, in 1963 the AC Cobra caused a sensation by racing along the MI motorway (England's first motorway) at 196 miles per hour, and by 1964, the 427 AC Cobra was listed in the Guinness Book of Records as the fastest production car in the world. The ^Superblower sells for about (pound)69,000 ^($113,643). In 1994, the AC Ace prototype was first displayed at the London Motor show. In 1995, the AC Ace was shown to the North American public at the Detroit Motorshow. When the AC Ace comes into production, it will sell for approximately (pound)75,000 ^($123,525). As of January 1, 1998, AC has produced approximately fifty pre-production AC Aces. ^AC management expects the ^Ace to enter into its final production stage in ^the second quarter of 1998. ^In 1987, Ford Motor Company became a partner ^of Autokraft and AC Cars. The AC Cobra is equipped with a Ford V8 engine. Currently, Ford Motor Company owns the trademark to the name Cobra. However, Autokraft and AC Cars used the name "Cobra" under a license arrangement with Ford Motor Company. When ^Autokraft and AC Cars were placed in administrative receivership, the license arrangement with Ford Motor Company was voided. After the Asset Acquisition, ^AC negotiated a new 40 licensing agreement with Ford Motor Company whereby ^it procured a three year license, commencing December 7, 1996, to continue to use the name "Cobra" on its AC Cobra model. Notwithstanding the foregoing, the "Cobra" has been recently updated and has been renamed the AC "Superblower." Administrative Receivership AC Cars has incurred losses in recent years as a result of design and development costs incurred in bringing the AC Ace into production. Although most of the development work is now complete and approximately fifty AC Aces have been produced to date as pre-production vehicles, the expenses AC Cars and Autokraft incurred in connection with the development of the Ace forced Autokraft and AC Cars to seek additional capital investments so as to enable them to both meet current production needs and increase future production levels. Once it became clear to Autokraft and AC Cars' management that additional funds were unlikely to be forthcoming in time to allow the businesses to meet their financial obligations, coupled with their bankers indications that they no longer had confidence in the current ownership, the Directors of the businesses resolved to request their bankers to appoint Administrative Receivers. Administrative receivers were appointed on March 7, 1996. Development Projects and Enhancements ^It is expected that AC will continue to evaluate ^and develop the Cobra and the Ace's chassis to be compatible with other engines. Marketing and Sales; License Arrangement AC Cars has used very little, if any, print or other media advertising with respect to the AC Ace. However, both the Cobra and the Ace have been the subject of numerous magazine articles in automotive publications, and, as such, have received extensive exposure. As discussed above, AC Cars and Autokraft were using the name Cobra under a license arrangement with Ford Motor Company. Although the arrangement became void when the two companies were placed in receivership, ^AC has entered into a new licensing arrangement with the Ford Motor Company whereby ^it has procured a three year license to use the name "Cobra," terminating in December 1999. Whereas ^AC is pleased that it has been able to procure a licensing arrangement to continue to use the name "Cobra", ^it anticipates that a significantly larger portion of its future marketing efforts will concentrate on the venerable history and prestige associated with the name "AC", which name ^AC acquired outright as part of the Asset Acquisition. ^AC believes that the principal markets for sales of its automobiles are the United States, Australia, Germany and the United Kingdom. The ^AC Cobra (which is now known as the AC Superblower) and the AC Ace both have received low volume Type approval in the United Kingdom. 41 ^ Trademarks Acquired as part of the Asset Acquisitions was the rights to utilize the "Ace" mark on sales of the Ace. The right to use the Cobra name was subject to a license arrangement which was in place with Ford Motor Company, the owner of the trademark just prior to the appointment of Receivers. As discussed above, ^AC has entered into a new license agreement with Ford Motor Company whereby ^it has procured a three year license to use the name "Cobra", which terminates on November 30, 1999. Former management of Autokraft and AC Cars has advised ^AC that it is not aware of any actions attempting to invalidate or challenge its use of such trademarks and that it has not received any notice or claims of infringement regarding its trademarks. Products Liability Insurance At present, AC maintains product liability insurance through Lloyds of London. The limit of the indemnity is (pound)2,000,000 ($3,350,000) for each instance. Although AC has procured this insurance policy, there can be no assurance that it will be able to maintain such insurance, that such insurance will be sufficient to cover claims, if any, or that such insurance will continue to be available on^ commercially reasonable terms. If AC is unable to maintain products liability insurance for the automobiles that it manufactures, it would adversely affect the business of AC and could potentially cause it to discontinue operations. However, there can be no assurance that such insurance will be maintained^, that such insurance will be sufficient to cover claims, if any, or that such insurance will continue to be available at commercially reasonable terms. If ^AC is required to pay uninsured claims, it would adversely affect ^AC and could cause a discontinuation of its operations. ^AC does not carry business interruption or key man insurance. See "Risk Factors." Legal Proceedings AC is not a party to any material litigation. Autokraft and AC Cars are involved in legal proceedings, all of which are related to their being placed in administrative receivership. Properties AC ^formerly occupied premises on a four acre site at the Brooklands Industrial Park in Surrey, England. The property comprises a factory, workshop, showroom and office space. In all, the facility provides approximately 90,000 square feet of manufacturing area and 20,000 square feet of executive office area. ^AC exercised its option to purchase the premises for the purchase price of (pound)5,200,000 ^($8,715,200) in July 1997. AC then sold the property for ^$9,385,600 and entered into a 15 year lease for 39,000 square feet of the property at the rate of ^$30,200 per month. Employees At the time of their acquisition, Autokraft and AC Cars together employed a total of 83 persons. ^AC retained approximately 31 of such employees upon completion of the Asset Acquisition and has hired 12 additional employees to oversee the manufacturing and marketing of the automobiles. 42 MANAGEMENT The names, ages and positions of the Company's executive officers and directors are as follows:
Name Age Position with the Company Alan Lubinsky 40 President, Secretary, and Chairman of the Board of Directors Ivan Averbuch 42 Chief Financial Officer Allan Edgar 51 Director Ian Satill 39 Director
Alan Lubinsky. Mr. Lubinsky has been the President and a director of the Company since its inception in March 1995. Mr Lubinsky has been the President, Secretary and director of Pride, Inc since January 14, 1994. Mr. Lubinsky has been the Chairman and Managing Director of Pride Management Services, Plc ("PMS") since its inception in 1988. Mr. Lubinsky has been the Chairman and Managing Director of AC Car Group Limited since July 1996. Mr. Lubinsky has been the President, Chairman and director of AC Automotive Group, Inc. since its inception in 1996. Mr. Lubinsky has 19 years experience in the motor vehicle industry in positions of executive management. Ivan Averbuch. Mr. Averbuch ^was a director and the Chief Financial Officer of the Company since December 1995. Mr. Averbuch resigned as a Director of the Company in March 1998. Mr. Averbuch has been the Chief Financial Officer of ^Pride, Inc. since December 1995. Mr. Averbuch has been the Financial Director of AC Car Group Limited since July 1996. Mr. Averbuch has been the Chief Financial Officer and Director of AC Automotive Group, Inc. since its inception in 1996. From September 1987 to November 1995, Mr. Averbuch was employed at Kessel Feinstein, a member firm of Grant Thorton International, an accounting firm. In January 1989, Mr. Averbuch was promoted to audit manager and appointed as a partner in October 1992. Allan Edgar. Mr. Edgar has been a director of the Company since May 1997. Mr. Edgar has been a director of AC Automotive Group, Inc. since its inception in 1996. Mr. Edgar has been the Marketing Director of Hyatt Hotels & Resorts for Europe, Africa and the Middle East since 1990. Mr. Edgar has extensive experience in the automobile industry, including positions at Hertz Rent-a-Car, Volkswagen Interent, and Leyland Motor Corporation. Ian Satill. Ian Satill has been a director of the Company since February 1998. From June 1994 until present, Mr. Satill has been the Group Managing Director of Rustlers Food Group Pty. Ltd. From 1990 to present, Mr. Satill has been the sole shareholder, officer and director of Associated Planners Ltd., an independent financial services brokerage located in Sydney, Australia. 43 The directors of the Company are elected annually by the stockholders and hold office until the next annual meeting of stockholders, or until their successors are elected and qualified. The executive officers are elected annually by the board of directors, serve at the discretion of the board of directors and hold office until their successors are elected and qualified. Vacancies on the board of directors may be filled by the remaining directors. As permitted under Delaware Corporation Law, the Company's Certificate of Incorporation eliminates the personal liability of the directors to the Company or any of its stockholders for damages for breaches of their fiduciary duty as directors. As a result of the inclusion of such provision, stockholders may be unable to recover damages against directors for actions taken by them which constitute negligence or gross negligence or that are in violation of their fiduciary duties. The inclusion of this provision in the Company's Certificate of Incorporation may reduce the likelihood of derivative litigation against directors and other types of stockholder litigation. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company, will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following provides certain information concerning all Plan and Non-Plan compensation awarded to, earned by the named executive officer (as designated in Item 402 (a)(2) of Regulation S-B), paid by Pride Vehicle Contracts Limited during the years ended November 30, 1997, 1996 and 1995. The Company did not incur any compensation expense during such periods. 44
Summary Compensation Table Annual Compensation (a) (b) (c) (d) (e) Name and Principal Other Annual Position (1) Year Salary($) Bonus($) Compensation($)(2) Alan Lubinsky 1997 $176,000 - $30,000 (3)(4) President, Secretary 1996 $160,000 - $30,000 and Chairman of the Board 1995 $137,750 - $30,000
^ (1) All of the Company's administrative functions, including the payment of salaries, are performed by Pride Vehicle Contracts Limited, since the Company's operations run basically as one operation. The Company believes that it is easier and cost effective to operate in this manner. The Company plans on continuing this practice in the future. (2) Includes contributions to the Company's pension plan of $18,000 in each of 1997, 1996 and 1995, respectively, and the cost of an automobile and expenses of $12,000 annually. (3) Alan Lubinsky entered into an employment agreement with PAG in August 1995. The agreement is for a term of three years, and pays Mr. Lubinsky an annual salary of $160,000 per annum with 10% yearly escalations, subject to adjustment by PAG's board of directors. Pursuant to the agreement, Mr. Lubinsky received stock options under PAG's Senior Management Incentive Plan to purchase 100,000 shares at $5.50 per share. These options vest at the rate of 33 1/3% per annum commencing August 1996. (4) In May 1997, Mr. Lubinsky received stock options under PAG's Senior Management Incentive Plan to purchase 43,234 shares at $2.54 per share. These options vest at the rate of 33 1/3% per annum commencing May 1998. Employment Agreements Alan Lubinsky entered into an employment agreement with the Company in August 1995. The agreement is for a term of three years, and pays Mr. Lubinsky an annual salary of $160,000 per annum with 10% yearly escalations, subject to adjustment by the Company's board of directors. Pursuant to the terms of his employment agreement, Mr. Lubinsky has agreed to ^devote all of his business time to the affairs of Pride and the Company. Pursuant to the agreement, Mr. Lubinsky received stock options under the Company's Senior Management Incentive Plan to purchase 100,000 shares at $5.50 per share. These options vest at the rate of 33 1/3% per annum commencing August 1996. The agreement restricts Mr. Lubinsky from competing with the Company for a period of one year after the termination of his employment. Ivan Averbuch entered into an employment agreement with the Company in September 1995, for a term of 24 months, commencing December 1, 1995. The agreement was automatically extended for an additional 24 months in December 1997. The agreement is subject to cancellation by either the Company or Mr. Averbuch on 90 days written notice. Pursuant to the terms of the agreement, Mr. Averbuch is 45 to receive an annual salary of $55,000 per annum, with a 10% escalation in December 1996, subject to review by the board of directors. Senior Management Incentive Plan In September 1995, the board of directors adopted the Senior Management Incentive Plan (the "Management Plan"), which was adopted by written stockholder consent. The Management Plan provides for the issuance of up to 300,000 shares of the Company's Common Stock in connection with the issuance of stock options and other stock purchase rights to executive officers, key employees and consultants. The adoption of the Management Plan was prompted by its desire to provide the board with sufficient flexibility regarding the forms of incentive compensation which the Company will have at its disposal in rewarding executive officers, key employees and consultants who render significant services to the Company and its subsidiaries. The board of directors intends to offer key personnel equity ownership in the Company through the grant of stock options and other rights pursuant to the Management Plan to enable the Company to attract and retain qualified personnel without unnecessarily depleting the Company's cash reserves. The Management Plan is designed to augment the Company's existing compensation programs and is intended to enable the Company to offer to its as well as its subsidiaries executives, key employees and consultants a personal interest in the Company's growth and success through awards of either shares of Common Stock or rights to acquire shares of Common Stock. The Management Plan is intended to attract and retain executive officers, key employees and consultants whose performance is expected to have a substantial impact on the Company's and its subsidiaries long-term profit and growth potential by encouraging and assisting those persons to acquire equity in the Company. It is contemplated that only those who perform services of special importance to the Company will be eligible to participate under the Management Plan. A total of 300,000 shares of Common Stock will be reserved for issuance under the Management Plan. It is anticipated that awards made under the Management Plan will be subject to three-year vesting periods, although the vesting periods are subject to the discretion of the Administrator. Unless otherwise indicated, the Management Plan is to be administered by the board of directors or a committee of the board, if one is appointed for this purpose (the board or such committee, as the case may be, shall be referred to in the following description as the "Administrator"). Subject to the specific provisions of the Management Plan, the Administrator will have the discretion to determine the recipients of the awards, the nature of the awards to be granted, the dates such awards will be granted, the terms and conditions of awards and the interpretation of the Management Plan, except that any award granted to any employee of the Company who is also a director of the Company shall also be subject, in the event the persons serving as members of the Administrator of such plan at the time such award is proposed to be granted do not satisfy the requirements regarding the participation of "disinterested persons" set forth in Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act, to the approval of an auxiliary committee consisting of not less than two individuals who are considered "disinterested persons" as defined under Rule 16b-3. As of the date hereof, the Company has not yet determined who will serve on such auxiliary committee, if one is required. The Management Plan generally provides that, unless the Administrator determines otherwise, each option or right granted under a plan shall become exercisable in full upon certain "change of control" events as described in the Management Plan. If any 46 change is made in the stock subject to the Management Plan, or subject to any right or option granted under the Management Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Administrator will make appropriate adjustments to such plans and the classes, number of shares and price per share of stock subject to outstanding rights or options. Generally, the Management Plan may be amended by action of the board of directors, except that any amendment which would increase the total number of shares subject to such plan, extend the duration of such plan, materially increase the benefits accruing to participants under such plan, or would change the category of persons who can be eligible for awards under such plan must be approved by affirmative vote of a majority of stockholders entitled to vote. The Management Plan permits awards to be made thereunder until September 2005. Directors who are not otherwise employed by the Company will not be eligible for participation in the Management Plan. The Management Plan provides for four types of awards: stock options, incentive stock rights, stock appreciation rights (including limited stock appreciation rights) and restricted stock purchase agreements, as described below. Stock Options. Options granted under the Management Plan may be either incentive stock options ("ISOs") or options which do not qualify as ISOs ("non-ISOs"). ISOs may be granted at an option price of not less than 100% of the fair market value of the Common Stock on the date of grant, except that an ISO granted to any person who owns capital stock representing more than 10% of the total combined voting power of all classes of Common Stock of the Company ("10% stockholder") must be granted at an exercise price of at least 110% of the fair market value of the Common Stock on the date of the grant. The exercise price of the non-ISOs may not be less than 85% of the fair market value of the Common Stock on the date of grant. Unless the Administrator determines otherwise, no ISO or non-ISO may be exercisable earlier than one year from the date of grant. ISOs may not be granted to persons who are not employees of the Company. ISOs granted to persons other than 10% stockholders may be exercisable for a period of up to ten years from the date of grant; ISOs granted to 10% stockholders may be exercisable for a period of up to five years from the date of grant. No individual may be granted ISOs that become exercisable in any calendar year for Common Stock having a fair market value at the time of grant in excess of $100,000. Non-ISOs may be exercisable for a period of up to 13 years from the date of grant. In connection with the Company's entering into an employment agreement with its president, Alan Lubinsky, Mr. Lubinsky received 100,000 stock options to purchase shares of Common Stock. See "Management - Employment Agreement." In May 1997, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued 43,234, 8,647 and 8,647 options to purchase shares of the Company's Common Stock at the exercise price of $2.54, $2.31 and $2.31 per share respectively, pursuant to the Company's Senior Management Incentive Plan. In January 1998, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued 29,137, 5,000 and 5,000 options, respectively, to purchase shares of the Company's Common Stock at the exercise price of $3.43, $3.13 and $3.13 per share respectively, pursuant to the Company's Senior Management Incentive Plan. 47 Payment for shares of Common Stock purchased pursuant to the exercise of stock options shall be paid in full in cash, by certified check or, at the discretion of the Administrator, (i) by promissory note combined with cash, (ii) by shares of Common Stock having a fair market value equal to the total exercise price or (iii) by a combination of (i) and (ii) above. The provision that permits the delivery of already owned shares of stock as payment for the exercise of an option may permit "pyramiding". In general, pyramiding enables a holder to start with as little as one share of common stock and, by using the shares of common stock acquired in successive, simultaneous exercises of the option, to exercise the entire option, regardless of the number of shares covered thereby, with no additional cash or investment other than the original share of Common Stock used to exercise the option. Upon termination of employment or consulting services, an optionee will be entitled to exercise the vested portion of an option for a period of up to three months after the date of termination, except that if the reason for termination was a discharge for cause, the option shall expire immediately, and if the reason for termination was for death or permanent disability of the optionee, the vested portion of the option shall remain exercisable for a period of twelve months thereafter. Incentive Stock Rights. Incentive stock rights consist of incentive stock units equivalent to one share of Common Stock in consideration for services performed for the Company. Each incentive stock unit shall entitle the holder thereof to receive, without payment of cash or property to the Company, one share of Common Stock in consideration for services performed for the Company or any subsidiary by the employee, subject to the lapse of the incentive periods, whereby the Company shall issue such number of shares upon the completion of each specified period. If the employment or consulting services of the holder with the Company terminate prior to the end of the incentive period relating to the units awarded, the rights shall thereupon be null and void, except that if termination is caused by death or permanent disability, the holder or his/her heirs, as the case may be, shall be entitled to receive a pro rata portion of the shares represented by the units, based upon that portion of the incentive period which shall have elapsed prior to the death or disability. Stock Appreciation Rights (SARs). SARs may be granted to recipients of options under the Management Plan. SARs may be granted simultaneously with, or subsequent to, the grant of a related option and may be exercised to the extent that the related option is exercisable, except that no general SAR (as hereinafter defined) may be exercised within a period of six months of the date of grant of such SAR and no SAR granted with respect to an ISO may be exercised unless the fair market value of the Common Stock on the date of exercise exceeds the exercise price of the ISO. A holder may be granted general SARs ("general SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder thereof to receive an amount (in cash, shares of Common Stock or a combination of both) equal to the number of SARs exercised multiplied by the excess of the fair market value of the Common Stock on the exercise date over the exercise price of the related option. Limited SARs are similar to general SARs, except that, unless the Administrator determines otherwise, they may be exercised only during a prescribed period following the occurrence of one or more of the following "Change of Control" transactions: (i) the approval of the Board of Directors of a consolidation or merger in which the Company is not the surviving corporation, the sale of all or substantially all the assets of the Company, or the liquidation or dissolution of the Company; (ii) the commencement of a tender or exchange offer for the Company's Common Stock (or securities convertible into Common Stock) without the prior consent of the Board; (iii) the acquisition of beneficial ownership by any person or other entity (other than the Company or any employee benefit plan sponsored by the Company) of securities of the Company 48 representing 25% or more of the voting power of the Company's outstanding securities; or (iv) if during any period of two years or less, individuals who at the beginning of such period constitute the entire Board cease to constitute a majority of the Board, unless the election, or the nomination for election, of each new director is approved by at least a majority of the directors then still in office. The exercise of any portion of either the related option or the tandem SARs will cause a corresponding reduction in the number of shares remaining subject to the option or the tandem SARs, thus maintaining a balance between outstanding options and SARs. Restricted Stock Purchase Agreements. Restricted stock purchase agreements provide for the sale by the Company of shares of Common Stock at prices to be determined by the Board, which shares shall be subject to restrictions on disposition for a stated period during which the purchaser must continue employment with the Company in order to retain the shares. Payment can be made in cash, a promissory note or a combination of both. If termination of employment occurs for any reason within six months after the date of purchase, or for any reason other than death or by retirement with the consent of the Company after the six-month period but prior to the time that the restrictions on disposition lapse, the Company shall have the option to reacquire the shares at the original purchase price. Restricted shares awarded under the Management Plan will be subject to a period of time designated by the Administrator (the "restricted period") during which the recipient must continue to render services to the Company before the restricted shares will become vested. The Administrator may also impose other restrictions, terms and conditions that must be fulfilled before the restricted shares may vest. Upon the grant of restricted shares, stock certificates registered in the name of the recipient will be issued and such shares will constitute issued and outstanding shares of Common Stock for all corporate purposes. The holder will have the right to vote the restricted shares and to receive all regular cash dividends (and such other distributions as the Administrator may designate), if any, which are paid or distributed on the restricted shares, and generally to exercise all other rights as a holder of Common Stock, except that, until the end of the restricted period: (i) the holder will not be entitled to take possession of the stock certificates representing the restricted shares and (ii) the holder will not be entitled to sell, transfer or otherwise dispose of the restricted shares. A breach of any restrictions, terms or conditions established by the Administrator with respect to any restricted shares will cause a forfeiture of such restricted shares. Upon expiration of the applicable restricted period and the satisfaction of any other applicable conditions, all or part of the restricted shares and any dividends or other distributions not distributed to the holder (the "retained distributions") thereon will become vested. Any restricted shares and any retained distributions thereon which do not so vest will be forfeited to the Company. If prior to the expiration of the restricted period a holder is terminated without cause or because of a total disability (in each case as defined in the Management Plan), or dies, then, unless otherwise determined by the Administrator at the time of the grant, the restricted period applicable to each award of restricted shares will thereupon be deemed to have expired. Unless the Administrator determines otherwise, if a holder's employment terminates prior to the expiration of the applicable restricted period for any reason other than as set forth above, all restricted shares and any retained distributions thereon will be forfeited. 49 Accelerating of the vesting of the restricted shares shall occur, under the provisions of the Management Plan, on the first day following the occurrence of any of the following: (a) the approval by the stockholders of the Company of an "Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change". An "Approved Transaction" is defined as (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock would be converted into cash, securities or other property other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (C) the adoption of any plan or proposal for the liquidation or dissolution of the Company. A "Control Purchase" is defined as circumstances in which any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation or other entity (other than the Company or any employee benefit plan sponsored by the Company) (A) shall purchase any Common Stock of the Company (or securities convertible into the Company's Common Stock) for cash, securities or any other consideration pursuant to a tender offer or exchange offer, without the prior consent of the Board of Directors, or (B) shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire the Company's securities). A "Board Change" is defined as circumstances in which, during any period of two consecutive years or less, individuals who at the beginning of such period constitute the entire Board shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least a majority of the directors then still in office. 50 PRINCIPAL AND SELLING SECURITYHOLDERS The following table sets forth certain information at ^May 25, 1998, and as adjusted to reflect the sale of ^1,250,000 Shares by the Company and the Selling Shareholders, with respect to the beneficial ownership of Common Stock by (i) each person known by the Company to be the owner of 5% or more of the outstanding Common Stock; (ii) by each officer and director; and (iii) by all officers and directors as a group. Except as otherwise indicated below, each named beneficial owner has sole voting and investment power with respect to the shares of Common Stock listed.
Shares of Percent of Shares of Percent of Common Stock Common Stock Common Stock Common Stock Owned Prior to Owned Prior to Owned After Owned After Name Offering Offering Offering Offering Pride, Inc. (1) 1,500,000 53.2% 1,500,000 39.3% Pride House Watford Metro Centre Tolpits Lane Watford Hertfordshire WD1 8SB England Alan Lubinsky (1)(2) 1,500,000 53.2% 1,500,000 39.3% Pride House Watford Metro Centre Tolpits Lane Watford Hertfordshire WD1 8SB England Allan Edgar (3) * (3) * Pride House Watford Metro Centre Tolpits Lane Watford Hertfordshire WD1 8SB England Ivan Averbuch (4) * (4) * Pride House Watford Metro Centre Tolpits Lane Watford Hertfordshire WD1 8SB England Arthur Kamian & Jane Kamian The Family Trust 20,000 * 0 0 Don R. Howard & Grace Howard 5,000 * 0 0 Sierra Holdings Trust Rachmat Martin, Trustee 15,000 * 0 0 51 Jeffrey E. Levine 10,000 * 0 0 Joseph Giovinazzo 5,000 * 0 0 Robert Tormey 5,000 * 0 0 Timothy M. Schlameuss 5,000 * 0 0 Seymour M. Wasserstrum 5,000 * 0 0 Mann O War Inc. 20,000 * 0 0 Wayne Wiseman 10,000 * 0 0 James Bastek 20,000 * 0 0 Dan Easley 15,000 * 0 0 Joe DiMauro 10,000 * 0 0 Robert W. Bonnewell Trust 5,000 * 0 0 Edward Wilkins 5,000 * 0 0 Charles Wilkins 5,000 * 0 0 LeRoy Dukes 5,000 * 0 0 Richard & Dorine Sasso 5,000 * 0 0 All officers and 1,500,000 53.1% 1,500,000 39.3% Directors of Pride as a Group (3 persons) (2)
* less than 1% (1) Does not include shares of Common Stock issuable upon (i) the exercise of the Underwriters' Warrants, (ii) the exercise of the Underwriters' Over-allotment Option, (iii) the exercise of options or the grant of restricted shares under the Company's Senior Management Incentive Plan, or (iv) the exercise of the Special Warrant granted to Pride to purchase up to 1,250,000 shares of the Company's Common Stock. See "Description of Securities". (2) New World Finance, Limited, which is wholly owned by a trust of which family members of Mr. Lubinsky are the beneficiaries, owns approximately 65% of the outstanding shares of Pride, Inc. and may be considered the beneficial owner of the shares of the Company owned by Pride, Inc. The trustee is Elfin Trust Company Limited, located on the Island of Guernsey, Channel Islands. Although Mr. Lubinsky disclaims beneficial ownership of the shares owned by New World Finance, Limited, it may be expected that such entity will vote its respective shares in favor of proposals espoused by Mr. Lubinsky. Does not include 100,000 shares of Common Stock issuable upon the exercise of options granted to Mr. Lubinsky in August 1995. Does not include 43,234 shares of Common Stock issuable upon the exercise of options granted to Mr. Lubinsky in May 1997. Does not include 29,137 shares of Common Stock issuable upon the exercise of option granted to Mr. Lubinsky in January 1998. See "Executive Compensation - Employment Agreement." 52 (Notes continued from previous page) (3) Does not include 8,647 shares of Common Stock issuable upon the exercise of options granted to Mr. Edgar in May 1997. Does not include 5,000 shares of Common Stock issuable upon the exercise of options granted to Mr. Edgar in January 1998. (4) Does not include 8,647 shares of Common Stock issuable upon the exercise of options granted to Mr. Averbuch in May 1997. Does not include 5,000 shares of Common Stock issuable upon the exercise of options granted to Mr. Averbuch in January 1998. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to the terms of the acquisition of County in 1992, the Company paid $1 and assumed approximately $11,500,000 of net liabilities. These liabilities were purchased by New World Finance Limited within thirty days of the acquisition. New World Finance Limited ("New World") is a company which is wholly owned by New World Trust, the beneficiaries of which are members of Mr. Lubinsky's family. This debt accrued interest at 6% and was repayable five years from the date of issuance. This debt was converted in March 1992 into a convertible note, which was convertible into shares of common stock of PMS at $1.50 per share. In March 1992, New World converted approximately $5,250,0000 of the note into 3,500,000 shares of PMS. In March 1993, New World converted approximately $3,750,000 of the note into 2,500,000 shares of PMS. In January 1994, pursuant to the reorganization of Pride and PMS, Pride acquired all the shares of PMS from New World, and issued shares of common stock of Pride, in return. In September 1994, the right to convert the note into shares of PMS, was converted into the right to purchase shares of common stock of Pride, at a price to be determined by the board of directors of Pride, as of each conversion date. In addition, New World guaranteed to PMS that the sale proceeds of vehicles acquired from County would be at least equal to the residual value shown on the books of County as of the date of the acquisition. Mr. Lubinsky did not vote on the conversion price of any of the following conversions. In September 1994, New World converted $1,125,000 into 281,250 shares of common stock of Pride, Inc. In October 1994, New World converted $400,000 into 114,285 shares of common stock of Pride, Inc. In January 1995, New World converted $155,000 into 155,000 shares of common stock of Pride, Inc. In August 1995, the Company determined, with the agreement of New World, that the estimated ultimate sales values of the vehicles were less than expected and it was agreed that the note ($562,292) be written off and canceled against the New World guarantee. In March 1995, Pride formed the Company in the State of Delaware and reorganized its corporate structure by exchanging all of its shares of PMS for 1,500,000 shares of the Company's Common Stock, making PMS a wholly owned subsidiary of the Company. In March 1995, the Company issued 60,000 shares of its Common Stock to Lampert & Lampert, counsel to the Company for fees and expenses of $500. In July 1995, PMS entered into a loan agreement with the Company's president, whereby PMS borrowed approximately $232,500. The loan is payable on demand and accrues interest at the rate of 53 2.5% over the Midland Bank base rate. The principal balance of such loan was $117,034, which was paid in April 1996. In December 1995, the Company consummated a private placement offering, whereby the Company sold 20 units, each unit comprised 25,000 shares of Common Stock at a purchase price of $6,000 per unit. In April 1996, the Company consummated an initial public offering, whereby the Company sold 950,000 shares of its common stock at a purchase price of $5.00 per share and 2,000,000 redeemable common stock purchase warrants at a price of $0.10 per warrant. The warrants are exercisable at a price of $5.75 per share, subject to adjustment, beginning April 24, 1997 and expiring April 23, 2001. In connection therewith, the Company also granted to the underwriter of the offering a warrant to purchase 95,000 shares of the Company's common stock at a purchase price of $7.50 and 200,000 redeemable common stock purchase warrants at a purchase price of $0.15 per warrant, each warrant exercisable to purchase one share of common stock at a purchase price of $7.50 per share. Other than with respect to the exercise price, the terms of the warrants granted to the underwriter are identical to those described above. The Company's securities are currently traded on the Nasdaq SmallCap Stock Exchange and the Boston Exchange. In November 1996, the Company, through its subsidiary AC Automotive Group, Inc., purchased all the assets of AC Cars Limited and Autokraft Limited. In December 1996, the Company consummated a private placement offering, whereby the Company sold ^17 units, each unit comprised of a 10% promissory note in the amount of 10,000 shares of Common Stock at a purchase price of $100,000 per unit. In connection with such offering, AC sold an aggregate of 1,028,700 shares to three affiliates of the Underwriter for aggregate consideration of $1,030. Such persons currently own an aggregate of approximately ^5% of the capital stock of AC. In addition, the Underwriter loaned the Company the sum of $100,000, $71,000 of which remains outstanding. On February 17, 1998 the Company received a letter from NASDAQ informing the Company that it did not comply with recently amended NASDAQ continued listing criteria which required the Company to have minimum net tangible assets of at least $2,000,000, two independent directors and an audit committee, a majority of which are independent directors. The Company was granted until February 23, 1998 to comply with such requirements. On February 12, 1998, the Board of Directors of Automotive authorized the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a company affiliated with Alan Lubinsky, the President, Chief Executive Officer and a Director of the Company and Automotive, for aggregate consideration of $6,130. Such shares have been subsequently transferred from Erwood Holdings, Inc. to Durnover, Ltd., another company with which Mr. Lubinsky is affiliated. In addition, on such date Automotive authorized the issuance of 176,520, 176,520 and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and Marion Durchhalter and Bridget Staff, respectively, for consideration of $177, $177 and $89, respectively. After the foregoing issuances, there was a total of 10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk Factors" and "Certain Relationships and Related Transactions." 54 On March 1998, the Board of Directors of Automotive authorized a one for four reverse split of its common stock and issued (1) 525,000 shares of its common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for aggregate consideration of $526; (ii) 651,000 shares of its common stock to the Company for aggregate consideration of $2,248,460 which consideration was paid by the capitalization of debt of $2,248,460 owed by Automotive to the Company. On March 31, 1998, the Board of Directors of Automotive authorized the following issuance of its common stock (i) 2,352,000 shares of its common stock to Michael Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury Company, Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL (1996) Ltd. and a further 367,500 shares of its common stock to Autokraft for a total consideration of $1,675,000, which consideration was paid by the capitalization of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In connection with such share issuances, Michael Hall and Kingsbury Company, Ltd. loaned the sum of (pound)1,000,000 and (pound)500,000 to AC respectively. In October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000, which note is payable on demand and accrues interest at the rate of 2% over the base lending rate in England. During March and April 1998, Mr. Lubinsky further loaned AC (pound)21,750, interest-free, of which (pound)9,400 was repaid in May 1998. The foregoing issuance of shares reduced the ownership of AC Automotive Group, Inc. by the Company to under 50%. Accordingly, future financial statements of the Company will be issued on an unconsolidated basis. Footnote 1^ to the Company's Financial Statements has been prepared to show the effect of the share issuance described herein. See "Financial Statements." On February 25, 1998 Ivan Averbuch resigned as a Director of the Company and on the same date the board of directors elected Ian Satill, to fill such vacancy. On February 25, 1998, the Board of Directors resolved to form an audit committee in order to comply with current Nasdaq corporate governance requirements. The Audit Committee is comprised of the three directors of the Company, two of whom (Ian Satill and Allan Edgar) are believed by the Board of Directors to be independent. On April 1, 1998, the Company issued to Pride a Special Warrant which will entitle Pride to purchase up to 1,250,000 shares of the Company's common stock at an exercise price of $4.40 each during the twenty-four month period commencing with the date of this Prospectus. If the Special Warrant was to be exercised in full by Pride, it would result in Pride owning in excess of 50% of the issued and outstanding common stock of the Company and would enable Pride to control the Company. See "Risk Factors" and "Description of Securities". For a description of the Company's employment agreements, see "Executive Compensation - Employment Agreements." 55 ^Transactions referenced herein between Management, the Company and/or its subsidiaries present conflicts of interest for Management. There can be no assurance that Management resolved such conflicts of interest in the past or that it will be able to avoid or resolve conflicts of interest in the future. There can further be no assurance that prior transactions between the Company, its subsidiaries and Management were on terms no less favorable than could be obtained from independent third parties, although Management represents herein that it will attempt to resolve future conflicts of interest, if any in a manner such that future transactions between the Company and any officer, director or 5% stockholder will be on terms no less favorable than could be obtained from independent third parties and will be approved by a majority of the independent disinterested directors of the Company. See "Risk Factors." DESCRIPTION OF SECURITIES The Company's authorized capitalization consists of 10,000,000 shares of Common Stock, par value $.001 per share and 2,000,000 shares of Preferred Stock, par value $.01 per share, which may be issued in one or more series at the discretion of the board of directors. As of ^May 25, 1998, there were ^2,822,500 shares of Common Stock outstanding, all of which were fully paid and non-assessable. The following summary description of the Common Stock, Warrants and Preferred Stock is qualified in its entirety by reference to the Company's Articles of Incorporation and all amendments thereto. Common Stock Each share of Common Stock entitles its holder to one non-cumulative vote per share and, subject to the preferential rights of the preferred stockholders, the holders of more than fifty percent (50%) of the shares voting for the election of directors can elect all the directors if they choose to do so, and in such event the holders of the remaining shares will not be able to elect a single director. Holders of shares of Common Stock are entitled to receive such dividends as the board of directors may, from time to time, declare out of Company funds legally available for the payment of dividends. Upon any liquidation, dissolution or winding up of the Company, holders of shares of Common Stock are entitled to receive pro rata all of the assets of the Company available for distribution to stockholders after the satisfaction of the liquidation preference of the preferred stockholders. Stockholders do not have any pre-emptive rights to subscribe for or purchase any stock, warrants or other securities of the Company. The Common Stock is not convertible or redeemable. Neither the Company's Certificate of Incorporation nor its By-Laws provide for pre-emptive rights. Preferred Stock The preferred stock may be issued in one or more series, to be determined and to bear such title or designation as may be fixed by resolution of the board of directors prior to the issuance of any shares thereof. Each series of the preferred stock will have such voting powers (including, if determined by the board of directors, no voting rights), preferences, and other rights as determined by the board of directors, with such qualifications, limitations or restrictions as may be stated in the resolutions of the board of directors adopted prior to the issuance of any shares of such series of preferred stock. 56 Purchasers of the Securities offered hereby should be aware that the holders of any series of preferred stock, which may be issued in the future could have voting rights, rights to receive dividends or rights to distribution in liquidation, superior to those of holders of the Common Stock, thereby diluting or negating the voting rights, dividend rights or liquidation rights of the holders of the Common Stock. Because the terms of each series of preferred stock may be fixed by the Company's board of directors without stockholder action, the preferred stock could be issued with terms calculated to defeat a proposed takeover of the Company, or to make the removal of the Company's management more difficult. Under certain circumstances, this could have the effect of decreasing the market price of the Common Stock. Management of the Company is not aware of any such threatened transaction to obtain control of the Company. Warrants Each warrant gives the holder the right to purchase one share of the Company's Common Stock, subject to adjustment in certain events at an initial price of $5.75 per share. The Warrants will be exercisable one year from the date of this Prospectus for a period of four years, until April 23, 2001. The Warrants are redeemable by the Company at any time commencing one year from the date of this Prospectus upon 30 days notice at a redemption price of $.05 per Warrant, provided that the closing bid quotation of the Common Stock for at least 20 trading consecutive days ending not more than 15 days prior to the date on which the Company gives notice has been at least 120% of the then effective exercise price of the Warrants. The Company may elect to redeem the Warrants at such time as the Company requires additional capital. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants, or to accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. The Company will not redeem the Warrants at any time in which its registration statement is not current, so that investors will be able to exercise their Warrants during the 30 day notice period in the event of a warrant redemption by the Company. The exercise price and the number of shares of Common Stock purchasable upon the exercise of each Warrant are subject to adjustment in certain events, including the issuance of a stock dividend to holders of Common Stock, or a combination, subdivision or reclassification of Common Stock. No fractional shares will be issued upon exercise of Warrants, but the Company will pay the cash value of the fractional shares otherwise issuable. Notwithstanding the foregoing, in case of any consolidation, merger, sale or conveyance of the property of the Company as an entirety or substantially as an entirety, the holder of each outstanding Warrant shall continue to have the right to exercise the Warrant for the kind and amount of shares and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock for which such Warrants were exercisable immediately prior thereto. Holders of Warrants are not entitled, by virtue of being such holders, to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other mater, or to vote at any such meeting, or to exercise any rights whatsoever as stockholders of the Company. 57 Although the Company intends to seek to qualify for sale the shares of Common Stock underlying the Warrants in those states in which the Securities are to be offered, i.e., Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Louisiana Maryland, Nevada, New Hampshire, New Jersey, New York, Rhode Island, Utah and Virginia, no assurance can be given that such qualification will occur. The Warrants may be deprived of any value and the market for the Warrants may be limited if a current prospectus covering the Common Stock issuable upon exercise of the Warrants is not kept effective or if such Common Stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the Warrants then reside. The Warrants may not exercised unless the Company has a current Prospectus. Prior to the exercise of any Warrants, the Company must file a post-effective amendment to this Registration Statement of which this Prospectus forms a part, and such post-effective amendment must be declared effective by the Commission. The Company will notify all Warrantholders and its transfer agent that the Warrants may not be exercised in the event that a post-effective amendment has not been declared effective on or before the one-year anniversary of this Prospectus, as to prevent the Warrants from being exercised in the absence of a current, effective Registration Statement. In the event the Company reduces the exercise price or extends the exercise period of the Warrants, the Company will undertake the notification filing provisions herein referred to with respect to notification of Warrantholders and the filing of a post-effective amendment. No such changes are currently contemplated by the Company. Special Warrant The Special Warrant is a Warrant which the Company issued to Pride in connection with this Offering. The Special Warrant was issued to Pride to enable it to gain up to a majority interest in the Company provided that it pay the Company the exercise price for the Special Warrant. The Special Warrant is not transferrable by the Company and neither the Special Warrant nor the underlying shares of common stock will be in registered form. The following statements are summaries of certain provisions of the Special Warrant Agreement, copies of which may be examined at the principal corporate offices of the Company and a form of which is filed as an exhibit to the registration Statement of which this Prospectus forms a part. The Special Warrant will entitle Pride to purchase up to 1,250,000 shares of the Company's common stock at an exercise price of $4.40 each during the twenty-four month period commencing with the date of this Prospectus. If the Special Warrant was to be exercised in full by Pride, it would result in Pride owning in excess of 50% of the issued and outstanding common stock of the Company and would enable Pride to control the Company. See "Risk Factors." It may be expected that Pride will exercise the Special Warrant at such time, if any, as it deems the common stock to be worth in excess of $4.40. Such exercise would in all likelihood result in dilution to the Company's shareholders and result in a diminution in the value of the Shares and the Warrants. See "Risk Factors." 58 Private Placements The Company consummated a private placement offering in December 1995 (the "Private Placement"), whereby the Company sold 20 units, each comprised of 25,000 shares of Common Stock at a purchase price of $6,000 per unit. 440,000 shares of Common Stock were sold by certain selling securityholders in the Company's initial public offering through the Underwriters on a firm commitment basis, with an additional 60,000 shares sold pursuant to the exercise of the Underwriters' Over-allotment Option granted by certain selling securityholders to the Underwriters. The proceeds of the Private Placement were used by the Company as working capital to finance its operations. In December 1996, the Company completed a private placement of ^17 units, each unit consisting of a 10% promissory note in the amount of $95,000 and 10,000 shares of the Company's common stock for an aggregate price of $100,000 per unit. The notes are payable on the earlier of 18 months from the date of issuance or the closing of an underwritten public offering of the Company' securities. The gross proceeds of the Private Placement were used by the Company's majority owned subsidiary to complete the acquisition of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited ("Autokraft"), two companies incorporated under the laws of England and Wales, respectively. Transfer Agent and Warrant Agent. The Company's Transfer Agent and Warrant Agent is Continental Stock Transfer and Trust Company, which Agent is responsible for all record keeping and administrative functions in connection with the Common Stock and Warrants. REPORTS TO STOCKHOLDERS The Company has adopted November 30 as its fiscal year end. The Company will distribute annual reports to its stockholders, including financial statements examined and reported on by an independent certified public accountant, and will provide such other reports as management may deem necessary or appropriate to keep stockholders informed of the Company's operations. SHARES ELIGIBLE FOR FUTURE SALE Of the ^2,822,500 shares of the Company's Common Stock outstanding, 1,560,000 shares were issued in March 1995. All of such shares were issued as "restricted securities" which may be sold upon compliance with Rule 144 adopted under the Securities Act, or any other exemption from the registration requirements of the Securities Act. 500,000 shares of Common Stock were issued in the Company's Private Placement in December 1995, all of which were registered and sold in the Company's initial public offering in April 1996. ^170,000 shares of the Company's Common Stock were issued in the Company's Private Placement of December 1996. All ^170,000 shares issued in the December Private Placement are being registered and underwritten in this ^offering. In addition, the Company has registered 95,000 shares of common stock and 200,000 Warrants on behalf of certain Selling 59 Securityholders, inclusive of the Representative, which securities are issuable upon the exercise of an Underwriters' Warrant which was issued to the Selling Securityholders in April 1996. All of the Selling Shareholder securities may be sold from time to time by the Selling Securityholders. Rule 144 provides, in essence, that a person holding "restricted securities" for a period of two years may sell every three months in brokerage transactions an amount equal to the greater of: (a) one percent of the Company's outstanding shares of Common Stock; (b) the average weekly reported volume of trading for the securities on all national exchanges and/or through the automated quotation system of a registered securities association during the four calendar week period preceding each transaction; or (c) the average weekly trading volume in the securities reported through the consolidated transaction reporting system during the four calendar week period. Rule 144 also requires that current information about the securities must be available to stockholders and brokers. Therefore, after taking into account the shares to be sold in this Offering (and without giving effect to any shares of Common Stock which may be issued upon exercise of the Warrants) in each three-month period commencing January 1998, at least ^39,025 (40,900 shares if the Underwriters' Over-allotment option is exercised in full) shares may be publicly sold under Rule 144 by each holder of "restricted securities" who has held such shares for at least one year. Persons who are not "affiliates" of the Company, as that term is defined under the Securities Act, who have been non-affiliates for the 90 days immediately preceding the sale, and who have owned their shares for a period of at least two years, may sell such shares without limitation. Giving effect to the sale of ^1,080,000 shares of Common Stock by the Company, the Company will have issued and outstanding ^3,902,500 shares of its Common Stock, of which 1,500,000 shares will be "restricted securities." All 1,500,000 of said shares of Common Stock became eligible for resale under Rule 144 in March 1997. Investors should be aware that the possibility of such sales under Rule 144 will in all probability have a depressive effect on the price of the Company's Common Stock in any market which may develop. See "Shares Eligible for Future Sales." All officers, directors and owners of 5% or more of the Company's Common Stock, except the Selling Securityholders, have agreed to "lock-up" and not sell, publicly, privately or otherwise dispose of any shares of Common Stock for a period of two years from the date of this Prospectus, whereby these stockholders cannot sell, publicly, privately or otherwise dispose of any of their shares without the prior written consent of the Underwriter. UNDERWRITING The Company has entered into an Underwriting Agreement (the "Agreement") with the Underwriters. Mason Hill & Co., Inc. has previously completed two public offerings. Mason Hill is a relatively small firm and plans on making a market in the Company's securities, however, there can be no assurances that it will be able to make a meaningful market in the Company's Securities or that another broker/dealer will make a meaningful market in the Company's Securities. The Agreement has been filed as an exhibit to the Registration Statement filed with the Securities and Exchange Commission 60 of which this Prospectus forms a part. The Underwriters severally and not jointly, have agreed to purchase, ^1,080,000 shares of Common Stock from the Company and 170,000 shares of Common Stock from the Selling Shareholders, as follows: Underwriter Shares Mason Hill & Co., Inc. Total 1,250,000 Summary of Underwriting Agreement. The obligations of the several Underwriters are subject to the satisfaction of certain conditions precedent. Pursuant to the Agreement, the Underwriters are committed to purchase and pay for all of the Securities, on a "firm commitment" basis, if any Securities are purchased. The Underwriters have advised the Company that they propose to offer the Securities to the public at the public offering prices set forth on the cover page of this Prospectus. Investors will not be required to purchase shares of Common Stock and Warrants together or in any particular ratio. The Underwriters may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. ("NASD") concessions, not in excess of $.___ and $.____ per share and Warrant respectively. The Company ^has granted to the Underwriters an option, exercisable for 45 days from the date of this Prospectus, to purchase up to an additional ^187,500 shares of Common Stock at the public offering prices set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriters may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the Securities offered hereby. To the extent that the Underwriters exercise this option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such Securities which the number of Securities to be purchased by it shown in the foregoing table bears to the total number of Securities initially offered hereby. The Company has agreed to pay to the Underwriters 3% of the gross proceeds, or a total of ^$ , ($ , if the Over-allotment Option is exercised in full), for the Underwriters expenses on a non-accountable basis, of which none has been paid by the Company to date. The Company is required to pay the cost of qualifying and registering the Securities being sold under federal and certain state securities laws, together with any other legal and accounting fees, printing and other costs in connection with the Offering. In connection with this Offering, the Company has agreed to sell to the Underwriters, for $10, warrants (the "Underwriters' Warrants") to purchase from the Company an aggregate of ^125,000 shares of Common Stock at an exercise prices of 120% of the public offering prices of the Securities or ^$4.80 per share, subject to adjustment. The Underwriters' Warrants are exercisable for a period of four years 61 commencing one year from the date of this Prospectus. The Underwriters' Warrants may not be sold, transferred, assigned or hypothecated for a period of one year, except to the officers of each of the Underwriters. The Underwriters' Warrants will contain anti-dilution provisions providing for appropriate adjustment under certain circumstances. The holders of the Underwriters' Warrants have no voting, dividend or other rights as stockholders of the Company with respect to Shares underlying the Underwriters' Warrants until the Underwriters' Warrants have been exercised. The Company has agreed, for a period of five years following the date of this Prospectus, to give advance notice to the holders of the Underwriters' Warrants or underlying shares of its intention to file a registration statement, and in such case the holders of the Underwriters' Warrants and underlying shares shall have the right to require the Company to include the Underwriters' Warrants and underlying shares in such registration statement at the Company's expense. In addition, at any time during the four year period following the first anniversary of the date of this Prospectus, holders of 50% of the Underwriters' Warrants or the underlying shares will have the right to require the Company to prepare and file, at the Company's expense, one registration statement so as to permit the public offering of the Underwriters' Warrants and the shares underlying such Warrants. In addition, the Company has agreed to enter into a consulting agreement with Mason Hill & Co., Inc. to provide financial consulting services to the Company for a period of three years at an aggregate monthly fee of $3,000 payable in full at the closing of the Offering. Pursuant to the terms of the consulting agreement, the Company has agreed, for a period of five years following the date of this Prospectus, to pay to Mason Hill & Co., Inc. a cash finder's fee of (i) five percent (5%) of the first $1,000,000; (ii) four percent (4%) of the second $1,000,000; (iii) three percent (3%) of the third $1,000,000; (iv) two percent (2%) of the fourth $1,000,000; and (v) one percent (1%) of any consideration over $5,000,000 upon the completion of any transaction in which Mason Hill & Co., Inc. is responsible for introducing a merger or acquisition candidate to the Company. All officers, directors and owners of 5% or more of the Company's Common Stock, except the Selling Securityholders, have agreed to "lock-up" and not sell, publicly, privately or otherwise dispose of any shares of Common Stock for a period of two years from the date of this Prospectus, whereby these stockholders cannot sell, publicly, privately or otherwise dispose of any of their shares without the prior written consent of the Underwriters. 1,500,000 shares of Common Stock will not be eligible for resale under Rule 144 until January 2000. For a period of five years from the date hereof, the Company has agreed to nominate a designee of the Underwriters, to stand for election to the Company's board of directors. At present the Underwriters have advised the Company that they have no intention to select such individual in the immediate future. In the event such designee is not elected, or in lieu thereof, the Underwriters may designate an observer to be notified and attend all meetings of the board. No designee or observer shall be an associated person of any Underwriter. The Company has agreed to indemnify the Underwriters against liabilities incurred by the Underwriters by reason of misstatements or omissions to state material facts in connection with the statements made in this Prospectus and the Registration Statement of which it forms a part. The 62 Underwriters, in turn, has agreed to indemnify the Company against liabilities incurred by the Company by reason of misstatements or omissions to state material facts in connection with statements made in the Registration Statement and Prospectus based on information furnished by the Underwriters. The foregoing does not purport to be a complete statement of the terms and conditions of the Agreement, copies of which are filed at the offices of the Company and Underwriters and may be examined there during regular business hours. LEGAL OPINIONS Legal matters relating to the shares of Common Stock ^ offered hereby will be passed on for the Company by its counsel, Lampert & Lampert. Counsel for the Underwriter is Gersten Savage Kaplowitz & Fredericks, LLP. Lampert & Lampert has acted as counsel to the Underwriter on other matters unrelated to this Offering and may do so in the future. EXPERTS The financial statements of the Company as of ^the ^year ended November 30, ^1997 and for the years ended 1997 and 1996 included in the Prospectus and in the Registration Statement have been audited by Civvals, Chartered Accountants to the extent and for the period set forth in their report appearing elsewhere herein and in the Registration Statement and is included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. 63 NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. -------------------- TABLE OF CONTENTS
ADDITIONAL INFORMATION................................................................... PRIDE AUTOMOTIVE GROUP, INC. PROSPECTUS SUMMARY....................................................................... RISK FACTORS............................................................................. DIVIDEND POLICY.......................................................................... DILUTION................................................................................. USE OF PROCEEDS.......................................................................... CAPITALIZATION........................................................................... BUSINESS................................................................................. MANAGEMENT............................................................................... PRINCIPAL STOCKHOLDERS................................................................... DESCRIPTION OF SECURITIES............................................................................... ^ 1,250,000 Shares of Common Stock SHARES ELIGIBLE FOR FUTURE SALE.............................................................................. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. UNDERWRITING............................................................................. LEGAL OPINIONS........................................................................... ----------------------- PROSPECTUS ----------------------- EXPERTS.................................................................................. INDEX TO FINANCIAL STATEMENTS............................................................F-1 UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS MASON HILL & CO., INC. DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS ^ JUNE __, 1998 AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Preliminary prospectus subject to completion, dated June , 1998 PROSPECTUS PRIDE AUTOMOTIVE GROUP, INC. ^ 95,000 Shares of Common Stock, 200,000 Warrants and 200,000 shares of Common Stock underlying the Warrants which may be sold from time to time by the Selling Securityholders This Prospectus relates to ^95,000 shares of Common Stock, 200,000 Warrants and 200,000 shares of Common Stock underlying the Warrants (the "Selling Securityholders' ^Securities")^, of Pride Automotive Group, Inc. (the "Company"), which are being offered for sale by certain selling securityholders (the "Selling Securityholders"). ^See "Selling Securityholders and Plan of Distribution." The Company will not receive any of the proceeds from the sales of the Selling Securityholders' Securities by the Selling Securityholders. The Selling Securityholders' Securities may be offered from time to time by the Selling Securityholders, their transferees, pledgees and/or their donees, through ordinary brokerage transactions in the over-the-counter market, in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. The Selling Securityholders, their pledgees and/or their donees, may be deemed to be "underwriters" as defined in the Securities Act of 1933, as amended (the "Securities Act"). If any broker-dealers are used by the Selling Securityholders, their pledgees and/or their donees, any commission paid to broker-dealers and, if broker-dealers purchase any Selling Securityholders' Securities as principals, any profits received by such broker-dealers on the resale of the Selling Securityholders' Securities, may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the Selling Securityholders, their pledgees and/or their donees, may be deemed to be underwriting commissions. All costs, expenses and fees in connection with the registration of the Selling Securityholders' Securities will be borne by the Company except for any commission paid to broker-dealers. The Selling Securityholders' Securities offered by this Prospectus may be sold from time to time by the Selling Securityholders, their pledgees and/or their donees. No underwriting arrangements have been entered into by the Selling Securityholders. The distribution of the Selling Securityholders' Securities by the Selling Securityholders, their pledgees and/or their donees, may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary broker's transactions, privately-negotiated transactions or through sales to one or more dealers for resale of such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Securityholders, their pledgees and/or their donees, in connection with sales of the Selling Securityholders' Securities. On the date of this Prospectus, a registration statement under the Securities Act with respect to an underwritten public offering (the "Underwritten Offering") of ^1,250,000 shares of Common Stock (without giving effect to the Underwriters' Over-allotment Option granted to the Underwriters to purchase up to an additional ^187,500 shares of Common Stock), was declared effective by the Securities and Exchange Commission. In connection with the Underwritten Offering, the Company granted the Representative a warrant to purchase ^125,000 shares of Common Stock (the "Underwriter's Warrants"). II-1 THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Offering
Securities Registered ^95,000 shares of Common ^Stock, 200,000 Warrants and 200,000 shares of Common Stock underlying the Warrants. See "Description of Securities", "Risk Factors" and "Selling Securityholders and Plan of Distribution." Risk Factors This offering involves a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution."
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION The Company has issued a warrant to certain NASD broker/dealers which acted as Underwriters in the Company's 1996 public offering (the "Underwriters' Warrant") which enables such parties to acquire from the Company an aggregate of ^95,000 shares of Common ^Stock and 200,000 Warrants at a price of $7.50 per share, $.15 per Warrant and $5.75 per share of Common Stock for the shares of Common Stock underlying the Warrants, respectively. See "Certain Transactions". The Selling Securityholders have advised the Company that sales of the Selling Securityholders' Securities may be effected from time to time by themselves, their pledgees and/or their donees, in transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through the writing of options on the Selling Securityholders' Securities, or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, or at negotiated prices. The Selling Securityholders, their pledgees and/or their donees, may effect such transactions by selling the Selling Securityholders' Securities directly to purchasers or through broker-dealers that may act as agents or principals. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of Selling Securityholders' Securities for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Securityholders, their pledgees and/or their donees, and any broker-dealers that act in connection with the sale of the Selling Securityholders' Securities as principals may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commissions received by them and any profit on the resale of the Selling Securityholders' Securities as principals might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Securityholders' Securities being registered on behalf of the Selling Securityholders are restricted securities while held by the Selling Securityholders and the resale of such securities by the Selling II-2 Securityholders is subject to the prospectus delivery and other requirements of the Act. The Selling Securityholders, their pledgees and/or their donees, may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the Selling Securityholders' Securities against certain liabilities, including liabilities arising under the Securities Act. The Company will not receive any proceeds from the sale of the Selling Securityholders' Securities by the Selling Securityholders. Sales of the Selling Securityholders' Securities by the Selling Securityholders, or even the potential of such sales, would likely have an adverse effect on the market price of the Company's securities. At the time a particular offer of any securities is made by or on behalf of the Selling Securityholders, to the extent required, a prospectus supplement will be distributed which will set forth the number of securities being offered and the terms of the offering, including the names or names of any underwriters, dealers or agents, the purchase price paid by any underwriter for shares purchased from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers, and the proposed selling price to the public. Under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations thereto, any person engaged in distribution of Company securities offered by this Prospectus may not simultaneously engage in market-making activities with respect to Company securities during the applicable "cooling off" period prior to the commencement of such distribution. In addition, and without limiting the foregoing, the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including without limitation, ^Regulation M and Rule 10b- 7, in connection with transactions in the securities, which provisions may limit the timing of purchases and sales of Company securities by the Selling Securityholders. The following table sets forth certain information with respect to persons for whom the Company is registering the Selling Securityholders' Securities for resale to the public. The Company will not receive any of the proceeds from the sale of the Selling Securityholders' Securities. Beneficial ownership of the Selling Securityholders' Securities by such Selling Securityholders after the Offering will depend on the number of Selling Securityholders' Securities sold by each Selling Securityholder. The securities held by the Selling Securityholders are restricted securities while held by such Selling Securityholders and the resale of such securities by the Selling Securityholders is subject to prospectus delivery and other requirements of the Act. The Selling Securityholders' Securities offered by the Selling Securityholders are not being underwritten by the Underwriter. II-3 [Alternative Page for Selling Securityholders' Prospectus]
Beneficial Beneficial Ownership Percentage Ownership Prior of Amount of After Selling to Selling Common Shares/ Securityholders Securityholders Stock/Warrants Warrants Offering if All Offering Owned Before Being Shares/Warrants Selling Securityholder Shares/Warrants Offering Registered are Sold Mason Hill & Co., Inc. The Thornwater Company, L.P. J.W. Barclay & Co., Inc.
II-4
^^ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PRIDE AUTOMOTIVE PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO GROUP, INC. BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME ^95,000 Shares of Common Stock, 200,000 DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT Warrants and 200,000 shares of Common TO THE DATE HEREOF. Stock underlying the Warrants which may be sold from time to time by the Selling Securityholders -------------------- TABLE OF CONTENTS ADDITIONAL INFORMATION................................................................... PROSPECTUS SUMMARY....................................................................... RISK FACTORS............................................................................. DIVIDEND POLICY.......................................................................... DILUTION................................................................................. USE OF PROCEEDS.......................................................................... CAPITALIZATION........................................................................... BUSINESS................................................................................. ----------------------- PROSPECTUS ----------------------- MANAGEMENT............................................................................... PRINCIPAL STOCKHOLDERS................................................................... DESCRIPTION OF SECURITIES............................................................................... SHARES ELIGIBLE FOR FUTURE SALE.............................................................................. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. UNDERWRITING............................................................................. MASON HILL & CO., INC. LEGAL OPINIONS........................................................................... EXPERTS.................................................................................. INDEX TO FINANCIAL STATEMENTS............................................................F-1 JUNE , 1998 UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
II-5 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. As permitted under the Delaware Corporation Law, the Company's Certificate of Incorporation and By-laws provide for indemnification of a director or officer under certain circumstances against reasonable expenses, including attorneys fees, actually and necessarily incurred in connection with the defense of an action brought against him by reason of his being a director or officer. In addition, the Company's charter documents provide for the elimination of directors' liability to the Company or its stockholders for monetary damages except in certain instances of bad faith, intentional misconduct, a knowing violation of law or illegal personal gain. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Company pursuant to any charter, provision, by-law, contract, arrangement, statute or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer, or controlling person of the Company in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person of the Company in connection with the Securities being registered pursuant to this Registration Statement, the Company 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 Securities Act and will be governed by the final adjudication by such court of such issue. Item 25. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ ^2,842.01 NASD Filing Fee ^1,360.15 Nasdaq Filing Fee ^7,500.00 Boston Stock Exchange Fee ^5,000.00 Printing and Engraving 35,000.00(1) Legal Fees 80,000.00(1) Accounting 35,000.00(1) Transfer Agent and Warrant Agent Fees 2,500.00(1) Blue Sky Fee Expenses 25,000.00(1) Underwriters non-accountable expense allowance 150,000.00(1) Consulting Fee 108,000.00 Miscellaneous (1) Total $400,000.00
- ----------------------- (1) Estimated. II-6 Item 26. Recent Sales of Unregistered Securities. The following issuance of shares of Common Stock were exempt from registration under the Securities Act, in reliance upon the exemption afforded by Section 4(2) of the Securities Act for transactions not involving a public offering. All certificates evidencing such sales bear an appropriate restrictive legend. In March 1995, Pride caused the Company to be incorporated in the State of Delaware and reorganized its corporate structure by exchanging all of its shares of Pride Management Services, Plc., an English corporation ("PMS") with the Company in exchange for 1,500,000 newly issued shares of the Company's common stock, making PMS a wholly owned subsidiary of the Company. In March 1995, the Company issued 60,000 shares of its Common Stock to Lampert & Lampert, counsel to the Company for fees and expenses. The Company consummated a private placement offering in December 1995. The Company sold 20 units in the Private Placement. The units each comprised 25,000 shares of Common Stock at a purchase price of $6,000 per unit. The Company consummated a private placement offering in December 1996. The Company sold 17 units in the Private Placement to the Selling Shareholders. The units each comprised of a 10% promissory note in the amount of $95,000 and 10,000 shares of the Company's common stock for an aggregate price of $100,000 per unit. The notes are payable on the earlier of 18 months from the date of issuance or a closing of an underwritten public offering of the Company's securities. In connection with acting as the Placement Agent for this transaction, the Underwriter received $240,500 as commission. Item 27. Exhibits. The following exhibits marked with an asterisk are being filed with this Registration Statement on Form SB-2. All other Exhibits have been previously filed.
1.1* - Form of Underwriting Agreement. 3.1 - Certificate of Incorporation of the Company. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 3.2 - By-Laws of the Company. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 4.1 - Specimen Common Stock Certificate. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 4.2 - Specimen Warrant Certificate. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) II-7 4.3* - Form of Warrant Agreement between the Company and the Underwriters. 4.4 - Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust Company. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 4.5* - Form of Lock-up Agreement. 4.6* - Form of Special Warrant. 5.0* - Opinion of Lampert & Lampert. 10.1 - The Company's Senior Management Incentive Plan. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333- 296-NY) 10.2 - Employment Agreement with Alan Lubinsky. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.3 - Employment Agreement with Ivan Averbuch. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.4 - Consulting Agreement. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.5 - Loan Agreement between PMS and Alan Lubinsky. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333- 296-NY) 10.6 - Form of Service Agreement. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.7 - Asset purchase agreement between Pride Vehicle Contracts (UK) Limited and Master Vehicle Contracts Limited. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.8 - Form of Hire Purchase Agreement. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.9 - Mortgage on Pride House, Watford Metro Center. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.10 - Mortgage on Croydon, England property. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.11 - Lease agreement with respect to the Croydon England property. (Incorporated by reference from the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY) 10.12* - Lease agreement with respect to Land at Unit 1, Vickers Drive North, Brooklands Industrial Park, Elmbridge, Surrey. 10.13* - Financing Agreement with Midland Bank dated January 22, 1998. 23.1* - Consent of Civvals Chartered Accountants. 23.2 - Consent of Lampert & Lampert, Esqs., is contained in their opinion filed as exhibit 5.0 to this Registration Statement.
Item 28. Undertakings. The undersigned Registrant hereby undertakes: II-8 (1) To file, during any period in which offers or sales are being made, a Post-Effective Amendment to this Registration Statement; (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent Post-Effective Amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including but not limited to any addition or deletion of a managing Underwriter. (2) That, for the purpose of determining any liability under the Securities Act, each such Post-Effective Amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of Post-Effective Amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining any liability under the Securities 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. The undersigned Registrant hereby undertakes to provide to the Underwriters at the Closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company, pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final adjudication of such issue. See Item 24. II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SB-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in New York, New York on the ^2nd day of ^June, 1998. PRIDE AUTOMOTIVE GROUP, INC. By: /s/ Alan Lubinsky ALAN LUBINSKY, President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
/s/ Alan Lubinsky President and Director Alan Lubinsky (Principal Executive 06/02/98 Officer) Date /s/ Ivan Averbuch Ivan Averbuch Chief Financial Officer, Vice President, Treasurer 06/02/98 Date /s/ Allan Edgar Director 06/02/98 Allan Edgar Date /s/ Ian Satill Director 06/02/98 Ian Satill Date
II-1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Nos Independent Auditors' Report F - 2 Financial Statements: Consolidated Balance Sheets as of November 30, 1997 and February 28, 1998 (Unaudited) F - 3 Consolidated Statements of Operations for the Years Ended November 30, 1997 and 1996 and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 4 Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the Period Ended November 30, 1997 and the Three Months Ended February 28, 1998 (Unaudited) F - 5 Consolidated Statements of Cash Flows for the Years Ended November 30, 1997 and 1996 and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 6 Notes to Consolidated Financial Statements F - 7
F - 1 INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of Pride Automotive Group, Inc. and subsidiaries as of November 30, 1997 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the two years in the period ended November 30, 1997. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United Kingdom which are substantially the same as those followed in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the above mentioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation as of November 30, 1997 and the results of their operations for the two years in the period ended November 30, 1997 in conformity with accounting principles generally accepted in the United States of America. Our audits also include the translation of British pounds into United States dollars for amounts included in the consolidated financial statements. In our opinion, such translation has been made in conformity with the basis stated in Note 2(h) of the notes to the consolidated financial statements.
MARBLE ARCH HOUSE 66-68 SEYMOUR STREET LONDON W1H 5AH CIVVALS UNITED KINGDOM FEBRUARY 20, 1998 CHARTERED ACCOUNTANTS
F - 2 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ASSETS (Note 6a) -
November 30, February 28, 1997 1998 (Unaudited) ASSETS: Cash and cash equivalents $ 77,354 $ 13,689 Accounts receivable - net (Notes 2c and 3) 2,002,365 4,243,377 Inventories (Note 2d) 1,248,360 179,268 Property, revenue producing vehicles and equipment - net (Notes 2e, 4, 6b and 7) 27,882,350 25,570,847 Intangible assets - net (Note 2f) 9,090,156 8,917,186 Investment in affiliate (Note 1) - 1,800,000 -------------------- -------------- TOTAL ASSETS $40,300,585 $40,724,367 =========== =========== - LIABILITIES AND SHAREHOLDERS' EQUITY - LIABILITIES: Bank line of credit (Note 6a) $ 6,976,699 $ 5,489,924 Accounts payable 1,758,764 1,567,040 Accrued liabilities and expenses (Note 5) 865,977 724,116 Bank debt (Note 6b) 695,782 677,900 Obligations under hire purchase contracts (Note 7) 18,341,778 18,441,373 Other liabilities (Note 8) 52,707 222,310 Acquisition debt payable (Note 9) 4,198,500 1,686,000 ------------- -------------- TOTAL LIABILITIES 32,890,207 28,808,663 ------------ ------------ MINORITY INTEREST IN SUBSIDIARY (Note 16) - - ---------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 13 and 15) SHAREHOLDERS' EQUITY (Notes 10 and 11): Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued or outstanding - - Common stock, $.001 par value, 10,000,000 shares authorized 2,822,500 shares issued and outstanding 2,823 2,823 Additional paid-in capital 13,582,795 14,122,165 Deferred financing costs (Note 10) (141,500) (123,750) Retained earnings (deficit) (5,857,987) (2,289,844) Foreign currency translation (Note 2h) (175,753) 204,310 -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 7,410,378 11,915,704 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,300,585 $40,724,367 =========== ===========
See notes to consolidated financial statements. F - 3 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended For the Three Months Ended November 30, February 28, 1997 1996 1998 1997 ---------------- ---------------- ---------------- --------- (Unaudited) (Unaudited) REVENUE (Note 2i): Contract hire income (Note 13) $ 8,410,366 $ 6,286,677 $2,441,865 $1,652,484 Sale of contract hire vehicles 6,762,323 5,839,080 817,112 1,731,816 Sale of vehicles - AC Cars (Note 1) 327,704 - - 202,563 Fleet management and other income - contract hire 1,076,650 758,261 321,994 106,420 Service and spare parts revenue 180,990 - - 42,000 Other income - AC Cars 701,242 - - - ---------------------------------------------------------------- 17,459,275 12,884,018 3,580,971 3,735,283 ------------ ------------ ----------- ----------- EXPENSES: Cost of sales - contract hire 9,887,640 7,946,686 1,480,587 2,026,157 Cost of sales - AC Cars 448,720 - - 172,178 Depreciation - contract hire 3,546,807 2,295,164 1,071,956 817,054 Depreciation - AC Cars 399,828 - - 109,269 General and administrative expenses - contract hire 1,857,263 1,620,859 489,586 376,027 General and administrative expenses - AC Cars 1,682,866 181,252 - 379,115 Amortization of intangible assets - contract hire 630,718 634,813 157,680 157,680 Amortization of intangible assets - AC Cars 1,489 - - 616 Interest expense and other - contract hire 1,747,114 860,242 575,809 279,311 Interest expense and other - AC Cars 462,036 - - 78,382 Research and development - AC Cars 982,581 - - 81,912 Loss on sale of fixed assets - contract hire 454,851 - - - Loss on sale of fixed assets - AC Cars 299,082 - - - -------------------------------------------------------------- 22,400,995 13,539,016 3,775,618 4,477,701 ------------ ----------- ----------- ---------- LOSS BEFORE MINORITY INTERESTS (4,941,720) (654,998) (194,647) (742,418) Minority interests in net loss of consolidated subsidiary (Note 1) 486,320 54,376 - 173,073 -------------- -------------- ------------------ ----------- LOSS BEFORE PROVISION FOR INCOME TAXES (4,455,400) (600,622) (194,647) (569,345) Provision (credit) for income taxes (Notes 2g and 12) - - - - --------------------------------------------------------------------- NET LOSS $ (4,455,400) $ (600,622) $ (194,647) $ (569,345) ============ ============ =========== =========== LOSS PER COMMON SHARE (Note 2j): Net loss before minority interest $(1.76) $(.27) $(.07) $ (.27) Minority interest in net loss of subsidiary .17 .02 - .06 -------- ------ -------- ------- $(1.59) $(.25) $(.07) $(.21) ====== ===== ====== ===== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 2j) 2,801,075 2,405,760 2,822,500 2,759,167 ========= ========= ========= =========
See notes to consolidated financial statements. F - 4 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Deferred Retained Foreign Total Common Paid-in Financing Earnings Currency Shareholders' Shares Stock Capital Costs (Deficit) Translation Equity ----------- ------------ ------------------------------------------- ------------------------ Balance at December 1, 1995 1,560,000 $1,560 $11,741,922 $ - $ (801,965) $ 609,349 $11,550,866 Private offering of common stock (Note 10) 500,000 500 119,500 - - - 120,000 Shares and warrants sold in initial public offering (Note 10) 592,500 593 2,165,336 - - - 2,165,929 Adjustment for minority interest (Note 16) - - (539,370) - - - (539,370) Foreign currency translation adjustment - - - - - (739,592) (739,592) Net loss for the year ended November 30, 1996 - - - - (600,622) - (600,622) ---------------- ----------------------------------------------------------- ------------------------------ Balance at November 30, 1996 2,652,500 2,653 13,487,388 - (1,402,587) (130,243) 11,957,211 Private offering of common stock (Note 10) 170,000 170 95,407 - - - 95,577 Deferred financing costs (Note 10) - - - (141,500) - - (141,500) Foreign currency translation adjustment - - - - - (45,510) (45,510) Net loss for year ended November 30, 1997 - - - - (4,455,400) - (4,455,400) ---------------- --------------------------------------------------------- ---------------- ------------ Balance at November 30, 1997 2,822,500 2,823 13,582,795 (141,500) (5,857,987) (175,753) 7,410,378 Deferred financing costs - - - 17,750 - - 17,750 Adjustment - AC Car Group Ltd. - - 539,370 - 3,762,790 - 4,302,160 Foreign currency translation adjustment - - - - - 380,063 380,063 Net loss for the three months ended February 28, 1998 (unaudited) - - - - (194,647) - (194,647) ---------------- ----------------------------------------------------------- ---------------------------- BALANCE AT FEBRUARY 28, 1998 (UNAUDITED) 2,822,500 $2,823 $14,122,165 $(123,750) $(2,289,844) $204,310 $11,915,704 ========= ====== =========== ========= =========== ======== ===========
See notes to consolidated financial statements. F - 5 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
November 30, February 28, 1997 1996 1998 1997 ---------------- ---------------- -------------- --------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (4,455,400) $ (600,622) $ (194,647) $ (569,345) Adjustments to reconcile net (loss) to net cash provided by operating activities: Minority interest in net loss of subsidiary (486,320) (54,376) - (173,073) Depreciation and amortization 3,946,635 2,295,164 1,071,956 946,597 Amortization of goodwill 632,207 634,813 157,680 148,683 Deferred financing costs (141,500) - 17,750 - Loss (gain) on disposal of fixed assets 753,933 (119,030) 41,354 (28,470) Provision for maintenance costs - (18,524) - - Changes in assets and liabilities: Decrease (increase) in accounts receivable 19,646 (599,753) (43,342) 125,654 (Increase) in inventories (225,705) (93,794) (46,899) (276,261) Increase (decrease) in accounts payable, accrued expenses and bank overdraft 1,528,020 (955,172) 438,706 352,781 --------------- ------------- -------------- -------------- Net cash provided from operating activities 1,571,516 488,706 1,442,558 526,566 --------------- -------------- ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of revenue producing assets (16,494,724) (9,858,724) (3,104,557) (2,918,307) Acquisition of assets in new subsidiary - (969,279) - - Proceeds from sale of fixed assets 4,583,660 2,068,601 909,207 517,139 -------------- ------------- -------------- -------------- Net cash (utilized) by investing activities (11,911,064) (8,759,402) (2,195,350) (2,401,168) ------------- ------------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Bank lines of credit 4,012,234 1,870,785 192,237 1,501,618 Net proceeds from sale of stock 95,577 2,285,929 - 78,862 Loans repaid to officers - (304,759) - - Payment of acquisition debt (899,970) - - (810,800) Principal payments of long term debt (306,789) (67,921) (17,882) (6,679) Proceeds from hire purchase contract funding 19,491,763 11,530,175 3,154,590 3,701,474 Principal repayments of hire purchase contract funding (12,184,936) (6,073,790) (2,748,385) (3,090,658) ------------ ------------- ------------ ------------ Net cash provided from financing activities 10,207,879 9,240,419 580,560 1,373,817 ------------- ------------- -------------- ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (41,676) (722,401) 108,567 276,330 --------------- -------------- -------------- ------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (173,345) 247,322 (63,665) (224,455) Cash and cash equivalents, beginning of year 250,699 3,377 77,354 250,699 -------------- ---------------- --------------- -------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 77,354 $ 250,699 $ 13,689 $ 26,244 ============== ============= ============== ==============
SUPPLEMENTAL INFORMATION: (i) In November 1996, the Company acquired certain of the assets of AC Cars Limited aggregating $6,067,749 and incurred debt obligations aggregating $5,098,470. (ii) The loss on the disposal of fixed assets resulted from the sale of certain non-revenue producing assets whereby the proceeds were less than the carrying value. See notes to consolidated financial statements. F - 6 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 1 - DESCRIPTION OF COMPANY: Pride Automotive Group, Inc. (the "Company") was incorporated in the State of Delaware in March 1995. Pursuant to the terms and conditions of a reorganization in March 1995, the Company issued 1,500,000 shares of its common stock to Pride, Inc. (an entity incorporated in the State of Delaware), thereby making the Company a majority owned subsidiary of Pride Inc., in exchange for all of the issued and outstanding shares held by Pride, Inc., of Pride Management Services Plc (PMS), a consolidated group of operating companies located in the United Kingdom which are engaged in the leasing of motor vehicles primarily on contract hire to local authorities and selected corporate customers throughout the United Kingdom. This exchange of stock resulted in PMS becoming a wholly owned subsidiary of the Company. The Company, its subsidiary PMS and PMS's subsidiaries are referred to as the "Company" unless the context otherwise requires. On November 29, 1996, the Company, through a newly formed majority owned subsidiary, AC Automotive Group Inc. and its wholly owned subsidiary AC Car Group Limited (registered in the United Kingdom), completed the acquisition of certain assets of AC Cars Limited and Autokraft Limited. These two companies were engaged in the manufacture and sale of specialty automobiles. The purchase price of approximately $6,067,000 was financed with the proceeds of a private offering of the Company's common stock, and by loans. The acquisition was recorded using the purchase method of accounting. On February 12, 1998, the Board of Directors of AC Automotive Group, Inc. authorized the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a company affiliated with Alan Lubinsky, the President and Chief Executive Officer and director of the Company and AC Automotive Group, Inc., for aggregate consideration of $6,130. In addition, 441,300 shares were issued to other unrelated parties for aggregate consideration of $443. Following further restructure and the foregoing issuance of shares, the ownership of AC Automotive Group, Inc. by the Company has been reduced to 16%. Due to the change in ownership percentage, the Company does not believe that it still has the ability to exercise significant influence over AC Automotive Group, Inc. Accordingly, consolidation is not considered appropriate. The Company's investment in AC Automotive Group, Inc., is therefore being reported under the cost method of accounting (See also Note 16). F - 7 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 1 - DESCRIPTION OF COMPANY (Continued): The following condensed pro-forma balance sheet assumes this reduction in ownership occurred as of November 30, 1997:
Assets: Cash $ 76,516 Accounts receivable - net 4,200,035 Inventory 132,369 Fixed assets - net 24,489,646 Intangible assets - net 9,074,865 Investment in affiliate 1,800,000 ------------- $39,773,431 Liabilities and Shareholder's Equity: Bank line of credit $ 5,297,687 Accounts payable and accrued expenses 2,022,057 Bank debt 695,782 Obligations under hire purchase contracts 18,341,778 Loans payable 1,738,703 Shareholders' equity 11,677,424 ------------ $39,773,431 The following pro forma statement of operations assumes the reduction in ownership occurred at the beginning of the year ended November 30, 1997: Revenue $16,249,338 Expenses 17,079,394 Net loss (830,056) Loss per share (.30)
The pro-forma financial information is not necessarily indicative of the results that would have occurred had this reduction in ownership occurred as of the dates indicated above nor are they necessarily indicative of future operating results. F - 8 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PMS, the operating group of companies, which is located in the United Kingdom, follows generally accepted accounting principles in the United Kingdom. For purposes of these consolidated financial statements, the Company has converted to the generally accepted accounting principles of the United States. (a) Basis of Consolidation and Presentation: The consolidated financial statements include the accounts of the Company (Pride Automotive Group, Inc.), its' wholly owned subsidiary Pride Management Services Plc and its' wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. Due to the nature of the majority of the Company's business, contract leasing of motor vehicles (revenue producing assets) which are treated as non-current fixed assets, the balance sheet is reflected on an unclassified basis. Accordingly, current assets and current liabilities are not reflected separately on the face of the balance sheet. (b) Use of Estimates: In preparing financial statements in accordance with generally accepted accounting principles, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements. (c) Concentration of Credit Risk/Fair Value: Financial instruments that potentially subject the Company to concentrations of credit risk in accordance with SFAS No 105 consist principally of accounts receivable. The Company believes however, that risks associated with accounts receivable are limited due to its large customer base and the fact that it leases vehicles to companies in many industries. The carrying amounts of cash and cash equivalents, trade receivables, other assets, accounts payable and debt obligations approximate fair value. (d) Inventories: Inventories include vehicles which are no longer being leased to customers and which are temporarily being held for resale at cost less accumulated depreciation, which approximates net realizable value. The inventories of AC Automotive Group, Inc. and its subsidiary consist of finished goods, work in progress and spare parts of specialty automobiles and are stated at the lower of cost, (first-in, first-out method) or market. Market is considered as net realizable value. F - 9 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (d) Inventories (continued): Inventories consisted of the following:
November 30, February 28, 1997 1998 (Unaudited) Cars held for resale $ 132,369 $179,268 Finished goods 90,784 - Work-in-progress 502,500 - Spare parts 522,707 - ------------ -------- $1,248,360 $179,268
(e) Fixed Assets and Depreciation: Fixed assets are stated at cost less depreciation. Depreciation is provided on all assets at rates calculated to write off the cost of each asset over its estimated useful life, as follows: Building and improvements 50 years straight-line basis Revenue producing vehicles 3-6 years straight-line basis Furniture and fixtures 4 years double declining basis Machinery and equipment 4 years double declining basis Aircraft 4 years double declining basis Maintenance and repairs are charged to operations and major improvements are capitalized. Upon retirement, sale of other disposal, the associated cost and accumulated depreciation of the asset are eliminated from the accounts and any resulting gain or loss is included in operations. (f) Intangible Assets: Intangible assets consist primarily of goodwill which arose in connection with the acquisition of certain subsidiaries of PMS. Goodwill is being amortized over a period of 10-20 years on a straight-line basis. Accumulated amortization as of November 30, 1997 aggregated $3,622,833. Accumulated amortization as of February 28, 1998 aggregated $3,780,512. The Company periodically reviews the valuation and amortization of goodwill and other intangibles to determine possible impairment by evaluating events and circumstances that might indicate an inability to recover the carrying amount. Such evaluation is based on analysis, including profitability, projections and cash flows that incorporate the impact on existing Company business. F - 10 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (g) Income Taxes: The Company conducts all of its operating activities in the United Kingdom (UK). As such, they are subject to taxation in the UK based upon that country's tax statutes. Under UK taxation rules, provision is made for taxation deferred as a result of material timing differences between the incidence of income and expenditures for taxation and accounting purposes, using the liability method, only to the extent that there is reasonable probability that a liability or asset will crystallize in the near future. See also Note 12 regarding SFAS No 109 - Accounting for Income Taxes. (h) Foreign Currency Translation: The Company's principal operations are conducted by PMS which reflects its financial statements in British pounds. As a result, most assets and liabilities of the foreign operations are translated into US dollars using current exchange rates in effect at the balance sheet date. Fixed assets and intangible assets are translated at historical exchange rates. Revenue and expense accounts are translated using an average exchange rate during the period except for those expenses related to assets and liabilities which are translated at historical exchange rates. These include depreciation and amortization which are translated at the rates existing at the time the asset was acquired. Any resulting gains or losses due to the translations are reflected as a separate item of shareholders' equity. (i) Income Recognition: Contract hire income of leased vehicles is recognized as operating leases over the period of the contract in accordance with SFAS No 13 - Accounting for Leases and the related amendments and interpretations. Income from the sale of previously leased vehicles is reflected at the time of sale of the vehicle. Fleet management revenues and miscellaneous income are reflected on the accrual basis over the term that the services are provided. The Company leases vehicles with terms generally ranging from two to four years. The following table shows the future minimum lease payments of existing leases to be received, net of related costs as of November 30, 1997 (see also Note 7):
November 30, 1998 $ 7,504,475 November 30, 1999 5,072,831 November 30, 2000 2,152,957 November 30, 2001 418,979 -------------- Total minimum lease payments receivable net of executory costs $15,149,242 ===========
F - 11 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (j) Earnings (Loss) Per Share: Earnings per share are computed based upon the weighted average shares and common equivalent shares outstanding. The shares sold during the year ended November 30, 1996 in a private offering (see Note 10), have been treated as outstanding for all periods presented, in accordance with the guidelines of the Securities and Exchange Commission. Common stock equivalents have been excluded from the computation since the results would be anti-dilutive. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 - Earnings Per Share ("SFAS 128"), which changes the method for calculating earnings per share. SFAS 128 requires the presentation of "basic" and "diluted" earnings per share on the face of the income statement. SFAS 128 is effective for financial statements for periods ending after December 15, 1997. The Company will adopt SFAS 128 for the year ending November 30, 1998, and accordingly restate prior periods, as early adoption is not permitted. SFAS 128 is not expected to materially differ from primary or fully diluted earnings per share as previously reported. (k) Cash and Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (l) Stock Based Compensation: SFAS No. 123 "Accounting for Stock Based Compensation", effective December 1996, requires the Company to either record compensation expense or to provide additional disclosures with respect to stock awards and stock option grants made after December 31, 1994. The accompanying Notes to Consolidated Financial Statements include the disclosures required by SFAS No. 123. No compensation expense is recognized pursuant to the Company's stock option plans under SFAS No. 123 which is consistent with prior treatment under APB No. 25. (m) New Accounting Pronouncements: SFAS 130 "Reporting Comprehensive Income" is effective for years beginning after December 15, 1997 and early adoption is permitted. This statement prescribes standards for reporting comprehensive income and its components. The Company will adopt these standards effective for the year ending November 30, 1998. See also Earnings (Loss) Per Share. F - 12 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (n) Impact of the Year 2000 Issue: The year 2000 issue is the result of computer programs being written using two digits rather than four to designate the applicable year. Accordingly, any of the Company's computer programs that utilize date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could potentially result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in other similar normal business activities. The Company had already planned on upgrading its computer software to increase operational efficiencies and information analysis. In conjunction with this upgrade, the Company will ensure that the new systems properly utilize dates that go beyond December 31, 1999. The cost of this upgrade project, as it relates to the Year 2000 issue, is not expected to have a material effect on the operations of the Company and will be funded through operating cash flows. NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following: November 30, February 28, 1997 1998 (Unaudited) Trade receivables - net of allowance for doubtful accounts of $80,486 for 1997 and 1998 $ 639,109 $ 667,954 Lease maintenance receivables 943,261 968,284 Value added tax 138,555 23,751 Due from related companies 83,219 90,263 Other debtors 198,221 2,493,125 ------------ ----------- $2,002,365 $4,243,377
Included in other debtors at February 28, 1998 is an amount of $2,248,460 owing by AC Automotive Group, Inc. Subsequent to February 28, 1998, AC Automotive Group, Inc. was restructured and the Company was issued 651,000 shares in consideration for the amount owing. F - 13 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 4 - FIXED ASSETS AND DEPRECIATION: Fixed assets consist of the following:
November 30, February 28, 1997 1998 (Unaudited) Buildings and improvements $ 820,160 $ 784,599 Revenue producing vehicles 27,612,291 29,551,013 Furniture, fixtures, plant and equipment 4,670,067 544,112 ------------- -------------- 33,102,518 30,879,724 Less: accumulated depreciation (including $4,263,115 and $4,764,963 of accumulated depreciation on revenue producing vehicles, for 1997 and 1998, respectively) 5,220,168 5,308,877 ------------- ------------- $27,882,350 $25,570,847
Depreciation expense for the years ended November 30, 1997 and 1996 aggregated $3,946,635 and $2,295,164, respectively. Depreciation expense for the three months ended February 28, 1998 and 1997 aggregated $1,071,956 and $926,323, respectively. One of the buildings owned by Pride Management was being leased to an unrelated party at an annual rent of approximately $80,000 per annum. In November 1997, the tenant exercised an option to purchase the building for approximately $400,000. NOTE 5 - ACCRUED LIABILITIES AND EXPENSES: Accrued liabilities and expenses consist of the following:
November 30, February 28, 1997 1998 (Unaudited) Taxes other than income taxes $438,289 $344,903 Miscellaneous accrued expenses 427,688 379,213 --------- --------- $865,977 $724,116
F - 14 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 6 - BANK LOANS/LINE OF CREDIT: (a) As of August 31, 1997, the Company's line of credit with its bank expired. In February 1998, subsequent to the balance sheet date, the Company entered into a new agreement with the bank. This new line of credit of $5,862,500, after deconsolidating the AC Car Group, is payable on demand and is secured by all assets of the Company other than building and revenue-producing vehicles which are already pledged (see Notes 6b and 7). Interest is payable at 7 1/2% in excess of the bank's base rate. The agreement is due for review in November 1998. (b) At November 30, 1997, other bank loans consisted of $695,782 ($677,900 at February 28, 1998) payable at a rate of 3% in excess of the bank's base rate. This loan is secured by a freehold property (building) owned by Pride Management and its subsidiaries, and matures in 2017. The scheduled principal payments of this bank debt as of November 30, 1997 are as follows: For the Year Ended November 30, 1998 $ 84,058 1999 84,058 2000 84,058 2001 84,058 2002 84,058 Thereafter 275,492 -------- $695,782 NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING: The Company has funding lines with several financing institutions in the United Kingdom in the aggregate amount of approximately $23,667,500 as of November 30, 1997. These funding lines are utilized to acquire revenue producing vehicles, which vehicles collateralize the outstanding obligations. Assets (revenue producing vehicles) obtained under hire purchase contracts are capitalized as fixed assets and depreciated over their useful lives. The obligations under such agreements, which mature at various dates within five years from inception, are reflected separately on the balance sheet net of finance charges which are charged to the periods to which they apply. At November 30, 1997, obligations under hire purchase contracts are as follows: For the Year Ended November 30, 1998 $ 8,860,849 1999 7,060,375 2000 2,372,636 2001 47,918 -------------- $18,341,778 F - 15 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued): The annual interest rates on these obligations range from 9% to 11%. As of February 28, 1998, the aggregate funding lines had been decreased to $23,097,000 and obligations under hire purchase funding aggregated $18,441,373. NOTE 8 - OTHER LIABILITIES: At November 30, 1997 and February 28, 1998 other liabilities consisted of $52,707 and $222,310, respectively, due to other creditors at interest rates approximating the current market rates and are repayable on a demand basis. NOTE 9 - ACQUISITION DEBT PAYABLE: Acquisition debt payable (see Note 1) consists of the following:
November 30, February 28, 1997 1998 (Unaudited) Unsecured notes payable on demand after May 31, 1998; interest payable quarterly at 2% above the base rate (i) $ 837,500$ - Unsecured notes payable on demand after May 31, 1998; interest payable at 10% per annum (see Note 10) 1,615,000 1,615,000 Unsecured notes payable on demand after October 31, 1999; interest payable quarterly at 8% per annum (i) 1,675,000 - Other short-term notes payable 71,000 71,000 ------------- ------------- $4,198,500 $1,686,000
(i) These notes were issued by AC Automotive Group, Inc., and are no longer owed by the Company. NOTE 10 - COMMON STOCK/RECAPITALIZATION: In December 1995, the Company completed a private placement offering selling 20 units, each unit consisting of 25,000 shares of common stock, at $6,000 per unit for aggregate gross proceeds of $120,000. F - 16 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 10 - COMMON STOCK/RECAPITALIZATION (Continued): In April 1996, the Company successfully completed an initial public offering ("IPO") of its common stock whereby it sold 592,500 shares of common stock at a price of $5.00 per share and 2,300,000 common stock purchase warrants at a price of $.10 per warrant. This offering yielded net proceeds of approximately $2,166,000. The warrants are exercisable at a price of $5.75 per share, subject to adjustment, one year from the date of the offering, for a period of four years. The warrants are redeemable by the Company at any time commencing one year from the date of its prospectus, upon 30 days notice, at a redemption price of $.05 per warrant. In addition, the Company entered into a consulting agreement with one of the Underwriters as a financial consultant for a period of two years at a monthly fee of $2,500 payable in full at the closing of the offering. The Underwriters have also been granted warrants to acquire 95,000 shares of Common Stock and 200,000 warrants at 150% of the public offering prices or $7.50 per share and $.15 per Warrant, respectively. In 1997, the Company completed a private placement of 17 units, each unit consisting of a 10% promissory note in the amount of $95,000 and 10,000 shares of the Company's common stock for an aggregate price of $100,000 per unit. The notes are payable on the earlier of 18 months from the date of issuance or a closing of an underwritten public offering of the Company's (or any of its subsidiaries) securities (see Note 18a). The promissory notes are classified as acquisition debt (see also Note 9). The Company has reflected deferred financing costs based upon the difference between the deemed fair value of the shares and the market value at the time of issuance. These costs will be recognized as additional interest expense over the term of the notes. NOTE 11 - STOCK OPTION PLANS: In September 1995, the board of directors adopted the 1995 Senior Management Incentive Plan (the "Management Plan") which was adopted by shareholder consent. The Plan provides for the issuance of up to 300,000 shares of the Company's common stock in connection with the issuance of stock options and other stock purchase rights to executive officers and other key employees. During the year ended November 30, 1996, the Company granted options to purchase 100,000 shares of common stock at an exercise price of $5.50 per share (fair value of $2.60), none of which has been exercised to date. These options are exercisable over a five-year period pursuant to a three-year vesting schedule (331/3% per annum) beginning in August 1996. F - 17 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 11 - STOCK OPTION PLANS (Continued): In May 1997, the Company granted an aggregate of 60,528 options to three employees exercisable at $2.54 per share. These options vest at the rate of 331/3% per annum commencing May 1998. The Company applies APB 25 and related Interpretations in accounting for the Management Plan. Accordingly, no compensation cost has been recognized for the Management Plan. Had compensation cost of the Management Plan been determined using the fair value-based method, as defined in SFAS 123 (see Note 2l), the Company's net earnings (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
1997 1996 --------------- -------- Net earnings (loss): As reported $(4,455,400) $(600,622) Pro forma (4,745,000) (906,622) Earnings (loss) per share: As reported (1.59) (.25) Pro forma (1.69) (.38)
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 1997 and 1996; respectively; expected volatility of 1.2% and 1.1%, respectively; risk-free interest rate of 6.5%; and expected lives of 3 to 5 years. The effects of applying SFAS 123 in the above pro forma disclosures are not necessarily indicative of future amounts. Additionally, future amounts are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts. NOTE 12 - INCOME TAXES: The Company has available operating losses carryforwards for tax purposes aggregating approximately $5,028,000 as of November 30, 1997, which may result in a deferred tax asset. The Company has recognized this asset but has provided a valuation allowance for the full amount since there is no assurance that such losses will be utilized in the near future. The components of the deferred tax asset, pursuant to SFAS No. 109, are as follows:
November 30, February 28, 1997 1998 (Unaudited) Operating loss carryforward $1,709,000 $688,000 Valuation allowance (1,709,000) (688,000) ----------- --------- $ - $ - ================= =======
F - 18 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 13 - ECONOMIC DEPENDENCY: For the years ended November 30, 1997 and 1996, the Company had two unaffiliated customers, which accounted for an aggregate of approximately 17% (1996 - 17%) and 7% (1996 - 12%) respectively, of the Company's total revenues. The Company purchases all of the automobiles that it leases to its clients from automotive dealerships, usually several at a time. The Company does not depend on any one dealership for its purchase of automobiles and does not have any written agreements with any of the dealerships it purchases vehicles from. The Company believes that it will continue to be able to purchase automobiles at competitive prices and terms into the future. NOTE 14 - PENSION PLAN: PMS and its' subsidiaries have a fully insured defined contribution plan for all of its eligible employees. Contributions to the plan, which are discretionary, for the years ended November 30, 1997 and 1996 amounted to $65,726 and $33,264, respectively. Contributions to the plan for the three month periods ended February 28, 1998 and 1997 amounted to $22,690 and $11,874, respectively. NOTE 15 - COMMITMENTS: (a) Leases: In November 1996, the Company entered into a one-year lease agreement for the manufacturing facility being utilized for its new subsidiary at a cost of approximately $54,000 per month, with an option to purchase this facility at a cost of $8,700,000, through August 1997. In August 1997, the Company sold this option to purchase for $673,750 and negotiated a new lease for a smaller portion of this facility at an approximate cost of $31,000 per month. (b) Employment Agreements: In August 1995, the Company entered into an employment agreement with its President/Chairman of the Board of Directors. This three-year agreement provides for an annual salary of $160,000 with annual escalations of 10% and also contains certain non-compete restrictions. This employee was also granted 100,000 stock options (see Note 11). In September 1995, the Company entered into an employment agreement with an officer/director for a period of twenty-four months commencing December 1, 1995. This agreement is automatically extendable for a further twenty four-month period subject to review by the Board of Directors. For the year ended November 30, 1997, the annual salary amounted to $71,000 F - 19 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 15 - COMMITMENTS (Continued): (c) Rental Income: The Company leased one of its owned facilities to an unaffiliated company for an annual rental of approximately $80,000 per annum. The annual cost of servicing the mortgage and real estate taxes on this building was approximately $70,000. In November 1997, this property was sold for $400,000 (see Note 4). NOTE 16 - MINORITY INTEREST IN SUBSIDIARIES: As of November 30, 1997, the Company owned 70% of AC Automotive Group, Inc. ("AC Group") - see Note 1. As of November 30, 1996, the Company reflected a charge of $539,370 to additional paid-in capital in order to properly reflect the minority interest liability at $482,486. For the year ended November 30, 1997, losses applicable to the minority shareholder exceeded its interest, accordingly, such losses were charged against the operations of the Company. See Note 1 - re carrying value of this investment. NOTE 17 - BUSINESS SEGMENT INFORMATION: The Company's operations have been classified into two business segments; Contract Hire and Leasing and Automobile Manufacture. The Contract Hire and Leasing is the business of Pride Management Services Plc and its subsidiaries and utilizes the resale of automobiles at the end of the contracts. The Automobile manufacturer is the business of AC Car Group Limited. This segment began operations in December 1996. F - 20 PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 AND 1996 (Information as of and for the Periods Ended February 28, 1998 and 1997 is Unaudited) NOTE 17 - BUSINESS SEGMENT INFORMATION (Continued): Summarized financial information by business segment for the years ended November 30, 1997 and 1996 is as follows:
1997 1996 ---------------- ----------- Revenue: Pride Management Services Plc $16,249,338 $12,884,018 AC Car Group Limited 1,209,937 - -------------------------- $17,459,275 $12,884,018 Income (Loss) Before Minority Interests: Pride Management Services Plc $ (830,056) $ (654,998) AC Car Group Limited (4,111,664) - ------------- ------------- $ (4,941,720) $ (654,998) ============ ============= Total Assets: Pride Management Services Plc $35,686,989 $27,680,689 AC Car Group Limited 4,613,596 6,008,893 ------------- -------------- $40,300,585 $33,689,582 Depreciation and Amortization: Pride Management Services Plc $ 4,155,846 $ 2,929,977 AC Car Group Limited 422,996 - ---------------------------- $ 4,578,842 $ 2,929,977 ============ =========== Capital Expenditures: Pride Management Services Plc $15,298,608 $ 8,002,360 AC Car Group Limited 1,196,116 1,856,364 ------------- ------------- $16,494,724 $ 9,858,724 =========== ============
Segment information is not reflected for the period ended February 28, 1998 due to the ownership change as described in Note 1. NOTE 18 - SUBSEQUENT EVENTS: The Company has filed a Form SB-2 with the Securities and Exchange Commission, registering for the sale of 1,250,000 shares of common stock, which includes 170,000 shares being sold by certain selling shareholders. The estimated net proceeds from this offering, to the Company, is expected to be $3,488,000. The Company intends to use these proceeds to repay existing debt. F - 21 EX-1 2 D:\WP51P\PRIDE\UND-AGR.FIN UNDERWRITING AGREEMENT Dated: 1998 MASON HILL & CO., INC. 110 Wall Street New York, New York 10005 Ladies and Gentlemen: Pursuant to this Underwriting Agreement (this "Agreement"), (1) PRIDE AUTOMOTIVE GROUP, INC., a Delaware corporation (the "Company"), proposes to issue and sell to Mason Hill & Co., Inc. (the "Underwriter" or "you"), an aggregate of 1,080,000 shares (the "Company Firm Shares") of the common stock, par value $.001 per share, of the Company (the "Common Stock"), and (ii) each of the stockholders of the Company named in Schedule A hereto (the "Selling Stockholders"), acting severally and not jointly, proposes to sell to you the respective number of shares of Common Stock set forth opposite the Selling Stockholders' names on Schedule A for an aggregate of 170,000 shares of Common Stock (the "Selling Stockholder Firm Shares"; and together with the Company Firm Shares, the "Firm Shares"). In addition, the Company proposes to grant to the Underwriter the Over-Allotment Option, referred to and defined in Section 2(c) hereof, to purchase all or any part of an aggregate of 187,500 additional shares of Common Stock (the "Option Shares") and the Company proposes to issue to you the Underwriter's Warrant, referred to and defined in Section 1 2 hereof, to purchase certain further shares of Common Stock. The aggregate of Firms Shares together with the aggregate of 187,500 Option Shares are herein collectively called the "Shares." The Shares and the shares of Common Stock issuable upon exercise of the Underwriter's Warrant, are herein collectively called the "Securities." The term "Underwriter's Counsel" shall mean the firm of Gersten, Savage, Kaplowitz & Fredericks, LLP, counsel to the Underwriter, and the term "Company Counsel" shall mean the firm of Lampert & Lampert, counsel to the Company. Unless the context otherwise requires, all references herein to a "Section" shall mean the appropriate Section of this Agreement. You have advised the Company and the Selling Stockholders that the Underwriter desires to purchase the Firm Shares as herein provided. The Company and the Selling Stockholders confirm the agreements made by them with respect to the purchase of the Firm Shares as well as the Option Shares by the Underwriter, as follows: 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS. (a) The Company represents and warrants to, and agrees with, the Underwriter that: (i) Registration Statement; Prospectus. A registration statement (File No.33 ) on Form SB-2 relating to the public offering of the Securities (the "Offering"), including a preliminary form of 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 (the "Act"), and the rules and regulations of the Securities and Exchange Commission (the "Commission") promulgated thereunder (the "Rules and Regulations"), and has been filed with the Commission under the Act. As used herein, the term "Preliminary Prospectus" shall mean each prospectus filed pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations. The Preliminary Prospectus bore the legend required by Item 501 of Regulation S-B under the Act and the Rules and Regulations. Such registration statement (including all financial statements, schedules and exhibits) as amended at the time it becomes effective and the final prospectus included therein are herein respectively called the "Registration Statement" and the "Prospectus," except that (i) if the prospectus filed by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and Regulations shall differ from such final prospectus as then amended, then the term "Prospectus" shall instead mean the prospectus first filed pursuant to said Rule 424(b) or Rule 430A, and (ii) if such registration statement is amended or such prospectus is amended or supplemented after the effective date of such registration statement and prior to the Option Closing Date (as defined in Section 2(c) hereto) then (unless the context necessarily requires otherwise) the term "Registration Statement" shall include such registration statement as so amended, and the term "Prospectus" shall include such prospectus as so amended or supplemented, as the case may be. (ii) Contents of Registration Statement. On the Effective Date, and at all times subsequent thereto for so long as the delivery of a prospectus is required in connection with the offering or sale of any of the Securities, (a) the Registration Statement and the Prospectus shall in all material respects conform to the requirements of the Act and the Rules and Regulations, and (b) neither the Registration Statement nor the Prospectus shall include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary or make statements therein in light of the circumstances in which they were made, not misleading; provided, however, that the Company, makes no representations, warranties or agreements 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 or on behalf of the Underwriter specifically for use in the preparation thereof. It is understood that the statements set forth in the Prospectus with respect to stabilization, the material set forth under the caption "UNDERWRITING," the information on the cover page of the Prospectus regarding the underwriting arrangements and the identity of the Underwriter's Counsel under the caption "LEGAL MATTERS," which information the Underwriter hereby represents and warrants to the Company is true and correct in all material respects and does not omit to state any material fact required to be stated therein or necessary to make statements therein, in light of the circumstances in which they were made, not misleading, constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Registration Statement and Prospectus, as the case may be. (iii) Organization, Standing, Etc. The Company and each of its subsidiaries (the "Subsidiaries) have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, with full power and corporate authority to own their properties and conduct their business as described in the Prospectus, and are duly qualified or licensed to do business as foreign corporations and are in good standing in each other jurisdiction in which the nature of their businesses or the character or location of their properties requires such qualification, except where failure so to qualify will not have a material adverse effect on the business, properties or financial condition of the Company or its Subsidiaries. (iv) Capitalization. The authorized, issued and outstanding capital stock of the Company as of the date of the Prospectus is as set forth in the Prospectus under the caption "CAPITALIZATION." The shares of Common Stock issued and outstanding on the Effective Date have been duly authorized, validly issued and are fully paid and non-assessable. 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 shares of capital stock of the Company have been granted or entered into by the Company, except as expressly described in the Prospectus. The Securities conform to all statements relating thereto contained in the Registration Statement or the Prospectus. (v) Securities. The Securities and the Underwriter's Warrant have been duly authorized and, when issued and delivered against payment therefor pursuant to this Agreement, or the Underwriter's Warrant, as the case may be, 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 any of the Securities or the Underwriter's Warrant as contemplated by 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. (vi) Authority, Etc. This Agreement, the Underwriter's Warrant and the Financial Consulting Agreement (as hereinafter defined), have been duly and validly authorized, executed and delivered by the Company and, assuming due execution of this Agreement and such other agreements by the other party or parties hereto and thereto, constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. The Company has full right, power and lawful authority to authorize, issue and sell the Securities and the Underwriter's Warrant on the terms and conditions set forth herein. All consents, approvals, authorizations and orders of any court or governmental authority which are required in connection with the authorization, execution and delivery of such agreements, the authorization, issue and sale of the Securities and the Underwriter's Warrant, and the consummation of the transactions contemplated hereby have been obtained. (vii) No Conflict. Except as described in the Prospectus, the Company is not in violation, breach or default of or under, and consummation of the transactions hereby contemplated and fulfillment of the terms of this Agreement will not conflict with or result in a breach of, any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance pursuant to the terms of, any contract, indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary may be bound or to which any of the property or assets of the Company or any Subsidiary is subject, nor will such action result in any violation of the provisions of the Articles of Incorporation or the By-laws of the Company or any Subsidiary, as amended to date, or any statute or any order, rule or regulation applicable to the Company or any Subsidiary, or of any court or of any regulatory authority or other governmental body having jurisdiction over the Company or any Subsidiary. (viii) Assets. Subject to the qualifications stated in the Prospectus: (a) the Company and each Subsidiary have good and marketable title to all properties and assets described in the Prospectus as owned by them, including without limitation intellectual property, free and clear of all liens, charges, encumbrances or restrictions, except such as do not materially affect the value of such properties or assets and do not materially interfere with the use made or proposed to be made of such assets or properties by the Company and/or the Subsidiaries or are not materially significant or important in relation to the business of the Company or the Subsidiaries; (b) all of the material leases and subleases under which the Company and/or the Subsidiaries is the lessor or sublessor of properties or assets or under which the Company and/or the Subsidiaries 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, the Company and/or the Subsidiaries are not 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 any party adverse to the rights of the Company and/or the Subsidiaries as lessor, sublessor, lessee or sublessee under any such lease or sublease, or affecting or questioning the right of the Company and/or the Subsidiaries 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 (c) the Company and each Subsidiary, owns or leases all such assets and properties, described in the Prospectus, as are necessary to their operations as now conducted and, except as otherwise stated in the Prospectus, as proposed to be conducted as set forth in the Prospectus. (ix) lndependent Accountants. Civvals, Chartered Accountants, who have given their report on certain financial statements filed or to be filed with the Commission as a part of the Registration Statement, and which are included in the Prospectus, are with respect to the Company and its Subsidiaries, independent public accountants as required by the Act and the Rules and Regulations. (x) Financial Statements. The financial statements, together with related notes, set forth in the Registration Statement and the Prospectus present fairly the financial position, results of operations, changes in stockholders' equity and cash flows of the Company and the Subsidiaries on the basis stated in the Registration Statement, at the respective dates and for the respective periods to which they apply. Such financial statements and related notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except to the extent disclosed therein. The Selected Financial Data included in the Registration Statement and the Prospectus present fairly the information shown therein and have been prepared on a basis consistent with that of the financial statements included in the Registration Statement and the Prospectus. (xi) No Material Change. Except as otherwise set forth in the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, neither the Company nor any Subsidiary have: (i) incurred any material liability or obligation, direct or contingent, or entered into any material transaction other than in the ordinary course of business; (ii) effected or experienced any change in its capital stock or incurred any long-term debt, (iii) issued any options, warrants or other rights to acquire its capital stock; (iv) declared, paid or made any dividend or distribution of any kind on its capital stock; or (v) effected or experienced any material adverse change, or development involving a prospective material adverse change, in its financial position, net worth, results of operations, business or business prospects, assets or properties or key personnel. (xii) Litigation. Except as set forth in the Prospectus, there is not now pending nor, to the knowledge of the Company or any Subsidiary, threatened, any action, suit or proceeding (including any related to environmental matters or discrimination on the basis of age, sex, religion or race), whether or not in the ordinary course of business, to which the Company or any Subsidiary is a party or its business or property is subject, before or by any court or governmental authority, which, if determined adversely to the Company or any Subsidiary, would have a material adverse effect on the financial position, net worth, or results of operations, business or business prospects, assets or property of the Company or any Subsidiary; and no labor disputes involving the employees of the Company or any Subsidiary exist which would materially adversely affect the business, property, financial position or results of operations of the Company or any Subsidiary. (xiii) No Unlawful Prospectuses. The Company has not distributed any prospectus or other offering material in connection with the Offering contemplated herein, other than any Preliminary Prospectus, the Prospectus or other material permitted by the Act and the Rules and Regulations. (xiv) Taxes. Except as disclosed in the Prospectus, the Company and each Subsidiary have filed all necessary federal, state, local and foreign income and franchise tax returns and have paid all taxes shown as due thereon on or before the date such taxes are due to be paid; and there is no tax deficiency which has been or, to the knowledge of the Company or any Subsidiary, might be asserted against the Company or any Subsidiary. (xv) Licenses, Etc. The Company and each Subsidiary have in effect all necessary licenses, permits and other governmental authorizations currently required for the conduct of their businesses or the ownership of their property, as described in the Prospectus, and are in all material respects in compliance therewith. The Company and each Subsidiary own or possess adequate rights to use all material patents, patent applications, trademarks, mark registrations, copyrights and licenses disclosed in the Prospectus and/or which are necessary for the conduct of such business, and except as disclosed in the Prospectus neither the Company nor any Subsidiary have received any notice of conflict with the asserted rights of others in respect thereof. To the knowledge of the Company, none of the activities or business of the Company and its Subsidiaries is in violation of, or would cause the Company or any Subsidiary to violate, any law, rule, regulation or order of the United States, any country, state, county or locality, the violation of which would have a material adverse effect upon the financial position, net worth, results of operations, business or business prospects, assets or property of the Company. (xvi) No Prohibited Payments. The Company has not, directly or indirectly at any time: (i) made any contribution 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 federal, state, local 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. The internal accounting controls and procedures of the Company are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. (xvii) Transfer Taxes. On the Closing Dates (as defined in Section 2(d) hereof), all transfer and other taxes (including franchise, capital stock and other taxes, 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 Shares to the Underwriters hereunder shall have been fully paid or provided for by the Company and the Selling Stockholders, and all laws imposing such taxes shall have been fully complied with. (xviii) Exhibits. All contracts and other documents of the Company which are, under the Rules and Regulations, required to be filed as exhibits to the Registration Statement have been so filed. (xix) Stockholder Agreements, Registration Rights. Except as described in the Prospectus, no security holder of the Company has any rights with respect to the purchase, sale or registration of any Securities, and all registration rights with respect to the Offering have been waived or complied with. (xx) No Stabilization or Manipulation. The Company has not taken and will not 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 the Common Stock to facilitate the sale or resale of the Securities hereunder. (xxi) No Finders. Except for this Agreement and any other agreements with the Underwriter, 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 public offering. (xxii) Lock-up Agreements. The Company has obtained from each officer, director (the "Shareholders"), Lock-Up agreements in the form previously delivered. (b) Each of the Selling Stockholders, severally and not jointly, represents and warrants to, and agrees with, the Underwriter as of the date hereof, each of subparagraphs (i) through (xxii), inclusive, of subsection (a) of this Section 1 and as follows: (i) The execution and delivery of this Agreement and the consummation of the transactions herein and therein contemplated will not result in a breach by such Selling Stockholder of, or constitute a default by such Selling Stockholder under, any material indenture, deed or trust, contract or other agreement or instrument or any decree, judgment or order to which such Selling Stockholder is a party or by which such Selling Stockholder may be bound. (ii) Such Selling Stockholder has and will have, at the First Closing Date, good and marketable title to the Shares to be sold by such Selling Stockholder hereunder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, created by or arising through the Selling Stockholder other than pursuant to this Agreement; such Selling Stockholder has full right, power and authority to sell, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; and upon delivery of the Shares to be sold by such Selling Stockholder hereunder and payment of the purchase price therefor as herein contemplated, the Underwriter will receive good and marketable title to the Shares purchased by it from such Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity. (iii) Such Selling Stockholder has duly executed and delivered in the form heretofore furnished to the Underwriter, a power of attorney and custody agreement (the "Power of Attorney and Custody Agreement") with ______________as the attorney-in-fact and the custodian (the "Attorney-in-Fact" and the "Custodian", respectively); the Attorney-in-Fact is authorized to execute and deliver this Agreement and the certificates referred to in Section 4(k) or that may be required pursuant to Section 4(h) on behalf of such Selling Stockholder, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder, to duly endorse (in blank or otherwise) the certificate or certificates representing such Shares, to accept payment therefor, and otherwise to act on behalf of such payment therefor, and otherwise to act on behalf of such Seller in connection with this Agreement. (iv) All authorizations, approvals and consents necessary for the execution and delivery by such Selling Stockholder of the Power of Attorney and Custody Agreement, the execution and delivery by or on behalf of such Selling Stockholder of this Agreement, and the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder and thereunder (other than, at the time of the execution hereof, the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state securities laws), have been obtained and are in full force and effect; and such Selling Stockholder has the full right, power and authority to enter into this Agreement and the Power of Attorney and Custody Agreement and to sell, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder. (v) For a period of ___ days from the date hereof, such Selling Stockholder will not, without the prior written consent of the Underwriter, directly or indirectly, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock of the Company or any securities convertible into Common Stock owned by such Selling Stockholder or with respect to which such Selling Stockholder has the power of disposition, other than to the Underwriter pursuant to this Agreement. (vi) Such Selling Stockholder has not taken, and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security or the Company to facilitate the sale or exercise of the Shares. (vii) Certificates in negotiable form for all Shares to be sold by such Selling Stockholder hereunder have been placed in custody with the Custodian by or for the benefit of such Selling Stockholder for the purposes or effecting delivery by such Selling Stockholder hereunder. 2. PURCHASE, DELIVERY AND SALE OF THE SHARES. (a) Purchase Price for the Shares. The Shares shall be sold to and purchased by the Underwriter hereunder at the purchase price of $4.50 per Share (that being the public offering price of $5.00 per Share less an underwriting discount of 10 percent) (the "Purchase Price"). (b) Firm Shares. (i) Subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties and agreements herein contained the Company and the Selling Stockholders agree to issue and sell to the Underwriter, and the Underwriter agrees to buy from the Company and the Selling Stockholders at the Purchase Price, the Firm Shares. (ii) Delivery of the Firm Shares against payment therefor shall take place at the offices of the Underwriter (or at such other place as may be designated by agreement between you and the Company) at 10:00 a.m., Eastern Daylight Time, on _______ , 1998, or at such later time and date, not later than five (5) business days after the Effective Date, as you may designate (such time and date of payment and delivery for the Firm Shares being herein called the "First Closing Date"). Time shall be of the essence and delivery of the Firm Shares at the time and place specified in this Section 2(b)(ii) is a further condition to the obligations of the Underwriter hereunder. (c) Option Shares. (i) In addition, subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties and agreements herein contained, the Company and the Selling Stockholders hereby grant to the Underwriter an option (the "Over-Allotment Option"), to purchase from the Company all or any part of 187,500 Option Shares at the Purchase Price. (ii) The Over-Allotment Option may be exercised by the Underwriter, in whole or in part, within 45 calendar days after the Effective Date, upon written notice by you to the Company, advising the Company of the number of Option Shares as to which the Over-Allotment Option is being exercised, the names and denominations in which the certificates for the Option Shares are to be registered, and the time and date when such certificates are to be delivered. Such time and date shall be determined by you but shall not be less than two nor more than 10 business days after exercise of the Over-Allotment Option, nor in any event prior to the First Closing Date (such time and date being herein called the "Option Closing Date"). Delivery of the Option Shares against payment therefor shall take place at the Underwriter's Offices. Time shall be of the essence and delivery at the time and place specified in this Section 2(c)(ii) is a further condition to the obligations of the Underwriter hereunder. (iii) The Over-Allotment may be exercised only to cover over-allotments in the sale by the Underwriter of Firm Shares. (d) Delivery of Certificates; Payment. (i) The Company and the Selling Stockholders shall make the certificates for the Shares to be purchased hereunder available to you for checking at least one full business day prior to the First Closing Date or the Option Closing Date (each, a "Closing Date"), as the case may be. The certificates shall be in such names and denominations as you may request at least two business days prior to the relevant Closing Date. Time shall be of the essence and the availability of the certificates at the time and place specified in this Section 2(d)(1) is a further condition to the obligations of the Underwriter hereunder. (ii) On the First Closing Date, the Company and the Selling Stockholders shall deliver to you for the account of the Underwriter definitive engraved certificates in negotiable form representing all of the Shares comprising the Firm Shares to be sold by the Company and the Selling Stockholders, against payment of the Purchase Prices therefor by you, for your account, by certified or bank cashier's checks payable in New York Clearing House funds to the order of the Company and each Selling Stockholder in the appropriate amounts. (iii) In addition, if and to the extent that the Underwriter exercises the Over-Allotment Option, then on the Option Closing Date the Company shall deliver to you for your account, definitive engraved certificates in negotiable form representing the Shares and the Warrants comprising the Option Securities to be sold by the Company, against payment of the Purchase Prices therefor by you for your account, by certified or bank cashier's checks payable in next day funds to the order of the Company. (iv) It is understood that the Underwriter proposes to offer the Firm Shares to be purchased hereunder to the public, upon the terms and conditions set forth in the Registration Statement, after the Registration Statement becomes effective. 3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Underwriter that: (a) Registration. (i) The Company shall use its best effort to cause the Registration Statement to become effective and, upon notification from the Commission that the Registration Statement has become effective, shall so advise you and shall not at any time, whether before or after the Effective Date, file any amendment to the Registration Statement or any amendment or supplement to the Prospectus of which you shall not previously have been advised and furnished with a copy, or to which you or Underwriter's Counsel shall have objected in writing, or which is not in compliance with the Act and the Rules and Regulations. (ii) Promptly after you or the Company shall have been advised thereof, you shall advise the Company or the Company shall I advise you, as the case may be, and confirm such advice in writing, of (A) the receipt of any comments of the Commission, (B) the effectiveness of any post-effective amendment to the Registration Statement, (C) the filing of any supplement to the Prospectus or any amended Prospectus, (D) any request made by the Commission for amendment of the Registration Statement or amendment or supplementing of the Prospectus, or for additional information with respect thereto, or (E) the issuance by the Commission or any state or regulatory body of any stop order or other order denying or suspending the effectiveness of the Registration Statement, or preventing or suspending the use of any Preliminary Prospectus, or suspending the qualification of the Securities for offering in any jurisdiction, or otherwise preventing or impairing the Offering, or the institution or threat of any proceeding for any of such purposes. The Company and you shall not acquiesce in such order or proceeding, and shall instead actively defend such order or proceeding, unless the Company and you agree in writing to such acquiescence. (iii) The Company has caused to be delivered to you copies of each Preliminary 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 Underwriter and selected dealers to use the Prospectus in connection with the sale of the Shares for such period as in the opinion of Underwriter's Counsel 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 Underwriter or a dealer, of any event of which the Company has knowledge and which materially affects the Company or the Securities, or which in the opinion of Company Counsel or of Underwriter's Counsel should be set forth in an amendment to the Registration Statement or an amendment or supplement to the Prospectus in order to make the statement made 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 Shares, or in case it shall be necessary to amend or supplement the Prospectus to comply with the Act or the Rules and Regulations, the Company shall notify you promptly and forthwith prepare and furnish to the Underwriter 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, shall not contain any untrue statement of a material fact or omit to state any material fact 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 each such amendment to the Registration Statement, amended Prospectus or supplement to be attached to the Prospectus shall be without expense to the Underwriter. If the Underwriter is required, in connection with the sale of the Securities, to deliver a prospectus nine months or more after the Effective Date, the Company shall upon your request, amend the Registration Statement and amend or supplement the Prospectus, or file a new registration statement, if necessary, and furnish the Underwriter with reasonable quantities of prospectuses complying with section 10(a)(3) of the Act. (iv) The Company will deliver to you at or before the First Closing Date two signed copies of the Registration Statement including all financial statements and exhibits filed therewith, and of all amendments thereto. The Company will deliver to or upon your order, from time to time until the Effective Date as many copies of any Preliminary Prospectus filed with the commission prior to the Effective Date as you may reasonably request. The Company will deliver to you on the Effective Date 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 Underwriter may from time to time reasonably request. (v) The Company shall comply with the Act, the Rules and Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder in connection with the offering and issuance of the Securities in all material respects. (b) Blue Sky. The Company shall, at its own expense, use its best efforts to qualify or register the Securities for sale (or obtain an exemption from registration) under the securities or "blue sky" laws of such jurisdictions as you may designate, and shall make such applications and furnish such information to Underwriter's Counsel as may be required for that purpose, and shall comply with such laws; provided, however, that 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 shall bear all of the expense of such qualifications and registrations, including without limitation the legal fees and disbursements of Underwriter's Counsel, which fees, exclusive of disbursements, shall not exceed $35,000 (unless otherwise agreed). After each Closing Date the Company shall, at its own expense, from time to time prepare and file such statements and reports as may be required to continue each such qualification (or maintain such exemption from registration) in effect for so long a period as required by law, regulation or administrative policy in connection with the offering of the Securities. In addition, the Company shall engage Underwriter's Counsel to provide the Underwriter, at the Closing and quarterly thereafter, until such time as the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange or quoted on NASDAQ/NMS, with a memorandum, setting forth those states in which the Common Stock may be traded in non-issuer transactions under the Blue Sky laws of the 50 states. The Company shall pay such counsel a one-time fee of $7,500 at the Closing for such opinions. (c)Prospectus Copies. The Company shall deliver to you on or before the First Closing Date a copy of the Registration Statement including all financial statements, schedules and exhibits filed therewith, and of all amendments thereto. The Company shall deliver to or on the order of the Underwriter, from time to time until the Effective Date, as many copies of any Preliminary Prospectus filed with the Commission prior to the Effective Date as the Underwriter may reasonably request. The Company shall deliver to the Underwriter on the Effective Date, 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 Underwriter may from time to time reasonably request. (d) Amendments and Supplements. The Company shall, promptly upon your request, prepare and file with the Commission any amendments to the Registration Statement, and any amendments or supplements to the Preliminary Prospectus or the Prospectus, and take any other action which in the reasonable opinion of Underwriter's Counsel and Company Counsel may be reasonably necessary or advisable in connection with the distribution of the Securities, and shall use its best efforts to cause the same to become effective as promptly as possible. (e) Certain Market Practices. The Company has not taken, and shall not take, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result in, or which has constituted, the stabilization or manipulation of the price of the Securities to facilitate the sale or resale thereof. (f) Certain Representations. Neither the Company nor any representative of the Company has made or shall make any written or oral representation in connection with the Offering and sale of the Securities or the Underwriter's Warrant that is not contained in the Prospectus, which is otherwise inconsistent with or in contravention of anything contained in the Prospectus, or which shall constitute a violation of the Act, the Rules and Regulations, the Exchange Act or the rules and regulations promulgated under the Exchange Act. (g) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Securities substantially for the purposes set forth in the Prospectus under the caption "USE OF PROCEEDS," and shall 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 pursuant to Rule 463 of the Rules and Regulations. (h) Twelve Months' Earnings Statement. The Company shall make generally available to its security holders and deliver to you as soon as it is practicable so to do, but in no event later than 90 days after the end of twelve months after the close of its Current fiscal quarter, an earnings statement (which need not be audited) covering a period of at least 12 consecutive months beginning after the Effective Date, which shall satisfy the requirements of section 11 (a) of the Act. (i) NASDAQ Exchange Listings, Etc. The Company shall immediately make all filings required to seek approval for the quotation of the Securities on the NASDAQ Small Cap Market ("NASDAQ") and shall use its best efforts to effect and maintain such approval for at least five years from the Effective Date. Within 10 days after the Effective Date, the Company shall also use its best efforts to list itself in Moody's OTC Industrial Manual, Standard & Poor's or other recognized securities manual acceptable to the Underwriter and to cause such listing to be maintained for five years from the Effective Date. (j) Board of Directors. For a period of five (5) years from the Effective Date, the Company shall allow an observer designated by the Underwriter and reasonably acceptable to the Company, to receive notice of and to attend all meetings of the Board of Directors of the Company and shall be compensated in the same manner as are non-employee directors of the Company. The Company shall hold at least four (4) meetings per year and the observer will be indemnified by the Company against any claims arising out of his participation at Board Meetings and shall be compensated for all reasonable travel and lodging expenses incurred. (k) Periodic Reports. For so long as the Company is a reporting company under section 12(g) or section 15(d) of the Exchange Act, the Company shall, at its own expense, furnish to its stockholders an annual report (including financial statements audited by certified public accountants) in reasonable detail. In addition, during the period ending five years from the date hereof, the Company shall, at its own expense, furnish to you: (i) within 90 days of the end of each fiscal year, a balance sheet of the Company and its Subsidiaries as at the end of such fiscal year, together with statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries as at the end of such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of certified public accountants; (ii) as soon as they are available, a copy of all reports (financial or otherwise) distributed to security holders; (iii) as soon as they are available, a copy of all non-confidential reports and financial statements furnished to or filed with the Commission; and (iv) such other information as you may from time to time reasonably request. The financial statements referred to herein shall be on a consolidated basis to the extent the accounts of the Company and its Subsidiaries are consolidated in reports furnished to its stockholders generally. (l) Certain Options. For a period of two (2) years following the First Closing Date, the Company shall not, without your prior written consent, grant any options, warrants or other rights to purchase shares of Common Stock at a price less than the lesser of the Public Offering price of the Shares or the market price of the Common Stock. (m) Form S-8 Registrations. For a period of two (2) years following the First Closing Date, the Company shall not register or otherwise facilitate the registration of any of its securities issuable upon the exercise of options, warrants (other than the Warrants and the Underwriter's Warrant) or other rights, whether by means of a Registration Statement on Form S-8 or otherwise, without your prior written consent. (n) Future Sales. For a period of two (2) years following the First Closing Date, the Company shall not issue, sell or otherwise dispose of any securities of the Company without your prior written consent, which consent shall not be unreasonably withheld; provided, however, that the Company may at any time issue shares of Common Stock pursuant to the exercise of the Underwriter's Warrant, and options, warrants or conversion rights issued and outstanding on the Effective Date and described in the Prospectus. (o) Regulation S Sales. For a period of two (2) years following the First Closing Date, the Company shall not issue or sell any securities pursuant to Regulation S of the Rules and Regulations under the Act, without your prior written consent. (p) Agreements with Directors and Officers. The Company shall deliver written agreements of each of the Company's directors and officers entered into with the Underwriter (the "Lock-up Agreements") prior to the Effective Date pursuant to which said director or officer shall (x) agree not to sell, assign, hypothecate, pledge, transfer or otherwise dispose of any shares of Common Stock owned by them, or subsequently acquired by them upon the exercise of any options or warrants or conversion of any convertible security of the Company, directly or indirectly, for a period of twenty-four (24) months following the Effective Date, except with the prior written consent of the Underwriter, which consent shall not be unreasonably withheld; (y) authorize the Company to place a restrictive legend on all certificates evidencing securities owned by them advising of the restriction referred to in clause (x) above, and (z) authorize the Company to issue appropriate stop transfer instructions to the Transfer Agent for the Common Stock noting the restriction referred to in clause (x) above. (q) Available Shares. The Company shall reserve and at all times keep available that maximum number of its authorized but unissued Securities which are issuable upon exercise of the Underwriter's Warrant, in each case taking into account the anti-dilution provisions thereof. (r) Financial Consulting Agreement. On the First Closing Date and simultaneously with the delivery of the Firm Shares, the Company shall execute and deliver to you an agreement with you, in the form previously delivered to the Company by you, regarding your services as a financial consultant to the Company (the "Financial Consulting Agreement"). (s) Management. On each Closing Date, the President of the Company shall be Alan Lubinsky, and the Chief Financial Officer of the Company shall be Ivan Averbuch. On or prior to the Effective Date, the Company shall have (A) entered into employment agreements with Messrs. Lubinsky and Averbuch on terms satisfactory to the Underwriter and (B) obtained "key man" life insurance coverage on the life of Mr. Lubinsky, naming the Company as beneficiary and having a face value of at least $1,000,000, for terms, and with an insurance agency, mutually agreed upon by the Company and you. The Company shall use its best efforts to maintain such insurance during the three-year period commencing on the First Closing Date. (t) Stock Transfer Sheets. The Company shall instruct its transfer agent to deliver to you copies of all advance sheets showing the daily transfer of the outstanding shares of Common Stock sold by the Company in the public offering and shall, at its own expense, furnish you with Depository Trust Company stock transfer sheets on a weekly basis for the period ending three (3) years from the First Closing Date. (u) Public Relations. Prior to the Effective Date the Company shall have retained a public relations firm reasonably acceptable to you, and shall continue to retain such firm, or an alternate firm reasonably acceptable to you, for a period of two years. (v) Bound Volumes. Within 120 days from the First Closing Date, the Company shall deliver to you, at the Company's expense, two bound volumes in form and content acceptable to you, containing the Registration Statement and all exhibits filed therewith and all amendments thereto, and all other agreements, correspondence, filings, certificates and other documents filed and/or delivered in connection with the Offering. (w) Right of First Refusal. (i) The Company shall: grant to the Underwriter a preferential right on the terms and subject to the conditions set forth in Sections 3(r) and 3(p), for a period of three (3) years from the Effective Date, to purchase for its account, or to sell for the account of the Company or its present affiliates or subsidiaries or any of its stockholders listed in the Prospectus under the caption "PRINCIPAL STOCKHOLDERS" (the "Principal Stockholders"), any securities of the Company or its Subsidiaries or future subsidiaries, on terms not more favorable to the Company or such present or future subsidiary or affiliate or the Principal Stockholders than they can secure elsewhere, to purchase or sell any such securities. If the Underwriter fails to notify the Company in writing of its intention to act as underwriter or placement agent or otherwise participate or introduce a third party to participate in such offering within fifteen (15) days after receipt of a notice containing such proposal, then the Underwriter shall have no further claim or right with respect to the proposal contained in such notice. If thereafter, such proposal is materially modified, the Company, and each present or future affiliate or subsidiary or its Principal Stockholders shall in all respects have the same obligations and adopt the same procedures with respect to such proposal as are provided hereinabove with respect to the original proposal; (ii) if the Underwriter acts as underwriter or placement agent with respect to such offering or introduces a third party (other than an underwriter) which participates in such offering, then the Underwriter shall receive, as compensation for services rendered, ten (10%) percent of the aggregate consideration received by the Company through the Underwriter or the party introduced by the Underwriter and warrants to purchase an amount of securities equal to ten (10%) percent of the securities sold by the Company in such offering through the Underwriter or the party introduced by the Underwriter at an exercise price per security equal to the offering price of such securities. If the Underwriter introduces another underwriter who acts as underwriter with respect to such offering, then the Underwriter shall be entitled to receive two and one-half (2 1/2%) percent of the aggregate consideration received by the Company through such underwriter and warrants to purchase an amount of securities equal to two and one-half (2 1/2%) percent of the securities sold by the Company in such offering through such underwriter; (iii) if the Underwriter is offered the right of first refusal and agrees to perform such functions, but fails to perform, the Underwriter will not be entitled to any such compensation, and waives its right of first refusal with respect to future offerings unless such failure to perform is caused by the Company; and (iv) if the Underwriter does not perform any of the functions set forth in (ii) above and (iii) does not apply to such transaction, the Underwriter shall be entitled to receive an aggregate of two and one-half (2 1/2%) percent of the aggregate consideration received by the Company and warrants to purchase an amount of securities equal to two and one-half (2 1/2%) percent of the securities sold by the Company in such offering at an exercise price per security equal to the offering price of such securities. 4. CONDITIONS TO UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriter to purchase and pay for the Securities which they have agreed to purchase hereunder are subject to the accuracy (as of the date hereof and as of each Closing Date) of and compliance with the representations and warranties of the Company and the Selling Stockholders contained herein, the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder and the following further conditions: (a) Effective Registration Statement; No Stop Order. The Registration Statement shall have become effective and you shall have received notice thereof not later than 6:00 p.m., New York time, on the date of this Agreement, or at such later time or on such later date as to which you may agree in writing. In addition, on each Closing Date (i) no stop order denying or suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for that or any similar purpose shall have been instituted or shall be pending or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission, and (ii) all requests on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Underwriter's Counsel. (b) Opinion of Company Counsel. On the First Closing Date, you shall have received the opinion, dated as of the First Closing Date, of Company Counsel, in form and substance satisfactory to the Underwriter's Counsel, to the effect that: (i) the Company and its Subsidiaries have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, with full corporate power and authority to own their properties and conduct their business as described in the Prospectus, and are duly qualified or licensed to do business as foreign corporations and are in good standing in each other jurisdiction in which the nature of their business or the character or location of their properties requires such qualification, except where failure to so qualify will not have a material adverse effect on the business, properties or financial condition of the Company or its Subsidiaries; (ii) (A) the authorized capitalization of the Company as of the date of the Prospectus was as is set forth in the Prospectus under the caption "CAPITALIZATION;" (B) all of the shares of capital stock now outstanding have been duly authorized and validly issued, are fully paid and non-assessable, conform in all material respects to the description thereof contained in the Prospectus, have not been issued in violation of the preemptive rights of any stockholder and, except as described in the Prospectus, are not subject to any restrictions upon the voting or transfer thereof; (C) all have been duly authorized and, when issued and delivered to the Underwriter against payment therefor as provided herein, shall be validly issued, fully paid and non-assessable, shall not have been issued in violation of the preemptive rights of any stockholder, and no personal liability shall attach to the ownership thereof; (D) the stockholders of the Company do not have any preemptive rights or other rights to subscribe for or purchase, and except for the transfer restrictions imposed by Rule 144 of the Rules and Regulations promulgated under the Act or contained in the Lock-up Agreements executed with the Underwriter, there are no restrictions upon the voting or transfer of, any of the Securities; (E) the Shares and the Underwriter's Warrant conform in all material respects to the respective descriptions thereof contained in the Prospectus; (F) all issuances of the Company's securities have been made in compliance with, or under an exemption from, the Act and applicable state securities laws; (G) a sufficient number of shares of Common Stock has been reserved, for all times when the Underwriter's Warrant is outstanding, for issuance upon exercise of the Underwriter's Warrant; and (H) to the knowledge of such counsel, 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 effectively waived or satisfied or described in the Prospectus, for or relating to the registration of any securities of the Company; (iii) the certificates evidencing the Shares are each in valid and proper legal form; (iv) this Agreement, the Underwriter's Warrant and the Financial Consulting Agreement have been duly and validly authorized, executed and delivered by the Company and (assuming due execution and delivery thereof by the Underwriter all of such agreements are, or when duly executed shall be, the valid and legally binding obligations of the Company, enforceable in accordance with their respective terms (except as enforceability may be limited by bankruptcy, insolvency or other laws affecting the rights of creditors generally); provided, however, that no opinion need to be expressed as to the enforceability of the indemnity provisions contained in Section 6 or the contribution provisions contained in Section 7; (v) to the knowledge of such counsel, other than as described in the Prospectus (A) there is no pending, threatened or contemplated legal or governmental proceeding affecting the Company which could materially and adversely affect the business, property, operations, condition (financial or otherwise) or earnings of the Company, or which questions the validity of the Offering, the Securities, this Agreement, the Underwriter's Warrant or the Financial Consulting Agreement or of any action taken or to be taken by the Company pursuant thereto; and (B) there is no legal or governmental regulatory proceeding required to be described or referred to in the Registration Statement which is not so described or referred to; (vi) to the knowledge of such counsel, (A) the Company is not in violation of or in default under this Agreement, the Underwriter's Warrant or the Financial Consulting Agreement; and (B) to the knowledge of such counsel, the execution and delivery hereof and thereof and consummation of the transactions herein or therein contemplated shall not result in a material violation of, or constitute a default under, the Certificate of Incorporation or By-laws of the Company, both as amended to date, or any material obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness, or in any material contract, indenture, mortgage, loan agreement, lease, joint venture or other agreement or instrument to which the Company is a party or by which the assets of the Company is bound, or any material order, rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court applicable to the Company; (vii) to the knowledge of such counsel, (a) the Company and each Subsidiary has obtained, or is in the process of obtaining, all licenses, permits and other governmental authorizations necessary to the conduct of their business as described in the Prospectus, (b) such obtained licenses, permits and other governmental authorizations are in full force and effect, and (c) the Company and each Subsidiary is in all material respects complying therewith; (viii) the Registration Statement has become effective under the Act, and to the knowledge of such counsel, no stop order denying or suspending the effectiveness of the Registration Statement is in effect, and no proceedings for that or any similar purpose have been instituted or are pending before or threatened by the Commission; (ix) the Registration Statement and the Prospectus (except for the financial statements, notes thereto and other financial information and statistical data contained therein, as to which counsel need not express an opinion) comply as to form in all material respects with the Act and the Rules and Regulations; (x) all descriptions contained in the Registration Statement and the Prospectus, and any amendments or supplements thereto, of contracts and other documents are accurate and fairly present the information required to be described, and such counsel is familiar with all contracts and other documents referred to in the Registration Statement and the Prospectus, and any such amendment or supplement, or filed as exhibits to the Registration Statement and, to the knowledge of such counsel, no contract, document, license or permit of a character required to be summarized or described therein or to be filed as an exhibit thereto is not so summarized, described or filed. (xi) the statements in the Registration Statement and the Prospectus under the captions "Risk Factors," "Use of Proceeds," "Business," "Management," and "Description of Securities," which purport to summarize the provisions of agreements, licenses, statutes or rules and regulations, have been reviewed by such counsel and are accurate summaries in all material respects; (xii) except for registration under the Act and registration or qualification of the Securities under applicable state or foreign securities or blue sky laws, no authorization, approval, consent or license of any governmental or regulatory authority or agency is necessary in connection with: (A) the authorization, issuance, sale, transfer or delivery of the Securities by the Company and the Selling Stockholders in accordance with this Agreement; (B) the execution, delivery and performance of this Agreement by the Company and the Selling Stockholders or the taking of any action contemplated herein; (C) the issuance of the Underwriter's Warrant in accordance with this Agreement or the Securities issuable upon exercise thereof; or the taking of any action contemplated herein. Such opinion shall also state that Company Counsel's examination of the Registration Statement and its discussions with the Company and its independent auditors did not disclose any information which gives Company Counsel reason to believe that the Registration Statement (other than the financial statements and other financial and statistical information as to which counsel need not express an opinion) at the time it 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 not misleading, or that the Prospectus (other than the schedules, financial statements and other financial and statistical information as to which no view is expressed) at the time it 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 not misleading, or that the Prospectus (other than the financial statements and other financial and statistical information as to which counsel need not express an opinion) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, such opinion shall also cover such matters incident to the transactions contemplated hereby as you or Underwriter's Counsel shall reasonably request. In rendering such opinion, Company Counsel may rely as to matters of fact upon certificates of officers of the Company, and of public officials, and may rely as to all matters of law other than the law of the United States and the General Corporation law of the State of Delaware upon opinions of counsel satisfactory to you, in which case the opinion shall state that they have no reason to believe that you and they are not entitled so to rely. (e) Corporate Proceedings. All corporate proceedings and other legal matters relating to this Agreement, the Registration Statement, the Prospectus and other related matters shall be reasonably satisfactory to or approved by Underwriter's Counsel. (f) Comfort Letters. Prior to the Effective Date, and again on and as of the First Closing Date, you shall have received letters from Civvals, Chartered Accountants, certified public accountants for the Company in form and substance satisfactory to Underwriter's Counsel. (g) Bring Down. At each of the Closing Dates, (i) the representations and warranties of the Company contained in this Agreement shall be true and correct with the same effect as if made on and as of such Closing Date, and the Company shall have performed all of its obligations hereunder and satisfied all the conditions to be satisfied at or prior to such Closing Date; (ii) the Registration Statement and the Prospectus 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 of the Act and the Rules and Regulations, and neither the Registration Statement nor the Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated or which they were made, not misleading; (iii) there shall have been, since the respective dates as of which information is given, no material adverse change in the business, property, operations, condition (financial or otherwise), earnings, capital stock, long-term or short-term debt or general affairs of the Company from that set forth in the Registration Statement and the Prospectus, except changes which the Registration Statement and Prospectus indicate might occur after the Effective Date, and the Company shall not have incurred any material liabilities or entered into any material agreement other than as referred to in the Registration Statement and Prospectus other than in the ordinary course of business; and (iv) except as set forth in the Prospectus, no action, suit or proceeding shall be pending or threatened against the Company before or by any commission, board or administrative agency in the United States or elsewhere, wherein an unfavorable decision, ruling or finding would materially adversely affect the business, property, operations, condition (financial or otherwise), earnings or general affairs of the Company. In addition, you shall have received, at the First Closing Date, certificates signed by the respective principal executive officers and principal financial officers of the Company, dated as of the First Closing Date, evidencing compliance with the provisions of this Section 4(g). (h) Transfer and Warrant Agent. On or before the Effective Date, the Company shall have appointed Continental Stock Transfer & Trust Company (or other agent mutually acceptable to the Company and you), as its transfer agent and warrant agent to transfer all of the Shares issued and sold by the Company and sold by the Selling Stockholders in the Offering, as well as to transfer other shares of the Common Stock outstanding from time to time. (i) Certain Further Matters. On each Closing Date, Underwriter's Counsel shall have been furnished with all such other documents and certificates as they may reasonably request for the purpose of enabling them to render their legal opinion to the Underwriter and in order to evidence the accuracy and completeness of any of the representations, warranties or statements, the performance of any of the covenants, or the fulfillment of any of the conditions, herein contained. (j) Additional Conditions. Upon exercise of the Over-Allotment Option, the Underwriter's obligations to purchase and pay for the Option Shares shall be subject (as of the date hereof and as of the Option Closing Date) to the following conditions: (i) The Registration Statement shall remain effective at the Option Closing Date, no stop order denying or suspending the effectiveness thereof shall have been issued, and no proceedings for that or any similar 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 all reasonable requests on the part of the Commission for additional information shall have been complied with to the satisfaction of Underwriter's Counsel. (ii) On the Option Closing Date there shall have been delivered to you the signed opinion of Company Counsel, dated as of the Option Closing Date, in form and substance satisfactory to Underwriter's Counsel, which opinion shall be substantially the same in scope and substance as the opinion furnished to you on the First Closing Date pursuant to Section 4(b), except that such opinion, where appropriate, shall cover the Option Shares rather than the Firm Shares. If the First Closing Date is the same as the Option Closing Date, such opinions may be combined. (iii) All proceedings taken at or prior to the Option Closing Date in connection with the same and issuance of the Option Shares shall be satisfactory in form and substance to you and you and Underwriter's Counsel shall have been furnished with all such documents, certificates and opinions as you may reasonably 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. (iv) On the Option Closing Date there shall have been delivered to you letters in form and substance satisfactory to you from Civvals, Chartered Accountants, dated the Option Closing Date and addressed to you, confirming the information in their letters referred to in Section 4(f) as of the date thereof and stating that, without any additional investigation required, nothing has come to their attention during the period from the ending date of their review referred to in such letters to a date not more than five (5) banking days prior to the Option Closing Date which would require any change in such letters if they were required to be dated the Option Closing Date. If any of the conditions herein provided for in this Section shall not have been completely fulfilled as of the date indicated, this Agreement and all obligations of the Underwriter under this Agreement may be canceled at, or at any time prior to, each Closing Date by your notifying the Company of such cancellation in writing or by telecopy at or prior to the applicable Closing Date. Any such cancellation shall be without liability of the Underwriter, except as otherwise provided herein. (k) At the First Closing Date the Underwriter shall have received a certificate of the Attorney-in-Fact for each of the Selling Stockholders, dated as of the First Closing Date, to the effect that (i) the representations and warranties of each Selling Stockholder contained in Section 1 (b) are true and correct with the same force and effect as though expressly made at and as of the First Closing Date and (ii) each Selling Stockholder has compiled with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the First Closing Date. The Attorney-in-Fact shall be entitled to rely upon certificates of the Selling Stockholders in giving its certificate. 5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company and the Selling Stockholders to sell and deliver the Securities are subject to the following conditions: (a) Effective Registration Statement. The Registration Statement shall have become effective not later than 6:00 p.m. Eastern time, on the date of this Agreement, or at such later time or on such later date as the Company and you may agree in writing. (b) No Stop Order. On the applicable Closing Date, no stop order denying or suspending the effectiveness of the Registration Statement shall have been issued under the Act or any proceedings therefor initiated or threatened by the Commission. (c) Payment for Securities. On the applicable Closing Date, you shall have made payment, for the account of the Underwriter, of the aggregate Purchase Price for the Securities then being purchased by certified or bank cashier's checks payable in next day funds to the order of the Company. If the conditions to the obligations of the Company and the Selling Stockholders provided by this Section 5 have been fulfilled on the First Closing Date but are not fulfilled after the First Closing Date and prior to the Option Closing Date, then only the obligation of the Company to sell and deliver the Option Shares upon exercise of the Over-Allotment Option shall be affected. 6. INDEMNIFICATION. (a) Indemnification by the Company. As used in this Agreement, the term "Liabilities" shall mean any and all losses, claims, damages and liabilities, and actions and proceedings in respect thereof (including without limitation all reasonable costs of defense and investigation and all attorneys' fees) including without limitation those asserted by any party to this Agreement against any other party to this Agreement. The Company and the Selling Stockholders hereby indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of the Act, from and against all Liabilities, joint or several, to which the Underwriter or such controlling person may become subject, under the Act or otherwise, insofar as such Liabilities arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact, in light of the circumstances in which it was made, contained in (A) the Registration Statement or any amendment thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto, or (B) any "blue sky" application or other document executed by the Company specifically for that purpose, or based upon written information furnished by the Company, 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 herein called a "Blue Sky Application"); or (ii) the omission or alleged omission to state in the Registration Statement or any amendment thereto, or the Prospectus or any Preliminary 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, in light of the circumstances in which it was made, not misleading; provided, however, that the Company and the Selling Stockholders shall not be liable in any such case to the extent, but only to the extent, that any such Liabilities arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission (x) made in reliance upon and in conformity with written information furnished to the Company through you by or on behalf of the Underwriter specifically for use in the preparation of the Registration Statement or any such amendment thereto, or the Prospectus or any such Preliminary Prospectus, or any such amendment or supplement thereto, or any such Blue Sky Application or (y) corrected by the final Prospectus and the failure of the Underwriter to deliver the final Prospectus. The foregoing indemnity shall be in addition to any other liability, which the Company may otherwise have. (b) Indemnification by Underwriter. The Underwriter hereby 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, and the Selling Stockholders from and against all Liabilities to which the Company or any such director, nominee, officer or controlling person and/or the Selling Stockholders may become subject under the Act or otherwise, insofar as such Liabilities arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement or any amendment thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such Liabilities arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement or any amendment thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company through you, by or on behalf of the Underwriter, specifically for use in the preparation thereof. In no event shall the Underwriter be liable under this Section 6(b) for any amount in excess of the compensation received by such Underwriter, in the form of underwriting discounts or otherwise, pursuant to this Agreement or any other agreement contemplated hereby. The foregoing indemnity shall be in addition to any other liability, which any Underwriter may otherwise have. (c) Procedure. Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify in writing the indemnifying party of the commencement thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 6 unless the rights of the indemnifying party have been prejudiced by such omission or delay. In case any, such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall 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 hereof, 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 shall not be liable to such indemnified party under this Section 6 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, however, that 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 such indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party or that the indemnified and indemnifying party have conflicting interests which would make it inappropriate for the same counsel to represent both of them (in which case the indemnifying party shall have the right to assume the defense of such action on behalf of the indemnified party, 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). No settlement of any action against an indemnified party shall be made without the consent of the indemnified party, which shall not be unreasonably withheld in light of all factors of importance to such indemnified party. 7. CONTRIBUTION. In order to provide for just and equitable contribution under the Act in any case in which (a) any indemnified party makes claims for indemnification pursuant to Section 6 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 (b) contribution under the Act may be required on the part of any indemnified party, then such indemnified party and each indemnifying party (if more than one) shall contribute to the aggregate Liabilities to which it may be subject, in either such case (after contribution from others) in such proportions that the Underwriter is responsible for the portion of such 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 per Share, appearing thereon, and the Company and/or the Selling Stockholders shall be responsible for the remaining portion; provided, however, that if such allocation is not permitted by applicable law, then the relative fault of the Company, the Selling Stockholders and the Underwriter in connection with the statements or omissions which resulted in such Liabilities 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 material fact or the omission to state a material fact, such statement or omission relates to information supplied by the Company, the Selling Stockholders, 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, the Selling Stockholders and the Underwriter agree that it would not be just and equitable if the respective obligations of the Company, the Selling Stockholders, and the Underwriter to contribute pursuant to this Section 7 were to be determined by pro rata or per capita allocation of the aggregate Liabilities 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 7. However, the contribution of the Underwriter shall not be in excess of the cash compensation received by the Underwriter, in the form of underwriting discounts or otherwise, pursuant to this Agreement or any other agreement contemplated hereby. No person guilty of a fraudulent misrepresentation (within the meaning of section 11 (f) of the Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. As used in this Section 7, the term "Company" shall include 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 Section 7 is not permitted by law, then each indemnified party and each person who controls an indemnified party shall be entitled to contribution from each indemnifying party to the fullest extent permitted by law. The foregoing contribution 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) Certain Costs and Expenses. Whether or not this Agreement becomes effective or the sale of the Securities to the Underwriter is consummated, the Company shall pay all costs and expenses incident to the issuance, offering, sale and delivery of the Securities and the performance of its obligations under this Agreement, including without limitation: (i) all fees and expenses of the Company's legal counsel and accountants; (ii) all costs and expenses incident to the preparation, printing, filing, distribution and mailing of the Registration Statement (including the financial statements contained therein and all exhibits and amendments thereto), each Preliminary Prospectus and the Prospectus, each as amended or supplemented, this Agreement and the other underwriting documents, as well as the other agreements and documents referred to herein and the Blue Sky Memorandum; each in such quantities as you shall deem necessary; (iii) all fees of NASD required in connection with the filing required by NASD to be made by the Underwriter with respect to the Offering; (iv) all expenses, including fees (but not in excess of the amount set forth in Section 3(b) and disbursements of Underwriter's Counsel in connection with the qualification of the Securities under the "blue sky" laws which you shall designate; (v) all costs and expenses of printing the respective certificates representing the Shares; (vi) the expense of placing one or more "tombstone" advertisements or promotional materials as directed by you and of Offering memorabilia; (vii) all costs and expenses associated with due diligence meetings and presentations (including the payment for road show conference centers); (viii) any and all taxes (including without limitation any transfer, franchise, capital stock or another tax imposed by any jurisdiction) on sales of the Securities to the Underwriter hereunder; and (ix) all costs and expenses incident to the furnishing of any amended Prospectus or any supplement to be attached to the Prospectus as required by Sections 3(a) and 3(d), except as otherwise provided by said Sections. (b) Underwriter's Expense Allowance. In addition to the expenses described in Section 8(a), the Company shall on the First Closing Date pay to you, based on the number of Firm Shares to be sold by the Company, the balance of a non-accountable expense allowance (which shall include fees of Underwriter's Counsel exclusive of the fees referred to in Section 3(b) of $________ (that being an amount equal to three percent (3%) of the gross proceeds received upon sale of the Firm Securities), of which $_ has been paid to you prior to the date hereof. In the event that the Over-Allotment Option is exercised, then the Company shall on the Option Closing Date pay to you, based on the number of Option Shares sold by the Company, an additional amount equal to three percent (3%) of the gross proceeds received upon sale of any of the Option Shares sold to you by the Company. In the event that the transactions contemplated hereby fail to be consummated for any reason, then you shall return to the Company that portion of $ ___________ heretofore paid by the Company to the extent that it has not been utilized by you in connection with the Offering for accountable out-of-pocket expenses; provided, however, that if such failure is due to a breach by the Company of any covenant, representation or warranty contained herein or because any other condition to the Underwriter's obligations hereunder required to be fulfilled by the Company is not fulfilled, then the Company shall be liable for your accountable out-of-pocket expenses to the full extent thereof (with credit given to the $ ________ paid). (c) No Finders. No person is entitled either directly or indirectly to compensation from the Company, the Underwriter or any other person for services as a finder in connection with the Offering, and the Company hereby indemnifies and holds harmless the Underwriter, and the Underwriter hereby indemnifies and holds harmless the Company from and against all Liabilities, joint or several, to which the indemnified party may become subject insofar as such Liabilities 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 Offering by reason of such person's or entity's influence or prior contact with the indemnifying party. 9. [RESERVED]. 10. EFFECTIVE DATE. The Agreement shall become effective upon its execution, except that you may, at your option, delay its effectiveness until 10:00 a.m., Eastern time, on the first full business day following the Effective Date, or at such earlier time after the Effective Date as you in your discretion shall first commence the Public Offering by the Underwriter of any of the Securities. The time of the Public Offering shall mean the time of release by you of the first newspaper advertisement with respect to the Securities, or the time when the Securities are first generally offered by you to dealers by letter or telegram, whichever shall first occur. This Agreement may be terminated by you at any time before it becomes effective as provided above, except that the provisions of Sections 3(w), 6, 7, 8, 13, 14, 15 and 16 shall remain in effect notwithstanding such termination. 11. TERMINATION. (a) Grounds for Termination. This Agreement, except for Sections 3(w), 6, 7, 8, 1 3, 14, 15 and 16, may be terminated at any time prior to the First Closing Date, and the Over-Allotment Option, if exercised, may be canceled at any time prior to the Option Closing Date, by you if in your sole judgment it is impracticable to offer for sale or to enforce contracts made by the Underwriter for the resale of the Securities agreed to be purchased hereunder, by reason of: (i) the Company having sustained a material 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 Nasdaq Stock Market having been suspended or limited; (iii) material governmental restrictions having been imposed on trading in securities generally which are not in force and effect on the date hereof; (iv) a banking moratorium having been declared by federal or New York State authorities; (v) an outbreak or significant escalation 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 you to have a material adverse impact on the business, financial condition or financial statements of the Company; (vii) any material adverse change in the financial or securities markets beyond normal fluctuations in the United States having occurred since the date of this Agreement; or (viii) any material adverse change having occurred, since the respective dates for which information is given in the Registration Statement and Prospectus, in the earnings, business, prospects or condition (financial or otherwise) of the Company, whether or not arising in the ordinary course of business. (b) Notification. If you elect to prevent this Agreement from becoming effective or to terminate this Agreement as provided by this Section 11 or by Section 10, the Company shall be promptly notified by you, by telephone or telegram, confirmed by letter. 12. UNDERWRITER'S WARRANT. On the First Closing Date, the Company shall issue and sell to you, for a total purchase price of $10.00, and upon the terms and conditions set forth in the form of Underwriter's Warrant filed as an exhibit to the Registration Statement, a warrant entitling you to purchase up to 125,000 Shares (the "Underwriter's Warrant"). In the event of conflict in the terms of this Agreement and the Underwriter's Warrant, the terms and conditions of the Underwriter's Warrant shall control. 13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties, covenants and other statements of the Company, the Selling Stockholders and the Underwriter set forth in Sections 3, 6, 7 and 8 of this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of any other party, and shall survive delivery of and payment for the Securities and the termination of this Agreement. The Company and the Selling Stockholders hereby indemnify and hold harmless the Underwriter from and against all Liabilities, joint or several, to which the Underwriter may become subject insofar as such Liabilities arise out of or are based upon the breach or failure of any of the provisions of Sections 3, 6, 7 and 8. 14. NOTICES. All communications hereunder shall be in writing and, except as otherwise expressly provided herein, if sent to you, shall be mailed, delivered or telegraphed and confirmed to you at the address first set forth above, to the attention of the President, with a copy sent to Jay M. Kaplowitz, Esq., Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York, New York 10022; or if sent to the Company, shall be mailed, delivered, or telegraphed and confirmed to it at Pride Automotive Group, Inc., Pride House, Watford Metro Centre, Tolpits Lane, Watford Hertfordshire, WDI 8SB England, Attention: President, with a copy sent to Lampert & Lampert, 1 0 East 40th Street, New York, New York 10016, Attention: Mitchell Lampert, Esq. 15. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the Underwriter, the Selling Stockholders, the Company, and, to the extent expressed, any person controlling the Company or the Underwriter, as the case may be, and the directors of the Company, nominees for directors of the Company (if any) named in the Prospectus, officers of the Company who have signed the Registration Statement, and their respective executors, administrators, successors and 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, as such, from the Underwriter of the Securities. 16. APPLICABLE LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to agreements made and to be performed entirely within such State. 17. COUNTERPARTS. This Agreement may be executed in two or more counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 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 parties in accordance with its terms. Very truly yours, PRIDE AUTOMOTIVE GROUP, INC. By:____________________________________ Name: Title: THE SELLING STOCKHOLDERS By:____________________________________ As Attorney-in-Fact, acting on behalf of each of the Selling Stockholders named in Schedule A hereto Accepted as of the date first above written: MASON HILL & CO., INC. By: ____________________________ Name: Title: EX-4 3 D:\WP51P\PRIDE\EXHIBIT4.4 DRAFT 4/20/98 UW-1 UNDERWRITER'S WARRANT Dated: , 1998 THIS CERTIFIES THAT is entitled to purchase from PRIDE AUTOMOTIVE GROUP, INC., a Delaware corporation (the "Company"), 125,000 shares of common stock of $.001 par value per share ("Common Stock" or "Shares") at a purchase price of $6.00 per Share (the "Exercise Price"), subject to adjustment as provided in paragraph 8 hereof, at any time during the four-year period commencing one (1) year from the date hereof. This Underwriter's Warrant (the "Underwriter's Warrant") grants Mason Hill & Co., Inc. (the "Underwriter") to purchase up to 125,000 Shares issued pursuant to an Underwriting Agreement dated , 1998, among the Company and the Underwriter, in connection with a public offering, through the Underwriter, of 1,250,000 Shares as therein described (and up to 187,500 additional Shares covered by an over-allotment option granted by the Company to the Underwriter, hereinafter referred to together with the 1,250,000 Shares, as the "Public Shares") and in consideration of $10.00 received by the Company for the Underwriter's Warrants. Except as specifically otherwise provided herein, the Shares issuable pursuant to the Underwriter's Warrant shall have the same terms and conditions as the Public Shares, as described under the caption "Description of Securities" in the Company's Registration Statement on Form SB-2, File No. 33-_______ (the "Registration Statement"), except that the Holders shall have registration rights under the Securities Act of 1933, as amended (the "Act"), for the Underwriter's Warrant, as more fully described in paragraph 6 herein. 1. The rights represented by the Underwriter's Warrant shall be exercised at the price, subject to adjustment in accordance with paragraph 8 hereof, and during the periods as follows: (a) During the period from the date hereof to , 1999 (the "First Anniversary Date"), inclusive, the Holders shall have no right to purchase any Shares hereunder, except that in the event of any merger, consolidation or sale of substantially all the assets of the Company as an entirety prior to the First Anniversary Date, the Holders shall have the right to exercise the Underwriter's Warrant at such time and into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which the Underwriter's Warrant might have been exercisable immediately prior thereto. (b) Between , 1999 and , 2003 (the "Expiration Date") inclusive, the Holders shall have the option to purchase Shares hereunder at a price of $6.00 per Share (120% of the public offering price), subject to adjustment as provided in paragraph 8 hereof. (c) After the Expiration Date, the Holders shall have no right to purchase any Shares hereunder. 2. (a) The rights represented by the Underwriter's Warrant may be exercised at any time within the periods above specified, in whole or in part, by (i) the surrender of the Underwriter's Warrant (with the purchase form at the end hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holders at the addresses of the Holders appearing on the books of the Company); (ii) payment to the Company of the exercise price then in effect for the number of Shares specified in the above-mentioned purchase form together with applicable stock transfer taxes, if any; and (iii) delivery to the Company of a duly executed agreement signed by the person(s) designated in the purchase form to the effect that such person(s) agree(s) to be bound by the provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. The Underwriter's Warrant shall be deemed to have been exercised, in whole or in part to the extent specified, immediately prior to the close of business on the date the Underwriter's Warrant is surrendered and payment is made in accordance with the foregoing provisions of this paragraph 2, and the person or persons in whose name or names the certificates for shares of Common Stock shall be issuable upon such exercise shall become the holder or holders of record of such Common Stock at that time and date. Certificates representing the Common Stock so purchased shall be delivered to the Holders within a reasonable time, not exceeding ten (10) days, after the rights represented by this Warrant shall have been so exercised. (b) Notwithstanding anything to the contrary contained in subparagraph (a) of paragraph 2, the Holders may elect to exercise this Underwriter's Warrant in whole or in part by receiving Shares equal to the value (as determined below) of this Underwriter's Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to the Holders a number of Shares computed using the following formula: X = Y(A-B) A Where: X = the number of Shares to be issued to the Holders; 2 Y = the number of Shares to be exercised under this Underwriter's Warrant; A = the current fair market value of one share of Common Stock (calculated as described below); and B = the Exercise Price. As used herein, the current fair market value of Common Stock shall mean the greater of (x) the average of the closing prices of the Company's Common Stock sold on all securities exchanges on which the Common Stock may at the time be listed and the NASDAQ National Market, or, if there have been no sales on any such exchange or the NASDAQ National Market on such day, the average of the highest bid and lowest asked price on such day on The Nasdaq SmallCap Market or otherwise in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization (the "Market Price"), on the trading day immediately preceding the date notice of exercise of this Underwriter's Warrant is given or (y) the average of the Market Price per share of Common Stock for the five trading days immediately preceding the date notice of exercise of this Underwriter's Warrant is given. If on any date for which the Market Price per share of Common Stock is to be determined the Common Stock is not listed on any securities exchange or quoted on the NASDAQ National Market or on The Nasdaq SmallCap Market or otherwise in the over-the-counter market, the Market Price per share of Common Stock shall be the highest price per share which the Company could then obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors of the Company, unless prior to such date the Company has become subject to a merger, acquisition or other consolidation pursuant to which the Company is not the surviving party, in which case the Market Price per share of Common Stock shall be deemed to be the value received by the holders of the Company's Common Stock for each share thereof pursuant to the Company's acquisition. 3. The Underwriter's Warrant and the securities issuable upon exercise thereof shall not be transferred, sold, assigned, or hypothecated for a period of one year commencing on the Effective Date except that it may be transferred to successors of the Holders, and may be assigned in whole or in part to any person who is an officer of either of the Holders or to any member of the selling group and/or the officers or partners thereof during such period. In the event that the Underwriter's Warrant is transferred after one year from the Effective Date, it must be exercised immediately upon such transfer and, if not exercised immediately upon transfer, the Underwriter's Warrant shall lapse. Any such assignment shall be effected by the Holders by (i) executing the form of assignment at the end hereof and (ii) surrendering the Underwriter's Warrant for cancellation at the office or agency of the Company referred to in paragraph 2 hereof, accompanied by a certificate (signed by an officer of each of the Holders if the Holders are corporations), stating that each transferee is a permitted transferee under this paragraph 3; whereupon the Company shall issue, in the name or names specified by the Holders (including the 3 Holders) a new Underwriter's Warrant or Warrants of like tenor and representing in the aggregate rights to purchase the same number of Shares (consisting of the same number of shares of Common Stock) as are purchasable hereunder. 4. The Company covenants and agrees that all shares of Common Stock which may be purchased hereunder will, upon issuance against payment of the purchase price therefor, be duly and validly issued, fully paid and nonassessable, and no personal liability will attach to the holder thereof. The Company further covenants and agrees that, during the periods within which the Underwriter's Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the Underwriter's Warrant. 5. The Underwriter's Warrant shall not entitle the Holders to any voting rights or other rights as stockholders of the Company. 6.(a) (i) The Company shall advise the Holders or its transferees, whether the Holders hold the Underwriter's Warrant or have exercised the Underwriter's Warrant and hold shares of Common Stock by written notice at least four weeks prior to the filing of any post-effective amendment to the Registration Statement or of any new registration statement or post-effective amendment thereto under the Act covering any securities of the Company, for its own account or for the account of others, except for any registration statement filed on Form S-4 or S-8, and will, for a period of seven years from the Effective Date, upon the request of the Holders, and subject to subparagraph (a)(ii) of this paragraph 6, include in any such post-effective amendment to the Registration Statement or in any new registration statement such information as may be required to permit a public offering of the Underwriter's Warrant or the Common Stock issuable upon the exercise thereof (collectively, the "Registrable Securities"). The Company shall supply prospectuses and such other document as the Holders may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities, use its best efforts to register and qualify any of the Registrable Securities for sale in such states as such Holders designate and do any and all other acts and things which may be necessary or desirable to enable such Holders to consummate the public sale or other disposition of the Registrable Securities, all at no expense to the Holders or the Underwriter, and furnish indemnification in the manner provided in paragraph 7 hereof. The Holders shall furnish information and indemnification as set forth in paragraph 7. (ii) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to subparagraph (a)(i) of this paragraph 6. If the managing underwriter determines that a limitation of the number of shares to be underwritten is required, the underwriter may exclude some or all Registrable Securities from such registration (the "Excluded Registrable Securities"); provided, however, that no other security-holder may include any such securities in such Registration Statement if any of the Registrable Securities have 4 been excluded from such registration; and further provided that the Company will file a new Registration Statement covering the Excluded Registrable Securities, at the Company's expense, within six months after the completion of such underwritten offering. (b) If any 50% Holder (as defined below) shall give notice to the Company at any time to the effect that such Holder desires to register under the Act any or all of the Registrable Securities under such circumstances that a public distribution (within the meaning of the Act) of any such securities will be involved, then the Company will promptly, but no later than four weeks after receipt of such notice, file a post-effective amendment to the current Registration Statement or a new registration statement pursuant to the Act, so that such designated Registrable Securities may be publicly sold under the Act as promptly as practicable thereafter and the Company will use its best efforts to cause such registration to become and remain effective (including the taking of such steps as are necessary to obtain the removal of any stop order) within 90 days after the receipt of such notice, provided, that such Holder shall furnish the Company with appropriate information in connection therewith as the Company may reasonably request in writing. The 50% Holder may, at its option, request the filing of a post-effective amendment to the current Registration Statement or a new registration statement under the Act on two occasions during the four-year period beginning one year from the Effective Date. The 50% Holder may, at its option, request the registration of the Underwriter's Warrant and/or any of the securities underlying the Underwriter's Warrant in a registration statement made by the Company as contemplated by subparagraph (a) of this paragraph 6 or in connection with a request made pursuant to this subparagraph (b) of paragraph 6 prior to acquisition of the shares of Common Stock issuable upon exercise of the Underwriter's Warrant. The 50% Holder may, at its option, request such post-effective amendment or new registration statement during the described period with respect to the Underwriter's Warrant, or separately as to the Common Stock issuable upon the exercise of the Underwriter's Warrant, and such registration rights may be exercised by the 50% Holder prior to or subsequent to the exercise of the Warrant. Within ten days after receiving any such notice pursuant to this subparagraph (b) of paragraph 6, the Company shall give notice to any other Holders of the Underwriter's Warrant, advising that the Company is proceeding with such post-effective amendment or registration statement and offering to include therein the securities underlying that part of the Warrant held by the other Holders, provided that they shall furnish the Company with such appropriate information (relating to the intentions of such Holders) in connection therewith as the Company shall reasonably request in writing. All costs and expenses of the first post-effective amendment or new registration statement shall be borne by the Company, except that the Holder(s) shall bear the fees of their own counsel and any underwriting discounts or commissions applicable to any of the securities sold by them. All costs and expenses of the second such post-effective amendment or new registration statement shall be borne by the Holder(s). The Company will maintain such registration statement or post-effective amendment current under the Act for a period of at least six months (and for up to an additional three months if requested by the Holder(s)) from the effective date thereof. The Company shall provide prospectuses, and such other documents as the Holder(s) may request in order to facilitate the public sale or other disposition of the Registrable Securities, use its best efforts to register and qualify any of the Registrable Securities for sale in such states as such Holder(s) designate and 5 furnish indemnification in the manner provided in paragraph 7 hereof. (c) The term "50% Holder" as used in this paragraph 6 shall mean the Holder(s) of at least 50% of the Underwriter's Warrant and/or the Common Stock underlying the Underwriter's Warrant and shall include any owner or combination of owners of such securities, which ownership shall be calculated by determining the number of shares of Common Stock held by such owner or owners as well as the number of shares then issuable upon exercise of the Underwriter's Warrant. (d) If at any time prior to the effectiveness of the registration statement filed in connection with an offering pursuant to this paragraph 6 the 50% Holder shall determine not to proceed with the registration, upon notice to the Company and the payment to the Company by the 50% Holder of the Company's expenses, if any, theretofore incurred in connection with the registration statement, the 50% Holder may terminate its participation in the offering, and the registration statement previously filed shall not be counted against the number of demand registrations permitted under this paragraph 6. The 50% Holder need not pay to the Company its expenses incurred in connection with the registration statement, however, if such 50% Holder shall have determined not to proceed because of material adverse developments on the part of the Company of which such 50% Holder obtained knowledge subsequent to the giving to the Company of the written request to register Registrable Securities pursuant to this paragraph 6. (e) Notwithstanding the foregoing, if the Company shall furnish to such 50% Holder a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future containing the disclosure of material information required to be included therein by reason of the federal securities laws, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period during which such disclosure would be seriously detrimental, provided that this period will not exceed 30 days and provided further, that the Company shall not defer its obligation in this matter more than once in any 12 month period. 7.(a) Whenever pursuant to paragraph 6 a registration statement relating to the Underwriter's Warrant or any Common Stock issued or issuable upon the exercise of the Underwriter's Warrant is filed under the Act, amended or supplemented, the Company will indemnify and hold harmless each Holder of the securities covered by such registration statement, amendment or supplement (such Holder being hereinafter called the "Distributing Holder"), and each person, if any, who controls (within the meaning of the Act) the Distributing Holder, and each underwriter (within the meaning of the Act) of such securities and each person, if any, who controls (within the meaning of the Act) any such underwriter, against any losses, claims, damages or liabilities, joint or several, to which the Distributing Holder, any such controlling person or any such underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration 6 statement or any preliminary prospectus or final prospectus constituting a part thereof or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and will reimburse the Distributing Holder or such controlling person or underwriter in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder or any other Distributing Holder for use in the preparation thereof. (b) The Distributing Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed said registration statement and such amendments and supplements thereto, and each person, if any, who controls the Company (within the meaning of the Act) against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director, officer or controlling person may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities, or actions in respect thereof, arise out of or are based upon any untrue or alleged untrue statement of any material fact contained in said registration statement, said preliminary prospectus, said final prospectus, or said amendment or supplement, or arises out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in said registration statement, said preliminary prospectus, said final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished by such Distributing Holder for use in the preparation thereof; and will reimburse the Company or any such director, officer or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action. (c) Promptly after receipt by an indemnified party under this paragraph 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party, give the indemnifying party notice of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this paragraph 7. (d) In case any such action is brought against any indemnified party, and it notified an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its 7 election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this paragraph 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 8. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of each Warrant shall be subject to adjustment from time to time upon the happening of certain events hereinafter described. (a) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, or (iv) the outstanding shares of Common Stock of the Company are at any time changed into or exchanged for a different number or kind of shares or other security of the Company or of another corporation through reorganization, merger, consolidation, liquidation or recapitalization, then appropriate adjustments in the number and kind of such securities subject to this Warrant shall be made and the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination, reclassification, reorganization, merger, consolidation, liquidation or recapitalization shall be proportionately adjusted so that the Holders of this Warrant exercised after such date shall be entitled to receive the aggregate number and kind of securities which, if this Warrant had been exercised by such Holders immediately prior to such date, they would have owned upon such exercise and been entitled to receive upon such dividend, distribution, subdivision, combination, reclassification, reorganization, merger, consolidation, liquidation or recapitalization. For example, if the Company declares a 2 for 1 stock distribution and the Exercise Price immediately prior to such event was $6.00 per Share [120% of the public offering price of the Shares, Public Shares] and the number of Shares purchasable upon exercise of this Warrant was 125,000, the adjusted Exercise Price immediately after such event would be $3.00 per Share and the adjusted number of Shares purchasable upon exercise of this Warrant would be 250,000. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In case the Company shall hereafter distribute without consideration to all holders of its Common Stock evidence of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in subparagraph (a) of this paragraph 8, or subscription rights or warrants, then in each such case the Exercise Price in effect thereafter shall be determined by multiplying the number of Shares issuable upon exercise of the Underwriter's Warrant by the Exercise Price in effect immediately prior thereto, multiplied by a fraction, the numerator of which shall be the total number of shares of Common Stock then outstanding multiplied by the current Exercise Price, less the fair market value (as determined by the Company's Board of Directors) of said assets, or evidence of indebtedness so distributed or of such rights or warrants, and the denominator of which shall be the total number of shares of Common Stock outstanding multiplied by the current Exercise Price. Such adjustment shall be 8 made whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (c) In case the Company shall issue shares of its Common Stock [excluding shares issued (i) in any of the transactions described in subparagraphs(a) or (b) of this paragraph 8; (ii) as part of the Public Shares, (iii) upon conversion or exchange of securities convertible into or exchangeable for Common Stock, (iv) upon exercise of options granted under the Company's Stock Option Plan, as amended to date, if such shares would otherwise be included in this subsection (c), (v) upon exercise of the Underwriter's Warrant or the outstanding Public Warrants or the Shares or (vi) upon exercise of rights or warrants issued to the holders of the Common Stock, but only if no adjustment is required pursuant to this paragraph 8 (without regard to subsection (g) of this paragraph 8) with respect to the transaction giving rise to such rights] for a consideration per share less than the current Redeemable Warrant Exercise Price on the date the Company fixes the offering price of such additional shares, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (f) of this paragraph 8) for the issuance of such additional shares would purchase at the current Redeemable Warrant Exercise Price, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. (d) In case the Company shall issue any securities convertible into or exchangeable for its Common Stock (excluding securities issued in transactions described in subparagraph (b) of paragraph 8) for a consideration per share of Common Stock initially deliverable upon conversion or exchange of such securities (determined as provided in subparagraph (f) of paragraph 8) less than the current Redeemable Warrant Exercise Price in effect immediately prior to the issuance of such securities, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such securities plus the number of shares of Common Stock which the aggregate consideration received (determined as provided in subparagraph (f) of paragraph 8) for such securities would purchase at the current Redeemable Warrant Exercise Price, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such issuance plus the maximum number of shares of Common Stock of the Company deliverable upon conversion of or in exchange for such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. (e) Whenever the Exercise Price payable upon exercise of the Underwriter's Warrant is adjusted pursuant to subparagraphs (a), (b), (c) or (d) of paragraph 8, 9 the number of shares of Common Stock purchasable upon exercise of this Underwriter's Warrant shall simultaneously be adjusted by multiplying the number of shares of Common Stock issuable upon exercise of this Underwriter's Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (f) For purposes of any computation respecting consideration received pursuant to subparagraphs (c) and (d) of paragraph 8, the following shall apply: (i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and (iii) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this subparagraph (f) of paragraph 8. (g) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least five cents ($0.05) in such price; provided, however, that any adjustments which by reason of this subparagraph (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this paragraph 8 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 8 to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section 8, as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any federal income tax liability to the holders of Common Stock or securities convertible into Common Stock. 10 (h) Whenever the Exercise Price is adjusted, as herein provided, the Company shall promptly cause a notice setting forth the adjusted Exercise Price and adjusted number of shares of Common Stock or other securities purchasable upon exercise of the Underwriter's Warrant to be mailed to the Holders, at their addresses set forth herein, and shall cause a certified copy thereof to be mailed to the Company's transfer agent, if any. The Company may retain a firm of independent certified public accountants selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this paragraph 8, and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (i) In the event that at any time, as a result of an adjustment made pursuant to the provisions of this paragraph 8, the Holders of the Underwriter's Warrant thereafter shall become entitled to receive any securities of the Company, other than Common Stock included in the Underwriter's Warrant, thereafter the number of such other securities so receivable upon exercise of the Underwriter's Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subparagraphs (a) to (g), inclusive of this paragraph (i). 9. This Agreement shall be governed by and in accordance with the laws of the State of New York. IN WITNESS WHEREOF, PRIDE AUTOMOTIVE GROUP, INC. has caused this Underwriter's Warrant to be signed by its duly authorized officers, and this Underwriter's Warrant to be dated __________________, 1998. PRIDE AUTOMOTIVE GROUP, INC. By: ______________________________________ Name: Title: 11 PURCHASE FORM (To be signed only upon exercise of Warrant) The undersigned, the holder of the foregoing Underwriter's Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and to purchase thereunder, ______________ Shares of PRIDE AUTOMOTIVE GROUP, INC., and herewith makes payment of $_____________________ therefor (or hereby surrenders and delivers that portion of the Underwriter's Warrant having equivalent value (as determined in accordance with the provisions of subparagraph (d) of paragraph 2 of the Underwriter's Warrant)), and requests that the certificates for shares of Common Stock be issued in the name(s) of, and delivered to _____________________, whose address(es) is (are): Dated: _________________________, 19_________ - ------------------------------------------------- Signature (Print name under signature) (Signature must conform in all respects to the name of holder as specified on the face of the Underwriter's Warrant). (Insert Social Security or Other Identifying Number of Holder) FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Warrant on the books of PRIDE AUTOMOTIVE GROUP, INC., with full power of substitution. Dated: Signature (Print name under signature) (Signature must conform in all respects to the name of holder as specified on the face of the Underwriter's Warrant). (Insert Social Security or Other Identifying Number of Holders) [J\PRIDE\underwriter warrant.wpd] 13 EX-4 4 D:\WP51P\PRIDE\EXHIBIT4.5 , 1998 Mason Hill & Co., Inc. 110 Wall Street New York, New York 10005 Ladies and Gentlemen: In order to induce Mason Hill & Co., Inc. (the "Underwriter") to enter into an underwriting agreement with respect to the proposed public offering (the "Offering") of up to _______ shares of common stock, $.001 par value per share (the "Common Stock") of Pride Automotive Group, Inc., a Delaware corporation (the "Company"), pursuant to a Registration Statement on Form SB-2, Registration No. 333- (the "Registration Statement"), the undersigned, as the beneficial owner of _______ shares of Common Stock (the "Securities"), covenants and agrees for the benefit of the Company and the Underwriter to abide to the following terms and conditions of this Agreement: 1. For a period of twenty-four (24) months subsequent to the date upon which the Securities and Exchange Commission (the "Commission") declares the Registration Statement filed with the Commission effective under the Securities Act of 1933, as amended (the "Act"), the undersigned will not, without the prior written consent of the Underwriter, offer, pledge, sell, transfer, assign, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, pursuant to Rule 144 promulgated under the Act ("Rule 144") or otherwise, any shares of the Common Stock beneficially owned by the undersigned (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). 2. To enable the Underwriter to enforce the aforesaid covenants, the undersigned hereby consents to the placing of restrictive legends consistent with this Agreement upon the Securities and to the entry of stop-transfer orders consistent with this Agreement on the books and records of the transfer agent of the Securities with respect to any Securities registered in the undersigned's name or beneficially owned by the undersigned. The Company agrees to instruct the transfer agent to place such legends and enter such stop-transfer orders and not to transfer any Securities without the consent of the Underwriter as set forth herein. Mason Hill & Co., Inc. ________, 1998 Page 2 3. The undersigned understands that the Company and the Underwriter will rely upon this Agreement if they proceed with the Offering. The provisions of this Agreement shall be binding upon the undersigned and the successors, assigns, heirs, and personal representatives of the undersigned. Very truly yours, Signature: Print Name:_____________________________ Accepted and Agreed to: PRIDE AUTOMOTIVE GROUP, INC. By:______________________________________ Name: Alan Lubinsky Title: President EX-4 5 D:\WP51P\PRIDE\EXHIBIT4.6 PRIDE, INC. and PRIDE AUTOMOTIVE GROUP, INC. SPECIAL WARRANT WARRANT AGREEMENT Dated as of , 1998 AGREEMENT dated as of , 1993, between Pride, Inc., a Delaware corporation (hereinafter the "Company"), and PRIDE AUTOMOTIVE GROUP, INC., a Delaware Corporation (hereinafter "Pride"). WHEREAS, the Company is has filed a registration statement for the sale of up to 1,267,500 share of its common stock (inclusive of shares of common stock which are issuable upon the exercise of the Underwriters' over-Allotment Option and exclusive of 170,000 shares of common stock being offered and sold by certain Selling Shareholders); and WHEREAS, the sale of such shares will reduce Pride's ownership of the Company to below 50% from 53.1% before such offering; and WHEREAS, Pride and the Company have agreed that it is in the best interests of both companies that Pride have the option to obtain at least 50% ownership of the Company; and WHEREAS, the Company desires to grant a Warrant to Pride which Warrant shall entitle Pride to purchase up to 1,250,000 shares of common stock of the Company (the "Common Shares") at an exercise price of $4.40 each during the twenty-four month period commencing with the date of the Company's Prospectus (the "Special Warrant"). NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. Exercise of Special Warrants. Subject to the provisions of this Agreement, Pride shall have the right, which may be exercised during a twenty-four month period commencing with the date of the Company's Prospectus (the "Term"), to purchase up to 1,250,000 fully paid and non-assessable Common Shares, upon surrender to the Company, of this Special Warrant, with the form of election to purchase duly filled in and signed, and upon payment to the order of the Company for the Special Warrant exercise price, determined in accordance with Section 2 herein, for the number of shares in respect of which such Special Warrant is then exercised. Payment of such Special Warrant Price shall be made in cash or by certified check or bank draft or postal or express money order, payable in United States Dollars to the order of the Company. The Special Warrants shall expire at the close of business on _____________. Upon such surrender of Special Warrants, and payment of the Warrant Price as aforesaid, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of Pride, a certificate or certificates for the largest number of whole Common Shares so purchased upon the exercise of such Special Warrant. The Company shall not be required to issue any fraction of a Share of Common Stock or make any cash or other adjustment in respect of any fraction of a Common Share otherwise issuable upon such surrender. The rights of purchase represented by the Special Warrant shall be exercisable, at the election of Pride, only to the extent provided in Section 3 herein. In the event that the Special Warrant is exercised in respect of less than all of the Shares specified therein at any time prior to the date of expiration of the Special Warrant, a new Special Warrant or Special Warrants will be issued to Pride for the remaining number of shares specified in the Special Warrant so surrendered. Section 2. Special Warrant Price. This Special Warrant shall allow Pride to purchase shares of the Company's Common Stock at a price of $4.40 per whole Share, subject to the limitations set forth herein. Payment of the Special Warrant Price shall be made to the Company upon exercise by Pride of the Special Warrant. The common shares issuable to Pride upon its exercise of this Special Warrant shall be restricted shares, which may not be transferred or sold by Pride unless registered under the Securities Act of 1933 or pursuant to an exemption from registration. Section 3. Limitation on Exercise of Special Warrant. The Special Warrant may only be exercised by Pride during the term hereof in accordance with the provisions herein contained. Section 4. Adjustments. The Special Warrant Price and number of Common Shares subject to this Special Warrant shall be adjusted from time to time as hereinafter set forth. (A) If the Company shall at any time subdivide its outstanding Common Shares by recapitalization, reclassification, split-up thereof, or other such issuance without additional consideration, the Special Warrant Price immediately prior to such subdivision shall be proportionately decreased and, if the Company shall at any time combine the outstanding Common Shares by recapitalization, reclassification or combination thereof, the Special Warrant Price immediately prior to such combination shall be proportionately increased. Any such adjustment to the Special Warrant Price or the corresponding adjustment to the Special 2 Warrant Price shall become effective at the close of business on the record date for such subdivision or combination. (B) In case at any time the Company shall declare a dividend or make any other distribution upon any stock of the Company payable in Common Stock, then such Common Stock issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (C) Upon any adjustment of the Special Warrant Price as hereinabove provided, the number of Common Shares issuable upon exercise of this Special Warrant shall be changed to the number of Shares determined by dividing (i) the aggregate Special Warrant Price payable for the purchase of all Shares issuable upon exercise of this Special Warrant immediately prior to such adjustment by (ii) the Special Warrant Price per Share in effect immediately after such adjustment. Section 5. Notices. Any notice pursuant to this Agreement to be given or made by the Warrant Agent or by the registered holder of any Special Warrant to the Company shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent) as follows: Pride, Inc. Pride House Watford Metro Centre, Tolpits Lane Watford Hertordshire WD1 8SB England Pride Automotive Group, Inc. Pride House Watford Metro Centre, Tolpits Lane Watford Hertordshire WD1 8SB England Copy to: Lampert & Lampert, Esqs. 10 East 40th Street New York, New York 10016 Section 6. New York Contract. This Agreement shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. 3 Section 7. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall be considered an original. Section 8. Effectiveness. This Agreement shall be deemed binding and therefore in effect as of, and subject to the effective date of the Registration Statement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PRIDE, INC. By: Alan Lubinsky, President Attest: Ivan Averbach, Secretary PRIDE AUTOMOTIVE GROUP, INC. By: Alan Lubinsky, President Attest: Ivan Averbach, Secretary 4 EX-10 6 D:\WP51P\PRIDE\EXHIBIT10.4 ADVISORY AND INVESTMENT BANKING AGREEMENT This Agreement is made and entered into as of the __ day of , 1998 by and between Mason Hill & Co., Inc., a Delaware corporation ("Mason Hill"), and Pride Automotive Group, Inc., a Delaware corporation (the "Company"). In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Purpose: The Company hereby engages Mason Hill for the term specified in Paragraph 2 hereof to render consulting advice to the Company as an investment banker relating to financial and similar matters upon the terms and conditions set forth herein. 2. Term: Except as otherwise specified in paragraph 4 hereof, this Agreement shall be effective from , 1998 to , 2001. 3. Duties of Mason Hill: During the term of this Agreement, Mason Hill shall seek out Transactions (as hereinafter defined) on behalf of the Company and shall furnish advice to the Company in connection with any such Transactions. 4. Compensation: In consideration for the services rendered by Mason Hill to the Company pursuant to this Agreement (and in addition to the expenses provided for in Paragraph 5 hereof), the Company shall compensate Mason Hill as follows: (a) The Company shall pay Mason Hill a fee of $_______ per month during the term of this Agreement. The sum of $__________ shall be payable in full on the date of this Agreement; (b) In the event that any Transaction (as hereinafter defined) occurs during the term of this Agreement or one year thereafter, the Company shall pay fees to Mason Hill as follows:
Consideration Fee $-0- to $1,000,000 5% of Consideration $1,000,001 to $2,000,000 $50,000 plus 4% of the Consideration between $1,000,001 and $2,000,000 $2,000,001 to $3,000,000 $90,000 plus 3% of the Consideration between $2,000,001 and $3,000,000 $3,000,001 to $4,000,000 $120,000 plus 2% of the Consideration between $3,000,001 and $4,000,000 $4,000,001 or more $140,000 plus 1% of the Consideration above $4,000,001
For the purposes of this Agreement, "Consideration" shall mean the total market value on the day of the closing of stock, cash, assets and all other property (real or personal) exchanged or 2 received, directly or indirectly by the Company or any of its security holders in connection with any Transaction. Any co-broker retained by Mason Hill shall be paid by Mason Hill. For the purposes of the Agreement, a "Transaction" shall mean (a) any transaction originated by Mason Hill, other than in the ordinary course of trade or business of the Company, whereby, directly or indirectly, control of or a material interest in the Company or any of its businesses or any of their respective assets, is transferred for Consideration, (b) any transaction originated by Mason Hill whereby the Company acquires any other company or the assets of any other company or an interest in any other company (an "Acquisition") or (c) any sale or Acquisition in connection with which the Company engages an investment banker other than Mason Hill and pays such investment banker a fee in respect of such Transaction. In the event Mason Hill originates a line of credit with a lender, the Company and Mason Hill will mutually agree on a satisfactory fee and the terms of payment of such fee; provided, however, that in the event the Company is introduced to a corporate partner by Mason Hill in connection with a merger, acquisition or financing and a credit line develops directly as a result of the introduction, the appropriate fee shall be the amount set forth in the schedule above. In the event Mason Hill 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 3-- two years following the date of the first sale. Total sales shall mean cash 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' payment. 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 Agreement, except as otherwise specified, are due and payable to Mason Hill in cash at the closing or closings of any transaction specified in Paragraph 4 hereof. In the event that this Agreement shall not be renewed or if terminated for any reason, notwithstanding any such non-renewal or termination, Mason Hill shall be entitled to a full fee as provided under Paragraphs 4 and 5 hereof, 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. The Company and Mason Hill shall have the right to modify the compensation payable on any Transaction provided that such modification is memorialized by a written agreement signed by both parties. 5. Expenses of Mason Hill: In addition to the fees payable hereunder, and regardless of whether any transaction set forth 4-- in Paragraph 4 hereof is proposed or consummated the Company shall reimburse Mason Hill for all fees and disbursements of Mason Hill's counsel and Mason Hill's travel and out-of-pocket expenses incurred in connection with the services performed by Mason Hill pursuant to this Agreement, including without limitation, hotels, food and associated expenses and long-distance telephone calls. 6. Liability of Mason Hill: (1) The Company acknowledges that all opinions and advice (written or oral) given by Mason Hill to the Company in connection with Mason Hill's engagement are intended solely for the benefit and use of the Company in considering the transaction to which they relate, and the Company agrees that no person or entity other than the Company shall be entitled to make use of or rely upon the advice of Mason Hill 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 Mason Hill, or use Mason Hill's name in any annual reports or any other reports or releases of the Company without Mason Hill's prior written consent. (2) The Company acknowledges that Mason Hill makes no commitment whatsoever as to making a market in the Company's securities or to recommending or advising its clients to purchase the Company's securities. Research reports or corporate finance reports 5-- that may be prepared by Mason Hill will, when and if prepared, be done solely on the merits or judgment of analysis of Mason Hill or any senior corporate finance personnel of Mason Hill. 7. Mason Hill's Services to Others: The Company acknowledges that Mason Hill's or its affiliates are in the business of providing financial services and consulting advice to others. Nothing herein contained shall be construed to limit or restrict Mason Hill in conducting such business with respect to others, or in rendering such advice to others. 8. Company Information: (a) The Company recognizes and confirms that, in advising the Company and in fulfilling its engagement hereunder, Mason Hill will use and rely on data, material and other information furnished to Mason Hill by the Company. The Company acknowledges and agrees that in performing its services under this engagement, Mason Hill may rely upon the data, material and other information supplied by the Company without independently verifying the accuracy, completeness or veracity of same. (b) Except as contemplated by the terms hereof or as required by applicable law, Mason Hill shall keep confidential all material non-public information provided to it by the Company, and shall not disclose such information to any third party, other than 6-- such of its employees and advisors as Mason Hill determines to have a need to know. 9. Indemnification: a. The Company shall indemnify and hold Mason Hill harmless against any and all liabilities, claims, lawsuits, including any and all awards and/or judgments to which it may become subject under the Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "Act") or any other federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including awards and/or judgments) arise out of or are in connection with the services rendered by Mason Hill or any transactions in connection with this Agreement, except for any liabilities, claims and lawsuits (including awards and/or judgments), arising out of acts or omissions of Mason Hill. In addition, the Company shall also indemnify and hold Mason Hill harmless against any and all costs and expenses, including reasonable counsel fees, incurred or relating to the foregoing. Mason Hill shall give the Company prompt notice of any such liability, claim or lawsuit which Mason Hill 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 7-- therefrom any and all proceedings or hearings before any regulatory bodies and/or authorities. Mason Hill shall indemnify and hold the Company harmless against any and all liabilities, claims and lawsuits, including any and all awards and/or judgments to which it may become subject under the 1933 Act, the Act or any other federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including awards and/or judgments) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact required to be stated or necessary to make the statement therein, not misleading, which statement or omission was made in reliance upon information furnished in writing to the Company by or on behalf of Mason Hill for inclusion in any registration statement or prospectus or any amendment or supplement thereto in connection with any transaction to which this Agreement applies. In addition, Mason Hill shall also indemnify and hold the Company harmless against any and all costs and expenses, including reasonable counsel fees, incurred or relating to the foregoing. The Company shall give to Mason Hill prompt notice of any such liability, claim or lawsuit which the Company contends is the subject matter of Mason Hill's indemnification and Mason Hill thereupon shall be granted the right to a 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 8-- therefrom any and all proceedings or hearings before any regulatory bodies and/or authorities. b.In order to provide for just and equitable contribution under the Act in any case in which (i) any person entitled to indemnification under this Section 9 makes claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 10 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of any such person in circumstances for which indemnification is provided under this Section 10, then, and in each such case, the Company and Mason Hill shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after any contribution from others) in such proportion taking into consideration the relative benefits received by each party from the offering covered by the prospectus with respect to any transactions in connection with this Agreement (taking into account the portion of the proceeds of the offering realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was assessed, the opportunity to correct and prevent any statement or omission and other equitable considerations appropriate under the circumstances; provided, however, that notwithstanding the above in no event shall Mason Hill be 9-- required to contribute any amount in excess of 10% of the public offering price of any securities to which such Prospectus applies; and provided, that, in any such case, no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "Contributing Party"), notify the Contributing Party of the commencement thereof, but the omission so to notify the Contributing Party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a Contributing Party or his or its representative of the commencement thereof within the aforesaid fifteen (15) days, the Contributing Party will be entitled to participate therein with the notifying party and any other Contributing Party similarly notified. Any such Contributing Party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of the Contributing Party. The indemnification provisions contained in this Section 10 are in addition to any other 10-- rights or remedies which either party hereto may have with respect to the other or hereunder. 10. Mason Hill an Independent Contractor : Mason Hill 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 Mason Hill shall have no authority to act for, represent or bind the Company or any affiliate thereof in any manner, except as may be agreed to expressly by the Company in writing from time to time. 11. Miscellaneous: (1) This Agreement between the Company and Mason Hill constitutes the entire agreement and understanding of the parties hereto, and supersedes any and all previous agreements and understandings, whether oral or written, between the parties with respect to the matters set forth herein. (2) Any notice or communication permitted or required hereunder shall be in writing and shall be deemed sufficiently given if hand-delivered or sent (i) postage prepaid by registered mail, return receipt requested, or (ii) by facsimile, to the respective parties as set forth below, or to such other address as either party may notify the other in writing: 11-- If to the Company, to: Pride Automotive Group, Inc. Pride House, Watford Metro Centre Tolpits Lane Watford, Hartfordshire WD1 8SB England with a copy to: Lampert & Lampert 10 East 40th Street New York, New York 10016 If to Mason Hill, to: Mason Hill & Co., Inc. 110 Wall Street New York, New York 10005 with a copy to: JAY M. KAPLOWITZ Gersten, Savage, Kaplowitz & Fredericks, LLP 101 East 52nd Street New York, New York 10022 (3)This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors, legal representatives and assigns. (4)This Agreement may be executed in any number of counterparts, each of which together shall constitute one and the same original document. (5) No provision of this Agreement may be amended, modified or waived, except in a writing signed by all of the parties hereto. (6) This Agreement shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to conflict of law principles. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Agreement shall be adjudicated before a court located in New York City, and they hereby submit to the exclusive 12-- jurisdiction of the courts of the State of New York located in New York, New York and of the federal courts in the Southern District of New York with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Agreement, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth in Paragraph 11(b) hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. MASON HILL & CO., INC. By:________________________________ PRIDE AUTOMOTIVE GROUP, INC. By:________________________________ J:\pride\financial adv agr.wpd 13-- EX-5 7 D:\WP51P\PRIDE\EXHIBIT5.0 June 3, 1998 Securities and Exchange Commission 7 World Trade Center New York, New York 10048 Re: Pride Automotive Group, Inc. Registration Statement on Form SB-2 File No. 333-296-NY Ladies and Gentlemen: We have acted as counsel to Pride Automotive Group, Inc. (the "Registrant") with respect to the above Registration Statement on Form SB-2, relating to the registration of up to 1,092,500 shares of Common Stock and 2,300,000 Redeemable Common Stock Purchase Warrants (the "Warrants") to be sold pursuant to an Underwriting Agreement between the Registrant, Mason Hill & Co., Inc., and The Thornwater Company, L.P. (collectively referred to as the "Underwriters"). The Registration Statement further relates to the registration of 95,000 shares of Common Stock and 200,000 Warrants to be sold to the Underwriters (the "Underwriters' Warrant") and the shares issuable upon the exercise of the Warrants and the Underwriters' Warrant. In connection therewith, we have examined the Certificate of Incorporation and By-Laws of the Registrant, as amended through the date hereof, and such other materials as we deem pertinent. Based upon the foregoing, it is our opinion that: 1. The 1,092,500 shares of Common Stock when paid for and issued pursuant to the terms of the aforesaid Underwriting Agreement, will be legally issued, fully paid and non-assessable. 2. The Warrants, Underwriters' Warrant and the Warrants issuable upon the exercise of the Underwriters' Warrant, when issued and paid for in accordance with the terms of the Underwriting Agreement and the related Warrant Agreement or Underwriters' Warrant Agreement, as the case may be, will constitute valid and binding obligations of the Company to issue shares of the Company's Common Stock upon full payment therefor pursuant to the terms of the related instrument. Securities and Exchange Commission June 3, 1998 Page 2. 3. The shares of Common Stock, when issued and paid for in accordance with the terms of the Warrants and Underwriters' Warrant will be legally issued, fully paid and non-assessable. We consent to the use of this opinion as an exhibit to said Registration Statement, and further consent to the use of our name wherever appearing in said Registration Statement, including the Prospectus constituting a part thereof, and in any amendment thereto. Very truly yours, LAMPERT & LAMPERT EX-10 8 D:\WP51P\PRIDE\EXHIBIT10.12 MILTON INVESTMENT FUND LIMITED (1) A.C. CAR GROUP LIMITED LEASE - of - Land at Unit 1, Vickers Drive North Brooklands Industrial Park, Elmbridge, Surrey + Charles Russell THIS LEASE made the day of One Thousand Nine Hundred and Ninety Seven BETWEEN: (1) MILTON INVESTMENT FUND LIMITED whose registered office is at Milton Manor, Thanington Without, Canterbury, Kent CT4 7PH (hereinafter called "Landlord" which expression shall include the person from time to time entitled to the reversion expectant on the term hereby granted) (2) A.C. CAR GROUP LIMITED whose registered office is at Pride House, Watford Metro Centre, Tolpitts Lane, Watford, Hertfordshire WDI 3SB (hereinafter called "Tenant" which expression shall include the person from time to time entitled to the term hereby granted) WITNESSETH as follows: I. INTERPRETATION In this Lease: 1.1 The following expressions have unless the context otherwise requires the following meanings and cognate expressions are to be construed accordingly: "Accessway" means the accessway shown coloured brown on the Plan; "Conducting Media" means sewers drains pipes wires cables ventilation ducts heating ducts and other conducting media including any fixings louvres cowls and other covers and includes any apparatus (not being tenant's or trade fixtures (including the Tenant's Fixtures)) connected to any Conducting Media for enabling use to be made of the Conducting Media or of any water gas electricity heating ventilation air conditioning or other effluvia passing through Conducting Media; "Demised Premises" means the building and premises as described in Part I of Schedule I and all additions and alterations thereto and all Landlord's Fixtures from time to time annexed thereto but excluding the air space surrounding and above the same; "Development Charge" means all sums payable by the Landlord as Service Charge (as that expression is defined in the Oakimber Transfers) pursuant to the Oakimber Transfers in relation to the Demised Premises and due from the date hereof; "Estate" means the land and building of which the Demised Premises form part being the land registered at HM Land Registry under title numbers SY579222 and SY579223 and shown for the purpose of identification only edged blue on the Plan; "Full Reinstatement Cost" means the costs (to be conclusively determined from time to time by the Landlord's Surveyor) which would be likely to be incurred in rebuilding or reinstating the Estate in accordance with the requirements of this Lease (including the reasonable and proper cost of shoring up demolition site clearance any works that may be required by statute 2 professional fees payable upon any applications for planning permission or other consents and other incidental expenses) at the time when such rebuilding or reinstatement is likely to take place; "Insured Risks" means the risk of loss damage or destruction by fire lightning storm tempest flood explosion earthquake (fire and shock) subsidence heave and landslip impact from vehicles aircraft and articles dropped therefrom riot civil commotion malicious damage bursting or overflowing of water tanks apparatus or pipes and such other risks as the Landlord may from time to time in its reasonable discretion insure against pursuant to the Landlord's covenant in that behalf hereinafter contained but excepting any stated or other risk against which insurance cannot ordinarily be obtained at a reasonable and economic premium with insurers of repute in the United Kingdom for a property such as the Estate unless the Landlord has in fact insured and continues to insure against such risk; "Irrevocable VAT" means VAT incurred by the Landlord to the extent that the Landlord is unable to obtain credit for or recover the same; "Landlord 's Expenses" means the reasonable and proper expenses incurred by the Landlord as set out in Part 1 of Schedule 3; "Landlord's Fixtures" means all Landlord's fixtures and fittings in the Demised Premises but for the avoidance of doubt excluding the Tenant's Fixtures; "Landlord's Surveyor means such firm of surveyors or surveyor (who may be an employee or officer of the Landlord) as the Landlord may from time to time appoint; "Landlord's Third Party Liability Insurance" means insurance against all liabilities of the Landlord to third parties arising out of or in connection with any matter including or relating to the Estate on such terms and in such amount as the Landlord shall reasonably from time to time determine as expedient or necessary; "Legislation" means all present and future Acts of Parliament all directly applicable provisions of all present and future treaties constituting the European Communities and all order regulations bye-laws and directives made pursuant to any Act of Parliament or otherwise having the force of law including any made pursuant to such treaties which have the force of law in United Kingdom "Loss of Rent Insurance means insurance against loss of the rent first reserved by Clause 2 hereof for the time being payable for such period (13eing not less than three years) as the Landlord shall from time to time deem to be necessary for the purpose of rebuilding or 4 reinstating the Demised Premises having regard to any likely increase as a result of such rent being reviewed under this Lease; "Oakimber Transfers" means the transfer dated 27th October 1987 made between (1) Oakimber Limited (2) Trafalgar Brookmount Limited (3) Autokraft Limited (4) Trafalgar House Developments Holding Limited (as varied by a Deed of Variation dated 18th January 1991 made between (I) Oakimber Limited (2) Autokraft Limited and (3) Ford Motor Company Limited) and a transfer dated 27th October 1987 made between (I) Oakimber Limited (2) Trafalgar Brookmount Limited (3) AC Cars Limited and (4) Trafalgar House Developments Holdings Limited (as varied by a Deed of Variation dated 18th January 1991 and made between (1) Oakimber Limited (2) AC Cars Limited and (3) Ford Motor Company Limited; "Permitted Use" means automotive vehicle and component assembly and manufacture with ancillary storage and offices or any use or uses within Classes Bi and/or B8 of the Town and Country Planning Use Classes) Order 1987, or such other use as shall be approved by the Landlord (such approval not to be unreasonably withheld or delayed); "Plan" means the plan or plans annexed to this Lease; 5 "Planning Acts" means the Town and Country Planning Act 1990 the Planning (Listed Buildings and Conversation Areas) Act 1990 the Planning (Listed Buildings and Conservation Areas) Act 1990 the Planning (Hazardous Substances) Act 1990 the Planning miscellaneous Provisions Act) 1990 and the Planning and Compensation Act 1991 and all over legislation from time to time in force relating to Town and Country Planning; "Perpetuity Period" means the period of 80 years starting on the date of this Lease which shall be the perpetuity period of this Lease; "Prescribed Rate" means interest of a rate of 4 per cent above the base rate from time to time of Lloyds Bank plc or of such Bank being a member of the Committee of London and Scottish Bankers) as the Landlord may from time to time nominate or during any time when Lloyds Bank plc or other bank nominated by the Landlord has no such base rate such other rate as shall replace the same or be the nearest equivalent thereto as may be notified from time to time to the Tenant by the Landlord; "Rent Commencement Date" means "the Service Charge" and "Interim Service Charge" means the charges to the Tenant in respect of the Landlord's Expenses as set out in Part II of Schedule 3; 6 "Tenant's Fixtures" means the fixtures and fittings in the Demised Premises listed in Schedule 6; "VAT" means Value Added Tax or any similar tax from time to time payable whether in substitution for or addition to Value Added Tax; "Yearly Rent" means the annual rent of(pound)221,500.00 (or such higher rent as shall be determined pursuant to the provisions in Schedule 2 and so in proportion for any period less than a year; 1.2 Where the context so admits or requires words importing one gender shall be construed as importing any other gender and the singular includes the plural and vice versa and where any party hereto) comprises two or more persons any obligation on the part of that party contained or implied herein shall be deemed to be joint and several obligations on the part of such person 1.3 Any Index and headings are for reference only and shall not affect the meaning of this document 1.4 References to the "Demised Premises in the absence of any provision to the contrary include any part thereof 1.5 Except in the definition of "Permitted Use" reference to a specific statute or provision of a specific statute includes all regulations and orders from time to time made pursuant to that statute or (as the case may be) provision or any statute or provision amending or replacing the same 1.6 Any covenant by or regulation requiring the Tenant not to do an act or thing shall be deemed to include an obligation on the part of the Tenant to ensure that any such act or thing is not done by any third party 1.7 Whenever the consent or approval of the Landlord is required or requested in relation to this Lease, such provisions shall be construed as also requiring the consent or approval of any mortgagee of the Landlord and any superior lessor where the same shall be required except that nothing in 7 this Lease shall be construed as implying that any obligation is imposed upon any mortgagee or superior lessor not unreasonable to refuse any consent 1.8 References to any right of the Landlord to enter or to have access to the Demised Premises shall be construed as extending to any superior lessor or mortgagee for the time being and to all persons authorized by the Landlord aid to any such superior lessor or mortgagee 1.9 Unless the context otherwise requires references to "the tenancy" and "the term" shall be deemed to be the references both to the term of years hereby demised and to any extension or continuation thereof whether by the provisions of the Landlord and Tenant Act 1954 or any similar legislation from time to time in force or otherwise which tenancy shall be deemed to have commenced on the date of commencement of the said term hereinafter stipulated 1.10 The expression "termination in relation to the tenancy means termination in any manner whether by effluxion of time notice forfeiture surrender or otherwise and the expression "terminating" bears a corresponding meaning 2. DEMISE TERM RENT The Landlord hereby demises unto the Tenant ALL THOSE the Demised Premises TOGETHER WITH the rights described in Part II of Schedule 1 EXCEPTING AND RESERVING unto the Landlord and its predecessors in title and those deriving title from the Landlord or such predecessors the rights described in Part Ill of Schedule 1 TO HOLD the same unto the Tenant SUBJECT to the matters described in Part W of Schedule 1 for the term of Fifteen Years commencing on the date hereof YIELDING AND PAYING therefor the following rents: 2.1 First throughout the term the Yearly Rent which Yearly Rent shall be paid by equal quarterly installments in advance on the usual quarter days in any year the first installment thereof or a proportionate part in respect of the period commencing on the Rent Commencement Date and ending on 8 the date immediately prior to the next succeeding quarter day shall be paid on the execution hereof 2.2 Secondly on demand by way of further or additional rent a sum equal to a reasonable proportion of (1) the premium or premiums incurred by the Landlord in (a) insuring and keeping insured the Estate in the Full Reinstatement Cost against the occurrence of any of the Insured Risks and all professional and other fees and charges in relation to the rebuilding or reinstatement thereof (1)) insuring in respect of the Loss of Rent Insurance (c) insuring in respect of the Landlord's Third Party Liability insurance and (d) insuring against such other risks expenses and liabilities relating to the Estate and/or the occupation thereof and in such sums as the Landlord may reasonably and properly require and (2) the reasonable cost of the valuations of the Estate not more often than once in any calendar year for the purpose of such insurance AND together with any increased or additional premium payable by reason of any act or omission of the Tenant or any of the Tenants servants agents or licensees or persons deriving title under the Tenant or by reason of the user of the Demised Premises 2.3 Thirdly by way of further rent the Interim Charge and the Service Charge relating to the Landlord's Expenses at the times and in the manner provided in Part II of Schedule 3 hereto 2.4 Fourthly any VAT payable on the Yearly Rent, the Insurance Rent or other Taxable supplies by the Landlord to the Tenant hereunder 2.5 Fifthly all and any other sums payable by the Tenant to the Landlord pursuant to the provisions of this Lease 3. TENANT'S COVENANTS The Tenant hereby covenants with the Landlord:- 3.1 RENT AND OTHER PAYMENTS 3.1.1 To pay the rents hereby reserved on the days and in the manner aforesaid and not to exercise or seek to exercise any right or claim to withhold rent or other sums payable under this Lease or any right or claim to be entitled to any legal or equitable set-off 9 3.1.2 If so required in writing by the Landlord to make such payments by bankers order or other direct credit transfer to any bank and account in the United Kingdom that the Landlord may from time to time nominate 3.2 OUJGOINGS 3.2.1 To pay and indemnify the Landlord against all rates taxes (including community charges) levies duties charges assessments impositions and outgoings whether of an existing or novel kind now or at any time hereafter during the term levied imposed or charged exclusively in respect of the Demised Premises or any part thereof or the owner or occupier in respect of the Demised Premises (other than income tax and corporation tax on the income of the Demised Premises received by the Landlord and any tax payable by the Landlord in respect of any dealing with any reversion to this Lease) and a fair proportion (as determined by the Landlord's Surveyor) of any such rates taxes assessments impositions and outgoings levied imposed or charged on the Demised Premises in common with other premises 3.2.2 To pay to the suppliers of and to indemnify the Landlord against all charges for electricity gas telephone water and other services consumed or used at or in relation to the Demised Premises (including all standing charges and meter rents) 3.2.3 To pay to the Vendor (as defined in the Oakimber Transfers) and/or indemnify the Landlord against the Development Charge in so far as it relates to the Demised Premises within 10 days of being notified of the sum due 3.3 REPAIR AND DECORATION 3.3.1 Well and substantially to repair and reinstate the Demised Premises and keep them in good and substantial repair and condition and to carry out such repair and reinstatement with best quality materials and to the best standard of workmanship and to the complete satisfaction of the Landlord and if necessary from time to time to reinstate or rebuild the Demised Premises (damage or destruction due to any of the Insured Risks excepted unless any of the insurance money in respect thereof shall have been rendered irrecoverable by any act default or omission of the Tenant or any person 10 deriving title from the Tenant or any servant agent licensee or invitee of the Tenant or any such person) and to repay to the Landlord on demand all expenses from time to time incurred by the Landlord in repairing or reinstating any Conducting Media not comprised in the Demised Premises but which serve only the Demised Premises 3.3.2 Without prejudice to the generality of the Tenant's obligations under the immediately preceding sub-clause to keep all machinery and equipment forming part of the Demised Premises properly maintained and in good working order and for that purpose to employ reputable contractors to be approved in writing by the Landlord (such approval not to be unreasonably withheld) for the regular periodic inspection and maintenance of them and to renew all working and other parts of such machinery and equipment as and when necessary or when recommended by such contractors and from time to time to replace all Landlord's Fixtures fittings and appurtenances in or about the Demised Premises which become worn out or beyond repair at any time during or at the termination of the term 3.3.3 In a proper and workmanlike manner to prepare and paint with two coats of good quality paint or to treat with a suitable alternative preservative of equivalent efficacy previously approved in writing by the Landlord all the wood metal and other parts of the Demised Premises previously or usually so painted or treated and in like manner with good quality materials to grain varnish creosote stop whiten colour or otherwise treat all such parts as have been previously or are usually so dealt with and to repaper or reline the parts usually papered or lined with suitable good quality paper or fabric in every fifth year of the term and in the last three months of the term (howsoever determined) such decorations in the last three months of the Term to be carried out in such colours patterns and materials as shall first be approved in writing by the Landlord 3.4 INSURANCE OF PLATE GLASS To insure and keep insured all plate glass (if any) comprised in the Demised Premises from time to time against damage or destruction in a sum at least equal to the cost of replacing the same in the joint names of the Landlord and 11 the Tenant and such other names if any as the Landlord may from time to time require with such insurance office as the Landlord may from time to time approve and to pay all premiums necessary for the above purpose as the same shall become due and payable and to produce to the Landlord or its agents on demand the policy or policies of such insurance and the receipt for each such payment and if any such plate glass shall be damaged or destroyed forthwith to replace the same and all monies received by virtue of any such insurance to be applied solely towards the cost of replacing the said plate glass and if such insurance money is insufficient for such purpose to make up any deficiency PROVIDED ALWAYS that if the Tenant shall at any time fail to maintain Such insurance the Landlord may do all things necessary to effect and maintain such insurance and any monies expended by the Landlord for that purpose shall be payable by the Tenant on demand and shall be recoverable from the Tenant as rent in arrear 3.5 CLEANING OF WINDOWS To clean the glass of all windows comprised in the Demised Premises both inside and out at least once in every month of the tenancy 3.6 CLEANING OF DEMISED PREMISES To keep the Demised Premises in a clean and tidy condition and regularly to remove therefrom all waste refuse or offensive materials and articles and not to deposit any such materials or articles upon any other part of the Estate except such part (if any) as shall from time to time be provided for the deposit of such materials and articles 3.7 COMPLIANCE WITH LEGISLATION To comply in all respects with all requirements (whether placed on the Landlord or the Tenant) of all present and future Legislation and of all competent authorities as to the condition of the Demised Premises and the user thereof and the activities carried on thereat (including the exercise of any rights granted by this Lease) and any works or alterations executed or required to be executed thereon or in respect thereof or in any other way affecting the Demised Premises or any such rights and to keep the Landlord indemnified against all actions proceedings claims or demands which may be 12 brought or made by reason of any such requirements not having been duly complied with and if as a result of any such requirements the Landlord or any superior landlord shall carry out any works or alterations to the Demised Premises or any other part of the Estate the Tenant shall repay to the Landlord on demand the expenses thereby incurred by the Landlord or a fair proportion thereof as determined by the Landlord's Surveyor whose decision shall be final 3.8 YIELDINGUP At the termination of the tenancy to yield up the Demised Premises and all fixtures therein in such repair and condition (including without limitation compliance with clause 3.6) as is required by the covenants on the part of the Tenant herein contained and to surrender to the Landlord all keys to the Demised Premises and to remove the Tenant's Fixtures (other than the kitchen) and unless the Landlord otherwise requires remove all alterations and additions whatsoever to the Demised Premises including any work in connection with any fitting out of the Demised Premises by the Tenant and any signs or fascias fixed to the Demised Premises and make good all damage done by such removal to the satisfaction of the Landlord PROVIDED THAT:-3.8.1 the Tenant may before such termination remove all tenant's or trade fixtures but shall make good any damage thereby caused to the Demised Premises to the Landlord's satisfaction; 3.8.2 if after the termination of the tenancy there shall be left on the Demised Premises any tenant 5 or trade fixtures (including any of the Tenant's Fixtures) or any chattels or refuse the Landlord may treat the same as having been abandoned by the Tenant and may arrange for the removal and destruction or disposal thereof as the Landlord thinks fit and the Tenant shall pay to the Landlord on demand the cost of such removal and destruction or disposal and shall indemnify the Landlord against any liability resulting therefrom; and 3.8.3 if the Tenant shall fail to yield up the Demised Premises in such repair and condition as aforesaid the Landlord may if it thinks fit effect any repairs decorations and other works which ought to have been carried out by 13 tile Tenant pursuant to the covenants on the part of the Tenant herein contained and the Tenant shall pay to the Landlord on demand the cost of such repairs decorations and other works effected by the Landlord together with mesne profits at a rate equal to the rack rental value of the Demised Premises at the date of such termination for the period reasonably required for the carrying out of such work and the Landlord's Surveyor's certificate as to the amount of such cost and mesne profits shall be conclusive and binding on the parties 3.9 ENTRY BY LANDLORD To permit the Landlord and those authorized by it to enter upon the Demised Premises or any part thereof and to remain on the same for any of the following purposes: 3.9.1 inspecting the Demised Premises and opening up floors or other parts of the Demised Premises (including moving fixtures) where such opening-up or moving is required in order to inspect; 3.9.2 taking schedules of the condition thereof; 3.9.3 taking any measurement or making a valuation of the Demised Premises 3.9.4 taking inventories of the Landlord's Fixtures and of other things to be yielded up on termination of the term; 3.9.5 repairing altering adding to rebuilding or replacing any adjoining premises; 3.9.6 repairing, altering, adding to, replacing or installing any Conducting Media comprised in the Demised Premises which serves or is capable of being passed through the Demised Premises to serve other premises; 3.9.7 preparing any schedule of works drawings specifications or estimates required by the Landlord prior to or in contemplation of the exercise by the Landlord of any rights under this Lease; 3.9.8 to do anything which the Landlord considers necessary or desirable for the performance by the Landlord of the covenants on its part hereinafter contained or to prevent forfeiture of any superior lease; 14 3.9.9 in connection with any rent review or any impending or intended step under the Landlord and Tenant Act 1954; 3.9.10 exercising without interruption or interference any of the rights reserved or granted to it by virtue of the provisions of this Lease PROVIDED THAT in each of the above cases the person so entering shall cause as little damage, disturbance and inconvenience as is reasonably practicable and shall forthwith make good any damage caused to the Demised Premises 3.10 ENTRY BY LANDLORD ON TENANT'S DEFAULT 3.10.1 To permit the Landlord and those authorized by it to enter upon the Demised Premises in order to carry out any works to which this sub-clause applies and which the tenant has failed to carry out within two months (or sooner in the case of emergency) after service upon the Tenant of a notice requiring the same to be carried out 3.10.2 The works to which this sub-clause applies are: 3.10.2.1 the carrying out and completion in the manner required by this Lease of any repairs or other works which the Tenant is obliged to carry out by the terms of this Lease; 3.10.2.2 the removal of any alterations additions or other works carried out or commenced on the Demised Premises without all necessary licences consents permissions and approvals of the Landlord the Local Planning Authority and any other authority or person having been obtained; and 3.10.2.3 the removal or (at the Landlord's option) the completion in a good and workmanlike manner in accordance with the terms of this Lease and of such licences consents permissions and approvals of any alterations additions or other works which have not been so completed. 3.11 EXPENSE OF MAKING GOOD DILAPIDATIONS AND SERVING NOTICES To pay to the Landlord on demand on an indemnity basis all expenses (including Solicitors' Surveyors' Architects' and other professional fees) incurred by the Landlord in connection with or in contemplation of and the Landlord's reasonable administration fee for 15 3 11.1 the carrying out of any works to which the immediately preceding sub-clause applies; 3 11.2 the preparation and service of any notice under section 146 or section 147 of the Law of Property Act 1925 notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court; 3.1 1.3 the preparation and service at any time during or after the termination of the tenancy of any schedule of dilapidations and any negotiations relating thereto; 3.11.4 the enforcement of or verification of the Tenant's compliance ~ any of the Tenant's covenants or conditions herein contained whether any action to enforce or verify shall be taken during or after the termination of the Tenancy; 3.11.5 the recovery or attempted recovery of any rent or other sums due from the Tenant; or 3.11.6 the preparation of any such schedule of works drawings specifications or estimates as are referred to in sub-clause 3.9.7 3.11.7 the levy of a distress for the rents payable hereunder or any part thereof or as a result of the bailiff being paid the said rents or any part thereof whether or not any distress in the event be levied 3.12 ALTERATIONS Not to make any alteration or addition or commit waste to or in any way injure the Demised Premises or any part thereof or any signs affixed to the exterior thereof or the internal arrangement thereof or the Conducting Media comprised in or serving the Demised Premises save that the Tenant may make nonstructural alterations or additions to the internal arrangement of the Demised Premises, which do not except for bolts or other fixings cut into and which do not damage the structural parts of the buildings on the Demised Premises or the Estate and without prejudice to the foregoing in this subclause the Tenant shall:- 3.12.1 comply and ensure compliance by others with all conditions and obligations stipulated by the Landlord in respect of any such alteration or addition; and 16 3.12.2 on or before termination of the tenancy (unless otherwise required by the Landlord) remove all alterations and additions to the Demised Premises (including any such made by or on behalf of the Tenant in fitting out the Demised Premises prior to or at the commencement of the tenancy (including the Tenant's Fixtures other than the kitchen) and to reinstate the Demised Premises to its condition before such alterations or additions were carried out in a good and workmanlike manner to the reasonable satisfaction of the Landlord 3.12.3 demolish and remove any building addition or alteration built or carried out in breach of this clause and restore the Estate and the Demised Premises to its previous condition to the reasonable satisfaction of the Landlord 3.13 OBSTRUCTION OF CONDUCTING MEDIA Not to interfere with or obstruct any Conducting Media and in so far as heating ventilation or air conditioning may be provided through such Conducting Media to ensure that the internal arrangement of the Demised Premises does not interfere with the efficient operation of such heating ventilation or air conditioning. 3.14 SIGNS 3.14.1 Not to display upon the exterior of the Demised Premises or upon the interior thereof so as to be visible outside the Demised Premises any lettering inscription advertisement board sign notice placard bill pole flag or similar device without the prior written consent of the Landlord which consent will not be unreasonably withheld or delayed to a sign on the exterior of the Demised Premises displaying the name and business of the Tenant and of any permitted sub-tenant in such position and being of such material size design and colours as the Landlord shall approve (such approval not to be unreasonably withheld or delayed) 3.14.2 Not to place or affix behind or near the windows of the Demised Premises so as to be visible outside the Demised Premises: any curtains or other articles which in the opinion of the Landlord (which the Tenant agrees 17 to accept without dispute) may depreciate the value of the Landlord's interest in the Demised Premises. 3.15 NUISANCE, OVERLOADING ETC. Not to LI5C or permit to be used the Demised Premises or any part thereof for any illegal or immoral purpose or in a manner which in the opinion of the Landlord will or may depreciate the value of the Landlord's interest in the Demised Premises or the Estate or become a nuisance annoyance or disturbance to the Landlord any superior landlord or the owner or occupier of any neighbouring premises (PROVIDED THAT use of the Demised Premises in accordance with the Permitted Use referred to in clause 1.1. shall not be in itself deemed a nuisance) and not to permit any person to reside or sleep at the Demised Premises and not to bring upon the Demised Premises anything of an explosive or inflammable nature save for utilisation in the Tenant's Permitted Use of the Demised Premises or which may overload any part of the Demised Premises 3.16 USE OF ADDRESS OF DEMISED PREMISES Not to use or permit to be used the address of the Demised Premises in any advertisement or in any other manner which in the opinion of the Landlord (which the Tenant agrees to accept without dispute) is or may be detrimental to the reputation of the Demised Premises or the Estate 3.17 NAME OF DEMISED PREMISES Not for any purpose whatsoever to use or permit others to use as the name of the Demised Premises any name other than that given to the Demised Premises by the Landlord or a name approved in writing by the Landlord (such approval not to be unreasonably withheld) 3.18 USE OF DEMISED PREMISES At all times during the term to use the Demised Premises for the Permitted Use and not to use any part thereof for any other purpose 3.19 PLANNING ACTS In relation to the Planning Acts: 3.19.1 At all times during the term to comply with the Planning Acts and all planning consents and conditions (if any) thereunder so far as the same 18 respectively relate to or affect the Demised Premises or any part thereof or any operations works acts or things already carried out executed done or omitted by the Tenant or hereafter to be carried out executed done or omitted thereon or the use thereof for any purpose AND at all times hereafter to indemnify and keep indemnified the Landlord against all actions proceedings costs expenses claims and demands in respect of any contravention of such provisions and requirements 3.19.2 during the term so often as occasion shall require without expense to the Landlord to obtain from the relevant planning authority or the Secretary of State for the Environment or other authorised person or body all such planning consents (if any) as may be required for the carrying out by the lawful occupier thereof from time to time of such person's operations on the Demised Premises or the institution or continuance thereon of such person's use thereof which may constitute development within the meaning of the Planning Acts 3.19.3 on receipt by the Tenant of any notice order planning consent proposal or determination under the Planning Acts to deliver forthwith to the Landlord a copy thereof and (unless the Tenant shall lawfully decline to implement a planning consent subject to conditions which it reasonably considers onerous) without delay and at the Tenant's own expense to comply with such notice order planning consent proposal or determination AND if so required by the Landlord to make or join in making at the expense of the Tenant such representation or appeal in respect of any such notice order planning consent proposal or determination as the Landlord may reasonably require 3.19.4 Not to make any application under the Planning Acts for permission to carry out any development (as defined by the Planning Acts) or for the approval of anything in connection therewith unless the Tenant shall previously have obtained all consents licences and approvals of the Landlord required under this Lease for the carrying out of such development. 3.19.5 Not to make any such application except in such form and for such duration whether limited or unlimited as the Landlord may approve in 19 writing Provided that in relation to a change of use or works which are otherwise authorised by this Lease approval of such application will not be unreasonably withheld in any case where (i) neither the application for such planning permission nor its grant nor implementation will or may create or give rise to any tax or other fiscal liability for the Landlord or (ii) the Tenant agrees to indemnify the Landlord against any such tax or other fiscal liability in such manner and provides such security as the Landlord may require 3.19.6 If the Landlord so directs to apply to the relevant planning authority to determine whether any relevant proposal requires permission under the Planning Acts 3.19.7 If reasonably required by the Landlord but at the cost of the Tenant to appeal against any refusal of planning permission or the imposition of any conditions on a planning permission relating to the Demised Premises following an application by or on behalf of the Tenant 3.19.8 Not to enter into any agreement with any competent authority regulating the development or use of the Demised Premises 3.19.9 Not to implement any planning permission or approval unless the same has been submitted to and approved in writing by the Landlord whose approval shall not be unreasonably withheld 3.19.10 In the event of the Tenant carrying out any works in implementation of any planning permission or approval so approved to carry out and complete all works required to implement the same in a good and workmanlike manner in accordance with the terms of such Permission or approval and in accordance with any other obligations imposed by the Landlord in any license deed or other document issued by the Landlord permitting such works 3.19.11 To make or secure to the satisfaction of the Secretary of State or other competent authority appointed for the purpose any payment that may be required for any planning permission or approval which may be granted and so to do for the lull term of the permission or approval and similarly to make or secure any payment that may be required in respect of any development or the continuance or retention of any development being a 20 permission or approval implemented or development carried out or continued or retained at any time during the currency of the tenancy 3 19.12 Unless the Landlord otherwise directs to carry out before the termination of the tenancy or such earlier date as may be nominated by the Landlord any works required to be carried out to the Demised Premises by a date subsequent to the termination of the tenancy by any limitation or condition to which any planning permission or approval implemented by or under or for the benefit of the Tenant is subject 3.19.13 To produce to the Landlord or the Landlord's Surveyor when required all such drawings documents and other evidence that the provisions of this sub-clause have been complied with as they or either of them may reasonably require 3.19.14 For the avoidance of doubt the Landlord's approval of any application permission or approval under this sub-clause may be refused on the ground inter alia that the period thereof or anything contained therein or omitted therefrom would in the reasonable opinion of the Landlord's Surveyor be likely to be prejudicial to the interests of the Landlord whether in relation to the Demised Premises or the Estate or any neighbouring premises or otherwise and whether during the currency of this tenancy or thereafter 3.20 PRODUCTION OF NOTICES Within three days of the receipt of the same by the Tenant to give full particulars to the Landlord or the Landlord's Surveyor of any notice or order or proposal for a notice or order given issued or made to or on the Tenant by any competent authority pursuant to Legislation and if so required by the Landlord or the Landlord's Surveyor to produce such notice order or proposal to them and without delay to take all necessary steps to comply with any such notice order or proposal and at the request of the Landlord or the Landlord's Surveyor but at the cost of the Tenant to make or join with the Landlord in making such objections or representations against or in respect of any such notice order or proposal as they or either of them shall deem expedient. 21 3.21 Encroachments Not to permit any person to encroach upon or to acquire any right of light air way water or drainage or other easement over the Demised Premises but forthwith upon being made aware of the same to inform the Landlord of any such encroachment or of any act or thing which might result in the acquisition of any right or easement over the Demised Premises and to do all acts and things which may be necessary or expedient to prevent such encroachment or the acquisition of any such right or easement provided that if the Tenant shall fail to do such acts and things as aforesaid the Landlord shall have power to enter upon the Demised Premises for the purpose of doing the same and any expenses which the Landlord thereby incurs shall be paid by the Tenant to the Landlord on demand. 3.22 INVALIDATION OF INSURANCE 3.22.1 Not to do or omit or cause any act matter or thing which might invalidate or prejudicially affect any insurance of the Demised Premises or any adjoining premises or whereby any payment thereunder may be refused in whole or part or render the insurance monies in whole or part irrecoverable 3.22.2 Immediately to comply to the satisfaction of the Landlord's insurers with their requirements for protection of the Demised Premises of which notice shall have been given to the Tenant whether those requirements relate to the Demised Premises to the use thereof or to anything in or on the Demised Premises or to the employment of any persons therein. 3.23 DUPLICATION OF INSURANCE Not to effect or maintain or contribute towards the maintenance of any insurance on or in respect of the Demised Premises in duplication of any insurance effected and maintained by the Landlord PROVIDED ALWAYS that without prejudice to the foregoing and any right of action or remedy in respect of any breach thereof if at any time the Tenant shall be entitled to the benefit of any such insurance on the Demised Premises to pay or procure to be paid to the Landlord all moneys received by virtue of such insurance and to hold the benefit of such policy and moneys payable thereunder in trust for 22 the Landlord to be applied towards rebuilding or reinstating the Demised Premises. 3.24 DISCLOSURE TO INSURERS Forthwith to give written notice to the Landlord of the occurrence of any damage or destruction of the Demised Premises or of any other event which the Landlord is obliged to disclose to the insurers or which ought reasonably to be brought to the attention of the insurers. 3.25 INCREASED COST OF INSURANCE AND VOID INSURANCE 3 25.1 In the event of the premiums payable for the insurance of the Demised Premises or the Estate or any neighbouring premises being increased by reason of any act default or omission of the Tenant to pay on demand to the Landlord or to whomsoever the Landlord shall direct the amount of such increase 3.25.2 In the event of the Demised Premises being destroyed or damaged by any of the risks insured against by the Landlord and the insurance money under any such insurance against the same being wholly or partly irrecoverable by reason solely or in part of any act default or omission of the Tenant or any person deriving title from the Tenant or any servant agent licensee or invitee of the Tenant or any such person the Tenant shall from time to time forthwith on demand by or on behalf of the Landlord pay to the Landlord the whole or (as the case may require) the irrecoverable portion of the cost (including professional and other fees and expenses together with any Irrecoverable VAT thereon) of completely rebuilding and reinstating the same together with (in the event of such sums not being paid within ten working days of demand therefor) interest thereon at the Prescribed Rate calculated to the date of payment (with quarterly rests) from the date of such destruction or damage 3.26 DISPOSALS BY TENANT 3.26.1 Not to assign transfer underlet licence share or part with possession or occupation of the Demised Premises or any part thereof nor hold the Demised Premises on trust for or as a nominee of any person 23 company or body PROVIDED that the transactions mentioned in 3.26.2 and 3.26.3 shall not constitute a breach of this covenant BUT notwithstanding the foregoing provisions of this clause the Tenant shall be permitted to share occupation of part or whole of the Demised Premises with a company that is a Member of the same group as the Tenant (within the meaning of the Landlord and Tenant Act 1954 Section 42) for so long as both companies remain Members of the same group and otherwise than in a manner that transfers or creates a legal estate or any landlord and tenant relationship and any such sharing of occupation as provided for by this clause shall be permitted without the Landlords prior consents being required but the Tenant shall forthwith upon the commencement and cessation of any such sharing of occupation notify the Landlord thereof in writing 3.26.2 Not to assign the whole of the Demised Premises without first:- 3.26.2.1 obtaining the written licence of the Landlord which shall not be unreasonably withheld or delayed such licence to be by way of deed prepared by the Landlord's solicitors at the expense of the Tenant and to contain a covenant by the assignee directly with the Landlord to observe and perform the covenants obligations and conditions on the part of the Tenant herein during the residue of the term hereby granted from the date of the relevant assignment; 3.26.2.2 satisfying the circumstances specified for the purposes of S.19(1A) of the Landlord and Tenant Act 1927 and set out in clause 3.26.2.4; and 3.26.2.3 complying with the conditions specified for the purposes of S. 19(lA) of the Landlord and Tenant Act 1927 and set out in clause 3.26.2.5 3.26.2.4 the circumstances referred to in clause 3.26.2.2 are that:- 3.26.2.4.1 all sums due from the Tenant under this Lease which have been demanded or become due and are outstanding have been paid at the date of the application for the licence to assign; 3.26.2.4.2 in the Landlord's reasonable opinion the assignee is at the date of the application for licence to assign likely to be able to pay the rents hereby reserved (including any increased rent which the Landlord reasonably 24 anticipates will become payable pursuant to the provisions of this Lease) and comply with the tenant covenants of this Lease and is likely to continue to be so able following the assignment; 3.26.2.4.3 the assignee does not have the benefit of diplomatic immunity; 3.26.2.4.4 the assignee is a corporation registered in (or if an individual is resident in) a jurisdiction in which the order of a court obtained in England and Wales will be enforced without any consideration of the merits of the case; 3.26.2.4.5 in the case of an assignment to a company which is in the same group (within the meaning of Section 42 of the Landlord and Tenant Act 1954) as the Tenant the assignee is in the Landlord's reasonable opinion a company who is at the date of the application for licence to assign no less likely than the Tenant was at the date of the grant or assignment of the Lease to the Tenant to be able to comply with the tenant covenants of this Lease and is likely to continue to be such a company following the assignment; and 3.26.2.5 The Conditions referred to in clause 3.26.2.3 are that:- 3.26.2.5.1 upon or before any assignment and before giving occupation to the assignee the Tenant shall covenant by way of indemnity and guarantee with the Landlord in the terms set out in Schedule 5; 3.26.2.5.2 if so reasonably required by the Landlord the assignee shall upon or before any assignment and before taking occupation obtain guarantors reasonably acceptable to the Landlord who shall covenant by way of indemnity and guarantee (if more than one jointly and severally) with the Landlord in the terms set out in Schedule 4; and 3.26.2.5.3 the written licence to assign contains a condition that if at any time prior to the assignment the circumstances (or any of them) specified in subclause 3.26.2.4 cease to exist the Landlord may revoke the licence by written notice to the Tenant 3.26.3 Not to underlet the whole of the Demised Premises without first obtaining the prior consent by deed (which shall be prepared by the Landlord's solicitors at the expense of the Tenant) of the Landlord both as to 25 the proposed undertenant and the form of the underlease such consent not to be unreasonably withheld and subject to the following conditions:- 3.26.3.1 the underlease shall reserve a yearly rent payable by equal quarterly installments in advance on the usual quarter days an amount which will not be less than the rent for the time being payable hereunder or (if greater) the then current open market rental value of the Demised Premises with provision for the review of rent upwards only on the review dates referred to in Schedule 2 and in the manner therein contained 3.26.3.2 the 'underlease shall not be granted in consideration of a fine or premium 3.26.3.3 the underlease shall contain a covenant on the part of the undertenant in the underlease that the undertenant will not assign transfer underlet licence share or part with the possession or occupation of the premises thereby demised or any part thereof PROVIDED that the undertenant may assign the whole of the premises thereby demised if the undertenant has first obtained the prior consent by deed of the Landlord under this Lease (such consent not to be unreasonably withheld or delayed) -------- 3.26.3.4 before granting the underlease and giving possession the Tenant shall obtain a valid Order from the Court excluding the provisions of Sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 in relation to such underlease 3.26.3.5 the Tenant shall not knowingly permit or suffer any breach by any underlessee of the provisions of any such underlease and at all times shall strictly enforce the same and operate and enforce any provisions therein for the review of rent 3.26.3.6 the Tenant shall not at any time reduce or permit to be reduced the rent payable by any underlessee or waive forego or compound the same 3.26.4 The Tenant shall furnish the Landlord on demand with hill particulars of all derivative interests and occupational rights of or in the Demised Premises or any part thereof howsoever remote or inferior including particulars of the rent or rents payable in respect of such derivative interests 26 and shall supply such further particulars as the Landlord may reasonably require in respect thereof 3.27 REGISTRATION OF DOCUMENTS To deliver or cause to be delivered to the Landlord or its agents for the time being (and at the direction of the Landlord to any superior landlord) a notice of every assignment underletting disposition or devolution of or charge on or transfer of the title of the Demised Premises or any part thereof whether by way of mortgage or otherwise and whether for the whole or any part of the term or otherwise within one month after the execution or signature of any deed or document or after the date of any probate letters of administration or other instrument or any court order by which such assignment underletting disposition devolution charge or transfer may be effected or evidenced such notice to specify the name and address and description of the person or persons to whom or in whose favour the assignment underletting disposition devolution charge or transfer shall be made or take effect AND also at the time of delivery of any such notice to produce the deed document instrument or order or a certified copy thereof by which such assignment underletting disposition devolution charge or transfer shall purport to be effected or evidenced as aforesaid for the purpose of having a memorandum thereof entered in a register to be kept for that purpose AND to pay to the Landlord or its agent their reasonable fees for the registration of each such deed document instrument or order or certified copy thereof 3.28 WHERE DEMISED PREMISES ARE FOR SALE OR TO LET To permit the Landlord at any time (in the case of a proposed sale mortgage or charge of the Landlord's interest) or during the twelve months immediately preceding the termination of the term hereby demised and any continuation of the tenancy thereafter to affix and retain without interference to any part of the exterior of the Demised Premises but so as not unduly to obscure the windows thereof or interfere with the Tenant's use thereto) a notice advertising that the same are for sale or to let and during the said twelve months and any continuation of the tenancy thereafter (or at any time in the 27 case of a disposal of the Landlord's interest) to permit the Landlord or any person authorised by it to show the Demised Premises to prospective tenants mortgagees and purchasers or their agents at reasonable times by prior appointment 3.29 COST OF LICENCES ETC. To pay on an indemnity basis the costs and disbursements (including stamp duties) of the Landlord's Solicitors Surveyors Architects and other professional advisers and the Landlord's reasonable administration fee in connection with any Deed or other thing hereby required to be executed or done at the Tenant's expense or any licence consent or approval applied for by the Tenant relating to the Demised Premises or the provisions of this Lease whether or not the same shall be executed done or given together with any Irrecoverable VAT thereon. 3.30 INDEMNITIES 3.30.1 To pay and make good to the Landlord all and every loss and damage whatsoever incurred or sustained by the Landlord as a consequence of any breach or non-observance of the Tenant's covenants herein contained and to indemnify the Landlord from and against all actions claims liabilities costs and expenses thereby arising and in the event of forfeiture of this Lease to indemnify the Landlord against all losses costs damages and expenses incurred by the Landlord consequent upon such forfeiture and (without prejudice to the generality thereof) pending any re-letting of the Demised Premises to pay to the Landlord amounts equal to all rent and other sums which but for such forfeiture would have been payable by the Tenant under this Lease (at the respective times therein provided for) and all costs charges and expenses incurred by the Landlord of and incidental to any re-letting or attempted re-letting of the Demised Premises and any other losses costs damages and expenses occasioned to the Landlord by reason of or in consequence of any forfeiture of this Lease. 3.30.2 Without prejudice to any other right or remedy available to the Landlord to indemnify and keep the Landlord effectually indemnified from 28 and against all expenses proceedings claims damages costs demands loss and any other liabilities as a consequence of or in respect of: 3.30.2.1 (save to the extent that the Landlord is effectively indemnified by a policy of insurance effected by it hereunder) damage to the Demised Premises or the Estate caused by any act default or negligence of the Tenant or any person deriving title from the Tenant or the servants agents licensees or invitees of the Tenant or such person; 3.30.2.2 any injury to or death of any person, damage to any property, the infringement disturbance or destruction of any right easement or privilege or otherwise by reason of or arising directly out of the state of repair and condition of the Demised Premises (to the extent that the Tenant is responsible therefor under this Lease) or the user of the Demised Premises; 3.30.2.3 to indemnify the Landlord against any taxes charges or other assessments payable in respect of any change of use or works (as the case may be) permitted by or by reason of this Lease or by reason of any licence granted to the Tenant or by reason of the obtaining of any consents required to be obtained under the terms of any such licence. 3.31 PLANS DOCUMENTS AND INFORMATION 3.31.1 If called upon to do so supply copies to the Landlord or the Landlord's Surveyor of all plans documents and other evidence as the Landlord may reasonably require in order to satisfy itself that the provisions of this Lease have been complied with 3.31.2 If called upon to do so to furnish to the Landlord or the Landlord's Surveyor and (as the case may be) to the independent surveyor referred to in Schedule 2 such information as may reasonably be requested in writing in relation to any pending or intended step under the Landlord and Tenant Act 1954 or the implementation of any provisions for rent review contained in Schedule 2 3.32 INTEREST Without prejudice to or derogation from any other right remedy or power whatsoever available to the Landlord if so required by the Landlord to pay to 29 the Landlord interest at the Prescribed Rate both before and after judgment upon: 3.32.1 any installment of the Yearly Rent or any other rents hereby reserved or any part thereof which shall not have been paid to the Landlord on the due date for payment (or in the case of sums other than the installments of the Yearly Rent seven days after the same became due) for the period from the date on which the same became due to the date on which the same was paid PROVIDED that any installment which is tendered to the Landlord but which the Landlord has declined to accept so as to avoid the risk of waiving any right to forfeit this Lease to which the Landlord is entitled shall for the purpose of this sub-clause be deemed not to have been paid; and 3.32.2 any expenditure by the Landlord or any other sums payable to the Landlord pursuant to this Lease and not included in the rent secondly reserved but which the Tenant is required to reimburse or pay to the Landlord for the period from the date of such expenditure or demand for payment of such other sums to the date on which such reimbursement or payment was made. 3.33 REGULATIONS To comply and procure compliance by the occupiers of the Demised Premises or any part thereof and by the Tenant's and such occupiers' respective servants licensees and visitors with such reasonable regulations as the Landlord shall from time to time make relating to the use of any parts of the Estate and which in the opinion of the Landlord are desirable in the interest of the persons (including the Landlord) entitled to use such parts or for the proper management of the Estate (and without prejudice to the generality of the foregoing such regulations shall include compliance with the covenants conditions restrictions and regulations set Out in the Oakirnber Transfers) 3.34 VALUE ADDED TAX 3.34.1 To pay VAT on all supplies including the grant of this Lease received by the Tenant under or in connection with this Lease. 30 3.34.2 To pay to the Landlord an amount equivalent to any Irrecoverable VAT on supplies received by the Landlord under or in connection with this Lease. 3.34.3 All references in this Lease to amounts (including rent) payable by the Tenant to the Landlord are references to such amounts exclusive of VAT and the Tenant shall pay to the Landlord in addition to any such amount any VAT payable on that amount. 3.35 OBLIGATIONS AFFECTING LANDLORD'S TITLE 3.35.1 To observe and perform all obligations imposed upon and the covenants on the part of the Landlord in respect of the Demised Premises arising from the matters specified in Part IV of Schedule 1 and not to commit any breach of the aforesaid obligations and covenants in respect of the Estate (and in particular but without prejudice to the generality of the foregoing the Tenant shall be primarily liable promptly and duly to observe and perform the covenants on the part of the Purchaser contained in the Oakimber Transfers in so far as they relate to the Demised Premises) PROVIDED that the Landlord shall with all due speed pass on to the Tenant copies of all demands notices or other correspondence papers or documents received by the Landlord relating to such obligations and covenants 3.35.2 To indemnify and keep indemnified the Landlord from and against any actions proceedings claims damages costs and expenses or losses arising from any breach non-observance or non-performance of such covenants and conditions 3.36 FIRE-FIGIITING EQUIPMENT To keep the Demised Premises supplied and equipped with such fire-fighting apparatus and appliances as the Landlord's insurers or the fire officer or other competent authority shall from time to time in writing specify or approve 3.37 DEFECTIVE PREMISES To notify the Landlord without delay of any "relevant defect" in the state of the Demised Premises within the meaning of Section 4 of the Defective Premises Act 1972 or any statutory modification or re-enactment thereof for the time being in force AND to display and maintain all notices and to erect 31 and maintain effective barriers if necessary which may from time to time be required to be displayed or erected on the Demised Premises under the said Act AND to indemnify the Landlord against all liability and cost arising in respect of any r1otice claim or demand costs and proceedings brought thereunder 3.38 SUBSTITUTION OF SURETY Within fourteen days of the death during the term of any surety for the time being for the performance and observance of the Tenants covenants or of such person becoming bankrupt or having a receiver appointed under the Mental Health Act 1983 or being a company passing a resolution to wind up or entering into liquidation or having a receiver appointed to give notice of this to the Landlord AND if so required by the Landlord at the expense of the Tenant within twenty-eight days to procure some other person reasonably acceptable to the Landlord to execute a deed of guarantee in respect of the Tenant's obligations contained in this Lease in the form of the Surety's covenants set out n Schedule 4 4. LANDLORD'S COVENANTS Subject to the Tenant paying the rents hereby reserved and observing and performing the covenants on its part and the conditions herein contained the Landlord hereby covenants with the Tenant (but so that the Landlord shall not remain personally liable to the Tenant after it has disposed of its reversionary interest to this Lease except for any breach occurring prior to such disposal) as follows: 4.1 INSURANCE To insure the Estate with reputable insurers (subject to such exclusions and limitations as are imposed by the insurers and subject to the appropriate insurance cover being obtainable) in the Full Reinstatement Cost thereof against the occurrence of any of the Insured Risks AND to provide to the Tenant on demand (but not more frequently than twice in every year) copies of the relevant policies and schedules of insurance together with copies of the receipts for the latest premiums payable in respect thereo 32 4.2 REINSTATEMENT OF INSURED DAMAGE 4.2.1 In the event of damage or destruction of the Demised Premises or any part thereof and/or those parts of the Estate properly used by the Tenant in the Tenant's enjoyment of the Demised Premises by any of the Insured Risks then save to the extent that the insurance monies in respect thereof are irrecoverable in whole or in part due to some act or default on the part of the Tenant or any of the Tenants servants agents or licensees or persons deriving title under the Tenant or the user of the Demised Premises then (subject to Clause 4.2.2) the Landlord shall forthwith diligently pursue all claims and apply all insurance proceeds received in respect of such damage or destruction (other than money received in respect of Loss of Rent Insurance) in rebuilding or reinstating the Demised Premises and the said parts of the Estate as soon as reasonably practicable making up any difference between the cost of rebuilding and reinstating and the money received out of the Landlord's own money 4.2.2 The Landlord shall not be liable to rebuild or reinstate the Demised Premises if prevented from so doing by circumstances beyond the Landlords control 4.2.3 If upon the expiration of the period of two and a half years (or such longer period as shall be agreed in writing between the Landlord and the Tenant) commencing on the date of the damage or destruction by any of the Insured Risks the Demised Premises have not been rebuilt or reinstated so as to be fit for the Tenant's occupation and use either party may by notice in writing served at any time within six months of the expiry of such period terminate the term in accordance with the provisions of Clause 4.2.4 PROVIDED that the Tenant shall not be entitled to serve such a notice if the Landlords inability to rebuild or reinstate the Demised Premises results from any act or default of the Tenant the Tenants immediate or remote undertenants or anyone at or near the Demised Premises expressly or by implication with their authority or where the insurance of the Demised Premises effected pursuant to the covenant by the Landlord in that behalf herein contained has been vitiated in whole or in part by some act or default of the Tenant the I 33 Tenants' immediate or remote undertenants or anyone at or near the Demised Premises expressly or by implication with their authority 4.2.4 From a date twenty-one days after the service of a notice in accordance with Clause 4.2.3 the term will absolutely cease but without prejudice to any rights or remedies that may have accrued to either party against the other PROVIDED THAT the Tenant shall have no claim against the Landlord in respect of and the Landlord shall be deemed to be released from the covenant on the part of the Landlord to reinstate the Demised Premises AND all money received in respect of the insurance effected by the Landlord pursuant to the provisions hereinbefore contained shall belong to the Landlord 4.2.5 Any difference or dispute as to the operation of this clause shall be determined by an independent Surveyor (acting as expert) appointed in default of agreement between the parties by the President of the Royal Institution of Chartered Surveyors on the application of either party 4.3 QUIET ENJOYMENT That the Tenant shall peaceably hold and enjoy the Demised Premises throughout the said term without any lawful interruption by the Landlord or any person lawfully claiming under through or in trust for the Landlord. 4.4 REPAIRS Subject to the Tenant paying the Interim Charge and the Service Charge the Landlord shall use its reasonable endeavours to maintain the Accessway in good and substantial repair and condition 5. PROVISOS Provided always and it is expressly agreed as follows: 5.1 FORFEITURE If the rents hereby reserved or any part thereof shall be in arrear for twenty one days after the same shall have become due (whether legally demanded or not) and for the purposes of this clause any rents paid by the Tenant by bankers standing order or credit transfer shall be deemed for all purposes hereof not to have been received by the Landlord until the same shall have been received by the Landlord's bank or in the event of any breach of any of 34 the Tenant's covenants herein contained or if the Tenant or any guarantor for the Tenant (being a company) shall enter into liquidation (other than a voluntary members liquidation on terms approved by the Landlord when solvent for the purpose of reconstruction or amalgamation forthwith carried into effect) whether voluntarily or compulsorily or if the Tenant or any guarantor shall for any reason be removed from the register of companies or be unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 or if a petition shall be presented for the appointment of an administrator or a receiver (whether or not an administrative receiver) or manager shall be appointed of the whole or any part of its or their respective undertakings or an administration order shall be made or if there shall be convened a meeting of creditors or members to consider a voluntary arrangement or any other scheme or composition with the Tenant" creditors or if the Tenant or such guarantor (not being a company) shall become bankrupt have a bankruptcy order made against it or them or a petition for such order shall be presented or if an interim receiver is appointed of the property of the Tenant or such guarantor or if the Tenant or such guarantor (whether or not a company) shall enter into any arrangement or composition for the benefit of its or their respective creditors or shall suffer any distress or execution to be levied on their respective goods then in any of the said cases it shall be lawful for the Landlord or any person on its behalf at any time thereafter to re-enter upon the Demised Premises or any part thereof in the name of the whole and thenceforth peaceably to hold and enjoy the same as if this Lease had not been made and thereupon this demise shall absolutely determine except for the Tenant's obligations under the sub-clause headed INDEMMTIES but without prejudice to any right of action of the Landlord in respect of any breach of the Tenant's covenants herein contained 5.2 SUSPENSION OF RENT If the Demised Premises or any part thereof or any part of the Estate over which the rights specified in Part II of Schedule 1 are exercised shall be so destroyed or damaged by any of the Insured Risks as to render the Demised Premises or some part thereof unfit for or incapable of occupation and use by 35 the Tenant then (unless any of the insurance money in respect of loss of rent shall have been rendered irrecoverable by the act or default of the Tenant or any other person deriving title from the Tenant or any licensee or invitee of the Tenant or any such other person) the rents hereby reserved or a fair proportion thereof according to the extent of the damage shall be suspended and cease to be payable until the same shall have been reinstated and the Demised Premises are fit for occupation and use or until the expiration of the period from the date of such destruction or damage for which the Landlord has Loss of Rent Insurance whichever shall be the earlier PROVIDED that any dispute as to the amount which ceases to be payable shall be determined by an independent Surveyor (acting as expert) appointed in default of agreement between the parties by the President of the Royal Institution of Chartered Surveyors on the application of either party 5.3 COMPENSATION UNDER LANDLORD AND TENANT ACT 1954 Subject to the provisions of sub-section (2) of section 38 of the Landlord and Tenant Act 1954 neither the Tenant nor any person deriving title from the Tenant to the whole or any part of the Demised Premises shall be entitled on quitting the Demised Premises to any compensation under section 37 of the said Act 5.4 EXCLUSION OF LIABILITY ON PART OF LANDLORD 5.4.1 The Landlord shall not be liable to any person other than the Tenant to perform any of the covenants herein contained whether expressed or implied in so far as such covenants impose obligations going beyond the common duty of care imposed by the Occupiers Liability Act 1957 or the Defective Premises Act 1972 and the Landlord shall not be liable to the Tenant or any other person for any accident loss or damage which may at any time during the said term be occasioned to or suffered by the Tenant or any other person or occasioned to the Demised Premises or to any goods or property of the Tenant or any other person by reason of any breach of any obligation on the part of the Landlord herein contained whether expressed or implied resulting from any act neglect default or misfeasance or nonfeasance 36 whether tortious or of any other kind whatsoever of any servant or employee or agent or tenant of the Landlord or any other person or by reason of any fire or leakage or overflow from any Conducting Media or other appliances in or near the Demised Premises 5.4.2 Nothing herein contained or implied nor any statement or representation made by or on behalf of the Landlord shall be taken to be a covenant warranty or representation that the Demised Premises can lawfully be used for the Permitted Use 5.5 FORM OF LICENCES ETC. Any consent permission licence or approval purporting to be given by the Landlord to the Tenant in relation to this Lease or the Demised Premises whether or not the same be required to be obtained by the Tenant by any of the covenants or conditions herein contained shall be ineffective unless the same be given either: 5.5.1 by Deed; or 5.5.2 by writing under the hand of the Landlord or some duly authorised officer or agent of the Landlord expressly stating that the Landlord does not require the same to be by Deed. 5.6 WAIVER OF RIGHT TO FORFEIT That no demand for or acceptance or receipt in whole or in part of any of the rents hereby reserved or any payment on account thereof or ~e grant of any consent permission licence or approval hereunder shall operate as a waiver by the Landlord of any right which the Landlord may have to forfeit this Lease by reason of any breach of covenant or condition by the Tenant notwithstanding that the Landlord may know or be deemed to know of such breach at the date of such demand acceptance receipt or grant 5.7 IMPLIED EASEMENTS AND OTIIER RIGHTS 5.7.1 Nothing herein contained shall operate to grant by implication or otherwise any estate right or easement not hereby expressly granted by the Landlord. 5.7.2 Nothing herein contained shall confer on the Tenant any right to the benefit of or to enforce any covenant or agreement contained in any 37 lease or other instrument relating to any other premises belonging to the Landlord or limit or affect the right of the Landlord to deal with the same now or at any time hereafter in any manner which may be thought fit. 5.8 PARTYWALLS Such of the walls (if any) of the Demised Premises as divide the Demised Premises from other premises of the Landlord shall be deemed to be party walls divided longitudinally and shall be included in the Demised Premises to the centre of such division. 5.9 ARBITRATION Where in this Lease provision is made for the appointment of some person to act as an expert or arbitrator to determine a matter of difference between the Landlord and the Tenant and such provision proves ineffective to secure such appointment then the difference in question shall if the Landlord so requires be settled by a single arbitrator under the Arbitration Acts 1950 and 1979. 5.10 REPRESENTATIONS The Tenant acknowledges that this Lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the Landlord except any such statement or representation that is expressly set out in this Lease. 5.11 SERVICE OF NOTICES 5.11.1 The provisions of section 196 of the Law of Property Act 1925 as amended by the Recorded Delivery Service Act 1962 shall apply to any notices served pursuant to or in connection with this Lease as if such notices were notices required or authorised under the said Acts. 5.11.2 The reference in such section to a registered letter shall also include a pre-paid first class ordinary letter. 5.11.3 If the Tenant or the Guarantor shall comprise more than one person the service of any such notice demand request or other communication on any one of such persons shall constitute good service on all persons constituting the Tenant or (as the case may be) the Guarantor. 38 5.12 VALUE ADDED TAX 5.12.1 The Landlord may but is not obliged to exercise the Election so as to secure that supplies made under the Lease are or are treated as standard-rated supplies for VAT purposes. 5.12.2 The Landlord may issue a yearly invoice in accordance with Regulation 19 of the VAT (General) Regulations 1985 (SI 1985/886) 5.13 REDEVELOPMENT OF ADJOINING PROPERTY That nothing herein contained shall by implication of law or otherwise operate or be deemed to confer upon the Tenant any easement right or privilege whatsoever over or against any adjoining property (including the Estate) or which would or might restrict or prejudicially affect the future rebuilding alteration or development of such adjoining property AND that the Landlord shall have the right at any time to make such alterations to or pull down and rebuild or redevelop any such adjoining property as it may deem fit without obtaining any consent from or making any compensation to the Tenant PROVIDED that the Landlord shall cause as little nuisance as practicable to the Tenant IN WITNESS whereof the parties have signed or sealed this Deed as indicated below and it has been delivered on their behalf on the day and year first above written SCHEDULE 1 Part I Description of the Demised Premises The premises known as Unit 1 Vickers Drive, Brooklands Industrial Park, Weybridge, Surrey more particularly delineated and edged red on the Plan and forming part of the land registered at H.M. Land Registry under titles numbered SYS79222 and SY579223 39 Part II Rights granted to the Tenant 1. The free passage and running of gas electricity water soil and other services through and along the Conducting Media now or at any time hereafter in or upon the Estate and serving any part of the Demised Premises 2. The right to support and to shelter and protection from those parts of the Estate not included in this demise as at the date hereof 3. The right to enter upon the other parts of the Estate at reasonable times in the day time after giving 48 hours written notice (except in case of emergency) for the purposes of:- 3. i inspecting maintaining repairing or renewing any of the Conducting Media thereon and installing within other parts of the Estate any new Conducting Media required in connection with the services within the Demised Premises or the use by any person of any part thereof and 3.2 carrying out any repairs renewals maintenance necessary inspections or alterations to the Demised Premises BUT only if such matters or works cannot otherwise be reasonably effected from the Demised Premises the person exercising such rights causing as little nuisance as possible and remedying any physical damage so caused as soon as reasonably practicable --- 4. The right for the Tenant and all persons authorised by the Tenant in common with all others entitled at all times in connection with the Permitted User of the Demised Premises to go pass and repass over through and along the Accessway with or without vehicles 5. Such rights in common with the Landlord and others as are Co extensive with the rights of which the Landlord has the benefit under the Oakimber Transfers 6. The right to retain or install upon the Demised Premises satellite dishes or other communication devices as shall be approved by the Landlord (such approval not to be unreasonably withheld or delayed) 40 Part III Rights Reserved 1. The free passage and running of gas electricity water soil and other services through and along the Conducting Media now or at any time hereafter in or upon the Demised Premises and serving any part of the Estate 2. The right to enter upon the Demised Premises at reasonable times in the day time after giving 48 hours written notice (except in case of emergency) for the purposes of: 2.1 inspecting maintaining repairing or renewing any of the Conducting Media thereon and installing within the Demised Premises any new Conducting Media required in connection with the services within the Estate or the use by any person of any part thereof and 2.2 carrying out any repairs renewals maintenance necessary inspections or alterations to any other part of the Estate (including the erection of scaffolding and the placing of ladders upon the Demised Premises if that shall be necessary for such works) and 2.3 carrying out matters giving rise to the Landlord's Expenses and/or such other services as the Landlord wishes to carry out and the cost of which can be recovered by means of the Service Charge PROVIDED THAT in exercising such right the Landlord shall use its reasonable endeavours not materially to interfere with the use enjoyment and access of the Tenant in respect of the Demised Premises and the person exercising such rights causing as little nuisance as practicable and remedying any physical damage so caused as soon as reasonably practicable 3. All liberties privileges easements quasi-easements rights and advantages whatsoever now held or enjoyed with or appertaining or reputed to appertain to any other part of the Estate 41 4 The right to deal in any manner whatsoever with the remainder of the Estate and to erect maintain rebuild or alter or suffer to be erected maintained rebuilt or altered thereon any buildings whatsoever whether such buildings shall or shall not affect or diminish the light or air which may now or at any time hereafter be enjoyed for or in respect of the Demised Premises 5. The right of support and shelter by and from the Demised Premises for any part of the Estate 6. The rights and liberties to enter upon the Demised Premises in the circumstances in which the Tenant covenants to permit such entry in the covenants by the Tenant herein contained Part IV Matters subject to and with the benefit of which the Demised Premises are demised The covenants restrictions stipulations rights liabilities and other matters other than charges to secure money set out or referred to in the Property and Charges Registers of H.M. Land Registry titles numbered 5Y579222 and SY579223 SCHEDULE 2 Rent Review 1. In this Schedule the following expressions shall have the meanings respectively ascribed to them:- "Review Date" means the [] day of [] in each of the years 2002 and 2007 and the penultimate day of the term and each other date that becomes a Review Date pursuant to the provisions of this Schedule "Rental Value" means the best yearly rack rent or the aggregate best yearly rack rents (whichever shall be the higher) at which the Demised Premises might be 42 let as a whole or in parts at the relevant Review Date in the open market and with vacant possession by a willing lessor to a willing lessee without a premium for a term equal to the residue of the term of this Lease unexpired at the relevant Review Date or 10 years (whichever is the longer) and for the avoidance of doubt such term shall be deemed to be computed from the relevant Review Date but otherwise on the terms of this Lease (other than the amount of the rent hereby reserved but including the provisions for review of that rent similar to those set out in this Schedule) and ON THE ASSUMPTION (whether or not it is a fact) that:- ------ ---------- (1) all the covenants and obligations on the part of the Tenant contained in this Lease have been observed and performed (but without prejudice to any rights or remedies of the Landlord in regard thereto) (2) if the Demised Premises at the relevant Review Date or the means of access thereto or egress therefrom have been damaged or destroyed such damage or destruction has been reinstated (3) that the Demised Premises are available immediately for occupation and use (4) no reduction is to be made to take account of any rental concession rent free period or other inducement which on new letting with vacant possession might be granted to the incoming lessee 43 BUT DISREGARDING: - (a) any effect on rent of any goodwill attached to the Demised Premises by reason of the carrying on by the Tenant or any duly authorised under-tenant of any business thereon or thereat (b) any effect on rent of the occupation of the Demised Premises by the Tenant or any duly authorised under-tenant (c) any effect on rent of any improvements to the Demised Premises made by the Tenant or by any duly authorised under-tenant with the consent of the Landlord or any improvements carried out more than twenty one years prior to the relevant Review Date but so that there shall not be so disregarded any improvements effected at the expense of the Landlord or in pursuance of any obligation to the Landlord (whether under the provisions of this Lease or any other deed or document) (d) any effect on rent of the existence of the Tenant's Fixtures on in or about the Demised Premises means the President for the time being of the Royal Institution of Chartered Surveyors or a duly authorised person acting on his behalf or in substitution for him 2. On and after each Review Date the yearly hereunder shall be whichever is the greater of: - (1) the Rental Value at the Review Date then occurring or "President" rent first reserved 44 (2) the yearly rent payable pursuant to the terms and provisions of this Lease immediately prior to such Review Date 3. (1) In the event of the Landlord and the Tenant failing to agree the Rental Value by a date three months prior to any Review Date then the determination of the Rental Value at that Review Date may be referred to and conclusively determined by an independent surveyor such surveyor to be agreed upon by the Landlord and the Tenant or if they do not so agree before a date two months prior to that Review Date to be nominated upon the application of the Landlord or the Tenant by or on behalf of the President (2) The independent surveyor shall act as an arbitrator unless prior to the application to the President the Landlord shall have notified the Tenant in writing that the Landlord requires the surveyor to act as an expert and not an arbitrator (3) In the case of arbitration the arbitration shall be conducted in accordance with the Arbitration Acts 1950 and 1979 with the further provision that if the arbitrator nominated pursuant to this sub-Clause shall die or decline to act the President may on the application of either the Landlord or the Tenant by writing discharge the arbitrator and appoint another in his place (4) In the case of determination by an independent expert he shall afford the Landlord and the Tenant an opportunity to make representations to him AND if the independent surveyor shall die delay or become unwilling unfit or incapable of acting or if for any other reason the President shall think fit he may on the application of either the Landlord or the Tenant by writing discharge the expert and appoint another in his place --- (5) The fees payable to the independent Surveyor shall be borne and paid by the parties equally 4. If by a Review Date the Rental Value at such Review Date has not been ascertained pursuant to the terms and provisions of this Schedule the Tenant shall continue to pay the yearly rent previously payable and on the quarter day next after such ascertainment the Tenant shall in addition to any 45 increased rent payable pursuant to the foregoing provisions hereof pay to the Landlord without any deduction whatsoever the amount of the difference between the said yearly rent previously payable and the rent so ascertained for the period commencing on such Review Date and ending on such quarter day together with interest on such difference at the rate of four percentage points below the Prescribed Rate from the Review Date to the date of payment 5. If on any Review Date the Landlord shall be obliged legally or otherwise to comply with any Act of Parliament Order or direction dealing with the control of rent or which shall restrict or modify the Landlord's right to reserve or receive any increase in rent in accordance with the terms and provisions of this Lease then the first day of the month next following any relaxation removal or modification of such enactment order or direction in whole or in part shall be a Review Date 6. The amount of any increased rent ascertained in accordance with the foregoing provisions of this Schedule shall within twenty eight days of such ascertainment be recorded by way of Memorandum attached to this Lease and the Counterpart hereof by and at the expense of the Tenant and the Landlord respectively SCHEDULE 3 PART I The Landlord's Expenses 1. The reasonable and proper cost of the repair and maintenance (and where reasonably necessary) renewal and replacement of the Accessway 2. The reasonable and proper cost of making repairing maintaining rebuilding and cleaning all ways roads pavements Conducting Media walls party structures fences or other conveniences which shall belong to or be used by the Demised Premises in common with other parts of the Estate or by the Estate in common with adjoining or neighbouring premises (save to the extent that the same falls within the Development Charge) 3. The cost of all works which by or under any enactment or by local or other authority are or may be directed or required to be executed 46 upon or in respect of any part of the Estate (other than parts separately let or intended to be separately let) 4. The cost of compliance with any notice of any local or other authority in respect of any part of the Estate (other than parts separately let or intended to be separately let) 5 (a) The reasonable and proper cost of the employment at the Landlord's discretion of a firm of managing agents to manage the Estate and discharge all proper fees salaries charges and expenses payable to such agents or such other person who may be managing the Estate provided that if the Landlord shall at the Landlord's discretion manage the Estate instead of employing a firm of managing agents the Landlord shall be entitled to charge a reasonable fee for such management limited to 12.5% of total expenditure (b) The cost of the employment of all such surveyors builders architects engineers tradesmen accountants solicitors or other professional persons as may be necessary or desirable for the proper maintenance safety and administration of the Estate and assessing recording and auditing all costs and expenses involved 6. Without prejudice to the foregoing the cost of all such services works installations acts matters and things as in the absolute discretion of the Landlord may be considered necessary or advisable for the proper maintenance safety amenity and administration of the Estate 7. The cost of borrowing monies from any clearing bank to pay any of the Landlord's Expenses and paying the interest on such sums borrowed as required by such bank PART II The Service Charge and the Interim Service Charge 1. In this part of this Schedule the following expressions have the following meanings respectively (1) "total expenditure" means the aggregate of the Landlord's Expenses including any Irrecoverable VAT in any accounting period plus any VAT charged thereon 47 (2) "accounting period" means the period of one year to the date nominated by the Landlord from time to time (3) "the Service Charge" means 40 per centum of total expenditure or (in respect of the accounting period during which this Lease is executed) such proportion of such percentage as is attributable to the period from the date of this Lease to the end of the current accounting period (4) "the Interim Service Charge" means such sum to be paid on account of the Service Charge in respect of each accounting period as the Landlord or Landlord's managing agents shall specify at its or their reasonable discretion to be a fair and reasonable interim payment 2. In this Schedule any surplus carried forward from previous accounting periods shall not include any Reserve Sum 3. The first payment of the Interim Service Charge (on account of the Service Charge for the accounting period during which this Lease is executed) shall be made on the execution hereof and thereafter the Interim Service Charge shall be paid to the Landlord by equal quarterly installments payable in advance on the usual quarter days with the rent reserved by this Lease and in case of default the same shall be recoverable from the Tenant as rent in arrear 4 If the Interim Service Charge paid by the Tenant in respect of any accounting period exceeds the Service Charge for that period the surplus of the Interim Service Charge so paid over and above the Service Charge shall be carried forward by the Landlord and credited to the account of the Tenant in computing the Service Charge in succeeding accounting periods as hereinafter provided 5. If the Service Charge in respect of any accounting period exceeds the Interim Service Charge paid by the Tenant in respect of that accounting period together with any surplus from previous years carried forward as aforesaid then the Tenant shall pay the excess to the Landlord 48 within twenty-eight days of service upon the Tenant of a certificate referred to in the following paragraph and in case of default the same shall be recoverable from the Tenant as rent in arrear 6. As soon as practicable after the expiration of each accounting period an account of the total expenditure shall be prepared by the Landlord or Landlords managing agents and there shall be served upon the Tenant by the Landlord or the Landlord's agents a certificate signed by such agents containing the following information: (a) The amount of the total expenditure for that accounting period (1)) The amount of the Interim Service Charge paid by the Tenant in respect of that accounting period together with any surplus carried forward from the previous accounting period (c) The amount of the Service Charge in respect of that accounting period or deficiency of the Service Charge over or under the Interim Service Charge (d) The amount of any Reserve Sum 7. The said certificate shall (save in the case of manifest error) be conclusive and binding on the parties hereto but the Tenant shall be entitled at the Tenant's own expense at any time within twenty-eight days after service of such certificate to inspect the account of the Landlord's Expenses SCHEDULE 4 Covenant by Surety 1. Covenant and indemnity by Surety The Surety hereby covenants with the Landlord as a primary obligation and not merely as guarantor that the Tenant or the Surety shall at all times during the term duly perform and observe all the covenants on the part of the Tenant contained in this Lease including the payment of the rents and all other sums payable under this Lease in the manner and at the times herein specified and 49 as a separate severable covenant that the Tenant and the Surety shall at all times observe and perform the Tenant's obligations under any deed the Tenant may enter into pursuant to clause 3.26.2.5.1 ("Authorised Guarantee Agreement) and the Surety hereby covenants to indemnify the Landlord against all claims demands losses damages liability costs fees and expenses whatsoever properly sustained by the Landlord by reason of or arising in any way directly or indirectly out of any default by the Tenant in the performance and observance of any of its obligations or the payment of any rent and other sums 2. Surety jointly and severally liable with Tenant The Surety hereby further covenants with the Landlord that the Surety is jointly and severally liable with the Tenant (whether before or after any disclaimer by a liquidator or trustee in bankruptcy) for the fulfillment of all the obligations of the Tenant under this Lease or an Authorised Guarantee Agreement and agrees that the Landlord in the enforcement of its rights hereunder may proceed against the Surety as if the Surety was named as the Tenant in this Lease or in an Authorised Guarantee Agreement 3. Waiver by Surety The Surety hereby waives any right to require the Landlord to proceed against the Tenant or to pursue any other remedy whatsoever which may be available to the Landlord before proceeding against the Surety 4. Postponement of claims by Surety against Tenant The Surety hereby further covenants with the Landlord that the Surety shall not claim in any liquidation bankruptcy composition or arrangement of the Tenant in competition with the Landlord or claim any set off or counter claim against the Tenant in respect of any liability to the Tenant by the Surety and shall remit to the Landlord the proceeds of all judgments and all distributions it may receive from any liquidator trustee in bankruptcy or supervisor of the Tenant and shall hold for the benefit of the Landlord all security and rights the Surety may have over assets of the Tenant whilst any liabilities of the Tenant and the Surety to the Landlord remain outstanding 5. Postponement of participation by Surety in security 50 The Surety shall not be entitled to participate in any security held by the Landlord in respect of the Tenant's obligations to the Landlord under this Lease or an Authorised Guarantee Agreement or to stand in the place of the Landlord in respect of any such security until all the obligations of the Tenant and the Surety to the Landlord under this Lease or an Authorised Guarantee Agreement have been performed or discharged 6. No release of Surety None of the following or any combination thereof shall release determine discharge or in any way lessen or affect the liability of the Surety as principal debtor under this Lease or otherwise prejudice or affect the right of the Landlord to recover from the Surety to the full extent of this guarantee (1) any neglect delay or forbearance of the Landlord in endeavoring to obtain payment of the rents or the amounts required to be paid by the Tenant or in enforcing the performance or observance of any of the obligations of the Tenant under this Lease or an Authorised Guarantee Agreement (2) any refusal by the Landlord to accept rent tendered by or on behalf of the Tenant at a time when the Landlord was entitled (or would after the service of a notice under Section 146 of the Law of Property Act 1925 have been entitled) to reenter the Premises (3) any extension of time given by the Landlord to the Tenant (4) any variation of the terms of this Lease (to the extent permitted by law) or the transfer of the Landlord's reversion or the assignment of this Lease (5) any change in the constitution structure or powers of either the Tenant the Surety or the Landlord or the liquidation administration or bankruptcy (as the case may be) of either the Tenant or the Surety (6) any legal limitation or any immunity disability or incapacity of the Tenant (whether or not known to the Landlord) or the fact 51 that any dealings with the Landlord by the Tenant may be outside or in excess of the powers of the Tenant (7) any other act omission matter or thing whatsoever whereby but for this provision the Surety would be exonerated either wholly or in part (other than a release under seal given by the Landlord) 7. Surrender of Part In the event of the Tenant surrendering part of the Premises the liability of the Surety shall continue in respect of the remainder after making any necessary apportionment's under Section 140 of the Law of Property Act 1925 8. Disclaimer or forfeiture of Lease (1) The Surety hereby further covenants with the Landlord that:-(a) if a liquidator or trustee in bankruptcy shall disclaim or surrender this Lease or an Authorised Guarantee Agreement or (b) if this Lease shall be forfeited or (c) if the Tenant shall cease to exist THEN the Surety shall if the Landlord by notice in writing given to the Surety within six months after such disclaimer or other event so requires accept from and execute and deliver to the Landlord a counterpart of a new lease of the Premises (i) for a term commencing on the date of the disclaimer or other event and continuing for the residue then remaining unexpired of the Term (ii) at the rent payable by the Tenant immediately before the disclaimer or other event ("the Old Rent") unless the Rental Value at a Review Date occurring before or after such disclaimer or other event has not been agreed or determined in accordance with the provisions of this Lease then the Landlord and the Surety shall take such steps as are necessary to agree or determine the Rental Value in accordance with such provisions in which event the rent payable by the Surety under the new lease shall be whichever is the higher of the Old Rent and the 52 Rental Value and (iii)subject to the same covenants conditions and provisions as are contained in this Lease AND on the grant of such new lease the Surety shall pay to the Landlord an amount equal to the rents which would have been paid to the Landlord had the new lease been granted on the date of the disclaimer or other event (2) If the Landlord shall not require the Surety to take a new lease the Surety shall nevertheless upon demand pay to the Landlord a sum equal to the rents and other sums that would have been payable under this Lease but for the disclaimer or other event in respect of the period from and including the date of such disclaimer or other event until the expiration of six months therefrom or until the Landlord shall have granted a lease of the Premises to a third party and any rent free period thereunder shall have expired (whichever shall first occur) 9. Benefit of Guarantee This guarantee shall enure for the benefit of the successors and assigns of the Landlord under this Lease without the necessity for any assignment thereof 10. Severability For the avoidance of doubt the obligations of the Surety to guarantee any of the obligations on the part of the Tenant contained in an Authorised Guarantee Agreement shall be expressly severable from all other obligations of the Surety contained in this Lease and if and to the extent that any such obligations are held to be unenforceable at law then this Lease shall be read and construed as if all references in this Schedule to an Authorised Guarantee Agreement were omitted SCHEDULE 5 Authorised Guarantee Agreement THIS AUTHORISED GUARANTEE AGREEMENT is made the day of 19 53 BETWEEN (1) ("the Landlord") (2) ("the Assignor") (3) ("the Assignee") 1. INTERPRETATION (1) In this Agreement and the Schedule hereto unless there is something in the subject or context inconsistent therewith the following expressions shall have the meanings ascribed to them "the Act" means the Landlord and Tenant (Covenants) Act 1995 and any enactment for the time being amending or replacing "the Assignee" means the party numbered three above and its successors and assigns means the assignment authorised by the Licence "the Assignment" "Assignor" means the party numbered two above means the premises demised by the Lease means the party numbered one above or other the person or persons for the time being entitled to the reversion immediately expectant on the determination of the Term "the Premises" "the Landlord" means the Lease short particulars of which are set out m the Schedule hereto and includes any deeds or documents supplemental thereto "the Lease" the same 54 "the Licence" means a Licence of even date herewith and made between the same parties as this Agreement "the Term" means the term granted by the Lease (2) Where the context so requires or admits the masculine includes the feminine and the singular includes the plural AND where for the time being any party comprises two or more persons the covenants expressed to be made by such party shall be deemed to be made by such persons jointly and severally (3) All references to clauses are to clauses of this Agreement and all references to the Schedule are to the Schedule to this Agreement (4) The headings in this Agreement are inserted for convenience only and shall be ignored in construing this Agreement 2. 'IHE LICENCE This Agreement is supplemental to the Licence whereby the Landlord granted to the Assignor licence to assign the Lease to the Assignee on the terms therein set out and in consideration of the Landlord granting the Licence the Assignor and the Assignee have agreed to enter into the covenants on their part set out below 3. COVENANT BY ASSIGNEE The Assignee hereby covenants with the Landlord that as from the Assignment and thereafter for the remainder of the Term (unless released from liability under the Act) the Assignee shall at all times duly observe and perform all the covenants on the part of the tenant contained in the Lease including the payment of the rents and all other sums payable under the Lease in the manner and times therein specified 4. COVENANTS AND INDEMNHY BYTHE ASSIGNOR The Assignor hereby covenants with the Landlord as a primary obligation and not merely as guarantor that as from the Assignment and thereafter for the remainder of the Term (unless released from liability under the Act) the Assignee or the Assignor shall at all times duly observe and perform all the 55 covenants on the part of the tenant contained in the Lease including the payment of the rents and all other sums payable under the Lease in the manner and times therein specified and the Assignor hereby covenants to indemnify the Landlord against all claims demands losses damages liability costs fees and expenses whatsoever sustained by the Landlord by reason of or arising in any way directly or indirectly out of any default by the Assignee in the performance and observance of any of its obligations or the payment of any rent or other sums 5. ASSIGNOR JOINTLY AND SEVERALLY LIABLE WITH ASSIGNEE The Assignor hereby further covenants with the Landlord that as from the Assignment and thereafter for the remainder of the Term (unless released from liability under the Act) the Assignor is jointly and severally liable with the Assignee (whether before or after any disclaimer by a liquidator or trustee in bankruptcy) for the fulfillment of all the obligations of the Assignee under this Agreement and agrees that the Landlord in the event of enforcement of its rights hereunder- may proceed against the Assignor as if the Assignor was named as the Assignee in this Agreement 6. WAIVER BY ASSIGNOR The Assignor hereby waives any right to require the Landlord to proceed against the Assignee or to pursue any other remedy whatsoever which may be available to the Landlord before proceeding against the Assignor 7. POSTPONEMENT OF CLAIMS BY ASSIGNOR AGAINST ASSIGNEE The Assignor hereby further covenants with the Landlord that the Assignor shall not claim in any liquidation bankruptcy composition or arrangement of the Assignee in competition with the Landlord or claim any set off or counterclaim against the Assignee in respect of any liability to the Assignee by the Assignor and shall remit to the landlord the proceeds of all judgments and all distributions it may receive from any liquidator trustee in bankruptcy or supervisor of the Assignee and shall hold for the benefit of the Landlord all security and rights the Assignor may have over assets of the Assignee 56 whilst any liabilities of the Assignee and the Assignor to the landlord remain outstanding 8. POSTPONEMENT OF PARTICIP~ON BY ASSIGNOR IN SECURITY The Assignor shall not be entitled to participate in any security held by the Landlord in respect of the Assignee's obligations to the Landlord under the Lease or to stand in the place of the Landlord in respect of any such security until all the obligations of the Assignee and the Assignor to the Landlord under the Lease have been performed or discharged 9. NO RELEASE OF ASSIGNOR None of the following or any combination thereof shall release determine discharge or in any way lessen or affect the liability of the Assignor as principal debtor under this Agreement or otherwise prejudice or affect the right of the Landlord to recover from the Assignor to the full extent of this guarantee: (1) any neglect delay or forbearance of the Landlord in endeavoring to obtain payment of the rents or the amounts required to be paid by the Assignee or in enforcing the performance or observance of any of the obligations of the Assignee under the Lease (2) any refusal by the Landlord to accept rent tendered by or on behalf of the Assignee at a time when the Landlord was entitled (or would after the service of a notice under section 146 of the Law of Property Act 1925 have been entitled) to re-enter the Premises (3) any extension of time given by the Landlord to the Assignee (4) the variation of the terms of the Lease (to the extent permitted by law) or the transfer of the Landlord's reversion or any further assignment of the Lease following the Assignment (5) any change in the constitution structure or powers of either the Assignee the Assignor or the Landlord or the liquidation 57 administration or bankruptcy (as the case m~ be) of either the (6) any legal limitation or immunity disability CT incapacity of the Assignee (whether or not known to the Landlord) or the fact that any dealings with the Landlord by the Assignee may be outside or in excess of the powers of the Assignee (7)any other act omission matter or thing whatsoever whereby but for this provision the Assignor would be exonerated either wholly or in part (other than a release by deed given by the Landllord) 10.INVALIDITY OF PROVISIONS No invalidity of any provision of this Agreement shall in any way vitiate or affect any other provision of this Agreement 11. SURRENDER OF PART In the event of the Assignee surrendering part of the Premises the liability of the Assignor shall continue in respect of the remainder after making any necessary apportionment's under section 140 of the Law of Property Act 1925 12. DISCLAIMER OF LEASE The Assignor hereby covenants with the Landlord that if a liquidator or trustee in bankruptcy shall disclaim the Lease then the Assignor shall if so required by notice in writing given by the Landlord within six months after such disclaimer accept from and deliver to the Landlord a counterpart of a new lease of the Premises (i) for a term commencing on the date of disclaimer and continuing for the residue then remaining unexpired of the Term (ii) at the rent payable by the Assignee immediately before the disclaimer ("the Old Rent") unless the revised rent at a review date occurring before or after such disclaimer has not been agreed or determined in accordance with the provisions of the Lease then the Landlord and the Assignor shall take such steps as are necessary to agree or determine the revised rent in accordance with such provisions in which event the rent payable by the Assignor under the new lease shall be whichever shall be the higher of the Old Rent and the revised rent and (iii) subject to the same covenants and provisions as are 58 contained in the Lease AND on the grant of such new lease the Assignor shall pay to the Landlord an amount equal to the rents which would have been paid to the Landlord had the new lease been granted by the Landlord on the date of the disclaimer 13. BENEFIT OF GUARANTEE This guarantee shall enure for the benefit of successors and assigns of the Landlord under the Lease without the necessity for any assignment thereof SCHEDULE 6 The Kitchen 3 Spray Booths The Rolling Road Satellite Dish EXECUTED (but not delivered until the date inserted herein) as a deed by affixing the COMMON SEAL of MILTON INVESTMENT FUND LIMITED in the presence of: DIRECTOR SECRETARY 59 EX-10 9 D:\WP51P\EXHIBIT10.13 January 22, 1998 The Directors The Companies (as specified in the Schedule to this letter) Dear Sirs: Midland Bank plc (`Midland') is pleased to offer the seven Companies whose names are listed in the Schedule to this letter (`the Companies') a collective net overdraft facility (`the Facility') on the terms referred to below but otherwise subject to normal banking terms and conditions. Limit (pound)3,250,000 (Three million two hundred and fifty thousand pounds) Availability Midland may at any time withdraw the Facility and/or demand repayment of all sums owing. Subject to this, the Facility is due for review in November 1998. Interest Rate 2% p.a. over Midland's Base Rate as published from time to time on amounts up to (pound)750,000 and 4% p.a. over Midland's Base Rate as published from time to time on amounts in excess of this within the Limit. Fees An arrangement fee of (pound)25,000 will be payable on receipt of the first tranche or equity. Security The repayment and discharge of all monies at any time owing in respect of the Facility will be secured by all security at any time given to Midland in respect of the liabilities to Midland of the Companies or any of them. 22 January, 1998 Without limiting the above, the security listed in the attached Security Schedule is to be held. All costs, fees and expenses, as mentioned in the General Terms and Conditions attached to this letter,shall be payable by the Company on whose behalf such costs and expenses are incurred, or as otherwise agreed with Midland. The Facility shall be subject to the General Terms and Conditions and Security Schedule attached to this letter. Additional Matters In considering from time to time the continuation of the Facility, Midland will have particular regard to the matters listed on the attached page headed "Additional Matters". Regardless of whether such Additional Matters are being observed, Midland may still at any time withdraw the Facility and/or demand repayment of all sums owing. Environmental Responsibility The Companies, by accepting the terms of this Facility, warrant and represent to Midland that: they are in full compliance with all applicable current laws, regulations and practices relating to the protection of the environment from pollution (the `environmental responsibility') and are not aware of any circumstances which may prevent full compliance in the future. Regardless of whether such warranties and representations are being observed, Midland may still at any time withdraw all of the Facility and/or demand repayment of all sums owing. The Companies, by accepting this Facility jointly and severally hereby indemnify Midland against all losses, claims, damages, costs, or any other liability which might arise (by reason of Midland providing this or any other Facility and/or having a security interest in the Companies' assets) in respect of a breach of, or a failure to meet, an environmental responsibility. This letter replaces Midland's letter dated 12/8/97 and all existing liabilities in respect of collective net overdraft Facilities shall be governed in future by the terms and conditions of this letter. 22 January, 1998 This offer is conditional upon the unqualified acceptance of all of the Companies. However, any Company accepting the letter shall be bound by its terms even though not all of the other Companies may have done so, or be so bound through some defect, informality or insufficiency in their powers. To accept this offer please arrange for the enclosed copy of this letter to be signed and returned. Yours faithfully, J R Poulton Business Banking Manager For and on Behalf of Midland Bank plc THE SCHEDULE PRIDE MANAGEMENT SERVICES PLC BAKER VEHICLE CONTRACTS LIMITED PRIDE VEHICLE CONTRACTS LIMITED PRIDE LEASING LIMITED PRIDE VEHICLE CONTRACTS (UK) LIMITED PRIDE VEHICLE DELIVERIES LIMITED PRIDE VEHICLE MANAGEMENT LIMITED (`the Companies') EX-23 10 D:\WP51P\PRIDE\EXHIBIT23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT We hereby consent to the use in this amendment No. 1 to the Registration Statement on Form SB-2 of our report dated February 20, 1998 relating to the consolidated financial statements of Pride Automotive Group, Inc. and Subsidiaries, and to the reference to our Firm under the caption "Experts" in the Prospectus. We also consent to the reference to our firm in the Summary Financial Data section of the Registration Statement. CIVVALS London, United Kingdom June 1, 1998 -----END PRIVACY-ENHANCED MESSAGE-----