<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1996
Registration No. 333-1524
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ECOMAT, INC.
(Name of small business issuer in its charter)
Delaware 5900 13-3865026
-------- ------------------------ ------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
147 Palmer Avenue
Mamaroneck, New York 10543-3632
(914) 777-3600
(Address and telephone number of principal executive offices)
Diane Weiser, President
Ecomat, Inc.
147 Palmer Avenue
Mamaroneck, New York 10543-3632
(914) 777-3600
(Name, address and telephone number of agent for service)
Copies to:
Stuart Neuhauser, Esq. Gerald A. Kaufman, Esq.
Bernstein & Wasserman, LLP 33 Walt Whitman Road
950 Third Avenue Suite 233
New York, NY 10022 Huntington Station, NY 11746
(212) 826-0730 (516) 271-2055
(212) 371-4730 (Fax) (516) 271-2488 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis, pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(Continued Overleaf)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Proposed
Title of Each Proposed Maximum Amount of
Class of Securities Amount to be Maximum Offering Aggregate Registration
to be Registered Registered (1) price per Offering Price Fee
Security(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,380,000 $5.00 $6,900,000 $2,379.12
$.0001 Par
Value(3)
- ------------------------------------------------------------------------------------------------
Underwriter's 120,000 $.001 $120 $.04
Option for
Underwriter's
Purchase
Option(4)
- ------------------------------------------------------------------------------------------------
Common Stock, 120,000 $6.00 $720,000 $248.26
$.0001 Par Value
in Underwriter's
Purchase Option
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Proposed
Title of Each Proposed Maximum Amount of
Class of Securities Amount to be Maximum Offering Aggregate Registration
to be Registered Registered price per Security Offering Price Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Total Fee $7,620,120 $2,627.42(5)
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock as may be issued by reason of adjustments in the
number of shares of Common Stock pursuant to anti-dilution provisions
contained in the Underwriter's Purchase Option (defined below). Because
such additional shares of Common Stock will, if issued, be issued for no
additional consideration, no registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 180,000 shares of Common Stock subject to the Underwriters'
over-allotment option (the "Over-Allotment Option").
(4) The Underwriter's Purchase Option entitles the Underwriter to purchase up
to 120,000 shares of Common Stock at 120% of the public offering price per
Share (the Underwriter's Purchase Option").
(5) $8,034.76 previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
ECOMAT, INC.
CROSS REFERENCE SHEET
Between Items in Registration
Statement on Form SB-2 and the Prospectus
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Inside Front and Outside Back
Cover Page of Prospectus
3. Summary Information and Risk
Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering
Price Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution Dilution; Risk Factors
7. Selling Security Holders Not Applicable
8. Plan of Distribution Underwriting
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
Beneficial Owners and
Management Principal Shareholders
<PAGE>
Item in Form SB-2 Prospectus Caption
----------------- ------------------
12. Description of Securities Description of Securities
13. Interests of Named Experts and Legal Matters; Experts
Counsel
14. Disclosure of Commission
Position on Indemnification Certain Transactions-Part II-
for Securities Act Liabilities Item 28
15. Organization within Last Five Prospectus Summary; Business
Years
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Management's Discussion and
Analysis of Financial Condition Analysis of Financial Condition
and Results of Operations and Results of Operations
18. Description of Property Business-Facilities
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Description of Securities
and Related Stockholder Matters
21. Executive Compensation Management - Executive
Compensation
22. Financial Statements Selected Financial Data;
Financial Statements
23. Changes in and Dis- Change in Accountants
agreements with Accountants
on Accounting and
Financial Disclosure
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
PROSPECTUS
1,200,000 Shares of Common Stock
ECOMAT, INC.
Offering Price: $5.00 per Share
-------------------
Ecomat, Inc., a Delaware corporation (the "Company") hereby offers
1,200,000 shares of common stock, $.0001 par value (the "Common Stock" or
"Shares") for sale (the "Offering"), at a per Share offering price of $5.00. See
"Description of Securities" and "Underwriting."
Prior to this Offering, there has been no public market for the Common
Stock and there are no assurances that a public market will develop. The initial
public offering price of the Common Stock has been arbitrarily determined by
agreement between the Company and Patterson Travis, Inc. (the "Underwriter") and
is not related to the Company's earnings, assets, book value or any other
established criteria of value. See "Risk Factors" and "Underwriting." The
Company is seeking to have the Common Stock approved for trading on the Nasdaq
Small Cap Market upon the effective date of this prospectus. No assurances can
be made that the Common Stock will be approved for listing or, if approved, that
an active trading market will develop or, if any active trading market develops,
that it will be sustained.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
FROM THE INITIAL PUBLIC OFFERING PRICE AND SHOULD BE CONSIDERED ONLY BY PERSONS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "PROSPECTUS SUMMARY",
"DILUTION" and "RISK FACTORS" WHICH BEGIN ON PAGE __.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY
<PAGE>
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Underwriting Proceeds to
public Discounts and Company(2)
Commissions(1)
- --------------------------------------------------------------------------------
Per Share $5.00 $ .50 $ 4.50
- --------------------------------------------------------------------------------
Total (3) $6,000,000 $600,000 $5,400,000
- --------------------------------------------------------------------------------
(see text of footnotes on following page)
PATTERSON TRAVIS, INC.
The date of this Prospectus is ____________, 1996
(Notes to Cover)
- ----------
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross proceeds of this offering ($180,000 or $207,000 if the Underwriters'
Over-Allotment Option (as defined below) is exercised in full) and (ii) an
option exercisable for a period of four years commencing one year after the
Effective Date entitling the Underwriter to purchase up to 120,000 Shares
at $6.00 per Share (the "Underwriter's Purchase Option"). In addition, the
Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $480,000, including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the Effective Date, to purchase up to 180,000 additional Shares
upon the same terms and conditions as set forth above solely to cover
over-allotments, if any ("Underwriter's Over-Allotment Option"). If the
Underwriter's Over-Allotment Option is exercised in full, the total Price
to
2
<PAGE>
Public will be $6,900,000, Underwriting Discounts and Commissions will be
$690,000 and Proceeds to Company will be $6,210,000 (before deducting
expenses payable by the Company estimated at $507,000, including the
Underwriter's non-accountable expense allowance). See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE COMMON STOCK TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITER. THIS MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S COMMON STOCK IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S COMMON STOCK, OF WHICH
THERE CAN BE NO ASSURANCE. IN SUCH EVENT, THE POSSIBILITY EXISTS THAT THE MARKET
FOR THE COMPANY'S COMMON STOCK COULD BECOME ILLIQUID. THIS COULD AFFECT THE
SHAREHOLDERS ABILITY TO TRADE THE COMPANY'S COMMON STOCK.
ALTHOUGH IT HAS NO OBLIGATION TO SO DO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
COMMON STOCK. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON STOCK. HOWEVER, THERE IS NO
ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE COMMON STOCK OFFERED HEREUNDER MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE UNDERWRITER'S PARTICIPATION IN SUCH
MARKET. SEE "RISK FACTORS UNDERWRITER AS MARKET MAKER". THE UNDERWRITER MAY
DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
The Shares are being offered by the Underwriter on a "firm commitment"
basis when, as, and if delivered to and accepted by the Underwriter and subject
to various prior conditions, including the right to reject an order in whole or
in part. It is expected that delivery of the Shares will be made against payment
therefor on or about ________, 1996 at the offices of the Underwriter.
SPECIAL STANDARDS FOR SHARES SOLD IN CALIFORNIA
3
<PAGE>
Each California investor, and each transferee thereof who also is a
California investor, must have an annual gross income of at least $65,000 and a
net worth, exclusive of home, furnishings and automobiles, of at least $250,000,
or in the alternative, a net worth, exclusive of home, furnishings and
automobiles, of at least $500,000. In addition, an investor's total purchase may
not exceed 10% of such investor's net worth.
AVAILABLE INFORMATION
The Company does not presently file reports and other information with the
Securities and Exchange Commission (the "Commission"). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a web site on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The Company
has filed, through EDGAR, with the Commission a registration statement on Form
SB-2 (herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Act of which this Prospectus forms a part.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information
reference is made to the Registration Statement.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. Each prospective purchaser is urged to read this
Prospectus in its entirety. Unless otherwise indicated, no effect is given in
this Prospectus to the Underwriter's Purchase Option or Over-Allotment Option.
All references herein to a number of shares of Common Stock of the Company gives
effect to the merger of Diaber Laundromat, Inc., a New York corporation with and
into the Company.
The Company
Ecomat, Inc., a Delaware corporation, and its subsidiaries (collectively,
the "Company") have developed and operate a wet-cleaning process (described
below) which, in management's belief, is the first environmentally sound
solution to current dry cleaning methods. Most traditional dry cleaners use the
cleaning solvent, perchloroethylene, known as "perc" for short. Before the
introduction of perc in the 1940s, the dry cleaning industry depended on
petroleum as its cleaning solvent. Perc was immediately adapted for use by the
dry cleaning industry due to its lower flammability than petroleum. The Company
was incorporated on December 14, 1995 pursuant to the laws of the State of
Delaware. The Company is the successor to Diaber Laundromat, Inc., a New York
corporation ("Diaber"), which was incorporated pursuant to the laws of the State
of New York on September 21, 1992. The Company was organized to enable Diaber to
merge with and into the Company in order to effectuate a reincorporation in the
State of Delaware. Diaber merged with and into the Company on March 29, 1996.
The Company's executive offices are located at 147 Palmer Avenue, Mamaroneck,
New York 10543-3632. The Company's telephone number is (914) 777-3600.
The Company has been formed to develop the Ecomat concept nationally and
internationally which, management believes, provides the first environmentally
sound solution to current dry cleaning methods in the United States. Ecomat has
three subsidiaries:
1. 8th Street Laundromat, Inc., a full-service Ecomat cleaners and
laundromat which opened on October 24, 1993. The facility has served as the base
for the Company's research and development program since 1993. New methods of
wet-cleaning, water recycling, and automated machine- monitoring have been
advanced by the Company at this location. See "Business-Research and
Development."
2. Ecoclean Systems International, Ltd., a full-service Ecomat cleaners and
laundromat which opened on October 14, 1995. The facility is the flagship store
of the Company and the prototype for all Ecomat full-service franchises. A fully
operational water
5
<PAGE>
recycling plant is in place as well as all proprietary hardware and software
created by the Company for its own and its franchisees' use.
3. Ecofranchising, Inc., the franchisor of the Ecomat concept. The Company
began offering franchises in October of 1994. The are currently four signed
franchise agreements for four cluster franchises, two in New Jersey, and one
each in Long Island, NY and Brooklyn, NY. In addition, there is one Ecomat self
service laundry facility franchise in Manhattan, NY and one Ecomat route
franchise in Westchester County, NY. See "Business."
The most detrimental factor that adversely affects the dry-cleaning
industry at present is its reliance on the cleaning solvent, perc. Perc has a
variety of toxic effects, which have been documented primarily in studies of
dry-cleaning workers and others exposed to perc on the job. Excessive exposure
to perc can cause damage to the central nervous system, liver, kidneys, and the
reproductive system. The International Agency for Research on Cancer recently
reclassified perc as a "probable human carcinogen" from a "possible human
carcinogen". In New York State alone, the Department of Health has stated that
about 170,000 state residents are exposed to high perc concentrations because
they live in apartments near a dry-cleaner or work in a building with a
dry-cleaner. In addition, the perc cleaning process produces contaminated
wastewater that must be disposed of somewhere. Evidence strongly suggests that
some dry-cleaners are dumping this water into municipal sewers causing Super
fund issues for owners of commercial real estate and neighboring tenants who
feel the impact of contaminated sites. See "Business The Dry Cleaning Industry."
In July 1996 the Department of Environmental Conservation of the State of New
York released (for comment to the public) revisions to the "perc" dry cleaning
regulations (6 NYCR Part 232) which, when put into effect, will require
traditional dry cleaners, at their own expense, to upgrade outdated machinery,
post notice warnings of the dangers of "perc", construct vapor barriers, adhere
to record keeping requirements, pay for semi-annual inspections and attend
training sessions. See "Governmental Regulation."
The Ecomat system uses a combination of cleaning techniques. These include
multi-process wet-cleaning methods which were studied by the Environmental
Protection Agency ("E.P.A.") and described in the E.P.A. report "Multi-process
Wet-Cleaning - Cost and Comparison of Conventional Dry Cleaning and An
Alternative Process; U.S. Environmental Protection Agency-EPA 744-R-93-004,
September 1993". Such study concluded that the wet-cleaning process was proven
to be superior to the traditional dry cleaning method in 4 of 6 areas used to
measure quality and customer satisfaction. It rated equal to traditional dry
cleaning in the other 2 areas. The Company has also developed its own techniques
of treating particular fabrics that can be problematic to both "dry" and "wet"
cleaners alike. "Wet-cleaning" as opposed to "dry cleaning" is a method for deep
cleaning fabrics using water, steam, plant-based cleaning agents rather than
toxic solvents, and natural bleaching agents such as hydrogen peroxide rather
than chlorine -
6
<PAGE>
based bleaches. The special techniques that the Company has developed include:
the tumbling of garments to loosen soil, the choice of water-based cleaning
method (which can include steaming, steam closet, mechanical wet-cleaning,
sink-washing, machine washing), specialized drying with humidity control and
finishing of garments with roboticsteam finishing equipment.
Instead of using a perc machine, Ecomat utilizes a wet-cleaning system that
consists of a specialized washer and a heat and humidity-sensitive dryer. With
the introduction of special non-toxic cleaning products, the Ecomat cleaner
washes garments in water. Water is one of the best known cleaning solvents in
the world. It can remove water-based stains such as perspiration that perc
cannot because perc is only a degreaser. The grease-based stains are removed
equally as well by the Ecomat spotting products.
Ecomat laundromats use state-of the art, energy and water-efficient
front-load washers that are controlled by proprietary hardware and software that
have been developed by the Company for optimal energy, productivity and cost
efficiency. Because of Ecomat's water recycling system and related equipment,
management believes that the Ecomat water recycling system will allow for
laundromats to be built in municipalities that currently would not permit a
business with such high uses of water to exist.
An Ecomat store or franchise offers several configurations for the kind
of facility best suited to the location chosen:
o An Ecomat Full - Service Facility that includes: self-service coin-operated
laundromat with wash and fold service, a cleaning plant on premises and an
entertainment area that may include televisions and lounge, vending machines,
mailboxes and computers.
o An Ecomat Cleaners that includes: wash and fold service and a cleaning plant
on premises.
o An Ecomat Satellite Facility that functions as a convenient drop-off site for
both wash and fold laundry and cleaning where wash and fold is also done on
premises.
o An Ecomat Self-Service Laundry Facility that has self service coin-operated
laundry machines and also serves as a drop-off site for wash and fold and
cleaning.
o An Ecomat Route Franchise that consists of a franchise operating a vehicle
that is affiliated with an Ecomat cleaners or full service facility.
o An Ecomat Drop Site that consists of a drop off site for wash and fold and
cleaning but where no wash and fold is done on premises.
7
<PAGE>
The Company's objective is to develop recognition of the Ecomat cleaners
and laundromat concept and to maximize the value of the Company for its
shareholders. To accomplish these objectives, the Company intends to pursue a
strategy designed to achieve high levels of customer satisfaction and repeat
business. The Company believes it will be successful in meeting its objectives
through the opening of more strategicallylocated company-owned stores and
through expansion through franchise unit sales. The Company intends to open a
combination of eleven (11) route franchises and satellite and/or drop site
locations for each of its Company-owned full service facilities in Manhattan and
Mamaroneck, New York. The two full service facilities will operate as central
cleaning plants for these 22 satellite units providing for increased revenue in
such full service facilities while minimally increasing expenses related to such
expansion. The Company intends to build name-brand recognition in these two
markets within a relatively short period of time. In addition, the four
franchise cluster developments, the Ecomat self service laundry facility
franchise and the Ecomat route franchise already sold will allow the Company to
achieve broader recognition through the entire area. The Company has been
negotiating for a full-service facility in Chicago, Illinois that will be
Company-owned, and will begin negotiations for a similar facility in the Bay
Area of San Francisco, California. These two facilities and concomitant
satellite locations will afford the Company the opportunity to achieve its goals
of national expansion through both Company-owned and franchised units. In
addition, the Company intends on expanding its operations through a program of
dry-cleaner and/or laundromat conversions to the Ecomat concept. To this end,
the Company offered to waive its initial conversion fee to any existing New York
dry cleaning establishment until the earlier of December 31, 1996 or the date
the new rules regulating dry cleaners in New York take effect. In addition, the
Company intends on expanding its operations through direct expansion of the
franchise program and the Ecomat system. See "Business - The Strategic Plan of
Operations."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
8
<PAGE>
The Offering
Securities Offered................... 1,200,000 shares of Common Stock. See
"Description of Securities."
Offering Price Per Share........... $5.00
Common Stock Outstanding
Prior to the Offering.............. 2,400,000 shares
Common Stock to be Out-
standing After the Offering
(1)........................ 3,600,000 shares
Use of Proceeds.................. The Company intends to apply the net
proceeds of this Offering for the
establishment of Company facilities, the
expansion of its franchising program,
research and development, marketing, debt
retirement, working capital and general
corporate purposes. See "Use of
Proceeds."
Risk Factors........................ An investment in the Shares involves a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
Proposed Nasdaq SmallCap
Symbol (2)......................... ECMT
- ----------
(1) Excludes up to (i) 180,000 shares of Common Stock reserved for issuance
upon the exercise of the Underwriter's Over-Allotment Option, and (ii)
120,000 shares of Common Stock reserved for issuance upon the exercise of
the Underwriter's Purchase Option. See "Description of Securities" and
"Underwriting."
(2) Although it is expected that the Common Stock will be included on Nasdaq,
there can be no assurance that an active trading market in the Common Stock
will develop, or if such a trading market in the Common Stock does develop,
that it will be sustained. See "Risk Factors."
9
<PAGE>
SUMMARY FINANCIAL INFORMATION AND DATA
The following summary of financial data has been summarized from the
Company's financial statements included elsewhere in this Prospectus. The
information should be read in conjunction with the financial statements and the
related notes thereto.
Statements of Operations Data
<TABLE>
<CAPTION>
Year Ended December 31, Six months ended
----------------------- June 30
-------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 147,000 $ 196,000 $ 84,000 $ 329,000
Costs and expenses 976,000 1,284,000 544,000 843,000
Operating loss (829,000) (1,088,000) (460,000) (514,000)
Other income (expense), net (6,000) (25,000) -- (40,000)
----------- ----------- ----------- -----------
Loss before income taxes (835,000) (1,113,000) (460,000) (554,000)
Provision for income taxes 4,000 6,000 3,000 4,000
----------- ----------- ----------- -----------
NET LOSS $ (839,000) $(1,119,000) (463,000) (558,000)
----------- ----------- ----------- -----------
Net loss per share $ (.35) $ (.47) $ (.19) ($ .23)
----------- ----------- ----------- -----------
Weighted average shares
outstanding 2,400,000 2,400,000 2,400,000 2,400,000
----------- ----------- ----------- -----------
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
December 31, June 30, 1996
------------ -------------
1994 1995 Actual As adjusted(1)
---------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Working Capital (deficiency) $ (14,000) $ (163,000) (532,000) $ 3,248,000
Total Assets 279,000 823,000 1,026,000 4,627,000
Total liabilities 102,000 1,445,000 2,205,000 1,065,000
Stockholders' equity (deficiency) 177,000 (622,000) (1,180,000) 3,740,000
</TABLE>
(1) As adjusted to give effect to this Offering, assuming a public offering
price of $5.00 per Share with net proceeds of $4,920,000. Also reflects
payment of notes payable in the approximate amount of $1,140,000 from the
Offering proceeds. See "Use of Proceeds."
10
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk and should be made only by investors who can afford the loss of
their entire investment. Accordingly, in analyzing an investment in these
securities, prospective investors should carefully consider, along with the
other matters referred to herein, the following risk factors:
1. Limited Operating History; Losses; Deficit Working Capital; Deficit Equity
To date, the Company operates only three facilities. The Company opened its
Companyowned facility at 140 West 72nd Street in New York City in October of
1993. A second Companyowned store (which also houses corporate headquarters) was
opened in October of 1995. A third Company-owned store (an Ecomat satellite
facility) opened in June 1996. Since the first two stores are laboratories for
new product creation and on-going research and development, they do not achieve
the financial benchmarks of a true operating facility. Since inception to June
30, 1996, the Company's operations suffered losses of $ 2,790,000. For the six
months ended June 30, 1996 the Company's operations suffered losses of $558,000.
At December 31, 1995 and June 30, 1996, the Company had a working capital
deficiency of $163,000 and $532,000, respectively, and a deficit in equity of
$622,000 and $1,180,000, respectively. The Company will be subject to numerous
risks, expenses, problems and difficulties typically encountered in expanding a
new business. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
2. Modified Report of Independent Certified Public Accountants Raises Doubt on
Ability to Continue as a Going Concern
As a result of the Company's current financial condition, the Company's
independent certified public accountants have modified their report on the
Company's consolidated financial statement for the period ended December 31,
1995. The Company's independent certified public accountants report on the
consolidated financial statement includes an explanatory paragraph stating that
the net losses, accumulated deficit and negative working capital raise
substantial doubt about the Company's ability to continue as a going concern.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds," "Business", and "Financial Statements and
Notes."
3. Limited Revenue; Probable Future Losses
The Company has generated only limited revenue from the sale of franchises
and from operating its Company-owned stores. Currently, the Company has six
signed franchise agreements (four cluster developments, one self service
facility franchise and one route franchise). The Company has undertaken a
program to increase the amount of franchise sales by recruiting a franchise
sales specialist. The Company anticipates that it may incur losses in its
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Company-owned facilities until new satellite units can be added to both
facilities, which the Company does not anticipate will occur until several
months following the consummation of this Offering. There can be no assurance
that the Company will be successful in opening the number of Ecomat satellite
stores required to generate meaningful revenue or achieve profitable operations
or that new Ecomat stores opened by the Company or its franchisees will be
operated profitably.
4. New Concept; Uncertainty of Market Acceptance
Ecomat cleaners and laundromats will be a new concept in the United States
and, consequently, the level of demand and market acceptance are subject to a
high degree of uncertainty. Ecomat's name and servicemarks are not widely known.
The Company has not conducted and does not intend to conduct concept feasibility
or market studies. There can be no assurance that the Company will be able to
formulate a successful marketing strategy or that there will be a significant
demand for Ecomat cleaners and laundromats. As of June 30, 1996, there were
three Ecomat cleaners and laundromat Company-owned stores in operation. Ecomat
has, therefore, not achieved a significant level of consumer recognition or
demand. See "Business."
5. Reliance on Third Party Suppliers and Manufacturers
The Company has entered into a franchisor account agreement with Wascomat
of America, Inc. ("Wascomat") to provide laundromat and wet-cleaning equipment
at a favorable discount, to itself and its franchisees. Such agreement may be
terminated by either party upon ninety (90) days notice. The Company cannot
assure the continued operation of Wascomat or its financial status. In the event
that Wascomat shall no longer supply the Company with equipment, there are other
machine manufacturers who could supply the Company with said equipment. However,
as in the case of Wascomat, it is not possible to predict the economic health of
said companies. The Company also has verbal agreements with VeitGMBH and
Highsteam Systems, Inc. to purchase specialized finishing equipment and with
Seitz Chemicals GMBH to purchase special cleaning products and cannot likewise
assure the continued fiscal viability of said companies. See "Business -
Suppliers and Manufacturers of Material."
6. Cleaners and Laundromat Industries and Competition
The dry-cleaning and coin-operated laundromat industries are highly
competitive with respect to price, service, location and garment quality and are
affected by changes in consumer tastes, as well as national, regional and local
economic conditions and demographic trends. The Company and its franchisees
compete with a broad range of cleaners and laundromats, including those that
offer valet pick-up and delivery services. These competitors include
international, national and regional chains, franchisees of other cleaners and
laundromat chains, as well as stand-alone cleaners and laundromats. There is
also a large number of small independent cleaners and laundromats that offer
pick-up and delivery services. Many competitors have been
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in existence longer and have a more established market presence and
substantially greater financial, marketing and other resources than the Company
and its franchisees. Therefore, there can be no assurance that the Company will
be able to compete successfully. See "Business Competition."
7. Decline in Franchised Dry Cleaners and other Dry Cleaners
Although there have been franchised dry cleaners that have experienced an
increase in their number of franchise units during the last decade, there are
certain franchised dry cleaners that have experienced a decline in the number of
its franchise units. Therefore, there can be no assurance that the Company will
be able to increase the number of its franchise units. Although there has been
an increase in the number of dry cleaning establishments in the last decade,
some dry cleaning businesses have declined due to, among other things,
increasing acceptance of casual clothes in the workplace. Therefore, there can
be no assurance that the Company's operations will increase due to such change
in acceptable workplace attire. See "Business Competition."
8. Ability to Find Suitable Cleaners and Laundromat Locations
The choice of site location for each Ecomat cleaner and laundromat is
extremely important to the potential success of the particular store. The
Company has adopted a cluster development approach to establishing a presence in
a chosen location. The main plant, which is a full-service facility which
includes a wet-cleaning plant, a coin-operated laundromat and an entertainment
area, can be located in a free-standing one-level unit. Up to three satellite
locations are chosen within a specific territory and opened (under a Development
Agreement) within two years to supply work to the main plant. Specific permitted
use and zoning regulations will vary from municipality to municipality, making
the process of site selection a highly complicated one. To the extent possible,
the Company plans to retain enough characteristics to remain consistent with the
prototype of the Ecomat facility. The Company and its franchisees will have to
compete with numerous other businesses for suitable locations for its stores and
there is no assurance that the Company will find an adequate number of suitable
locations. See " Business - Expansion of Ecomat System and New Store Locations."
9. Dependence Upon Key Personnel
The success of the Company is highly dependent upon the continued services
of Diane Weiser, the Company's President and Chief Executive Officer. The loss
of the services of Ms. Weiser would have a material adverse effect upon the
business of the Company and its relationships with customers and franchisees.
The Company has entered into an employment agreement with Ms. Weiser. However,
if the employment by the Company of Ms. Weiser terminates, or she is unable to
perform her duties, the Company may be substantially affected. The Company
intends on obtaining prior to the offering key man insurance on the life of Ms.
Weiser in the amount of $1,000,000, to be payable to the Company. There can be
no
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assurances that the Company will be able to replace Ms. Weiser in the event her
services become unavailable or that the proceeds of such insurance would be
adequate to compensate the Company for the loss of her services. See
"Management."
10. Government Regulation
The Company is subject to various laws and regulations of the localities in
which the facilities are located, which will affect its business. These laws and
regulations include building, health, sanitation, water use, employment and
safety regulations. New laws or regulations could have a significant financial
impact on the operations of the Company's facilities. See "Business -
Governmental Regulation."
11. Liability in Connection with Providing Delivery Service
A risk to the Company, as with other companies which offer delivery
services, is the potential for claims resulting from traffic accidents involving
its delivery personnel. There exists the possibility that a court could find the
Company liable for substantial damages if one of its drivers or one of its
franchisee's drivers is involved in an accident. The Company maintains standard
insurance coverage on all of its vehicles and requires all of its franchisees to
do the same.
12. Cost of Franchising and Cost of Converting to Ecomat Concept
The Company has outlined in great depth in its Uniform Franchise Offering
Circular (a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part) the start-up costs for Ecomat
facilities. These costs (described below) are substantial and could represent a
barrier to entry to many potential franchisees, which could materially adversely
affect the operations and revenues of the Company. A full service facility can
cost between $252,103 to $ 330,767; a cleaners between $154,045 to $188,132; a
satellite between $50,111 to $90,775; a drop site between $11,250 to $26,750; a
route franchise between $25,800 and $53,550; and a laundromat between $156,743
to 252,677.
Part of the Company's plan of operation is to persuade existing
dry-cleaners and laundromats to convert to the Ecomat cleaners and laundromat
franchise concept. However, as in the case of start-up costs, the cost of
conversion is substantial and there is no assurance that the plan of converting
existing dry cleaners and laundromats will be successful. The cost of conversion
can range between $15,000 and $105,000 depending upon the equipment, store
configuration and other factors. See "Business - Start Up Costs and Conversion
Franchises."
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13. Limitation on Director Liability
As permitted by Delaware law, the Company's Certificate of Incorporation
limits the liability of directors to the Company or its stockholders for
monetary damages for breach of a director's fiduciary duty except for liability
in certain instances. As a result of the Company's charter provision and
Delaware law, stockholders may have limited rights to recover against directors
for breach of fiduciary duty. See "Description of Securities".
14. Additional Authorized Shares of Common and Preferred Stock Available for
Issuance May Adversely Affect the Market
The Company is authorized to issue 25,000,000 shares of its Common Stock,
$.0001 par value. If all of the 1,200,000 Shares offered hereby are sold, there
will be a total of 3,600,000 shares of Common Stock issued and outstanding.
However, the total number of shares of Common Stock issued and outstanding does
not include the exercise of up to 180,000 Shares included in the Underwriter's
Over-Allotment Option to purchase 180,000 shares of Common Stock, the option
granted to the Underwriter to purchase up to 120,000 Shares in connection with
this offering, and up to 4,000,000 shares authorized for issuance under the
Company's stock option plans. After reserving a total of 300,000 shares of
Common Stock for issuance upon the exercise of the Underwriter's Purchase Option
and the Over- Allotment Option and up to 4,000,000 shares authorized for
issuance under the Company's stock option plans, the Company will have at least
17,100,000 shares of authorized but unissued Common Stock available for issuance
without further shareholder approval. As a result, any issuance of additional
shares of Common Stock may cause current shareholders of the Company to suffer
significant dilution which may adversely affect the market. The Company has
agreed with the Underwriter that it will not issue any of its capital stock for
a period of 24 months from the Effective Date without the prior written consent
of the Underwriter.
In addition to the above-referenced shares of Common Stock which may be
issued without shareholder approval, the Company has 1,000,000 shares of
authorized preferred stock, the terms of which may be fixed by the Board of
Directors. The Company presently has no issued and outstanding shares of
preferred stock and while it has no present plans to issue any shares of
preferred stock, the Board of Directors has the authority, without shareholder
approval, to create and issue one or more series of such preferred stock and to
determine the voting, dividend and other rights of holders of such preferred
stock. The issuance of any of such series of preferred stock could have an
adverse effect on the holders of Common Stock. See "Description of Securities."
15. Dependence on Proceeds of the Offering; Potential Need for Additional
Financing
The Company is dependent on the proceeds of this offering or other
financing to continue in business and to implement its business plan. The
Company believes that the funds to be
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<PAGE>
raised in this offering, together with the projected revenues of the Company,
will be sufficient to enable the Company to pursue both its present and its
proposed business activities for the ensuing twelve (12) months. There can be no
assurance that such funds will, in fact, be sufficient or that conditions and
circumstances described herein may not result in subsequent cash requirements by
the Company. In the event of such developments, attaining additional financing
under such conditions may not be possible, or even if additional capital may be
otherwise available, the terms on which such capital may be available may not be
commercially feasible or advantageous. See "Use of Proceeds."
16. Risks Attendant to Expansion
The Company intends to utilize a significant portion of the net proceeds of
this Offering to expand its business. In this regard, the Company intends to
allocate a significant portion of the proceeds to market and advertise the
Company's products, to expand its franchising program, to open new stores and
for general administrative costs. Many of the risks of expansion may be
unforeseeable or beyond the control of management. There can be no assurance
that the Company will successfully implement its business plan in a timely or
effective manner. See "Use Of Proceeds" and "Business."
17. No Common Stock Dividends
The Company has not paid any dividends on its Common Stock since its
inception and does not anticipate paying dividends on its Common Stock in the
foreseeable future. The future payment of dividends is directly dependent upon
future earnings of the Company, its financial requirements and other factors to
be determined by the Company's Board of Directors. For the foreseeable future,
it is anticipated that any earnings which may be generated from the Company's
operations will be used to finance the growth of the Company even if the
Company's operations are profitable. See "Dividend Policy."
18. Immediate Substantial Dilution
Purchasers in this offering will incur an immediate and substantial
dilution of $4.01 per Share (or 80.2%) in the net tangible book value of their
shares (an increase of approximately $1.56 per Share to existing shareholders).
Additional dilution may result by future financing arrangements or if the
Underwriter exercises its Underwriter's Purchase Option. See "Dilution."
19. Consideration Paid By Present Shareholders
The present shareholders of the Company have acquired their equity
interests (2,400,000 shares) in the Company at a cost of approximately
$1,610,000 ($0.67 per share) substantially below the offering price.
Accordingly, the public investors will bear most of the risk of loss. The
Company's present shareholders have agreed not to sell, transfer or otherwise
pledge their
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<PAGE>
shares for a period of 24 months from the Effective Date unless it receives the
prior written consent of the Underwriter. See "Underwriting."
20. Control by Management
Upon completion of this offering, officers and directors and persons who
may be deemed affiliates, as a group, will beneficially own and will have the
right to vote 66.66% of the then issued and outstanding Common Stock of the
Company (63.49% if the Over-Allotment Option is exercised in full), assuming no
exercise of the Underwriter's Purchase Option. Inasmuch as the Company's
Certificate of Incorporation does not provide for cumulative voting, such
persons will be in a position to elect all of the directors and thereby control
the Company. The purchasers of shares in this offering will have only a limited
ability to elect any directors of the Company or to significantly affect
corporate decision making on material events such as mergers or acquisitions.
See "Principal Shareholders" and "Description of Securities."
21. Proceeds to Benefit Principal Shareholder/Director
Upon the closing of the offering, the Company intends to repay a $1,000,000
loan to Palatin, AG, a Swiss corporation who is a principal shareholder and
whose sole shareholder is a director of the Company (Astrid Hindemith). Thus,
purchasers of Shares in this offering are advised that such principal
shareholder and director personally benefits in the completion of this offering.
See "Use of Proceeds," Management" and "Principal Shareholders" and "Certain
Transactions."
22. Arbitrary Determination of Offering Price
The offering price for the Shares has been determined by negotiations
between the Company and the Underwriter and does not bear any relationship to
the assets, book value, earnings or net worth of the Company or any other
recognized criteria and should not be considered to be an indication of the
actual value of the Company. See "Underwriting" and "Description of Securities."
23. Broad Discretion in Application of Proceeds
Approximately $1,620,000, or 32.92%, of the estimated $4,920,000 of net
proceeds will be applied to working capital and general corporate purposes.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. See "Use of Proceeds."
24. No Assurance of Public Market; Volatility of Price
Prior to this Offering, there has been no public trading market for the
Common Stock. Although the Company's Common Stock has been approved for
inclusion on the Nasdaq SmallCap Market, there can be no assurance that a
regular trading market for the Common
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<PAGE>
Stock will develop after this offering or that, if developed, it will be
sustained. Therefore, purchasers of the Shares may be unable to resell the
securities offered herein 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. The trading price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, announcements by the Company or others, developments affecting the
Company, and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations in recent years. These
fluctuations have had a substantial effect on the market price for many
companies, often unrelated to the operating performance of such companies, and
may adversely affect the market price of the Common Stock. See "Underwriting."
25. Potential Effect of Penny Stock Rules on Liquidity of Shares
If the Company's securities are not listed on Nasdaq or certain other
national securities exchanges and the resale price thereof falls below $5.00,
then resales of such securities will be subject to the requirements of the penny
stock rules absent the availability of another exemption. The SEC has adopted
rules that regulate broker-dealer practices in connection with transactions in
"penny stocks." 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 by the exchange or system).
The penny stock rules require a broker-dealer to deliver a standardized risk
disclosure document prepared by the SEC, to 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, monthly account statements
showing the market value of each penny stock held in the customer's account, to
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 security 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. If the Company's securities were 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.
26. Nasdaq Listing Requirements
Under prevailing rules of the National Association of Securities Dealers,
Inc ("NASD"), in order to qualify for initial quotation of securities on The
Nasdaq Small Cap Market, a company, among other things, must have at least
$4,000,000 in total assets, $2,000,000 in total capital and surplus, $1,000,000
in market value of public float and a minimum bid price of $3.00 per share.
Although the Company may upon the completion of this Offering qualify for
initial quotation of its securities on The Nasdaq Small Cap Market, for
continued listing on The Nasdaq Small Cap
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<PAGE>
Market, a company, among other things, must have $2,000,000 in total assets,
$1,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy the requirements for quotation on The Nasdaq Small Cap Market, trading,
if any, in the securities offered hereby would be conducted in the
over-the-counter market in what are commonly referred to as the "pink sheets" or
on the NASD OTC Electronic Bulletin Board. As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the securities offered hereby. The above-described rules may materially
adversely effect the liquidity of the market for the Company's securities.
27. Underwriter's Option
Subject to the requirements of the SEC and NASD, the Company will grant to
the Underwriter, as partial consideration for services rendered, options to
purchase up to 120,000 Shares (the "Underwriter's Purchase Option") at an
exercise price of $6.00 per Share. The Underwriter's Purchase Option may not be
sold, transferred, assigned or hypothecated for a period of one year from the
date of this Prospectus, except to officers of the Underwriter and members of
the selling group, as well as their officers and partners. An exercise of the
Underwriter's Purchase Option, which may be effected at any time, either in
whole or in part, beginning one year after the date of this Prospectus for a
period of four years thereafter, may adversely affect the Company's ability to
obtain equity capital, and, if the Common Stock issuable upon the exercise of
the Underwriter's Purchase Option is sold in the public market, may adversely
affect the market price of the Company's Common Stock. The Underwriter's
Purchase Option and the Shares issuable upon exercise of such option have been
included in the Registration Statement of which this Prospectus is a part. The
Company has agreed to keep such Registration Statement current, which could
result in substantial expense to the Company. This obligation is in addition to
certain registration rights granted to the Underwriter. See "Underwriting" and
"Dilution."
28. Certain Anti-Takeover Provisions
The ability of the Board of Directors to issue shares of preferred stock in
one or more series and to determine the designation, voting and other rights,
preferences, privileges and restrictions applicable to such shares, together
with the heightened shareholder approval requirements associated with certain
business combination transactions involving a Related Person (as defined) and
applicable provisions of Delaware law may have the effect of discouraging a
merger, tender offer, proxy contest or other transaction involving a change in
control of the Company that has not received the prior approval of a majority of
the Company's Board of Directors. See "Description of Securities."
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29. Underwriter as Market Maker
A significant amount of Shares which are sold in this offering may be sold
to customers of the Underwriter. Such a scenario could adversely affect the
market for and liquidity of the Company's Common Stock if additional
broker/dealers do not make a market in the Company's Common Stock. Although it
has no legal obligation to do so, the Underwriter may from time to time act as a
market maker and otherwise effect transactions in the Company's Common Stock.
The Company cannot ensure that other broker/dealers besides the Underwriter will
make a market in the Company's Common Stock. In the event that other
broker/dealers fail to make a market in the Company's Common Stock, the
possibility exists that the market for the liquidity of the Company's Common
Stock could be adversely affected, which in turn could affect shareholders'
ability to trade the Company's Common Stock.
Further, unless granted an exemption by the Securities and Exchange
Commission to its Rule 10b-6, the Underwriter may be prohibited from engaging in
any market making activities with regard to the Company's Common Stock for the
period from two or nine business days prior to the exercise of the Underwriter's
Purchase Option. As a result, the Underwriter may be unable to continue to
provide a market for the Company's Common Stock during certain periods, which
may adversely affect the price and liquidity of the Common Stock. See
"Underwriting."
30. Shares Eligible for Future Sale May Adversely Affect the Market
All of the Company's currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of two years may sell only an amount every three months equal to the greater of
(a) one percent of the Company's issued and outstanding shares, or (b) the
average weekly volume of sales during the four calendar weeks preceding the
sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for three years if there is
adequate current public information available concerning the Company. Upon the
sale of the Shares, the Company will have 3,600,000 shares of its Common Stock
issued and outstanding (3,780,000 if the Over-Allotment Option is exercised in
full), of which 2,400,000 shares are "restricted securities." Therefore, a
holder of restricted securities who has held them for at least the two year
period may sell under Rule 144. Non-affiliated persons who hold for the
three-year period described above may sell unlimited shares once their holding
period is met.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which
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may have a depressive effect on its price per share. All of the current
shareholders of the Company have agreed with the Underwriter not to sell any of
their shares of capital stock without the prior written consent of the
Underwriter for a period of 24 months from the Effective Date. See "Description
of Securities."
31. Personal Holding Company Tax.
Pursuant to the Internal Revenue Code, if (a) five or fewer individuals,
directly or indirectly, own more than 50 percent of the outstanding stock of a
corporation during the last half of the corporation's taxable year and (b) at
least 60 percent of the corporation's adjusted ordinary gross income, in
relevant part, is from dividends, interest, or royalties, the corporation will
be a personal holding company. A personal holding company is subject to the
personal holding company tax which is a penalty tax owed in addition to any
other taxes. The personal holding company tax is imposed at the rate of 39.6
percent on a personal holding company's personal holding company income that is
not distributed to shareholders. The current ownership of the Company would
cause the Company to be a personal holding company if it satisfies the income
test. The Company does not expect more than 60% of its income to be from
interest or dividends and therefore does not expect to be a personal holding
company. However, there can be no assurance that the Company will not be a
personal holding company.
32. Uncertain Protection of Patent, Trademark, Copyright and Proprietary Rights;
Servicemark and Trademark Protection
Other than as set forth below, the Company currently does not have any
patent, trademark or copyright applications pending. However, the Company may
file patent, trademarks and copyright applications relating to certain of the
Company's processes and products. If patents, trademarks or copyrights were to
issue, there can be no assurance as to the extent of the protection that will be
granted to the Company as a result of having such patents, trademarks or
copyrights or that the Company will be able to afford the expenses of any
complex litigation which may be necessary to enforce their proprietary rights.
Failure of the Company's proposed patents, trademark and copyright applications
may have a material adverse impact on the Company's business since the Company
may not otherwise be able to protect the proprietary or trade secret aspects of
its business and operations, thereby diluting the Company's ability to compete
in the marketplace. Except as may be required by the filing of patent, trademark
and copyright applications, the Company will attempt to keep all other
proprietary information secret and to take such actions as may be necessary to
insure the results of its development activities are not disclosed and are
protected under the common law concerning trade secrets. Such steps will include
the execution of nondisclosure agreements by key Company personnel and may also
include the imposition of restrictive agreements on purchasers of the Company's
products and services, including franchisees. There is no assurance that the
execution of such agreements will be effective to protect the Company, that the
Company will be able to enforce the provisions of such nondisclosure agreements
or that technology and other information acquired by the
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Company pursuant to its development activities will be deemed to constitute
trade secrets by any court of competent jurisdiction.
The Company applied for registration of its Ecoclean Servicemark (U.S.
Servicemark Application No. 74/515,635) and has received a notice of allowance
from the U.S. Patent and Trademark Office and has filed a statement of use for
this servicemark. In addition, the Company has applied for registration of its
Ecomat Servicemark (U.S. Servicemark Application No. 74/515,480) and has
received a notice of allowance as well. In addition, the Company has applied for
registration of its Ecomat and Design Trademark (U.S. Trademark Application No.
74/656, 937). This trademark was published in August 1996 and the Company has
filed a statement of use for this trademark. The Cleaner Choice Trademark
(U.S.Trademark Application No. 74/659,966) was published in July 1996. The
Company has filed a statement of use for this trademark. No assurance can be
given that the Company will be granted such trademark protection. The Company
has also applied for its Ecomat trademark with the Office for Harmonization in
the Internal Market (European Community Trademark Office) (Application No.
164,772). In the event such protection is granted, no assurance can be given
that the Company would be able successfully to defend its servicemarks and
trademarks if forced to litigate its enforceability. The Company believes that
its servicemarks and trademarks constitute a valuable marketing factor. If the
Company were to lose the use of such servicemarks and trademarks, its business
could be affected. See "Business Intellectual Property."
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USE OF PROCEEDS
The estimated net proceeds from the sale of the Shares offered hereby,
after deducting the Underwriting discount of $600,000 and other expenses of the
Offering, estimated at $480,000 will be approximately $4,920,000 ($5,703,000 if
the Over-Allotment Option is exercised in full). The Company expects to use such
net proceeds as follows:
Amount of Percentage
Proceeds of Proceeds
---------- -------
Debt Retirement(1) $1,300,000 26.42
Research and
Development(2) $ 300,000 6.10
Establishment of Company
Facilities(3) $1,000,000 20.33
Marketing (4) $ 700,000 14.23
Working Capital $1,620,000 32.92
---------- -------
Total $4,920,000 100.00%
(1) Represents partial payment of a promissory note (in the principal amount of
$1,268,000), in favor of Palatin, AG, bearing interest at 7% per annum which is
payable as follows: (a) $1,000,000 is payable on the earlier of (unless earlier
accelerated due to an event of default) (i) September 5, 2001 or (ii) the
closing of the Company's initial public offering and (b) the balance of such
indebtedness is due and payable on the earlier of (unless earlier accelerated
due to an event of default) (i) September 5, 2001 or (ii) two (2) years after
the Effective Date. The Company used the proceeds of the note for working
capital purposes. See "Management's Documentation and Analysis of Financial
Condition and Results of Operations." Palatin, AG, a Swiss corporation, is a
principal shareholder of the Company, wholly owned by Astrid Hindemith, a
director of the Company. See "Management," "Principal Shareholders" and "Certain
Transactions." Also consists of $290,000 which was borrowed by the Company for
operations from Jan Wernick. $140,000 of such amount was borrowed at an interest
rate of 12% per annum with the remaining $150,000 interest free. Mrs. Wernick is
not affiliated with the Company. Mrs. Wernick's husband, Judah Wernick, is
affiliated with the Underwriter as manager of its New York office. This amount
includes approximately $10,000 in accrued interest on the note. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
23
<PAGE>
(2) This amount represents funds to be used for the further development of the
Company's water recycling system and other energy efficient systems development
such as cogeneration, passive heat exchange, solar energy for heating hot water,
and smart card research and technology. See "Business - Research and
Development."
(3) This amount represents costs involved in opening one (1) cluster development
consisting of a total of not less than four (4) stores (one (1) full service
facility and three (3) satellite locations) and a combination of twenty two (22)
satellite, route franchises and/or drop sites (for the Company's Manhattan and
Mamaroneck facilities). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - The Strategic Plan of
Operations."
(4) The Company intends to expand its marketing efforts by advertising in all
medias, participating in national and international franchise shows, and public
relations. The Company has already embarked on an advertising campaign to
establish brand recognition for Ecomat and its franchises nationwide. This
includes advertising on cable television, radio and news print. See "Risk
Factors - New Concept; Uncertainty of Market Acceptance" and "Business -
Marketing and Public Relations."
The Company believes that the proceeds of this Offering, together with cash
flow generated from operations, will be sufficient to meet anticipated working
capital needs of the Company for 12 months. If the Company's plans change or its
assumptions or estimates prove to be inaccurate, the Company may require
additional funds to achieve anticipated increased sales or, if such funds are
unavailable, the Company will have to reduce its operations to a level
consistent with its available funding.
The allocation of the proceeds of this Offering set forth above represent
the Company's best estimate based on its present plans. If any of these plans
change, the Company's Board of Directors, in its discretion, may find it
necessary or advisable and in the best interest of the Company to reallocate
some of the proceeds within the above described categories or to other purposes.
Proceeds received on the exercise of the Underwriter's Purchase Option and the
Over-Allotment Option will be contributed to working capital of the Company.
Proceeds not immediately required for the purposes described above will be
invested by the Company in the United States principally in the United States
government securities, short-term certificates of deposit, money market funds,
or other short-term interest-bearing investments.
24
<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share after this
offering constitutes the dilution to investors in this Offering. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. At June 30, 1996, the net tangible book
value [deficit] of the Company was $(1,358,000) or ($.57) per share.
After the sale of 1,200,000 Shares (less underwriting discounts and
commissions and estimated expenses of this Offering) the pro forma net tangible
book value of the Company at June 30, 1996 would have been $3,562,000 or $.99
per share, representing an immediate increase in net tangible book value of
$1.56 per share to the existing shareholders and an immediate dilution of $4.01
per share (or 80.2%) to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
Public Offering Price Per Share(1) ....................... $ 5.00
Net tangible book value deficit per share
before Offering ................................. (.57)
Increase per share attributable to new
investors ....................................... 1.56
As Adjusted net tangible book value after
Offering(1) ..................................... .99
Dilution to new investors ................................ 4.01
(1) Does not include funds which may be received upon exercise of the
Underwriter's Purchase Option.
25
<PAGE>
If the Over-Allotment Option is exercised in full, the dilution to
purchasers of the Shares would be $1.15 per share.
The following table sets forth, at June 30, 1996, with respect to the
Company's existing shareholders and new investors, a comparison of the number of
shares of Common Stock acquired from the Company, the percentage of total
consideration paid and the average price per share of Common Stock, based upon
an initial public offering price of $5.00 per share.
Shares Purchased Total Consideration
---------------- -------------------
Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing
Shareholders 2,400,000 66.67 $1,610,000 21 $ .67
New Investors 1,200,000 33.33 $6,000,000 79 $ 5.00
--------- ------- ---------- --
Total 3,600,000 100% $7,610,000 100%
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 as adjusted to give effect to the issuance and sale of the Common Stock
offered hereby:
<TABLE>
<CAPTION>
As of June 30, 1996 Actual As Adjusted (1)
------ ---------------
================================================================================
<S> <C> <C>
Long Term Debt - notes payable $ 1,282,000 $ 142,000
Stockholders' Equity (deficit):
Preferred stock, $.0001 par value. Autho- -- --
rized 1,000,000 shares; none issued and
outstanding
Common stock, $.0001 par value. Autho- -- --
rized 25,000,000 shares; issued and out-
standing 2,400,000: issued and outstand-
ing as adjusted: 3,600,000(2)
-- --
Additional paid in capital
1,610,000 6,530,000
Accumulated deficit
(2,790,000) (2,790,000)
----------- -----------
Total stockholders' equity (deficit) (1,180,000) $ 3,740,000
=========== ===========
</TABLE>
- ----------
(1) Gives effect to the receipt of the net proceeds of the offering and payment
of notes payable. See "Use of Proceeds."
(2) Excludes up to 300,000 shares of authorized but unissued Common Stock
reserved for issuance pursuant to the Underwriter's Purchase Option as well
as the Common Stock included in the Over-Allotment Option. See
"Description of Securities" and "Underwriting."
27
<PAGE>
DIVIDEND POLICY
The Company has never paid any dividends on its Common Stock. The Board of
Directors does not anticipate paying any dividends in the foreseeable future.
The payment of any future dividends will depend on such factors as earning
levels, anticipated capital requirements, the operating and financial condition
of the Company and other factors deemed relevant by the Board of Directors.
28
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for the years
ended December 31, 1994 and 1995 and as of December 31, 1994 and 1995 have been
derived from the audited consolidated financial statments of the Company. The
statement of operations data for the six months ended June 30, 1995 and 1996 and
the balance sheet data for June 30, 1996 have been derived from the unaudited
consolidated financial statements of the Company and, in the opinion of
management, include all adjustments (consisting of normal and recurring
adjustments) which are necessary to present fairly the results of operations and
financial position of the Company for the periods and dates presented. The
selected consolidated financial and operating data for the six months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
full year. The information set forth below is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements, the Notes thereto, and the other financial and statistical
information included elsewhere in this Prospectus.
Statements of Operations Data
<TABLE>
<CAPTION>
Year Ended December 31, Six months ended
----------------------- June 30
--------------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 147,000 $ 196,000 $ 84,000 $ 329,000
Costs and expenses 976,000 1,284,000 544,000 843,000
----------- ----------- ----------- -----------
Operating loss (829,000) (1,088,000) (460,000) (514,000)
Other income (expense), net (6,000) (25,000) -- (40,000)
----------- ----------- ----------- -----------
Loss before income taxes (835,000) (1,113,000) (460,000) (554,000)
Provision for income taxes 4,000 6,000 3,000 4,000
----------- ----------- ----------- -----------
NET LOSS $ (839,000) $(1,119,000) (463,000) (558,000)
----------- ----------- ----------- -----------
Net loss per share $ (.35) $ (.47) $ (.19) ($ .23)
----------- ----------- ----------- -----------
Weighted average shares
outstanding 2,400,000 2,400,000 2,400,000 2,400,000
----------- ----------- ----------- -----------
</TABLE>
29
<PAGE>
Balance Sheet Data
<TABLE>
<CAPTION>
December 31, June 30, 1996
------------ -------------
1994 1995 Actual As adjusted(1)
-------- -------- ------ --------------
<S> <C> <C> <C> <C>
Working Capital (deficiency) $ (14,000) $ (163,000) (532,000) $ 3,248,000
Total Assets 279,000 823,000 1,026,000 4,627,000
Total liabilities 102,000 1,445,000 2,205,000 1,065,000
Stockholders' equity (deficiency) 177,000 (622,000) (1,180,000) 3,740,000
</TABLE>
(1) As adjusted to give effect to this Offering, assuming a public offering
price of $5.00 per Share with net proceeds of $4,920,000. Also reflects
payment of note payable in the approximate amount of $1,140,000 from the
Offering proceeds. See "Use of Proceeds."
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Ecomat, Inc. is a Delaware corporation ("Ecomat" or the "Company") that has
been formed to develop the Ecomat concept nationally and internationally which,
management believes, provides the first environmentally sound solution to
current dry-cleaning methods in the United States. Ecomat currently has three
Company - owned facilities in New York City, Mamaroneck, NY and Scarsdale, NY.
There are currently four signed franchise agreements for four cluster
franchises, two in New Jersey, and one each in Long Island, NY and Brooklyn, NY.
In addition, there is one Ecomat self service laundry facility franchise in
Manhattan, NY and one Ecomat route franchise in Westchester County, NY. In
addition, the Company has signed a master franchise agreement for various parts
of Europe and a letter of intent for a master franchise agreement for India. See
"Certain Transactions."
The anticipated use of proceeds include partial payment ($1,000,000) of a
promissory note in favor of Palatin AG as well as other debt in the amount of
$290,000 and interest of approximately $10,000 associated with such debt. See
"Use of Proceeds" and "Certain Transactions." The Company anticipates expending
a total of $300,000 on the following items: (i) the further development of the
Company's water recycling system, (ii) other proprietary hardware and software
(including smart card technology), and (iii) energy-conserving systems
development such as cogeneration, passive heat exchange and solar energy for
heating hot water. See "Business - Research and Development." The opening of
twenty six (26) new company stores (which include at least one (1) main
facility, three (3) satellite sites and a combination of twenty-two (22) route
franchises, satellite and/or drop sites) is projected at a cost of $1,000,000.
Marketing and public relations efforts shall be expanded and contracts with
well-known public relations and advertising firms shall be entered into. The
Company believes that the offering proceeds together with cash flow generated
from operations will be sufficient to meet anticipated working capital needs of
the Company for twelve months. See "Use of Proceeds."
Results of Operations
Fiscal Year Ended December 31, 1995 compared to the Year Ended December 31,
1994.
Revenues. The Company had revenues for the year ended December 31, 1995
consisting of income from the Company - owned stores totaling approximately
$196,000 and approximately $147,000 for the year ended December 31, 1994.
Revenues generated to date
31
<PAGE>
have not been sufficient to cover facilities costs of producing such revenues.
The amount of revenues required to cover fixed facilities costs varies by
location. The amount is dependent on market factors such as rental, payroll,
utilities and similar operating costs. For the Company's current facilities,
management believes that the amount of revenues required to cover the fixed
facilities costs at the Mamaroneck store and 8th Street store are approximately
$175,000 and $250,000, respectively. Management anticipates operations for
Mamaroneck to reach break-even by June 30, 1996 and for 8th Street to break-even
by April 30, 1996. However there can be no assurance that these expectations can
be met.
The increase of approximately $49,000 or 33% principally was due to
increased volume associated with the on-going business of the Company-owned
facilities and to a lesser extent revenue generated from the Mamaroneck store
opened in October 1995. The revenue generated in 1995 from the Mamaroneck store
totaled approximately $20,000. At December 31, 1995 the Company has recorded
approximately $76,000 of deferred franchise revenue relating to two cluster
franchises sold by the Company in 1995. However, the stores have not yet opened
and accordingly no revenue has been recognized.
Facilities Operating Costs. Cost of cleaning/laundry facilities increased
from $206,000 in 1994 to $337,000 in 1995 or 64%. This increase is primarily due
to new costs from operating the Mamaroneck facility including supplies, rent,
utilities and payroll costs amounting to $85,000. In addition, laundry costs for
the 8th St. facility increased by $68,000 which was principally due to increased
payroll costs of $63,000. Payroll costs for this store increased due to an
increase in the number of personnel and the fact that the manager of 8th Street
devoted his full time to 8th Street beginning in 1995, whereas the manager
previously had other responsibilities (in the area of franchise sales) prior to
1995.
General and Administrative Expenses. The Company's general and
administrative expenses increased from $575,000 to $858,000 or 49% from December
31, 1994 to December 31, 1995. Rent expense (other than rent relating to
cleaning/laundry facilities described above) increased from approximately
$11,000 to $78,000 from 1994 to 1995. This increase can be attributed to the
Company's corporate relocation to Mamaroneck, NY. The Company accounts for rent
expense on a straight-line basis over the respective terms of the Company's
leases. The excess of the rent expense over the required lease payment is
reflected as other long-term liabilities on the Company's balance sheet at
December 31, 1995 and 1994. Compensation expense increased from $162,000 to
$261,000 or 61% from 1994 to 1995 principally due to the following reasons: (i)
addition of new franchise sales personnel amounting to approximately $30,000 and
(ii) new staff assisting in the development of the Company's proprietary
software, hardware and water recycling system amounting to $69,000. Compensation
expense is expected to increase by approximately $143,000 due to increases under
employment agreements and the hiring of the Company's Vice President of
Franchise Sales and Marketing. See "Management." Advertising and promotion
expenses increased from $52,000 to $101,000 or 94% from 1994 to 1995 due to the
Company embarking on a franchise sales campaign in 1995. In order to further the
sales process, the Company developed, at a cost of approximately $50,000, a
CD-ROM which is used for trade shows, one-on-one presentations and for marketing
analysis in each franchise store. Loss on the disposition of assets decreased
from approximately $140,000 to $3,000 due to the closing of a Company-owned
store during 1994. As a result of the store closing, the
32
<PAGE>
Company abandoned certain cleaning equipment and leasehold improvements relating
to the renovation of the property. The leasehold improvements included plumbing,
electrical, utility upgrades and improvements which had a net book value of
$89,000. The cleaning equipment that was abandoned at the property had a net
book value of approximately $51,000. Interest expense increased from
approximately $6,000 to $30,000 principally due to a new promissory note payable
in 1995.
During 1995, the Company purchased approximately $579,000 of fixed assets
which principally consisted of additions of cleaning/laundry equipment and
leasehold improvements at the Company's Mamaroneck NY store. New equipment
consisting of washing machines, cleaning and pressing equipment and other
related equipment amounted to approximately $216,000. Leasehold improvements
consisting of construction costs including plumbing, electrical and utility
upgrades amounted to approximately $290,000. Furniture and fixtures and new
computer equipment amounted to approximately $55,000 and $18,000, respectively.
Net Loss. The net loss of the Company was $1,119,000 ($0.47 per share) for
the year ended December 31, 1995 and $839,000 ($0.35 per share) for the year
ended December 31, 1994. The Company expects to incur continuing losses until it
is able to generate revenue from franchise sales and /or substantial revenues
from the Company - owned stores.
Six Months Ended June 30, 1996 compared to the Six Months Ended June 30, 1995
Revenues. The Company had revenues from cleaning and laundry services for
the six months ended June 30, 1996 consisting of income from the Company - owned
stores totaling approximately $209,000 and approximately $84,000 for the six
months ended June 30, 1995. Revenues generated to date have not been sufficient
to cover facilities costs of producing such revenues. The amount of revenues
required to cover fixed facilities costs varies by location. The amount is
dependent on market factors such as rental, payroll, utilities and similar
operating costs. For the Company's current facilities, management believes that
the amount of annual revenues required to cover the fixed facilities costs at
the Mamaroneck store and 8th Street store are approximately $300,000 and
$270,000, respectively. Management anticipates operations for Mamaroneck to
reach break-even by December 31, 1996 and the 8th Street facility is currently
breaking even. However, there can be no assurance that these expectations can be
met or that current conditions will not deteriorate.
The increase of approximately $125,000 or 149% principally was due to
increased revenue generated from the Mamaroneck store opened in October 1995.
The revenue generated in 1996 from the Mamaroneck store totaled approximately
$74,000. Revenues generated from the 8th Street facility totalled approximately
$135,000 for the six months ended June 30, 1996, an increase of $51,000 or 60%
from the six months ended June 30, 1995. This increase was due to increased
volume at this facility. During the six months ended June 30, 1996, the Company
recorded $120,000 of franchising revenue from the sale of certain master
franchising rights to establish and operate cleaning facilities in Europe and
license other parties to establish and operate cleaning facilities in Europe.
The sale was to a director and majority stockholder of the Company. The Company
has essentially
33
<PAGE>
provided all of the services set forth under the terms of the agreement as of
June 30, 1996 and accordingly $120,000 has been recorded as franchise revenue.
See "Certain Transactions." At June 30, 1996 the Company has recorded
approximately $133,500 of deferred franchise revenue relating to several
franchises sold by the Company. However, the stores have not yet opened and
accordingly no revenue has been recognized.
Facilities Operating Costs. Cost of cleaning/laundry facilities increased
from $138,000 for the six months ended June 30, 1995 to $273,000 or 98% for the
six months ended June 30, 1996. This increase is due to new costs from operating
the Mamaroneck facility including supplies, rent, utilities and payroll costs
amounting to $130,000. Facility operating costs for the 8th St. facility were
similar for the six months ended June 30, 1995 compared to the six months ended
June 30, 1996.
General and Administrative Expenses. The Company's general and
administrative expenses increased from $389,000 to $510,000 or 31% for the six
months ended June 30, 1995 compared to the six months ended June 30, 1996. Rent
expense (other than rent relating to cleaning/laundry facilities described
above) increased approximately $30,000 due to the Company's corporate relocation
to Mamaroneck, NY. The Company accounts for rent expense on a straight-line
basis over the respective terms of the Company's leases. The excess of the rent
expense over the required lease payment is reflected as other long-term
liabilities on the Company's balance sheet at June 30, 1996 and 1995.
Compensation expense increased from $122,000 to $286,000 or 134% for the six
months ended June 30, 1995 to the six months ended June 30, 1996 principally due
to the following reasons: (i) increases under certain employment agreements and
the hiring of the Company's Vice President of Franchise Sales totalling
approximately $119,000 and (ii) severence payments accrued for the former Chief
Operating Officer totalling approximately $45,000. Advertising and promotion
expenses decreased $70,000 from $80,000 to $10,000 for the six months ended June
30, 1995 to June 30, 1996 due to the Company embarking on a franchise sales
campaign in 1995. Interest expense increased approximately $40,000 due to
various promissory notes payable issued in the latter part of 1995. (See
Liquidity and Capital Resources).
Net Loss. The net loss of the Company was $558,000 ($0.23 per share) for
the six months ended June 30, 1996 and $463,000 ($0.19 per share) for the six
months ended June 30, 1995. The Company expects to incur continuing losses until
it is able to generate significant revenues from franchise sales and /or
substantial revenues from the Company - owned stores.
Liquidity and Capital Resources
As a result of the Company's current financial condition, the Company's
independent certified public accountants have modified their report on the
Company's consolidated financial statement for the period ended December 31,
1995. The Company's independent certified public accountants report on the
consolidated financial statements includes an explanatory paragraph stating that
the net losses, accumulated deficit and negative working capital raise
substantial doubt about the Company's ability to continue as a going concern.
34
<PAGE>
During the six months ended June 30, 1996 and 1995 the Company used
approximately $141,000 and $304,000 of cash in operations. The Company used
approximately $743,000 and $571,000 of cash in operations during the year ended
1995 and 1994, respectively. The Company also used approximately $579,000 and
$67,000 of cash to purchase equipment and other fixed assets for the
Company-owned stores during the year ended 1995 and 1994, respectively. Those
amounts represented three stores that were constructed, one of which was closed
by the Company because of variance problems with the building in New York City.
The owner of this New York City building in which the Ecomat facility was
located never obtained and refused to obtain the proper certificate of occupancy
for commercial use. The Company decided that the costs and efforts to obtain
proper approvals were greater then the expected benefits of remaining at that
location. As a result of the store closing, the Company abandoned certain
cleaning equipment and leasehold improvements relating to the renovation of the
property. The leasehold improvements included plumbing, electrical, utility
upgrades and improvements which had a net book value of $89,000. The cleaning
equipment that was abandoned at the property had a net book value of
approximately $51,000. The Company has no material commitments for capital
expenditures. If the Offering is achieved, the Company intends to use the
proceeds to establish one (1) cluster development which consists of one (1) main
facility ($330,767) and three (3) satellite sites ($150,333) for a total
expenditure of $481,100 with the balance of the proceeds to be used to open a
combination of twenty-two (22) drop sites, satellites and route franchises. A
drop-site can be as low as $11,250, a route franchise $25,800 and a satellite
$50,111. The following combination is contemplated:
Two (2) satellites $100,222
Four(4) route franchises $103,200
Sixteen (16) drop sites $180,000
--------
Total $383,422
========
The balance will be allocated to either two (2) additional satellite units, four
(4) additional route franchises, or ten (10) additional drop-sites after
completion of the initial twenty-two (22) units.
To date, the Company has financed its operations primarily through its
founders who, contributing approximately $1,610,000 in equity and $1,268,000 in
a note payable, have represented a stable and reliable source of funds for the
Company through its early development stage. The $1,268,000 note is payable to a
foreign corporation wholly-owned by a stockholder/director of the Company. The
note bears interest at 7% and is payable as follows: (a) $1,000,000 is payable
on the earlier of (unless earlier accelerated due to an event of default) (i)
September 25, 2001 or (ii) the closing of the Company's initial public offering
of securities and (b) the balance of such indebtedness is due and payable on the
earlier of (unless earlier accelerated due to an event of default) (i) September
25, 2001 or (ii) two (2) years from the Effective Date. If the Offering is
completed prior to December 31, 1996, the holder shall have the right to
convert, at maturity, the balance of the indebtedness owed to it into shares of
Common Stock at a purchase price equal to the book value of the Company's Common
Stock on the date of the most recent fiscal quarter ended prior to
35
<PAGE>
conversion. See " Use of Proceeds" and "Certain Transactions." (see Note E to
the Financial Statements). The proceeds from the note payable were principally
used to fund the Company's purchases of fixed assets of $579,000 during the year
and the remaining amounts were used for operating expenses. The Company also
borrowed $290,000 evidenced by notes payable to Jan Wernick (the wife of Judah
Wernick, the manager of the Underwriter's New York office). $140,000 of the
principal amount of such notes bear interest at 12% and are payable on the
earliest of (i) the closing of the proposed initial public offering; or (ii) the
closing of a debt or equity financing of $3 million or more. The remaining
$150,000 is due and payable on the same terms and is interest free. See "Use of
Proceeds."
The Company believes that the minimum proceeds of the offering, together
with cash flow generated from operations will be sufficient to meet anticipated
working capital needs of the Company for at least the next 12 months.
Management's plans for generating sufficient cash to support its operations for
the next 12 months includes:
o cash from sales of initial franchises;
o cash from royalties upon the opening of franchised stores;
o proceeds from its intended initial public offering; and
o debt or equity funding from its principal shareholders should cash
from the above sources be insufficient.
The Company believes the minimum amount necessary to support its operations
for the next 12 months is approximately $325,000. Management determined this
amount based on its assessment of the current operations of its company-owned
facilities (which are either currently already at a break even stage or
anticipated to break even during the year ended December 31, 1996), cash of
$423,000 expected to be generated from initial franchise fees, $30,000 from
franchise royalties and the anticipated amount of general and administrative
expenses. If the Company's plans change or its assumptions or estimates prove to
be inaccurate, the Company may require additional funds to achieve anticipated
increased sales or, if such funds are unavailable, the Company will have to
reduce its operations to a level consistent with its available funding. In the
event the Company requires additional working capital it will seek additional
funding from one or several of its principal shareholders. In addition, the
Company would pursue alternative private placement of equity securities. There
can be no assurance that the Company will be successful in completing such
offerings.
36
<PAGE>
BUSINESS
GENERAL
Ecomat, Inc. (the "Company" or "Ecomat") is a Delaware corporation that has
been formed to develop the Ecomat concept nationally and internationally which,
management believes, provides the first environmentally sound solution to
current dry cleaning methods in the United States. Ecomat has three
subsidiaries:
1. 8th Street Laundromat, Inc. ("8th Street"), a company-owned store at
140 West 72 St. New York City;
2. Ecoclean Systems International, Ltd. ("Ecoclean Systems"), a
company-owned store at 147 Palmer Avenue, Mamaroneck, New York; and
3. Ecofranchising, Inc. ("Ecofranchising"), the franchisor of the Ecomat
concept.
8th Street is a full-service Ecomat cleaners and laundromat which opened on
October 24, 1993. The facility has served as the base for the Company's research
and development program since 1993. New methods of wet-cleaning, water
recycling, and automated machine- monitoring have been advanced by the Company
at this location. See "Business-Research and Development."
Ecoclean Systems is a full-service Ecomat cleaners and laundromat which
opened on October 14, 1995. The facility is the flagship store of the Company
and the prototype for all Ecomat full-service franchises. A fully operational
water recycling plant is in place as well as all proprietary hardware and
software created by the Company for its own and its franchisees' use.
Ecofranchising is the franchisor of the Ecomat concept. The Company began
offering franchises in October of 1994. See "Business-Franchise Agreements."
INDUSTRY OVERVIEW
The Commercial Laundry Industry
In the first half of this century, a thriving commercial laundry industry
conveniently picked up, processed and delivered tons of laundry to millions of
households. It flourished because home-based laundering was a tedious chore that
involved boiling, scrubbing on a board, draining, refilling, and rinsing,
hanging on the line, ironing, etc. With the advent of the home washer and dryer
and the coin-operated laundromat in the early 1950's and the creation of
wash-n-wear fabric in the 1960's, consumer demand for commercial laundering
declined. There are now over 30,000 coin-operated laundromats in the United
States. The newest trend of the 1980's and 1990's has been the increase in the
wash and fold valet service offered by many laundromats that can account for as
high as forty percent (40%) of a laundromat's revenue depending upon location.
37
<PAGE>
Most of these laundromats, however, do not offer pick-up and delivery services.
Measured in today's dollars, the coin-operated laundromat industry is
approximately a $2.4 billion dollar industry. Management believes that the high
cost of water in many municipalities and the exorbitant impact of "hook-up" fees
that are charged to new laundromats based on the number of washers installed are
barriers to entry in the commercial laundry industry.
The Dry-Cleaning Industry
The dry-cleaning industry is a remnant of the old commercial laundry
industry. Drycleaning evolved to process the dressier types of garments that
were either too difficult or too time-consuming for people to wash or press
themselves. It is a very fragmented industry with over 35,000 outlets of which
95% are individually owned and operated and 98% consist of less than four (4)
stores. Hence, it is very much still a Mom 'n Pop industry. It is characterized
by a high fixed-cost structure (including labor; over 75% of the costs are
fixed) and high labor content (including management labor; approximately 45%).
Management believes that these two factors have induced dry-cleaners to compete
based on price in order to increase volume while trying to minimize labor costs.
This has led to high labor turnover rates, a lack of differentiation in the
industry and a high level of consumer dissatisfaction.
The most detrimental factor that adversely affects the dry-cleaning
industry at present is its reliance on the cleaning solvent, perchloroethylene,
known as "perc" for short. Perc has a variety of toxic effects, which have been
documented primarily in studies of dry-cleaning workers and others exposed to
perc on the job. Excessive exposure to perc can cause damage to the central
nervous system, liver, kidneys, and the reproductive system. The International
Agency for Research on Cancer recently reclassified perc as a "probable human
carcinogen" from a "possible human carcinogen". In New York State alone, the
Department of Health has stated that about 170,000 state residents are exposed
to high perc concentrations because they live in apartments near a dry-cleaner
or work in a building with a dry-cleaner. In addition, the perc cleaning process
produces contaminated wastewater that must be disposed of somewhere. Evidence
strongly suggests that some dry-cleaners are dumping this water into municipal
sewers causing Super fund issues for owners of commercial real estate and
neighboring tenants who feel the impact of contaminated sites.
Dry-cleaning is far from a "dry" process. A traditional perc cleaner sorts
clothes by color and places them by 35 or 50 pound loads in a perc machine.
There are many types of perc machines; to a lay person they look like large
front load washing machines. Instead of water, the clothes are soaked in perc,
which is an industrial degreaser, and go through a "wash" process. The oldest
system then requires that a person reach into the perc machine, pull out the
clothes soaked with perc and place them in an extractor which then recaptures
some of the perc to be used again and again. The clothes are then dried in a
special dyer which is vented to the outside air. The perc is therefore directly
released into the atmosphere. Newer machines known as "fourth generation"
machines do not have this "transfer process". They are called "dry-to-dry"
perc machines. The dry-cleaning industry, spurred on by strong environmental
regulations in Europe, has begun to address the issue of perc exposure to
workers and consumers alike.
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However, in October of 1995, the Consumers Union of United States, Inc.
released a study which determined that even with modern, unvented, dry-to-dry
perc machines, serious perc pollution in the apartments above dry-cleaners
still`poses a clear danger to the health of the apartment dwellers. The study
states that the approach currently being pursued by New York State, requiring
all dry cleaners to install more modern dry-cleaning equipment will improve the
situation from the older equipment ,but will not guarantee acceptably low perc
levels in the apartments' air. The study recommends that dry-cleaners be
prohibited from operating in residential buildings altogether, and that people
living above a dry-cleaner get their air tested regularly. In July 1996 the
Department of Environmental Conservation of the State of New York released (for
comment to the public) revisions to the "perc" dry cleaning regulations (6 NYCR
Part 232) which, when put into effect, will require traditional dry cleaners, at
their own expense, to upgrade outdated machinery, post notice warnings of the
dangers of "perc", construct vapor barriers, adhere to record keeping
requirements, pay for semi-annual inspections and attend training sessions. In
addition, in May 1996 a bill that will phase out "perc" dry cleaning from all
residential buildings in New York City was introduced. See "Business -
Governmental Regulation."
THE ECOMAT SYSTEM
Management believes that the Ecomat system provides the first
environmentally sound solution to current dry cleaning methods.
Ecomat uses a combination of cleaning techniques. These include
multi-process wetcleaning methods which were studied by the Environmental
Protection Agency ("E.P.A.") and described in the E.P.A. report "Multi-process
Wet-Cleaning - Cost and Comparison of Conventional Dry Cleaning and An
Alternative Process; U.S. Environmental Protection AgencyEPA 744-R-93-004,
September 1993". Such study concluded that the wet-cleaning process was proven
to be superior to the traditional dry cleaning method in the 4 of 6 areas used
to compare the two methods (customer satisfaction, cleanliness, appearance and
odor). It rated equal to traditional dry-cleaning in the other 2 areas
(shrinkage and cost). The Company has also developed its own techniques of
treating particular fabrics that can be problematic to both "dry" and "wet"
cleaners alike. "Wet-cleaning" as opposed to "dry cleaning" is a method for deep
cleaning fabrics using water, steam, plant-based cleaning agents rather than
toxic solvents, and natural bleaching agents such as hydrogen peroxide rather
than chlorine -based bleaches. The special techniques that the Company has
developed include: the tumbling of garments to loosen soil, the choice of
water-based cleaning method (which can include steaming, steam closet,
mechanical wet-cleaning, sink-washing, machine washing),specialized drying with
humidity control and finishing of garments with robotic-steam finishing
equipment. See "Business - Research and Development."
Ecomat has achieved a significant (if not total) reduction of hazardous
waste emissions when compared to a traditional dry cleaner. Because of the
Company's cleaning methods, management believes an Ecomat facility can be safely
located in mixed residential and commercial housing and in close proximity to
stores that sell food. High concentrations of "perc" contamination have been
detected especially in dairy products when a traditional dry cleaner is located
next to a food store.
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Instead of using a perc machine, Ecomat utilizes a wet-cleaning system that
consists of a specialized washer and a heat and humidity-sensitive dryer both of
35 or 50 pound capacity. With the introduction of special non-toxic cleaning
products, the Ecomat cleaner washes garments in water. Water is one of the best
known cleaning solvents in the world. It can remove water-based stains such as
perspiration that perc cannot because perc is only a degreaser. The greasebased
stains are removed equally well by the Ecomat spotting products.
Ecomat laundromats use and will continue to use state-of the art, energy
and waterefficient front-load washers that are controlled by proprietary
hardware and software that have been developed by the Company for optimal
energy, productivity and cost efficiency. Because of Ecomat's water recycling
system and related equipment, management believes that the Ecomat water
recycling system will allow for laundromats to be built in municipalities that
currently would not permit a business with such high uses of water to exist.
Service, Quality and Customer Satisfaction
Ecomat quality service has and will include: personal attention to the
specialized care needs of each individualized garment, convenient locations,
easily accessible pick-up and delivery, hours that cater to busy schedules,
self-service and drop-off facilities, and bright attractive store designs which
meet the requirements of the Americans with Disabilities Act.
Customers are and will be helped by a trained and courteous staff. Research
shows that while there are low switching barriers for the customer, the majority
of customers are not particularly price sensitive. Management believes that
this, coupled with the consumer's perception of poor quality and service in the
traditional dry-cleaner, presents an opportunity for an Ecomat facility to
differentiate itself through superior customer retention, brand name, increased
revenue and decreased costs.
Each full service facility has and will have a coffee bar, televisions and
a comfortable lounge. Depending on the market, Ecomat provides and will provide
recreational equipment such as healthful snack vending machines and mailboxes,
and in college markets, computers and printers tied into the Internet that can
be rented by the minute. Management believes that each location is a highly
desirable environment for families with small children, college students and
young professionals.
Store Configuration
An Ecomat store or franchise offers several configurations for the kind of
facility best suited to the location chosen:
o An Ecomat Full - Service Facility that includes: self-service coin-operated
laundromat with wash and fold service, a cleaning plant on premises and an
entertainment area that may include televisions and lounge, vending machines,
mailboxes and computers.
o An Ecomat Cleaners that includes : wash and fold service and a cleaning plant
on premises.
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o An Ecomat Satellite Facility that functions as a convenient drop-off site for
both wash and fold laundry and cleaning where wash and fold is also done on
premises.
o An Ecomat Self-Service Laundry Facility that has self service coin-operated
laundry machines and also serves as a drop-off site for wash and fold and
cleaning.
o An Ecomat Route Franchise that consists of a franchise operating a vehicle
that is affiliated with a Ecomat cleaners or a full service facility.
o An Ecomat Drop Site that consists of a drop off site for wash and fold and
cleaning but where no wash and fold is done on premises.
Store Operations
The goal of the Company in all its company-owned and franchised locations
is to make it pleasurable for the customer to have clothes laundered and cleaned
in an environmentally-sound way, and to become the industry leader in the
laundromat and cleaning industries.
In order to achieve this goal, all stores are and will be required to
adhere to the Company's standards of cleanliness, service and quality. The
Company believes that its operating systems, store layout and cluster program
(described below) result in lower operating cost, improved cleaning quality and
higher customer service.
Training and Development
The Company has developed operations manuals that cover all areas of
technical and operational performance. The manuals guide the operator through
garment cleaning techniques, delivery services, merchandising and promotions.
The Company offers an extensive training program (which includes
pre-opening and postopening training) for its staff and its franchisees and
their staffs, including education of management in the operation of a business.
The Company continually updates all training programs and manuals to offer the
most up to date information available.
Targeted Marketing
The Company's marketing programs target the delivery area of each store,
making extensive use of direct mail promotions, leaflets and local media
advertising such as radio and cable television. The local marketing efforts
include more effective involvement with community-oriented activities with
sports teams, schools and other organizations. The Company has produced its own
CD Rom which runs in every company-owned and franchised unit. The CD-Rom is
interactive and allows the Company to track customer preferences through direct
feedback to the Company's corporate headquarters. The Company can then adjust
its marketing based on these preferences.
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The CD Rom includes all of the press in the television, radio and print
media that has ever appeared about Ecomat. It also gives the viewer a 3D tour of
a full-service Ecomat facility and a demonstration of the different
configurations of Ecomat franchises available. The Company utilizes the CD Rom
at industry and franchise shows and allows the Company to bring the Ecomat
concept directly to the viewer whether it be at a meeting, large convention, or
at a one-on-one encounter.
The Company has received extensive media coverage in television (CNN, TBS,
and CBS News), radio (National Public Radio, WABC and Bloomberg Report), and in
the press (Wall Street Journal, Chicago Tribune, USA Today, Consumer Reports,
Crains New York Business, Success Magazine and the New York Times). Recently,
the Company was named in the top 6 picks for 1996 by the Franchise Times (a
publication of Crain Communications, Inc.). The Company will continue to pursue
public relations by vigorously pursuing all media coverage.
The Company participates in extensive public relations and advertising
campaigns, and keeps abreast of industry trends and franchisee news. The
Company's corporate staff is available on a daily basis for support and
assistance in every aspect of store operations.
The Company has recently established a home page on the Internet
(http://www.ecomat.com) which uses many portions of its CD Rom. The home page
will be expanded to make available cleaning services to a wide market via UPS or
other carriers.
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THE STRATEGIC PLAN OF OPERATIONS
The Company's objective is to develop recognition of the Ecomat cleaners
and laundromat concept and to maximize the value of the Company for its
shareholders. To accomplish these objectives, the Company intends to pursue a
strategy designed to achieve high levels of customer satisfaction and repeat
business. The Company believes it will be successful in meeting its objectives
through the opening of more strategically-located company-owned stores and
through expansion through franchise unit sales. The Company intends to open
eleven satellite locations for each of its Company-owned full service facilities
in Manhattan and Mamaroneck, New York. The two full service facilities will
operate as central cleaning plants for these 22 satellite units providing for
increased revenue in such full service facilities while minimally increasing
expenses related to such expansion. The Company intends to build name-brand
recognition in these two markets within a relatively short period of time. In
addition, the four franchise cluster developments, the Ecomat self service
laundry facility franchise and the Ecomat route franchise already sold will
allow the Company to achieve broader recognition through the entire area. The
Company has been negotiating for a full-service facility in Chicago, Illinois
that will be Companyowned, and will begin negotiations for a similar facility in
the Bay Area of San Francisco, California. These two facilities and concomitant
satellite locations will afford the Company the opportunity to achieve its goals
of national expansion through both Company-owned and franchised units.
New Store Locations
The Company believes that the location of an Ecomat facility is an
essential element of success. The Company intends to focus its development of
the franchise program and the expansion of company-owned facilities on store
locations which are strategically located in areas that satisfy the Company's
demographic criteria. The Company will in the near term seek locations for
Ecomat facilities (for both company-owned and franchises) in larger cities and
college towns, in particular.
Cluster Development Program and Franchise System
The Company has developed a "cluster program" to maximize the market
potential of each Company and franchised location. In the "cluster program", the
right is acquired to develop one Ecomat full-service facility or Ecomat cleaners
as a primary location. Over the first twenty-four month period after the signing
of the development agreement by a franchisee, three additional satellite
facilities are opened which affords total market saturation and economies of
scale to the entire cluster. A pick - up and delivery system is put in place
that maximizes the potential of providing rapid, efficient and convenient
service to customers.
The Company is committed to developing a strong franchise system by
attracting experienced operators and ensuring that each franchisee strictly
adheres to the Company's high standards. The Company seeks to attract
franchisees with business experience. The Company devotes significant resources
to providing its franchisees with assistance in marketing, site
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selection, store design and employee training. Franchisees are approved based on
the applicant's business background and financial resources.
Start-up Costs
A full service facility can cost between $ 252,103 to $ 330,767; a cleaners
between $154,045 to $188,132; a satellite between $50,111 to $90,775; a drop
site between $11,250 to $26,750; a route franchise between $25,800 to $53,550
and a laundromat between $156,743 to $252,677.
The differences in facility cost are primarily due to the size of the
facility and the equipment requirements. A detailed itemization of all start-up
costs is presented in the Uniform Franchise Offering Circular ("UFOC") which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. The UFOC is prepared according to the format and presentation required
by the Federal Trade Commission ("FTC") and as such is the document of record
describing this "business format franchise" offered in the thirty-five (35)
states which have no "state specific" requirements. The UFOC is also prepared
according to the requirements of (and the franchise is approved for sale in) the
States of New York, California, Illinois, Connecticut, North Carolina, Virginia
and Maryland. Abbreviated registration has been filed in Texas and Florida.
Franchise Agreements
Each franchisee must comply strictly with the Ecomat system and its
standards, specifications and procedures. The franchise agreement sets forth
various requirements regarding signage, equipment, service, hours of operation,
cleaning techniques and computerization.
Under the Company's current standard franchise agreement, the franchisee is
required to pay, at the time of the signing of the agreement, a non-refundable
fee of between $15,000 to $36,000 depending on whether the franchisee is a
conversion franchisee or a new franchisee of a "cluster program". The Company's
standard franchise agreement provides for a term of ten years (with three 5-year
renewal options) and payment to the Company of a royalty fee of 5.5% of sales.
This royalty fee can be reduced to 4.5% of sales when aggregate sales of $
40,000 per month is achieved when there are multiple satellite units within a
"cluster program". See also "Marketing and Public Relations" below. The
franchise agreements give the Company the right to terminate a franchisee for a
variety of reasons, including a franchisee's failure to make payments when due
or failure to adhere to the Company's policies and standards.
There are currently four signed franchise agreements for four cluster
franchises, two in New Jersey, and one each in Long Island, NY and Brooklyn, NY.
In addition, there is one Ecomat self service laundry facility franchise in
Manhattan, NY and one Ecomat route franchise in Westchester County, NY. In
addition, the Company has signed a master franchise development agreement for
various parts of Europe and a letter of intent for a master franchise agreement
for India. See "Certain Transactions."
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PLAN OF EXPANSION
The Company intends on expanding its operations through a program of
dry-cleaner and/or laundromat conversions to the Ecomat concept as well as
direct expansion of the franchise program and the Ecomat system.
Conversion Franchises
For an existing dry-cleaner or laundromat owner, conversion to an Ecomat
franchise may be the answer to the ongoing viability of their business. The
Company addresses through its franchise system the impact that environmental
issues such as perc and water and sewage usage are having on these businesses.
Management believes that through the Company's extensive research and
development, Ecomat franchisees and company-owned stores will be the leaders in
the field of energy conservation and water-saving technologies which will allow
for the stores to operate in a cost-effective manner unlike their competitors.
The Company has no existing conversion franchises and has only been addressing
this concept (through direct mailings) since January 1996 upon the hiring of its
Vice President of Franchise Sales and Marketing. Through the Company's growth in
the past two years, the dry-cleaning community is, in management's belief, well
aware of the alternative to perc. While at first skeptical, there has been
growing acceptance of wet-cleaning as a viable alternative to perc-based
methods. The Center for Neighborhood Technology released an Interim Report in
February of 1996 on the preliminary results from the Greener Cleaner
demonstration shop funded in part by the E.P.A. See "Competition". Since the
release of that report, many dry cleaners have contacted the Company to receive
information about the Company's franchise program. The Company intends to launch
a marketing campaign as part of its business plan to reach this conversion
market.
The cost for such a conversion ranges from $15,000 to $105,000 depending
upon the equipment, store configuration and other factors. The Company will
offer special financial consideration for conversion franchisees in terms of
franchise and royalty fees. They are required to pay a royalty fee of 2.75% of
sales for the first six months and thereafter 5.5% of sales (which is reduced to
4.5% when aggregate sales of $40,000 per month is achieved, as in the case of a
regular franchise. See "Franchise Agreements" above). Recently, the Company
offered to waive its initial conversion fee to any existing New York dry
cleaning establishment until the earlier of December 31, 1996 or the date the
new rules regulating dry cleaners in New York take effect. (For a description of
such rules see "Business - Governmental Regulation").
Expansion of Ecomat System
The Company anticipates that agreements relating to approximately ten (10)
cluster developments (full-service or cleaners facilities) will be reached in
the year of 1996 with an additional eight (8) conversion franchises in the same
time period. No assurances, however, can be made that the Company will achieve
such results in this time frame, or ever.
The Company believes that the location of an Ecomat facility is an
essential element of success. Therefore, the Company intends to focus its
development of the franchise program on
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store locations which are strategically located within targeted areas. The site
selection process involves an evaluation of a variety of factors, including
demographics (such as population density); specific site characteristics (such
as visibility, accessibility, and traffic volume); proximity to activity centers
(such as office or retail shopping districts and apartment, hotel and office
complexes); competition in the area; construction or renovation costs, and lease
terms and conditions. The Company will inspect and approve proposed sites for
each Ecomat facility prior to the execution of a franchise agreement or lease.
All sites are generally subject to the approval of a local planning board, which
approval can take approximately three months.
The Company believes that airports, train stations and hotels would be
excellent sites for Ecomat satellite facilities. The Company has created a
program utilizing United Parcel Service ("UPS") wherein a prefabricated,
collapsible valet case is shipped to customers ("Direct Clean Customers') where
no Ecomat facility exists. An Ecomat Direct Clean Customer may then ship his/her
garments to the nearest Ecomat cleaning facility (including the Company's
franchisees) and then have it delivered to his/her home or office at no extra
charge for shipping and handling. The Company currently has 187 regular Direct
Clean Customers located throughout the United States.
SUPPLIERS AND MANUFACTURERS OF MATERIAL
The Company has entered into a franchisor account agreement with Wascomat
of America, Inc. to provide laundromat and wet-cleaning equipment at a favorable
discount, to itself and its franchisees. The Company also plans to buy equipment
from Unimac, Speed Queen and Huebsch which are divisions of Raytheon, Inc. The
Company also has oral agreements with Veit GMBH and Highsteam Systems, Inc. to
purchase specialized finishing equipment and with Seitz Chemicals GMBH to
purchase special cleaning products. The Company is not dependent upon any one
single supplier and believes that, if any relationship with any such supplier
terminates, the Company will be able to purchase such materials elsewhere at the
same prices.
MARKETING AND PUBLIC RELATIONS
The Company is currently in the process of expanding its franchise sales
program. A new position of Vice President of Franchise Sales and Marketing has
been created to facilitate the Company's expansion plans. See "Management". The
Company currently markets in local media and at franchise sales shows, and has
developed a site on the Internet which also markets the Ecomat/UPS service. The
Company intends to utilize $300,000 of the net proceeds of this Offering towards
its marketing efforts.
The franchise agreement provides that each franchisee must contribute a
monthly advertising and promotion fee of 3% of its net sales to a fund
administered by the Company to be used for advertising, sales promotion and
public relations. The Company is responsible for using the proceeds of the
advertising fund to develop and implement advertising and promotional plans,
materials and activities on behalf of the Ecomat facilities in the franchise
program. See "Business-Targeted Marketing."
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COMPETITION
Management believes that there are currently only four (4) 100%
wet-cleaning stores in the United States that are not Ecomat facilities, two (2)
of which are sponsored by the E.P.A. The first is called The Greener Cleaner in
Chicago, Illinois. It is funded by the E.P.A. and administered by the Center for
Neighborhood Technology in Chicago. It serves as a demonstration site to
disseminate information about wet-cleaning and to counter the negative publicity
that the drycleaning industry's trade associations are attempting to give its
members on alternatives to perccleaning. The second opened in Los Angeles this
year. An additional wet-cleaners is called the Cleaner Image which is a small
cleaners in Ridgefield, Connecticut which opened in 1995. While the Company
welcomes the assistance the U.S. government is giving to alternative methods of
dry-cleaning, the Company feels that the Ecomat system by the nature of its
being a for-profit business not dependent on government funding will be the
driving force in changing the face of the dry-cleaning industry. In addition,
the pilot stores have as their sole profit center, dry-cleaning, while an Ecomat
facility has a multitude of profit centers such as wash and fold, self-service,
etc.
Management believes that at this time there is no competition for an
environmentally friendly cleaners and laundromat franchise. There are, however,
traditional dry-cleaning franchises such as Dryclean USA, Eagle Cleaners, One
Hour Martinizing and Duds n' Suds.
Despite these attempts at franchising, the dry-cleaning industry remains
very fragmented. Of over 35,000 dry cleaners currently in the U.S.A., 95% are
individually owned and operated; 98% consist of less than 4 stores. Franchising
efforts have been mediocre. One Hour Martinizing, the largest dry-cleaning
franchisor in the U.S., has declined from 5,000 units in 1975 to 856 units in
1995. Management believes that this decline is largely due to three factors:
poor franchisor support, an industry shake-out in the 1970's that resulted from
the popularity of synthetic fibers, and the bankruptcies of franchisees.
DryClean USA, reached 212 franchises by 1990. Unlike One Hour Martinizing, which
has no company stores, DryClean USA owned and operated 350 company stores itself
in 1995.
In general, a trend toward geographic-area dominance displayed in service
industries such as banking, drug stores and supermarkets has not yet occurred in
the dry-cleaning industry. Therefore, the goal of geographic dominance by the
Ecomat franchise has been addressed via the "cluster program".
The Company believes that the Ecomat concept provides a competitive
advantage over traditional perc-cleaner franchises in that many of the approved
equipment vendors for the Company offer favorable financing to Ecomat
franchisees due to the Company's arrangement as a national franchise dealer of
such equipment. An additional benefit to an Ecomat franchise is that loans that
would not normally be made to a traditional dry-cleaner because of the use of
perc may be made to an Ecomat franchisee. Fannie Mae, Freddie Mac and the Small
Business Administration all have stringent disclosure requirements to businesses
requesting loans that may have negative environmental effects on the real estate
in which the business is housed. Such negative environmental issues do not arise
with an Ecomat franchise.
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GOVERNMENTAL REGULATION
Government agencies responsible for protecting public health at the local,
state, and federal levels have all clearly recognized that perc pollution from
dry cleaners represents an important environmental health problem. Each level of
government has the jurisdiction to address the problem.
On the Federal level, in 1993, the U.S. EPA issued a regulation covering
the dry cleaning industry. However, the regulation exempts all but the largest
dry cleaners from requirements to make equipment improvements that would reduce
perc emissions. The majority of cleaners--small operations--were required to
take only minor steps such as repairing leaks quickly and keeping better
records. By 1993, hearings about perc emissions in residential buildings were
held and the EPA promised to address the issue in future regulation but has not
yet done so. Instead, the EPA funded studies in Chicago to test a variety of
methods to provide an alternative to perc. See "Business - Competition."
On the State level in New York, two agencies, the Department of Health
("NYSDOH") and the Department of Environmental Conservation ("NYSDEC") have the
authority to address the perc problem. The 1991 study by NYSDOH which measured
perc levels in apartments above dry cleaners was the first major study to
document this hazard. However, the NYSDOH has deferred to the NYSDEC which in
turn has focused on developing new regulations for the dry-cleaning industry
that is being watched nationwide. In July 1996 the NYSDEC released (for comment
to the public) revisions to the "perc" dry cleaning regulations (6 NYCR Part
232) which, when put into effect, will require traditional dry cleaners, at
their own expense, to upgrade outdated machinery, post notice warnings of the
dangers of "perc", construct vapor barriers, adhere to record keeping
requirements, pay for semi-annual inspections and attend training sessions.
On the local level, two agencies of the New York City government, the
Health Department (NYCDOH) and the Department of Environmental Protection
(NYCDEP) also have some authority to deal with the perc issue. All New York City
dry cleaners must have a permit to operate from the NYCDEP, which enforces the
NYC Air Pollution Control Code. NYCDEP can also cite a cleaner for violating the
NYC Air Pollution Code if it creates an odor problem. During 1993, NYCDOH
inspected 133 dry cleaners in response to citizen complaints and shut down 63 of
them. In May 1996, a bill that will phase out "perc" dry cleaning from all
residential buildings in New York City was introduced. If such regulation is
passed, all dry cleaners in New York City with "perc" machines in residential
apartment buildings will be required to remove such equipment over a two (2)
year period.
Currently, groups such as the Consumers Union and Unite (formerly the
Amalgamated Textile Workers Union) are lobbying to change the building code in
New York City to prohibit percbased dry cleaning equipment in residential
buildings. Other states such as California and Massachusetts have legislation
before their State Assemblies demanding the total banning of the use of perc by
dry cleaners. Management believes that the next few years will be very
significant in the future of the dry cleaning industry. Management also believes
that all interested parties will
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be watching the activities of the Company very carefully as the potential to
change the industry is great and appears to be imminent.
Since the Company's operations do not include the use of perc, management
believes that its facilities are subject to no special governmental regulations
whatsoever. Normal building code procedures for filing building plans and
obtaining plumbing and electrical permits, compliance with fire and safety rules
and water usage are the extent to which Ecomat facilities must comply, all
within the bounds of appropriate zoning rules and regulations. This fact alone
gives the Company a distinct advantage over traditional perc cleaners.
RESEARCH AND DEVELOPMENT
The Company has developed a proprietary computerized control system for
monitoring the operation of all washers, dryers and extractors in an Ecomat
facility. The system consists of up to 99 microprocessor-based unit controllers,
a PC-based central site controller and software which runs them. Unit
controllers are installed in each washer and dryer, and connected (in chain) to
each other and to the site controller (central computer) with ordinary phone
wire. These controllers collect all the information about operation of their
machines, such as number of cycles run, amount of money collected, possible
error conditions (clogged valves or drains, tampering etc.) and send this
information to the central computer, where it is presented on the screen and
recorded on the disk. The computer screen will show present status of each
machine (on/off, running, available, error), indicated by color-coded entries in
the "STATUS" window, display recent events, which a user can scroll up and down
in the "EVENT LOG" window, and provide an area for the operator input in the
"INPUT" window. The information entered in this window is transmitted to the
appropriate unit controller and recorded in its memory. Using this function,
operators can set various cycle options if they are allowed by the machine used
(water temperature, cycle length etc.), set the number of quarters required to
run each particular machine or a group of machines, etc. Operators also can
start any machine from their keyboard, which allows for "coinless" operation of
a self-service laundromat; instead of changing the bills and using quarters for
every wash, customers just pay the attendant, and the attendant starts the
appropriate machines from his keyboard. Configuration with an automatic card
reader, which accepts proprietary or major credit or debit card as a payment for
self-service operations is also possible. The system provides full information
on all starts made by the attendants, so the owner can verify it against the
amount of wash-and-fold business conducted during that given period of time, to
insure efficient operation.
Franchises are and will be equipped with a custom-designed point of sale
("POS") and accounting system. The system is interconnected into a network
IBM-compatible personal computer and is expandable to accommodate as many POS
terminals (registers) and accounting computers as a store may need. The POS
system has all information required to complete the sale (items, prices, payment
types, discounts etc.) pre-programmed, so the clerks only need a minimal
training to successfully operate the register. It is flexible enough to handle
cash, credit card, pre-paid, paid on pickup and Net 30-type payments, split
sales, promotional items, pre-set price matrixes and other advanced operations,
and includes many laundromat/cleaner-specific functions, such as automatically
generated driver's log, tagging of the garments etc.
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The system produces all vital reports necessary to evaluate the performance
of the business, reconcile the cash registers and insure efficient use of the
labor force. Customer information is also accumulated and can be used for
mailings, promotions and other purposes. The program has outstanding security
features, including multi-level password protection and audit trails. All
information from POS operations is automatically transferred for further
processing into the accounting part of the system. The accounting part is a
complete double-entry, accrualbased modular system capable of automating all
financial operations within a store. Included are general ledger, accounts
receivable, accounts payable, purchasing, inventory control and payroll modules,
as well as system maintenance files and utilities. The information posted to the
ledgers from POS operations, as well as entered in all other modules is
processed to produce a wide variety of reports, which are pre-programmed to
assure that owners receive all the information necessary to successfully run
their business. An owner can also easily design custom reports to suit his/her
specific needs.
The entire computer network is easily accessible via modem from any remote
location, such as a central office of a multi-store business, for monitoring of
the operations and downloading any required information. The network is also
protected by a tape back-up system, to prevent loss of important data in case of
an accident or a hardware failure.
As of January, 1996, the Company has applied for a grant from New York
State Energy Research and Development Agency in the amount of approximately
$118,000 for the continued research and development of the Company's unique
water recycling system. No assurance can be made that the Company will receive a
grant.
The Company expended $40,000 in 1995 and expects to spend additional funds
of approximately $118,000 in 1996 for the further development of the Ecomat
water recycling system and an additional $172,000 for research relating to
cogeneration, passive heat exchange, solar energy for heating hot water, all of
which contribute to energy savings and reductions and smart card technology and
as described below:
o A typical co-generation system consists of an internal combustion
engine that drives an electric power generator which serves as a power
source for all or a part of the equipment in a facility. Regular
natural gas service is used as a fuel source for the engine. Use of
these units can result in significant savings on electric bills in
many localities, particularly because this setup eliminates high
"demand rates" assessed by many utilities for peak usage of power.
Besides being a cost-effective alternative to conventional power,
co-generators also benefit the environment, since clean natural gas is
used as a source of energy. In addition to providing electric power
for the equipment, it can be used as a source of hot water for space
heating in cold areas, or can run air-conditioners in the hot ones.
o Passive heat exchange is a method of heating the substance (such as
water or the air) by bringing it into contact with similar substances
that has higher initial temperature. In the Company's application,
this method could be used to pre-heat water needed for laundromat and
cleaning process by circulating it through the exchanger where the
heat from the used (hot) water would be transferred to clean
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(cold) water. This clean water would then be directed to the second
stage, where additional heating by conventional methods would be done
in order for the water to reach required temperature. This strategy
allows significant energy savings because it lowers the amount of
energy needed to be produced by conventional water heaters.
o Solar energy use is another alternative for lowering the energy
consumption in producing hot water for cleaning processes. It is
similar in principle to heat exchange, except the energy of the sun is
used instead of, or in addition to, recouping the energy of used
water. This kind of system is only effective in localities that have
sufficiently high temperatures and prolonged periods of sun exposure
throughout the year. If the location is hot enough (as in southern
states of the United States) solar systems can produce enough energy
to cover water heating needs of the facility completely during summer
months.
o Smart Cards is a new generation of "stored value" cards, which are
similar in its usage to the debit cards. In "stored value"
application, consumers can buy a card that has a certain amount of
money pre-recorded on the card and use it as cash at the locations
that accept this card. This setup eliminates time and expenses of on-
line verification needed for processing of debit card transactions,
and does not require the consumer to establish a relationship with the
banking institution in order to obtain the card. When the value of the
card is used up, the card can be recharged by recording additional
amounts at any "add value" machine. The enhancement provided by smart
card technology is in the fact that the amount of money stored in the
card is recorded on the microchip embedded in the card, as opposed to
it being recorded on a magnetic stripe. This technology provides
dramatically higher security and reliability compared to the magnetic
card. Ecomat is planning to outfit all of its laundromats with smart
card readers, and will use this card to enhance its pickup and
delivery operations and prepaid account program.
In November of 1995, the Company became a participant in Climate Wise, a
program administered jointly by the E.P.A., Department of Energy and Business
for Social Responsibility. The Company has undergone an environmental audit and
has agreed to participate in reducing all polluting emission and utilizing the
highest energy-saving systems in its operations. Keith Emerson, Vice President
of Franchise Sales and Marketing of the Company, has been appointed to the
steering committee of Climate Wise.
INTELLECTUAL PROPERTY
The Company currently does not have any patent, trademark or copyright
applications pending. However, the Company may file patent, trademarks and
copyright applications relating to certain of the Company's processes and
products. Except as may be required by the filing of patent, trademark and
copyright applications, the Company will attempt to keep all other proprietary
information secret and to take such actions as may be necessary to insure the
results of its development activities are not disclosed and are protected under
the common law
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concerning trade secrets. Such steps will include the execution of nondisclosure
agreements by key Company personnel and may also include the imposition of
restrictive agreements on purchasers of the Company's products and services,
including franchisees.
The Company applied for registration of its Ecoclean Servicemark (U.S.
Servicemark Application No. 74/515, 635) and Ecomat Servicemark (U.S.
Servicemark Application No. 74,515,480) and has received notices of allowance
from the U.S. Patent and Trademark Office and has filed a statement of use for
the first of such servicemarks. In addition, the Company has applied for
registration of its Ecomat and Design Trademark (U.S. Trademark Application No.
74/656,937). This trademark was published in August 1996 and the Company has
filed a statement of use for this trademark. The Cleaner Choice Trademark
(U.S.-Trademark Application No. 74/659,966) was published in July 1996. The
Company has filed a statement of use for this trademark. No assurance can be
given that the Company will be granted such Trademark protection. The Company
has also applied for its Ecomat trademark with the Office for Harmonization in
the Internal Market (European Community Trademark office) (Application No.
164,772). See "Risk Factors - Uncertain Protection of Patent, Trademark,
Copyright and Proprietary Rights; Servicemark and Trademark Protection."
EMPLOYEES
As of June 30, 1996, the Company employed 24 persons of whom 17 were store
employees, and 7 were corporate personnel. Many store employees work part-time
and most are paid on an hourly basis. None of the Company's employees are
covered by a collective bargaining agreement.
The Company will require additional employees based upon the specific
facility being operated. In a full-service Ecomat facility, the Company will
require one store manager, one counter person and one cleaner. Depending upon
the volume, additional counter personnel, wash and fold personnel and cleaners
will be required, as well as a full-time driver. In an Ecomat cleaners, the
Company will require one store manager/cleaner and one counter person per shift.
As the store grows, additional counter personnel and cleaners will be needed as
well as a driver. In an Ecomat satellite or Ecomat drop off site, the Company
will require one counterperson/shift manager and one additional counter person.
In an Ecomat laundromat, the Company will require one store manager and
additional counter/wash and fold personnel depending upon the volume of the
store. Finally, in Ecomat route franchises, the Company will require one
driver/shift and one manager /wash and fold person.
FACILITIES
The Company (through Ecofranchising, its subsidiary) leases approximately
10,000 square feet at 147 Palmer Avenue, Mamaroneck, NY 10543-3632 which
consists of 5,000 square feet for its flagship store and prototype of all Ecomat
full-service franchises and 5,000 square feet for its executive offices. The
lease term commenced on March 15, 1995 and expires on March 14, 2005. The annual
rental increases each year from $112,500 in the first year to $146,787 in the
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last year of the term. The Company has the option to extend the term for one 5
year period. Total rental expense for the year ended December 31, 1995 was
$128,031.
The Company (through 8th St., its subsidiary) leases approximately 2,500
square feet at 140 West 72nd Street, New York, NY which houses a full-service
Ecomat cleaners and laundromat. The lease term commenced on May 28, 1993 and
expires on May 31, 2003. The
annual rental increases from $21,000 in the first year to $62,700 in the third
year and thereafter is increased by 4.5% each subsequent year. Total rental
expense for the years ended December 31, 1994 and 1995 were $63,930 and $63,930,
respectively.
The Company (through Ecoclean Systems International, Ltd., its subsidiary)
leases approximately 1,000 square feet at 1491 Weaver Street, Scarsdale, NY
which houses an Ecomat satellite facility. Such lease is on a month-to-month
basis. The monthly rent is $1,000.
LEGAL PROCEEDINGS
The Company is not a party to any litigation or governmental proceedings
that management believes would result in judgements or fines that would have a
material adverse effect on the Company.
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MANAGEMENT
The following persons are the directors and the executive officers of the
Company. All Directors are elected annually by the stockholders to serve until
the next annual meeting of the stockholders and until their successors are duly
elected and qualified. Officers are elected annually by the Board of Directors
to serve at the pleasure of the Board.
Name Age Position(s) with the Company
---- --- ----------------------------
Diane Weiser 43 President, Chief Executive Officer, Secretary,
Treasurer and Director
Astrid Hindemith 51 Director
R. Keith Emerson 53 Vice President of Franchise Sales and
Marketing
Yuri Lumelskiy 30 Director of Management Information
Systems
DIANE WEISER has served as President, Chief Executive Officer, Treasurer and
Director of the Company since December 1995 and Secretary since August 1996.
From May 1993 to present, she acted in the same capacities for Diaber
Laundromat, Inc., a New York corporation ("Diaber") and predecessor to the
Company. Ms. Weiser also serves as the President of each of the Company's
subsidiaries. Since January 1990, Ms. Weiser has conducted extensive research
into the feasibility of operating environmentally friendly commercial laundromat
and garment cleaning facilities. Ms. Weiser has conducted research in laundry
and cleaning products and equipment, building materials, recycling possibilities
and over-all facility design. From January 1991 to May 1993, Ms. Weiser was the
co-owner and manager of a laundromat located in New York, New York, in which she
implemented and tested many of these principles. From 1982 to June 1988, Ms.
Weiser owned and operated two commercial real estate brokerage firms in New
York, New York. From June 1988 to January 1993, Ms. Weiser was the owner and
operator of Columbus Avenue Management Corporation, a commercial and residential
real estate management company, in New York City. Ms. Weiser holds a Masters of
Business Administration degree from Columbia University.
ASTRID HINDEMITH was elected Director of the Company in December 1995 and served
as a Director of Diaber since 1993. Ms. Hindemith is a licensed attorney in
Zurich, Switzerland and is self-employed as a consultant. She received her law
degree from the University of Zurich in 1990.
R. KEITH EMERSON joined the Company in January 1996 as the Vice President of
Franchise Sales and Marketing in order to expand the Company's franchising
program as well as supervise
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consumer marketing and public relations. Since 1979 Mr. Emerson has worked for
various companies developing and implementing franchise development programs
including those for Bishop Graphics, Inc. (from December 1982 to December 1985),
PIP Printing, Inc. (from December 1985 to January 1991), Baskin-Robbins (from
January 1991 to June 1992), Futurekids (from June 1992 to August 1993), J.D.
Byrider (from August 1993 to May 1994) and Linda's Flame Roasted Chicken (from
May 1994 to January 1996). Mr. Emerson received a Business Administration degree
in economics from Claremont Men's College in 1965.
YURI LUMELSKIY has served the Company and Diaber as the Director of Management
Information Systems since April 1995. Mr. Lumelskiy is an experienced electrical
and computer engineer with two Master's Degrees (Polytechnic University and
University of Kiev both in Electrical Engineering) in these areas. His primary
focus is in development and implementation of computerized control systems and
database and accounting software. This allows Ecomat to offer its franchisees
custom computer equipment that is best suited to their needs. Prior to his
current position with Ecomat, Mr. Lumelskiy spent four years (from July 1991 to
April 1995) as a Chief Engineer with Enabling Devices, Inc., a developer and
manufacturer of specialized equipment for the handicapped.
Executive Compensation
The following table sets forth the aggregate compensation paid by the
Company for the years ended December 31, 1994 and 1995 to its chief executive
officer. No employee received annual compensation exceeding $100,000 in the
aggregate.
Name Year Salary Bonus Other Compensation
- ---- ---- ------ ----- ------------------
Diane Weiser 1995 $50,000 _____ $4,800(1)
Chief Executive 1994 $50,000 _____ $4,800(1)
Officer, President
and Treasurer
(1) Represents payment for health insurance on behalf on such individuals.
Employment Agreements
The Company has entered into 3-year employment agreement commencing October
1, 1996 and ending September 30, 1999, with Diane Weiser. Under her employment
agreement, Ms. Weiser will receive an annual base salary of $75,000 for each
year of her employment subject to annual review by the Board of Directors. In
addition, she has the right to receive under her employment agreement (i) up to
20, 000 shares of Common Stock if the after-tax earnings of the Company and its
subsidiaries are at least $1,500,000 in fiscal years 1996 and 1997, and (ii) up
to an aggregate of 40,000 shares of Common Stock if the after-tax earnings of
the Company and its subsidiaries are at least $2,000,000 for fiscal years ended
December 31, 1996-1999 (only 20,000 shares each if she was issued 20,000 shares
after fiscal 1997). The employment agreement also entitles her to the use of an
automobile and to employee benefit plans, such as group life, health,
hospitalization and life
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insurance. Under the employment agreement, employment terminates upon death or
total disability of the employee and may be terminated by the Company for cause.
The Company intends to maintain a $1 million life insurance policy on the life
of Ms. Weiser. Reference is hereby made to the Employment Agreement which have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
The Company has entered into a 3-year employment agreement commencing
January 15, 1996 and ending January 14, 2000, with Keith Emerson. Under his
employment agreement, Mr. Emerson will receive an annual base salary of $93,000.
In addition, he has the right to receive (i) up to 20,000 shares of Common Stock
if the after-tax earnings of the Company and its subsidiaries are at least
$1,500,000 in fiscal years 1996 and 1997, and (ii) up to an aggregate of 40,000
shares of Common Stock if the after-tax earnings of the Company and its
subsidiaries are at least $2,000,000 for fiscal years 1996-1998 (only 20,000
shares if he was issued 20,000 shares after fiscal 1997). The employment
agreement also entitles him to the use of an automobile and to employee benefit
plans, such as group life, health, hospitalization and life insurance. Under the
employment agreement, employment terminates upon death or total disability of
the employee and may be terminated by the Company for cause.
The Company has entered into 2-year employment agreement commencing April
1, 1995 and ending March 31, 1997, with Yuri Lumelskiy. Under his employment
agreement, Mr. Lumelskiy will receive an annual base salary of $62,400. The
employment agreement also entitles him to employee benefit plans, such as group
life, health, hospitalization and life insurance. Under his employment
agreement, employment terminates upon death or total disability of the employee
and may be terminated by the Company for cause.
Stock Option Plans and Agreements
Incentive Option and Stock Appreciation Rights Plan - In January 1996, the
Directors of the Company adopted and the stockholders of the Company approved
the adoption of the Company's 1996 Incentive Stock Option and Stock Appreciation
Rights Plan (" Incentive Option Plan"). The purpose of the Incentive Option Plan
is to enable the Company to encourage key employees and Directors to contribute
to the success of the Company by granting such employees and Directors incentive
stock options ("ISOs"), as well as non-qualified options and stock appreciation
rights ("SARs").
The Incentive Option Plan will be administered by the Board of Directors or
a committee appointed by the Board of Directors (the "Committee") which will
determine, in its discretion, among other things, the recipients of grants,
whether a grant will consist of ISOs, non-qualified options or SARs (in tandem
with an option or freestanding) or a combination thereof, and the number of
shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any price. SARs granted in tandem with an option have the same
exercise price as the related option.
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The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 2,000,000. ISOs may not be granted to
an individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after January 2006 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five (5) years to a shareholder owning 10% or
more of the Company's outstanding Common Stock and such options must have an
exercise price of not less than 110% of the fair market value on the date of
grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock,
or in a combination of both. The Company may lend to the holder of an option
funds sufficient to pay the exercise price, subject to certain limitations.
SAR's may be settled, in the Board of Directors's discretion, in cash, Common
Stock, or in a combination of cash and Common Stock. The exercise of SAR's
cancels the corresponding number of shares subject to the related option, if
any, and the exercise of an option cancels any associated SAR's. Subject to
certain exceptions, options and SAR's may be exercised any time up to three
months after termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR. The Company has agreed with the Underwriter that it will not
grant more than 200,000 options to purchase Common Stock under the Incentive
Option Plan during the 24 month period commencing on the Effective Date, without
the consent of the Underwriter, provided that such figure shall be reduced by
the amount of options granted under the Non-Qualified Option Plan (defined
below) during such 24 month period.
Non-Qualified Option Plan - In January 1996, the Directors and stockholders
of the Company adopted the 1996 Non-Qualified Stock Option Plan (the
"Non-Qualified Option Plan"). The purpose of the Non-Qualified Option Plan is to
enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified options.
The Non-Qualified Option Plan will be administered by the Board of Directors or
the Committee in the same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. The total number
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of shares with respect to which options may be granted under the Non-Qualified
Option Plan is 2,000,000.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.
The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Plan or materially increase the
benefits of participants.
To date no options have been granted under the Non-Qualified Option Plan.
No determinations have been made regarding the persons to whom non-qualified
options will be granted in the future, the number of shares which will be
subject to such options or the exercise prices to be fixed with respect to any
option. The Company has agreed with the Underwriter that it will not grant more
than 50,000 options to purchase Common Stock under the Non-Qualified Option Plan
during the 24 month period commencing on the Effective Date without the consent
of the Underwriter.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding shares of
Common Stock beneficially owned as of the date of this Prospectus by (i) each
person, known by the Company to be the beneficial owner of five percent (5%) or
more of the outstanding shares of Common Stock, (ii) each of the Company's
directors and (iii) all of the Company's officers and directors as a group.
Percentage of Ownership
-----------------------------------------------------
Name of Beneficial Number of Prior to After
Owner* Shares Offering Offering(1)
- ------------------ --------- -------- -----------
Diane Weiser(2) 840,000 35 23.33
Palatin, AG(3) 1,560,000 65 43.33
Astrid Hindenmith 1,560,000 65 43.33
All Officers and
Directors as a
Group (2 persons) 2,400,000 100% 66.66%
- ----------
*The address of all persons listed in this section is c/o Ecomat, Inc., 147
Palmer Avenue, Mamaroneck, New York 10543-3632.
(1) Does not include up to (a) 120,000 Shares issuable upon the exercise of the
Underwriter's Purchase Option, (b) 180,000 Shares issuable upon exercise of
the Underwriter's OverAllotment Option, and (c) 4,000,000 shares of Common
Stock authorized for issuance under the Company's stock option plans.
(2) Ms. Weiser is the President, Chief Executive Officer, Secretary, Treasurer
and Director of the Company.
(3) Palatin, AG is a Swiss corporation wholly-owned by Astrid Hindemith, a
Director of the Company.
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CERTAIN TRANSACTIONS
All of the sales of securities prior to the date hereof were made in
reliance upon Section 4(2) of the 1933 Act, which provides exemption for
transactions not involving a public offering. All certificates are "restricted
securities" and bear a restrictive legend. See "Description of Securities -
Shares Eligible for Future Sale."
The Company was incorporated on December 14, 1995 pursuant to the laws of
the State of Delaware. The Company is the successor to Diaber Laundromat, Inc.,
a New York corporation ("Diaber") which was incorporated on September 21, 1992.
The Company was organized to enable Diaber to merge with and into the Company in
order to effectuate a reincorporation in the State of Delaware. Diaber merged
with and into the Company on March 29, 1996. In connection with the merger, each
share of Diaber common stock (a total of 10) was converted into 240,000 shares
of the Company's Common Stock, resulting in the issuance of 2,400,000 shares of
Common Stock, which constitutes all of the issued and outstanding Common Stock
as of the date of this Prospectus. See "Principal Shareholders" and "Financial
Statements."
The Company is currently indebted in the amount of $1,267,677 to Palatin
AG, a Swiss corporation which is wholly owned by Astrid Hindemith, a director
and principal stockholder. The debt is evidenced by a promissory note bearing
interest at 7% per annum which is payable as follows: (a) $1,000,000 is payable
on the earlier of (unless earlier accelerated due to an event of default) (i)
September 5, 2001 or (ii) the closing of the Company's initial pubic offering of
securities and (b) the balance of such indebtedness is due and payable on the
earlier of (unless earlier accelerated due to an event of default) (i) September
5, 2001 or (ii) two (2) years from the Effective Date. If the Offering is
completed prior to December 31, 1996, Palatin shall have the right to convert,
at maturity, the balance of the indebtedness owed to it into shares of Common
Stock at a purchase price equal to the book value of the Company's Common Stock
on the date of the most recent fiscal quarter ended prior to conversion. See
"Use of Proceeds," "Management" and "Principal Shareholders."
The Company is currently indebted in the amount of $64,346 to Diane Weiser,
a director and principal stockholder. The debt is evidenced by a promissory note
bearing interest at 7% per annum which is payable as follows: $64,346 is payable
on the earlier of (unless earlier accelerated due to an event of default) (i)
June 29, 2001 or (ii) two (2) years from the Effective Date. If the Offering is
completed prior to December 31, 1996, Ms. Weiser shall have the right to
convert, at maturity, the balance of the indebtedness owed to her into shares of
Common Stock at a purchase price equal to the book value of the Company's Common
Stock on the date of the most recent fiscal quarter ended prior to conversion.
See "Use of Proceeds," "Management" and "Principal Shareholders."
The Company has entered into a master franchise agreement with Palatin, AG
(as the master franchisee) for the development of the Ecomat concept in certain
European countries. The master franchisee will have the right to establish, and
license to other parties, the Ecomat concept. The agreement provides provisions
for training, site selection, and assistance
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(all of which have been provided) and certain development schedules in certain
countries. Each franchise agreement will be for an initial term of ten years
with three renewal periods of five years each. The agreement provides for a
non-refundable master franchise agreement fee of $120,000 (all of which has been
paid), ongoing monthly royalty fees in the amount of 1.5% of gross sales from
all facilities, 25% of the development fee charged to each franchisee and
certain requirements on advertising. The master franchise agreement was approved
by all of the disinterested directors. Management believes that the proposed
terms of the master franchise agreement are fair and reasonable in all respects.
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
shareholder or court approval is required to effectuate indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to officers, directors or persons
controlling the Company, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in such 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 an officer, director or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such officer, director 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 such Act and will
be governed by the final adjudication of such issue.
Transactions between the Company and its officers, directors, employees and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to the
approval of a majority of the disinterested members of the Board of Directors.
61
<PAGE>
DESCRIPTION OF SECURITIES
General
The Company is offering 1,200,000 shares of Common Stock.
Common Stock
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.0001 par value per share, of which 2,400,000 shares were issued and
outstanding as of the date of this Prospectus. All of the issued and outstanding
shares of Common Stock are and the shares of Common Stock offered hereby when
issued against the consideration set forth in this Prospectus, will be, fully
paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for each
share held at all stockholders' meetings including the Annual Meeting, for all
purposes, including the election of directors. The Common Stock does not have
cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
"blank check" Preferred Stock, none of which are outstanding, whereby the Board
of Directors of the Company shall have the authority, without further action by
the holders of the outstanding Common Stock, to issue shares of Preferred Stock
from time to time in one or more classes or series, to fix the number of shares
constituting any class or series and the stated value thereof, if different from
the par value, and to fix the terms of any such series or class, including
dividend rights, dividend rates, conversion or exchange rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price and the liquidation preference of such class or series. The
Company has agreed with the Underwriter that it will not issue any such shares
for a period of 24 months from the Effective Date without the prior written
consent of the Underwriter.
62
<PAGE>
Delaware Anti-Takeover Law Provisions
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owing 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by the directors who are also
officers of the corporation and by certain employee stock plans), or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. Under section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the public announcement or notification of
one of certain extraordinary transactions involving the corporation and a person
who had not been an interested stockholder during the previous three years or
who became an interested stockholder with the approval of the corporation's
board of directors and if such business combination is approved by a majority of
the board members who were directors prior to any person's becoming an
interested stockholder. The provisions of Section 203 requiring a super-majority
vote to approve certain corporate transactions could have the effect of
discouraging, delaying or preventing hostile takeovers, including those that
might result in the payment of a premium over market price or changes in control
or management of the Company.
Limitation on Liability of Directors
The Company's Certificate of Incorporation provides that a director of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty of care as a director,
including breaches which constitute gross negligence. By its terms and in
accordance with the Delaware General Corporation Law, however, this provision
does not eliminate or limit the liability of a director of the Company (i) for
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve international
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, (relating to unlawful payments or dividends or
unlawful stock repurchases or redemptions), (iv) for any improper benefit or (v)
for breaches of a director's responsibilities under the Federal Securities laws.
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is American
Stock Transfer and Trust Company, 40 Wall Street, New York, NY 10005.
63
<PAGE>
Shares Eligible for Future Sale
Upon the consummation of this Offering, the Company will have 3,600,000
shares of Common Stock outstanding (3,780,000 if the Over-Allotment Option is
exercised in full). Only those sold in this Offering will be freely tradeable
without restriction or further registration under the Securities Act of 1933, as
amended, except for any shares purchased by an "affiliate" of the Company (in
general, a person who has a control relationship with the Company) which will be
subject to the limitations of Rule 144 adopted under the Securities Act of 1933,
as amended. All of the remaining 2,400,000 shares are deemed to be "restricted
securities", as that term is defined under Rule 144 promulgated under the
Securities Act of 1933, as amended, in that such shares were issued and sold by
the Company in private transactions not involving a public offering.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or other persons whose shares are aggregated), who has owned
restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three month period, a number of shares that does
not exceed the greater of one percent of the total number of outstanding shares
of the same class or the average weekly trading volume during the four calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
All of the shareholders have agreed with the Underwriter not to sell or
otherwise dispose of any of their shares of Common Stock for a period of 24
months from the Effective Date without the prior written consent of the
Underwriter. The Company has agreed with the Underwriter to refrain from issuing
any of its capital stock for a period of 24 months from the Effective Date
without the prior written consent of the Underwriter (other than shares issued
to employees under the stock plans).
Prior to this Offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
64
<PAGE>
UNDERWRITING
Patterson Travis, Inc. (the "Underwriter") has entered into an underwriting
agreement with the Company pursuant to which, and subject to the terms and
conditions thereof, it has agreed to purchase all of the Shares offered hereby.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 180,000 additional Shares at the offering price, less the underwriting
discount, to cover over-allotments, if any.
The Underwriter proposes to offer the Shares to the public at the offering
price set forth on the cover page hereof and may offer the Shares to certain
dealers at such price less a concession not in excess of $___ per Share. The
Underwriter may allow and such dealers may reallow, a concession not in excess
of $___ per Share to certain other dealers, including the Underwriter. The
Underwriter has informed the Company that it will not confirm sales to any
accounts over which it exercises discretionary authority.
In addition to the discounts set forth on the cover page which the Company
has agreed to pay to the Underwriter, the Company has agreed to pay from the
proceeds of the offering a non-accountable expense allowance to the Underwriter
equal to three percent (3%) of the public offering price ($180,000 or $207,000
if the Over-Allotment Option is exercised in full).
Upon the completion of this offering, the Company has also agreed to sell
to the Underwriter for $.001 per option, or an aggregate of $120, an option for
the purchase of up to 120,000 Shares (the "Underwriter's Purchase Option"), each
exercisable to purchase one Share at a price equal to $6.00 beginning on the
first anniversary and continuing until the fifth anniversary of the date of this
Prospectus. The Underwriter's Purchase Option, and the Shares issuable upon
exercise of such option have been included in the Registration Statement of
which this Prospectus is a part. The options may be exercised as to all or any
lesser number of Shares and contain provisions which require, under certain
circumstances, the Company to register the securities underlying such options
for sale to the public. The options are nontransferable for a period of one year
except to officers of the Underwriter, members of the underwriting group and
their respective officers or partners. The option exercise price and the number
of Option Shares covered by the options are subject to adjustment to protect the
holders thereof against dilution in certain events.
Indemnification
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the 1933 Act. Insofar as
indemnification for liabilities arising under the 1933 Act may be provided to
the officers, directors or persons controlling the Company, the Company has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
65
<PAGE>
Board of Directors
The Company has granted to the Underwriter the right to designate a member
of the Company's Board of Directors for a period of three years or, in the
alternative, to designate a person to attend all Board of Directors meetings and
to receive all notices or communications to Directors during such three year
period, all at the expense of the Company.
Determination of Public Offering Price
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Shares has been determined by
negotiations between the Company and the Underwriter. Among the factors
considered in the negotiations were an analysis of the areas of activity in
which the Company is engaged, the present state of the Company's business, the
Company's financial condition, the Company's prospects, an assessment of
management and the general condition of the securities market at the time of
this offering. See "Risk Factors - No Assurance of Public Market". The public
offering price of the Shares does not bear any relationship to assets, earnings,
book value or other criteria of value applicable to the Company.
Lock-Up Agreements
Prior to the date of this Prospectus, all holders of the Company's Common
Stock have agreed not to sell, assign or transfer any of their shares of the
Company's securities without the Underwriter's prior written consent for a
period of 24 months from the Effective Date. In addition, the Company has agreed
not to issue any shares of its capital stock for a period of 24 months from the
Effective Date without the consent of the Underwriter.
EXPERTS
The financial statements of the Company appearing in this Prospectus and
Registration Statement at December 31, 1995 and for the year then ended have
been audited by Grant Thornton LLP, Independent Certified Public Accountants,
and at December 31, 1994 and for the year then ended by Pustorino, Puglisi &
Co., P.C., Independent Certified Public Accountants, as set forth in their
respective reports thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firms as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Pustorino, Puglisi & Co., P.C. served as the Company's independent auditors
for the period from September 21, 1992 (inception) to December 31, 1994. On
December 8, 1995, the Company's Board of Directors replaced Pustorino, Puglisi &
Co., P.C. in favor of Grant Thornton LLP as its independent certified public
accountants. Grant Thornton LLP replaced Pustorino, Puglisi & Co., P.C. as the
Company desired the services of a national accounting firm. Pustorino, Puglisi &
Co., P.C.'s report on the Company's financial statements for the period from
September 21, 1992 (inception) to December 31, 1994, did not contain an adverse
opinion or a disclaimer
66
<PAGE>
of opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles. During this period there was no disagreement with
Pustorino, Puglisi & Co., P.C. on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to Pustorino, Puglisi & Co., P.C.'s satisfaction,
would have caused Pustorino, Puglisi & Co., P.C. to make reference to the
subject matter of the disagreement in connection with its report.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP, has served, and continues to serve, as counsel to
the Underwriter on matters unrelated to this offering. Legal matters for the
Underwriter will be passed upon by Gerald A. Kaufman, Esq., 33 Walt Whitman
Road, Suite 233, Huntington Station, NY 11746.
67
<PAGE>
C O N T E N T S
Page
----
Reports of Independent Certified Public Accountants
Grant Thornton LLP F-2
Pustorino, Puglisi & Co., P.C. F-3
Consolidated Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-18
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Ecomat, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Ecomat, Inc. and
Subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ecomat, Inc. and
Subsidiaries as of December 31, 1995, and the consolidated results of their
operations and their consolidated cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has generated
only limited revenue and has incurred net losses of approximately $1,119,000 and
$839,000 for the years ended December 31, 1995 and 1994, respectively. In
addition, the Company has to date relied on debt and equity funding from its
founders to fund its operations. These factors, among others, as discussed in
Note B to the consolidated financial statements raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note B. The 1995 consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
GRANT THORNTON LLP
New York, New York
February 5, 1996, except for Note A, as to which the
date is March 29, 1996
F-2
<PAGE>
[LETERHEAD OF PUSTORINO, PUGLISI & CO., P.C.]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ecomat, Inc.:
We have audited the accompanying consolidated balance sheet of Ecomat, Inc.
(formerly, Diaber Laundromat, Inc.) and Subsidiaries as of December 31, 1994,
and the related statements of loss, retained deficit, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ecomat, Inc. (formerly, Diaber
Laundromat, Inc.) and Subsidiaries as of December31, 1994, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Pustorino, Puglisi & Co., P.C.
PUSTORINO, PUGLISI & CO., P.C.
New York, New York
January 15, 1996
F-3
<PAGE>
Ecomat, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------- June 30,
ASSETS 1994 1995 1996
----------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 12,501 $ 10,447 $ 22,145
Accounts receivable -- 5,200 16,602
Franchise fees receivable -- -- 26,000
Prepaid expenses -- -- 23,229
----------- ----------- -----------
Total current assets 12,501 15,647 87,976
PROPERTY AND EQUIPMENT, net 254,886 775,228 726,618
DEFERRED OFFERING COSTS -- -- 179,154
OTHER ASSETS 11,168 32,463 31,944
----------- ----------- -----------
$ 278,555 $ 823,338 $ 1,025,692
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 26,702 $ 171,787 $ 620,040
Deferred revenue -- 7,000 --
----------- ----------- -----------
Total current liabilities 26,702 178,787 620,040
NOTES PAYABLE -- 1,029,500 1,282,295
OTHER LONG-TERM LIABILITIES 75,110 161,070 169,446
DEFERRED REVENUE -- 76,000 133,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $.0001 par value; authorized,
1,000,000 shares; no shares issued and
outstanding -- -- --
Common stock, $.0001 par value; authorized,
25,000,000 shares; issued and outstanding,
2,400,000 shares 240 240 240
Additional paid-in capital 1,289,760 1,609,760 1,609,760
Accumulated deficit (1,113,257) (2,232,019) (2,789,589)
------------ ----------- -----------
176,743 (622,019) (1,179,589)
----------- ----------- ----------
$ 278,555 $ 823,338 $ 1,025,692
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Ecomat, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June,
------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues
Cleaning and laundry services $ 147,076 $ 195,709 $ 83,905 $ 209,233
Franchising revenues - related party -- -- -- 120,000
----------- ----------- ----------- -----------
329,233
Costs and expenses
Facilities operating costs 205,931 337,364 137,968 273,237
General and administrative expenses 575,158 857,853 388,641 510,390
Depreciation and amortization 55,625 85,766 17,587 59,639
----------- ----------- ----------- -----------
836,714 1,280,983 544,196 843,266
----------- ----------- ----------- -----------
Loss on disposition of assets 139,890 3,250 -- --
----------- ----------- ----------- -----------
Operating loss (829,528) (1,088,524) (460,291) (514,033)
----------- ----------- ----------- -----------
Other income (expense)
Other income -- 5,185 -- 353
Interest expense (5,631) (29,725) -- (40,005)
----------- ----------- ----------- -----------
(5,631) (24,540) -- (39,652)
----------- ----------- ----------- -----------
Loss before provision for income taxes (835,159) (1,113,064) (460,291) (553,685)
Income taxes 4,117 5,698 2,659 3,885
----------- ----------- ----------- -----------
NET LOSS $ (839,276) $(1,118,762) $ (462,950) $ (557,570)
=========== =========== =========== ===========
Net loss per share $ (.35) $ (.47) $ (.19) $ (.23)
=========== =========== =========== ===========
Weighted average shares outstanding 2,400,000 2,400,000 2,400,000 2,400,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Ecomat, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Total
Additional deficit in
Preferred Common paid-in Accumulated stockholders'
stock stock capital deficit equity
------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $-- $ 240 $ 649,760 $ (273,981) $ 376,019
Shareholder contributions -- -- 640,000 -- 640,000
Net loss for the year -- -- -- (839,276) (839,276)
----- ------ ----------- ----------- -----------
Balance at December 31, 1994 -- 240 1,289,760 (1,113,257) 176,743
Shareholder contributions -- -- 320,000 -- 320,000
Net loss for the year -- -- -- (1,118,762) (1,118,762)
----- ------ ----------- ----------- -----------
Balance at December 31, 1995 -- 240 1,609,760 (2,232,019) (622,019)
Net loss for the six months
ended June 30, 1996
(unaudited) -- -- (557,570) (557,570)
----- ------ ----------- ----------- -----------
Balance at June 30, 1996
(unaudited) $-- $ 240 $ 1,609,760 $(2,789,589) $(1,179,589)
===== ====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Ecomat, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
-------------------------- --------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (839,276) $(1,118,762) $ (462,950) $ (557,570)
Adjustment to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 55,625 85,766 17,382 59,190
Loss on disposition of assets 139,890 3,250 -- --
Changes in assets and liabilities
Accounts receivable and prepaids -- (5,200) (800) (60,631)
Other assets (10,361) (21,295) 337 519
Accounts payable and accrued
expenses 8,305 114,744 62,930 312,099
Accrued interest -- 29,500 1,937 39,059
Other long-term liabilities 75,110 85,960 1,295 8,376
Deferred revenue -- 83,000 76,000 57,500
----------- ----------- ----------- -----------
Net cash used in operating
activities (570,707) (743,037) (303,869) (141,458)
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of property and equipment (67,106) (579,017) (226,219) (10,580)
----------- ----------- ----------- -----------
Net cash used in investing activities (67,106) (579,017) (226,219) (10,580)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from shareholder contributions 640,000 320,000 320,556 --
Payment of deferred offering costs -- -- -- (50,000)
Payment of note payable (26,526) -- -- --
Proceeds from notes payable -- 1,000,000 315,000 213,736
----------- ----------- ----------- -----------
Net cash provided by financing
activities 613,474 1,320,000 635,556 163,736
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE
IN CASH AND CASH (24,339) (2,054) 105,468 11,698
EQUIVALENTS
Cash and cash equivalents - beginning of 36,840 12,501 12,501 10,447
----------- ----------- ----------- -----------
Cash and cash equivalents - end of period $ 12,501 $ 10,447 $ 117,969 $ 22,145
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 5,631 $ 225 $ -- $ --
Income taxes $ 4,117 $ 5,698 $ 2,659 $ 3,885
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six
months ended June 30, 1996 and 1995 is
unaudited)
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
Ecomat, Inc. (the "Company" or "Ecomat"), a Delaware corporation, was
formed on December 14, 1995 to serve as the successor by merger (the
"Merger") to Diaber Laundromat, Inc. ("Diaber"). The Merger of the Company
and Diaber took place effective March 29, 1996. In connection with the
Merger, each share of the Company's common stock (a total of 10) converted
into 240,000 shares of the Company's common stock, resulting in the
issuance of 2,400,000 shares of common stock, all of which are issued and
outstanding.
The Merger was accounted for at historical cost in a manner similar to a
pooling-of-interests accounting as the entities included in the Merger are
under common control. The accompanying financial statements reflect the
effects of the Merger described above.
The Company, through its wholly-owned subsidiaries, operates and intends to
franchise environmentally sound cleaning and laundromat facilities,
currently in the New York area. The Company and its franchisees are
dependent upon various third-party manufacturers and suppliers to provide
laundromat and wet cleaning equipment, as well as specialized finishing and
cleaning products. Ecomat has three subsidiaries:
1. 8th Street Laundromat, Inc. ("8th Street"), a Company-owned
full-service Ecomat cleaners and laundromat located in New York
City.
2. Ecoclean Systems International, Ltd. ("Ecoclean Systems"), a
Company-owned full-service cleaners and laundromat located in
Mamaroneck, New York.
3. Ecofranchising, Inc. ("Ecofranchising") is the franchiser of the
Ecomat concept.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The Company has generated only limited revenue and has incurred net
losses of approximately $1,119,000 and $839,000 for the years ended
December 31, 1995 and 1994 and $558,000 and
F-8
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE B (continued)
$463,000 for the six months ended June 30, 1996 and 1995,
respectively. The Company has an accumulated deficit of approximately
$2,790,000 and $2,232,000 and negative working capital of
approximately $532,000 and $163,000 at June 30, 1996 and December 31,
1995, respectively. These factors raise substantial doubt about the
Company's ability to continue as a going concern. In addition, the
Company has not made timely payments of payroll taxes; approximately
$109,000 are opast due and accrued as of June 30, 1996. The
accompanying financial statements do not include any adjustments that
might result from the outcome of the aforementioned uncertainty.
Management anticipates that it may incur additional losses in its
Company-owned facilities until a sufficient number of new units can be
added. During the period required to successfully develop and market
its Ecomat concept as well as add new Company-owned stores, the
Company will require additional funds for operations. The Company has,
to date, relied primarily on debt and equity funding from its founders
to fund its operations.
Management's plans in regard to these matters include (1) an initial
public offering ("IPO") of a 1,200,000 shares of Ecomat common stock
(2) obtaining interim short-term financing until such time as the
planned initial public offering is completed and (3) considering
additional private placements of equity securities in the event the
initial public offering is not completed.
The common stock is expected to be sold at $5.00 per share. There is
no assurance that the offering will be successful.
2. Basis of Combination
The consolidated financial statements include the Company, Diaber and
its three wholly-owned subsidiaries. All intercompany transactions
have been eliminated in consolidation.
The December 31, 1994 statements of operations and cash flows include
approximately $36,000 in revenues and $174,000 of losses relating to
the operations of Ecowash, Inc. ("Ecowash"), a wholly-owned subsidiary
of the Company until December 31, 1994, when it ceased operations and
was liquidated into Diaber. Ecowash was a Company-owned store in New
York City.
F-9
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE B (continued)
3. Revenue Recognition
Revenue from Company-owned stores is recognized in the period in which
related cleaning and laundry services are sold.
The Company's standard franchise agreement requires the franchisee to
pay an initial nonrefundable fee, as well as a royalty of 5.5% of
sales for a ten-year period. Revenue derived from initial franchise
fees (for both single franchises and cluster franchises) is recognized
when the franchise store opens and when all material services or
conditions relating to the sale have been substantially completed.
Royalties are recognized in the same period in which related franchise
store revenue is generated. The Company recognizes revenue from master
franchise agreements when essentially all obligations have been
fulfilled.
At December 31, 1995 and June 30, 1996, respectively, the Company had
approximately $76,000 and of deferred revenue relating to initial
franchise fees for which the related franchise store has not yet
opened.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation is determined
on the straight-line method over the estimated useful lives of the
assets (ranging from 5 to 10 years). Maintenance and repairs are
expensed as incurred.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
6. Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured
F-10
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE B (continued)
using enacted tax rates in effect for the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
7. Net Loss Per Share
Net loss per share has been computed using the weighted average number
of common shares outstanding after giving retroactive effect to the
Merger. The pro forma loss per share reflecting the number of shares
whose proceeds would be necessary to repay certain debt of the Company
(Note E) was $.20 and $.41 for the six months ended June 30, 1996 and
the year ended December 31, 1995, respectively.
8. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
9. Research and Development Costs
The Company expenses all costs related to research and development as
incurred.
10. New Accounting Standards Adopted
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), which provides guidance on when to assess and how to
measure impairment of long-lived assets, certain intangibles and
goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed
of. This statement is effective for financial statements for fiscal
years beginning after December 15, 1995. The Company's adoption of
SFAS No. 121 did not have a material effect on the Company.
F-11
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE B (continued)
11. Interim Financial Information
The financial information presented as of June 30, 1996, for the six
months ended June 30, 1996 and 1995, and events subsequent to June 30,
1996 disclosed in the notes to the financial statements are unaudited.
In the opinion of management, this unaudited financial information
contains all adjustments (which consist of normal recurring accrual
adjustments) necessary for a fair presentation for the interim periods
presented. The results for the interim periods are not necessarily
indicative of results expected for the full year.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
December 31,
---------------------- June 30,
1994 1995 1996
--------- --------- ---------
Laundry equipment $ 182,232 $ 430,848 $ 430,848
Computer equipment 18,397 36,557 37,752
Leasehold improvements 101,018 390,646 396,044
Furniture and fixtures -- 46,454 50,441
Automobile -- 3,250 3,250
--------- --------- ---------
301,647 907,755 918,335
--------- --------- ---------
Less accumulated depreciation and
amortization (46,761) (132,527) (191,717)
--------- --------- ---------
$ 254,886 $ 775,228 $ 726,618
========= ========= =========
Depreciation and amortization expense aggregated approximately $86,000,
$56,000, $59,000, and $18,000 for the years ended December 31, 1995 and
1994 and for the six months ended June 30, 1996 and 1995, respectively.
F-12
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE C (continued)
During 1994, the Company had a loss on disposition of assets relating to
the closing of a facility in New York City. The owner of the building in
which the facility operated never obtained the proper certificate of
occupancy for commercial use. As a result of the store closing, the Company
abandoned certain cleaning equipment and leasehold improvements relating to
the renovation of the property. The leasehold improvements had a net book
value of $89,000 and the cleaning equipment had a net book value of $51,000
when the assets were abandoned, resulting in a loss of approximately
$140,000.
During 1995, the Company disposed of old garment presses, resulting in a
loss of $3,250.
NOTE D - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
December 31,
---------------------- June 30,
1994 1995 1996
-------- -------- --------
Payroll and payroll taxes $ 8,986 $ 43,983 $181,954
Professional fees 10,000 77,357 188,383
Rent 7,200 14,107 31,448
Equipment purchases -- 30,341 --
Other payables 516 5,999 218,255
-------- -------- --------
$ 26,702 $171,787 $620,040
======== ======== ========
The Company has not made timely payments of its payroll taxes;
approximately $37,500 and $109,000, respectively, of payroll taxes payable
are past due and accrued as of December 31, 1995 and June 30, 1996,
respectively.
F-13
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE E - NOTES PAYABLE
Notes payable consist of the following:
December 31, June 30,
1995 1996
---------- ----------
Note payable - majority stockholder (a) $1,000,000 $1,035,000
Note payable - o fficer/stockholder (b) -- 37,790
Note payable (c) -- 140,000
A ccrued interest 29,500 69,505
---------- ----------
$1,029,500 $1,282,295
========== ==========
(a) As of December 31, 1995, the Company was indebted in the amount of
$1,000,000 to a foreign corporation wholly-owned by a director and
stockholder of the Company ($1,029,500) including interest. The debt was
evidenced by a promissory note bearing interest at 7% per annum, which is
payable at the earlier of (i) May 21, 2000 or (ii) the closing of the
Company's IPO (see Note I). At any time after January 1, 1997 and before
May 21, 2000 (if the closing of the anticipated IPO (Note I-1) has not
occurred), the note holder may, at its option, convert the note into
384,000 shares of the Company's common stock. The balance at December 31,
1995 and June 30, 1996 includes $29,500 and $64,500, respectively, of
accrued interest.
F-14
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE E (continued)
The note was revised as of September 26, 1996 to reflect additional
borrowings. In addition, the note was revised to reflect the following
terms:
Amount $1,268,000 ($1,035 ,000 was outstanding as of June
30, 1996)
Interest 7% per annum
Maturity $1,000,000 on the earliest of (a) September 25,
2001, (b) the closing date of the Company proposed
IPO or (c) an event of default (as ) and the
balance due on the earlier of September 25, 2001
or two years after the closing of the IPO.
Conversion $268,000 of the note is convertible into common
stock at a price equal to the book value of the
Company (as defined) within certain limitations as
defined in the note
(b) The Company has a note payable to an officer/principal
stockholder/director in the amount of $37,790 at June 30, 1996. The
note matures on the earlier of (a) June 27, 2001 or (b) two years
after the closing of the proposed IPO and is convertible into common
stock at a price equal to the book value of the Company (as defined)
within certain limitations as defined in the note.
(c) The Company is indebted in the amount of $140,000 at June 30, 1996 to
an individual who is affiliated with the Company's underwriter. The
debt is evidenced by a promissory note bearing interest at 12% per
annum and the Company anticipates that the note will be repaid from
the net proceeds of the IPO.
F-15
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE F - INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $2,030,000 for income tax purposes expiring through 2010. The
Company's ability to utilize net operating losses may be limited due to
changes in ownership resulting from the shares issued in the proposed IPO,
additional issuances of the Company's common stock or other changes in
ownership, as defined in Internal Revenue Code Section 382 and related
regulations. The Company intends to elect to file consolidated Federal tax
returns for 1996.
For financial statement purposes, a valuation allowance equal to the amount
of the net deferred tax asset at December 31, 1995 and 1994, respectively,
has been recognized, as the realization of such deferred tax assets is
uncertain.
Components of the Company's deferred tax assets (liabilities) are as
follows:
December 31,
------------------------------
1994 1995
----------- -----------
Interest expense $ -- $ 12,000
Lease obligation 30,000 64,000
Net operating loss carryforwards 413,000 966,000
----------- -----------
443,000 1,042,000
Valuation allowance (443,000) (1,042,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
NOTE G - COMMITMENTS
1. Lease Commitments
The Company has entered into various operating leases for its
executive office and Company-owned stores, as well as certain
equipment expiring at various times through the year 2005.
F-16
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE G (continued)
Aggregate future minimum lease payments required under noncancellable
operating leases at December 31, 1995 are as follows:
1996 $ 184,000
1997 190,000
1998 196,000
1999 201,000
2000 203,000
Thereafter 818,000
----------
Total future minimum lease payments required $1,792,000
==========
Total rent expense for the years ended December 31, 1995 and 1994 and
for the six months ended June 30 , 1996 and 1995 amounted to
approximately $200,000, $125,000, $48,000 and $23,000, respectively.
Rent expense is charged on a straight-line basis over the respective
terms of the lease. The excess of rent expense over the required lease
payments is reflected as other long-term liabilities as of December 31,
1995 and 1994 and June , 1996.
2. Employment Agreements
The Company entered into five-year employment agreements commencing
January 1, 1996 and ending December 31, 2000, with the Company's Chief
Executive Officer and President and its Chief Operating Officer.
Subsequent to June 30, 1996, the agreement with the Chief Operating
Officer ("COO") was terminated and the Company agreed to pay the former
COO approximately $45,000 (inclusive of certain health benefits) in
severance which was accrued as of June 30, 1996.
The Company and the CEO have agreed to enter into a new agreement
effective October 1, 1996. Under this agreement, the CEO will receive a
annual base salary of $75,000 (that may be increased from time to time
by the Board of Directors). In addition, the CEO has the right to
receive for no additional consideration under the employment agreement
(i) up to 20,000 shares of common stock if the after-tax earnings of
the Company and its subsidiaries are at least
F-17
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE G (continued)
$1,500,000 in fiscal years 1996 and 1997, and (ii) up to 40,000 shares
of common stock if the after-tax earnings of the Company and its
subsidiaries are at least $2,000,000 for fiscal years 1996 - 1998 (only
20,000 shares if the CEO was issued 20,000 shares each after fiscal
1997). Under the employment agreement, employment terminates upon death
or total disability of the employee and may be terminated by the
Company for cause.
The Company has entered into a five-year employment agreement
commencing January 15, 1996 and ending January 14, 2000, with its Vice
President of Franchise Sales and Marketing. Under this employment
agreement, this individual will receive an annual base salary of
$93,000. In addition, he has the right to receive (i) up to 20,000
shares of common stock if the after-tax earnings of the Company and its
subsidiaries are at least $1,500,000 in fiscal years 1996 and 1997, and
(ii) up to 40,000 shares of common stock if the after-tax earnings of
the Company and its subsidiaries are at least $2,000,000 for fiscal
years 1996 - 1998 (only 20,000 shares if he was
issued 20,000 shares after fiscal 1997). Under the employment
agreement, employment terminates upon death or total disability of the
employee and may be terminated by the Company for cause.
The Company has entered into a two-year employment agreement commencing
April 1, 1995 and ending March 31, 1997, with its Director of
Management Information Systems. Under this employment agreement, this
individual will receive an annual base salary of $62,400. Under this
employment agreement, employment terminates upon death or total
disability of the employee and may be terminated by the Company for
cause.
NOTE H - RELATED PARTY TRANSACTIONS
The Company and a director (who also controls a corporation that is the
majority shareholder of the Company) entered into a Master Franchise
Agreement dated January 27, 1996 that gives the director the right to (i)
establish and operate cleaning facilities in Europe and (ii) license other
unaffiliated parties to establish and operate cleaning facilities in
Europe. The Company has essentially provided all of the services set forth
under the terms of the agreement as of June 30, 1996. The Company's
remaining obligation is not significant and accordingly $120,000 has been
recorded as franchise revenue in the six months ended June 30, 1996.
F-18
<PAGE>
Ecomat, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1995 and 1994
(Information as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 is unaudited)
NOTE I - SUBSEQUENT EVENTS
1. Proposed Public Offering of Securities and Deferred Offering Costs
The Company is in the process of filing a registration statement for a
proposed IPO of 1,200,000 shares of common stock. The Company intends
to repay approximately $1,140,000 of the notes payable and accrued
interest (Note E) with the net proceeds of its proposed IPO. Offering
costs,
consisting of legal and accounting fees relating to the Company's
planned IPO, have been deferred and will be charged against the
proceeds of such offering or, in the event the offering is
unsuccessful, against operations in the period in which the offering
is aborted.
2. Stock Option Plans
In January 1996, the directors and stockholders of the Company adopted
the 1996 Incentive Stock Option and Stock Appreciation Rights Plan
("Incentive Option Plan") and the 1996 Non-Qualified Stock Option (the
"Nonqualified Option Plan"), collectively the "Plans." Pursuant to the
Incentive Option Plan, key employees and directors are eligible to
receive incentive stock options, stock appreciation rights ("SARs")
and nonqualified options. Pursuant to the Nonqualified Option Plan,
key employees, directors, consultants, distributors, professional and
independent contractors are eligible to receive nonqualified options.
The Plans will be administered by the Board of Directors or an
appointed committee which will determine the recipients of such
grants. The Incentive Option Plan and the Nonqualified Option Plan
each provide for options covering 2,000,000 shares of the Company's
common stock to be granted under the Plans. As permitted by the
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company has adopted the
Accounting Principles Board Opinion No. 25 or intrinsic value method
of accounting for employee stock options. Accordingly, the determined
fair value of stock options granted will be disclosed rather than
recognized in the financial statements.
F-19
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or the Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. 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 jurisdiction to any person to make such offer or solicitation in such
jurisdiction.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary..............................................................
Summary Financial Data .........................................................
Risk Factors ...................................................................
Use of Proceeds.................................................................
Dilution .......................................................................
Capitalization .................................................................
Dividend Policy ................................................................
Selected Financial Data.........................................................
Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................
Business .......................................................................
Management .....................................................................
Principal Shareholders .........................................................
Certain Transactions ...........................................................
Description of Securities.......................................................
Underwriting....................................................................
Experts.........................................................................
Legal Matters...................................................................
Financial Statements............................................................
---------------
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
1,200,000 Shares of Common Stock
---------------
ECOMAT, INC.
PROSPECTUS
---------------
PATTERSON TRAVIS, INC.
__________, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Indemnification is provided for in Article Tenth of the Company's
Certificate of Incorporation and such provisions are incorporated herein by
reference.
Reference is hereby made to the section "Description of Securities -
Limitation on Liability of Directors" in the Prospectus which is a part of this
Registration Statement for a more detailed description of indemnification
arrangements between the Company and its directors.
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as follows:
SEC filing fee .............................. $ 8,034.76
NASD filing fee ............................. $ 2,830.10
NASDAQ filing fee ........................... $ 10,000.00
Transfer Agent's fees* ...................... $ 1,500.00
Printing and engraving* ..................... $ 30,000.00
Legal fees and expenses* .................... $120,000.00
Accounting fees and expenses* ............... $ 75,000.00
Blue Sky fees and expenses* ................. $ 45,000.00
Miscellaneous expenses*wr
..................... $ 7,635.14
-----------
Total ................................... $300,000.00
===========
- ----------
* Indicates expenses that have been estimated for the purpose of filing.
Item 26. Recent Sales of Unregistered Securities.
There were no underwriting discounts and commissions paid in connection
with the issuance of any shares of Common Stock prior to the date of this
Registration Statement.
All of the sales of securities prior to the date hereof were made in
reliance upon Section 4(2) of the 1933 Act, which provides exemption for
transactions not involving a
II-1
<PAGE>
public offering. All certificates are "restricted securities" and bear a
restrictive legend. See "Description of Securities - Shares Eligible for Future
Sale."
The Company was incorporated on December 14, 1995 pursuant to the laws of
the State of Delaware. The Company is the successor to Diaber Laundromat, Inc.,
a New York corporation ("Diaber") which was incorporated on September 21, 1992.
The Company was organized to enable Diaber to merge with and into the Company in
order to effectuate a reincorporation in the State of Delaware. Diaber merged
with and into the Company on March 29, 1996. In connection with the merger, each
share of Diaber common stock (a total of 10) was converted into 240,000 shares
of the Company's Common Stock, resulting in the issuance of 2,400,000 shares of
Common Stock, which constitutes all of the issued and outstanding Common Stock
as of the date of this Prospectus. See "Principal Shareholders" and "Financial
Statements."
Item 27. Exhibits.
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.1 Form of Underwriting Agreement*
1.2 Intentionally Omitted
1.3 Form of Selected Dealer Agreement *
3.1 Certificate of Incorporation of the Company
3.2 Form of Certificate of Merger (Delaware)
3.3 Form of Certificate of Merger (New York)
3.4 Form of Agreement and Plan of Merger
3.5 By-Laws of the Company
4.1 Specimen Certificate for shares of Common Stock
4.2 Intentionally Omitted
4.3 Intentionally Omitted
4.4 Intentionally Omitted
4.5 Form of Underwriter's Purchase Option*
II-2
<PAGE>
4.6 Intentionally Omitted
5 Opinion of Bernstein & Wasserman, LLP on legality of securities
being registered*
10.1 Employment Agreement between the Company and Diane Weiser
10.2 Intentionally Omitted
10.3 Company's Franchise Offering Circular
10.4 1996 Incentive Stock Option and Stock Appreciation Rights Plan
10.5 1996 Non-Qualified Stock Option Plan
10.6 Agreement of Lease for Premises located at 140-146 West 72nd
Street, New York, New York 10023.
10.7 Agreement of Lease for Premises located at 147 Palmer Avenue,
Mamaroneck, NY 10543.
21 Subsidiaries of the Company
23.1 Consent of Bernstein & Wasserman, LLP (included in Exhibit No. 5)*
23.2 Consent of Grant Thornton, LLP, Independent Certified
Public Accountants*
23.3 Consent of Pustorino, Puglisi & Co., Inc., Independent Certified
Public Accountants*.
99.1 Acknowledgment of Pustorino, Puglisi & Co., Inc.
- ----------
* Filed herewith. All other exhibits have been previously filed.
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE>
(b) Rule 415 Offering
The undersigned registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
in the aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) Include any additional or changed material information on the plan of
distribution;
2. For determining liability under the Securities Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 24 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
II-4
<PAGE>
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of a
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(2) For any liability under the Securities Act, treat each post-effective
amendment that contains a form of prospectus as a new Registration Statement for
the securities offered in the Registration Statement, and that the offering of
the securities at that time as the initial bona fide offering of those
securities.
(e) Request of Acceleration of Effective Date
The Company may elect to request acceleration of the Registration Statement
under Rule 461 of the 1933 Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form SB-2 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 30th day of September, 1996.
ECOMAT, INC.
By:/s/Diane Weiser
Diane Weiser
Chief Executive Officer,
President, Treasurer, Secretary and Director
and Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Diane Weiser Chief Executive Officer, September 30, 1996
- -------------------- President, Treasurer, Secretary
Diane Weiser and Director and Principal
Accounting Officer
/s/Astrid Hindemith Director September 30, 1996
- --------------------
Astrid Hindemith
II-6
<PAGE>
1,200,000 Shares
ECOMAT, INC.
UNDERWRITING AGREEMENT
October , 1996
Patterson Travis, Inc.
12835 E. Arapahoe Road #1-700
Englewood, Colorado 80112
ECOMAT, INC. a Delaware corporation (the "Company"), proposes to issue
and sell to you, the Underwriter, (the "Underwriter") pursuant to this
Underwriting Agreement (the "Agreement"), an aggregate of 1,200,000 shares of
common stock ("Shares"). In addition, the Company proposes to grant to the
Underwriter the option referred to in Section 2(b) to purchase all or any part
of an aggregate of 180,000 additional Shares. Unless the context otherwise
indicates, the term "Shares" shall include the 180,000 additional Shares
referred to above.
You have advised the Company that the Underwriter desires to purchase the
Shares and that you are authorized to execute this Agreement on behalf of the
Underwriter. The Company confirms the Agreement made by it with respect to the
sale of the Shares as follows:
1. Representations and Warranties.
The Company represents and warrants to, and agrees with, the
Underwriter that:
(a) A registration statement (File No. 333-1524) on Form SB-2
relating to the public offering of the Shares, 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, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed
with the Commission under the Act. The Company proposes to file, prior
to the effective date of such registration statement (the "Effective
Date"), an additional amendment or amendments to such registration
statement, as are required by applicable law copies of which shall be
delivered to you. "Preliminary Prospectus" shall mean each prospectus
filed pursuant to Rule 430 of the Rules and Regulations. The
registration statement (including all financial statements and
exhibits) as amended at the time it becomes effective and the final
prospectus included therein are respectively referred to as the
"Registration Statement" and the "Prospectus", except that (i) if the
prospectus first filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations shall differ from said prospectus as then
amended the terms "Prospectus" shall mean the prospectus first filed
pursuant to Rule 424(b), and (iii) if such registration statement or
prospectus is amended or such prospectus is supplemented, after the
Effective Date of such registration statement and prior to the Closing
Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus"
<PAGE>
shall include each registration statement and prospectus as so amended, and
the term Prospectus" shall include the prospectus as so supplemented, or
both, as the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When the Registration
Statement becomes effective and at all times subsequent thereto up to the
Closing Date (as hereinafter defined) (i) the Registration Statement and
Prospectus and any amendments or supplements thereto will contain all
statements which are required to be stated therein in accordance with the
Act and the Rules and Regulations, and will in all respects conform to the
requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make statements therein 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 under the heading "Underwriting" and
the identity of counsel to the Underwriter under the heading "Legal
Matters" constitute the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate
and other) to own its properties and conduct its business as described in
the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions in which the
nature of its business or the character or location of its properties
requires such qualification, except where failure to so qualify will not
materially affect the business, properties or financial condition of the
Company.
(d) The authorized, issued and outstanding capital stock of the
Company as of June 30, 1996 is as set forth in the Prospectus under
"Capitalization"; the shares of issued and outstanding capital stock of the
Company set forth thereunder have been, or will be when issued as set forth
in the Prospectus, duly authorized, validly issued, fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants
or other rights to purchase, agreements or other obligations to issue or
agreements or other rights to convert any obligation into, any Shares of
capital stock of the Company have been granted or entered into by the
Company; and the Common Stock conforms to all statements relating thereto
contained in the Registration Statement and Prospectus.
(e) The Shares are duly authorized, and when issued and delivered
pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor
the offering or sale of the Shares as contemplated in this Agreement gives
rise to any rights, other than those which have been
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waived or satisfied, for or relating to the registration of any Shares of
Common Stock except as described in the Registration Statement.
The Shares contained in the Underwriter's Purchase Option ("PO")
(described in Section 11 herein) have been duly authorized and, when duly
issued and delivered, such PO will constitute the valid and legally binding
obligation of the Company enforceable in accordance with their terms and
entitled to the benefits provided by the PO. The Shares included in the PO
when issued and sold, will be duly authorized, validly issued, fully paid
and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof.
(f) This Agreement has been duly and validly authorized, executed
and delivered by the Company, and assuming due execution of this Agreement
by the Underwriter, constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
laws affecting the rights of creditors generally and also subject to any
limitations on enforceability which may be imposed by application of
equitable principles. The Company has full power and lawful authority to
authorize, issue and sell the Shares to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval,
authorization or other order of any governmental authority is required in
connection with such authorization, issue and sale except, such as may be
required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach of, 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 upon any of the
property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company is a party or by which the Company may be bound or to
which any of the property or assets of the Company is subject, nor will
such action result in a violation of the by-laws of the Company, as
amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus, the
Company has good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material
leases and subleases under which the Company 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 is 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 anyone under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company to continue possession of
the leased or subleased premises or assets under any such lease or
sublease, except as described or
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<PAGE>
referred to in the Prospectus; and the Company owns or leases all such
properties described in the Prospectus as are necessary to its operations
as now conducted and, except as otherwise stated in the Prospectus, as
proposed to be conducted as set forth in the Prospectus.
(i) Grant Thornton, LLP, who have given their reports on
certain financial statements filed and to be filed with the Commission as
a part of the Registration Statement, which are incorporated in the
Prospectus, are with respect to the Company, independent public accountants
as required by the Act and the Rules and Regulations.
(j) The Company shall obtain a report from Grant Thornton, LLP
stating that the financial statements, together with related notes,
set forth in the Prospectus present fairly the financial position and
results of operations and changes in financial position of the Company
on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is
consistent during the periods involved.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and prior to the
Closing Date (as hereinafter defined) the Company has not incurred any
liabilities or obligations, direct or contingent, not in the ordinary
course of business, or entered into any transaction not in the ordinary
course of business, which is material to the business of the Company, and
there has not been any change in the capital stock of, or any incurrence of
long-term debt by, the Company, or any issuance of options, warrants or
other rights to purchase the capital stock of the Company other than as set
forth in the Registration Statement or pursuant to the Company's Stock
Option Plan, and assuming the Company receives the proceeds of the offering
contemplated hereby it does not now reasonably foresee a prospective
adverse change in the condition (financial or other), net worth, results of
operations, business, key personnel or properties which would be material
to the business or financial condition of the Company, and the Company has
not become the subject of, any material litigation whether or not in the
ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened or any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net
worth, or properties of the Company, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination
on the basis of age, sex, religion or race; and no labor disputes involving
the employees of the Company exist or are imminent which might be expected
to adversely affect the conduct of the business, property or operations or
the financial condition or earnings of the Company.
(m) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state and foreign income and franchise tax returns
and has paid all taxes shown as due thereon; and there is no tax deficiency
which has been or to the knowledge of the Company might be asserted against
the Company.
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(n) The Company and its subsidiaries have sufficient licenses,
permits and other governmental authorizations as required for the conduct
of its business or the ownership of its properties as described in the
Prospectus and is in all material respects complying therewith and to the
best of its knowledge owns and possesses adequate rights to use all
material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations,
copyrights and licenses necessary for the conduct of such business and has
not received any notice of conflict with the asserted rights of other in
respect thereof. To the best knowledge of the Company, none of the
activities or business of the Company are in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United
States, any state, county or locality or of any agency or body of the
United States or of any state, county or locality, the violation of which
would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations, or net
worth of the Company.
(o) The Company has not directly or indirectly, at any time
(i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution in violation of law or (ii)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by
applicable law. The Company shall implement internal accounting controls
and procedures which shall be sufficient to cause the Company to comply in
all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(p) On the Closing Date (as hereinafter defined) all transfer or
other taxes which are required to be paid by the Company in connection with
the sale and transfer of the Shares will have been fully paid or provided
for by the Company and all laws imposing such taxes will have been fully
complied with.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) The Company has no subsidiaries other than as described in the
Prospectus.
(s) 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 public offering referred to herein.
2. Purchase, Delivery and Sale of the Shares.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein
contained, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to buy from the Company at $4.50 per Share, at the place
and time hereinafter specified, the 1,200,000 Shares (the "First Shares").
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<PAGE>
Delivery of the First Shares against payment therefor shall take
place at the offices of Patterson Travis, Inc., New York, New York 10004
(or at such other place as may be designated by agreement between you and
the Company) at 10:00 a.m., New York time, on __________, 1996 or at such
later time and date as you may designate, such time and date of payment and
delivery for the First Shares being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby grants an option to the
Underwriter to purchase all or any part of an aggregate of an additional
180,000 Shares at the same price per Share as the Underwriter shall pay for
the First Shares being sold pursuant to the provisions of subsection (a) of
this Section 2 (such additional Shares being referred to herein as the
"Option Shares"). This option may be exercised within 30 days after the
effective date of the Registration Statement upon notice by the Underwriter
to the Company advising it as to the amount of Option Shares as to which
the option is being exercised, the names and denominations in which the
certificates for such 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 the Underwriter but shall not be earlier than four nor
later than ten full business days after the exercise of said option, nor in
any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option
Shares against payment therefor shall take place at the office of Patterson
Travis, Inc., One Battery Park Plaza, New York, New York, 10004. The Option
granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriter of First Shares referred to in subsection (a)
above.
(c) The Company will make the certificates for the Shares to be
purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates" and individually as a "Closing Date"). The certificates shall be in
such names and denominations as you may request, at least two full business
days prior to the Closing Dates. Delivery at the time and place specified
in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive certificates in negotiable form for the Shares to be
purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the purchase
prices by the Underwriter, by certified or bank cashier's checks in New
York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriter exercise the option to
purchase from the Company all or any portion of the Option Shares pursuant
to the provisions of subsection (b) above, payment for such Shares shall be
made to or upon the order of the Company by certified or bank cashier's
checks payable in New York Clearing House funds at the offices of the
Underwriter at the time and date of delivery of such Shares as required by
the provisions of subsection (b) above, against receipt of the certificates
for such Shares
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<PAGE>
by the Underwriter for the account of the Underwriter registered in such
names and in such denominations as the Underwriter may request.
It is understood that the Underwriter propose to offer the 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.
(d) At the "First Closing" the Company shall grant to the Underwriter
the Purchase Option for 120,000 Shares.
3. Covenants of the Company.
The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and upon notification from the Commission
that the Registration Statement has become effective, will so advise you
and will not at any time, whether before or after the effective date, file
any amendment to the Registration Statement or supplement to the Prospectus
of which you shall not previously have been advised and furnished with a
copy or to which you or your counsel shall have reasonably objected in
writing or which is not in compliance with the Act and the Rules and
Regulations. At any time prior to the later of (A) the completion by the
Underwriter of the distribution of the Shares contemplated hereby (but in
no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective, or (B) 25 days
after the date on which the Registration Statement shall have become or
been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to
the Registration Statement or Prospectus which, in your reasonable opinion,
may be necessary or advisable in connection with the distribution of the
Shares.
As soon as the Company is advised thereof, the Company will
advise you, and confirm the advice in writing, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to
the Prospectus or any amended Prospectus, of any request made by the
Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of
the issuance by the Commission for amendment of the Registration Statement
or for supplementing of the Prospectus or for additional information with
respect thereto, of the issuance by the Commission or any state or
regulatory body of any stop order or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the Shares for offering in any jurisdiction, or of the
institution of any proceedings for any of such purposes, and will use its
utmost efforts to prevent the issuance of any such order, and, if issued,
to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you such copies of the
Preliminary Prospectus which you have reasonably requested, and the Company
has
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<PAGE>
consented and hereby consents to the use of such copies for the purposes
permitted by the Act. The Company authorizes the Underwriter and dealers to
use the Prospectus in connection with the sale of the Shares for such
period as in the opinion of counsel to the Underwriter 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 this Act to be delivered any event of
which the Company has knowledge and which materially affects the Company or
the securities of the Company, or which in the opinion of counsel for the
Company or counsel for the Underwriter should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to
make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Shares or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
file with the Commission and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a
material fact or omit to state any material 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 any
such amendment or supplement to the Registration Statement or amended
Prospectus or supplement to be attached to the Prospectus shall be without
expense to the Underwriter, except that in case any Underwriter is
required, in connection with the sale of the Shares, to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses
complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the applicable Rules and
Regulations and the Securities Exchange Act of 1934 and the rules and
regulations thereunder in connection with the offering and issuance of the
Shares.
(b) The Company will use its best efforts to qualify to register
the Shares for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may reasonably request and will make such
applications and furnish such information as may be required for that
purpose and to comply with such laws, provided the Company shall not be
required to qualify as a foreign corporation or a dealer in securities or
to execute a general consent to service of process in any jurisdiction in
any action other than one arising out of the offering or sale of the
Shares. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriter may
reasonably request.
(c) If the sale of the Shares provided for herein is not
consummated for any reason caused by the Company, the Company shall pay
all costs and expenses incident to the performance of the Company's
obligations hereunder, including, but not limited to, all of the expenses
itemized in Section 8, on an actual out-of-pocket accountable basis.
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<PAGE>
(d) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Securities Exchange Act of 1934, the
Company, at its expense, will furnish to its stockholders an annual report
(including financial statements audited by independent public accountants),
in reasonable detail, and at its expense, will furnish to you during the
period ending five (5) years from the Effective Date, (i) as soon as
practicable after the end of each fiscal year, a balance sheet of the
Company and any of its subsidiaries as at the end of such fiscal year,
together with statements of income, surplus and source and application of
funds of the Company and any subsidiaries for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report
thereon of independent accountants; (ii) as soon as they are available, a
copy of all reports (financial or other) mailed to stockholders; (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.
(e) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (d) above will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
stockholders generally.
(f) 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, and
will deliver to you such number of copies of the Registration Statement,
including such financial statements but without exhibits, and of all
amendments thereto, as you may reasonably request. The Company will deliver to
or upon 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 will 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.
(g) The Company will make generally available to its security
holders and deliver to you as soon as it is practicable to do so, an
earnings statement (which need not be audited) covering a period of at
least twelve consecutive months beginning after the Effective Date which
shall satisfy the requirements of Section 11(a) of the Act.
(h) The Company will apply the net proceeds from the sale of the
Shares for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to
the sale of the Shares and the application of the proceeds therefrom as may
be required pursuant to Rule 463 under the Act.
(i) The Company will, promptly upon your request, prepare and
file with the Commission any amendments or supplements to the Registration
Statement, Preliminary Prospectus or Prospectus and take any other action,
which in the reasonable opinion of Gerald A. Kaufman, counsel to the
Underwriter may be reasonably necessary or advisable in connection with the
distribution of the Shares, and will use its best efforts to cause the same
to become effective as promptly as possible.
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(j) Prior to the Effective Date, the Company shall have obtained
agreements on your behalf stating that for a period of twenty-four months
from the Closing Date, the officers, directors and beneficial holders of
more than 5% of the outstanding Shares of Common Stock of the Company
currently outstanding will not publicly sell any Shares of Common Stock
without the prior written consent of the Underwriter.
(k) Upon completion of this offering, the Company will make
all filings required, including registration under the Securities Exchange
Act of 1934, to obtain the listing of the Shares in the NASDAQ system, and
will effect and maintain such listing for at least five (5) years from the
Closing Date.
(l) [Intentionally Omitted]
(m) On the Closing Date and simultaneously with the delivery of
the Shares, the Company shall execute and deliver to you the Underwriter's
Purchase Option. The Purchase Option will be substantially in the form of
the Underwriter's Purchase Option filed as Exhibit to the Registration
Statement.
(n) During the 90 day period commencing as of the Closing Date,
the Company will not, without the prior written consent of the Underwriter
grant options to purchase Shares of Common Stock at a price less than the
initial public offering price.
(o) The Company and each 5% or more shareholder represent that
it or he has not taken and agree not to take any action designed to or
which might cause or result in the stabilization or manipulation of the
price of the Shares or to facilitate the sale or resale of the Shares.
(p) [Intentionally Omitted]
4. Conditions of Underwriter's Obligation.
The obligation of the Underwriter to purchase and pay for the Shares
which they have agreed to purchase hereunder is subject to the accuracy (as
of the date hereof, and as of the Closing Dates) and compliance with the
representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions
hereof, to the performance by the Company of its obligations to be
performed hereunder, and to the following conditions.
(a) The Registration Statement shall have become effective and
prior to the Closing Dates no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that or 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; any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
Gerald A. Kaufman, counsel to the Underwriter; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor
shall any stop order proceedings with respect thereto be instituted or
pending or threatened under such law.
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(b) The Underwriter shall not have advised the Company
that the Registration Statement, the Prospectus, or any amendment or
supplement thereto contains any untrue statement of fact which, in the
reasonable opinion of Gerald A. Kaufman, counsel, is material and is
required to be stated therein or necessary to make the statements therein
no misleading.
(c) At the First Closing Date, you shall have received the
opinion, dated as of the Closing Date, of Bernstein & Wasserman, LLP,
counsel for the Company, in form and substance reasonably satisfactory to
counsel for the Underwriter, to the effect that:
(i) the Company, has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its properties and
conduct its business as described in the Registration Statement and
Prospectus and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a material affect upon the Company.
(ii) to the best knowledge of such counsel, the Company or its
subsidiaries, has obtained all material licenses, registrations, permits
and other governmental authorizations which are reasonably necessary to the
conduct of its business and such licenses, registrations, permits and
governmental authorizations are in full force and effect other than same
relates to franchise law inasmuch as such counsel does not know whether any
material changes to the information contained in the Company's Uniform
Franchise Offering Circular ("UFOC") have occurred requiring amendments
thereto inasmuch as any such change would negate the validity of the
Company's UFOC and franchise and business opportunity registrations. In
addition, counsel has no knowledge of the means, manner or procedures
governing the Company's offer and sale of franchises. In addition, such
counsel has no way of knowing whether the Company has employed any sales
practices which violates state or federal franchise laws, rules or
regulations and such counsel has no knowledge of any franchise or other
liabilities that may have accrued by virtue of the performance or non
performance under contracts. All such counsel knows is that at the time the
franchise registrations for the Company was secured in various states thatr
officers of the Company verified to various state agencies regulating
franchises and business opportunities that the information contained in the
Company's UFOC was true and correct. Such counsel has no independent means
of ascertainin such truth.
(iii) the authorized capitalization of the Company as of June 30,
1996 is set forth under "Capitalization" in the Prospectus; all shares of
the Company's outstanding stock requiring authorization for issuance by
the Company's board of directors have been duly authorized, validly issued,
are fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the outstanding shares of Common Stock of the
Company have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any preemptive
rights or other rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or
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transfer of any of the shares other than aas set forth in the Prospectus;
the Common Stock conforms to the description thereof contained in the
Prospectus; the Shares have been duly authorized and when issued and
delivered, will be duly and validly issued, fully paid, non-assessable,
free of preemptive rights and no personal liability will attach to the
ownership thereof; and to the best of such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any registration rights or
other rights, other than those which have been waived or satisfied for or
relating to the registration of any Shares of Common Stock or thosed
contained in the PO.
(iv) this Agreement and the Underwriter's PO have been duly and
validly authorized, executed and delivered by the Company, and assuming due
execution and delivery of this Agreement by the Underwriter, are the valid
and legally binding obligations of the Company, subject to applicable
bankruptcy, reorganization, insolvency, moratorium, and other similar laws
applicable to creditor's rights generally and also subject to any
limitations on enforceability which may be imposed by application of
equitable principles. except no opinion need be expressed as to the
enforceability of the indemnity provisions contained in Section 6 or the
contribution provisions contained in Section 7 of this Agreement.
(v) the certificates evidencing the Shares are in valid and proper
legal form; the PO will be exercisable for shares of Common Stock of the
Company in accordance with the terms of the PO and at the prices therein
provided for; at all times during the term of the PO the Shares of Common
Stock of the Company issuable upon exercise of the PO will have been duly
authorized and reserved for issuance upon such exercise of PO and at the
price provided for, will be duly and validly issued, fully paid and non-
assessable.
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could
materially adversely affect the business, property financial condition or
operations of the Company; or which question the validity of the Shares of
Common Stock, this Agreement, or any action taken or to be taken by the
Company pursuant to this Agreement; and no such proceedings are known to
such counsel to be contemplated against the Company; to the best knowledge
of such counsel, there are no governmental proceedings or regulations
required to be described or referred to in the Registration Statement which
are not so described or referred to.
(vii) Neither the Company nor its subsidiaries is in violation of or
default under, nor will the execution and delivery of this Agreement and
the incurrence of the obligations herein or therein contemplated, result in
a violation of, or constitute a default under the certificate or articles
of incorporation or by-laws, or to the best knowledge of such counsel, in
the performance or observance of any material obligations, agreements,
covenants or conditions contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company is a party or by which it or any of its properties may be bound
or in violation of any material order, rule, regulation, writ,
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injunction, or decree of any government, governmental instrumentality or
court, domestic or foreign.
(viii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations.
(ix) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to believe
that the Registration Statement or any amendment thereto at the time it
became effective contained any untrue statement of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains any
untrue statement of a material fact required to be stated therein 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 or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
statements therein, in light of the circumstances under which they were
made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any supplement
thereto, for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which such
counsel need express no opinion).
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents are accurate and fairly present the information required to
be shown, and such counsel has examined 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 such counsel does not know of any contracts or documents of a character
required to be summarized or described therein or to be filed as exhibits
thereto which are not so summarized, described or filed.
(xi) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection
with the authorization, issuance, transfer, sale or delivery of the Shares
by the Company, in connection with the execution, delivery and performance
of this Agreement by the Company, or in connection with the taking of any
action contemplated herein, or the issuance of the Shares (other than
necessary amendments to the Registration Statement) other than (a)
registrations or qualifications of the Shares under applicable state or
foreign securities or Blue Sky laws and (b) registration under the Act, and
(c) "clearance" from the National Association of Securities Dealers, Inc.
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Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact. Notwithstanding the foregoing, such
counsel may rely as to all matters of law other than the law of the United
States or of the States of Delaware or New York upon opinions of counsel
satisfactory to you, in which case the opinion shall state that such
counsel has no reason to believe that you and they are not entitled to so
rely.
(d) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus
and other related matters shall be satisfactory to or approved by Gerald A.
Kaufman, counsel to the Underwriter, and you shall have received from such
counsel a signed opinion, dated as of the Closing Date, with respect to the
validity of the issuance of the Shares, the form of the Registration
Statement and Prospectus (other than the financial statements and other
financial data contained therein), the execution of this Agreement and
other related matters as you may reasonably require. The Company shall have
furnished to counsel to the Underwriter such document as he may reasonably
request for the purpose of enabling him to render such opinion.
(e) You shall have received letters prior to the Effective Date
and again on and as of the First Closing Date from Grant Thornton, LLP
independent public accountants for the Company, substantially in the form
approved by you.
(f) At the First Closing Date, (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 the Closing Date and
the Company shall have performed all of its obligations hereunder and
satisfied all conditions to be satisfied at or prior to such Closing Date,
(ii) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations,
and in all material respects conform to the requirements thereof, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, (iii) there shall have been,
since the respective dates as of which information is given, no material
adverse change in the business, properties or condition (financial or
otherwise), results of operations, 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 agreement not in the ordinary course of business other than
as referred to in the Registration Statement and Prospectus; and (iv)
except as set forth in the Prospectus, no action, suit or proceeding at law
or in equity shall be pending or threatened against the Company which would
be required to be set forth in the Registration Statement, and no
proceedings shall be pending or threatened against the Company before or by
any commission, board of administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, property, condition
(financial or otherwise), results of
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operations or general affairs of the Company, and (v) you shall have
received, at the Closing Date, a certificate signed by the Chairman of the
Board or President and the principal financial officer of the Company,
dated as of the Closing Date, evidencing compliance with the provisions of
this subsection (f).
(h) Upon exercise of the option provided for in Section 2(b)
hereof, the obligations of the Underwriter to purchase and pay for the
Option Shares referred to therein will be subject (as of the date hereof
and as of the Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose shall
have been instituted or shall be contemplated by the Commission for
additional information shall have been complied with to the satisfaction of
Gerald A. Kaufman, counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been delivered
to you, the signed opinion of Bernstein & Wasserman, LLP, counsel for the
Company, dated as of the Option Closing Date, in form and substance
satisfactory to Gerald A. Kaufman, counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the First Closing Date pursuant to Section 4(c)
hereof, except that such opinion, where appropriate, shall cover the Option
Shares rather than the First Shares. If the First Closing Date is the same
as the Option Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chairman of the Board or the
President and the principal financial or accounting officer of the Company,
dated the Option Closing Date, in form and substance reasonably
satisfactory to Gerald A. Kaufman, counsel to the Underwriter,
substantially the same in scope and substance as the certificate furnished
to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you from
Grant Thornton, LLP dated the Option Closing Date and addressed to the
Underwriter, confirming the information in their letter referred to in
Section 4(e) hereof 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 said
letter to a date not more than five business days prior to the Option
Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Shares shall be
satisfactory in form
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and substance to the Underwriter and Gerald A. Kaufman, counsel to the
Underwriter, shall have been furnished with all such documents,
certificates and opinions as you may request in connection with this
transaction in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained therein.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled as of the date indicated this Agreement and
all obligations of the Underwriter under this Agreement may be canceled at,
or at any time prior to, each Closing Date by the Underwriter notifying the
Company of such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without liability
of the Underwriter to the Company.
5. Conditions of the Obligations of the Company.
The obligation of the Company to sell and deliver the Shares is
subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 A.M., New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may
agree in writing.
(b) On the Closing Date, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the 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 on exercise of the option provided for in Section 2(b) hereof
shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
the Act from and against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and
all attorneys' fees), to which such Underwriter or such controlling person
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon any untrue statement alleged untrue statement of any
material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment thereof or supplement thereto,
(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 Shares under the securities laws thereof (any such
application, document or information
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being hereinafter called a "Blue Sky Application"), or arise out of or are
based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus; or any amendment thereof
or supplement thereto, or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company will not be liable in
any such case to the extent, but only 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 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 of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such Preliminary
Prospectus or the Prospectus or any such amendment or supplement thereto.
This indemnity will be in addition to any liability which the Company may
otherwise have.
(b) The Underwriter agree to indemnify and hold 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, from and against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, nominee,
officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so as to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The
indemnified party shall have the right to
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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 indemnified party has assumed
the defense of the action with counsel reasonably satisfactory to the
indemnified party; provided that if the indemnified party is the
Underwriter or a person who controls such Underwriter within the meaning of
the Act, the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party or (ii) the
named parties to any such action (including any impleaded parties) include
both the Underwriter or such controlling person and the indemnifying party
and in the judgment of the Underwriter, it is advisable for the Underwriter
or controlling persons to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of
such action on behalf of the Underwriter or such controlling person, it
being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for all such
Underwriter and controlling persons, which firm shall be designated in
writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnified party, specified in
this paragraph 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 (i) the Underwriter makes claim for indemnification
pursuant to Section 6 hereof but it is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding
the fact that the express provisions of Section 6 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Underwriter, then the Company and each person
who controls the Company, in the aggregate, and any such Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement,
include, but not limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case
(after contribution from others) in such proportions that all such
Underwriter are responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that
the underwriting discount per Share appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon, and the
Company shall be responsible for the remaining portion, provided, however,
that (a) if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriter and controlling persons,
in the aggregate, in connection with the statements or omissions which
resulted in such damages and other relevant equitable considerations shall
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a
material fact or the omission to state a material fact, such statement or
omissions relates to information supplied by the Company or the
Underwriter, and the
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parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and
the Underwriter agree that it would not be just and equitable if the
respective obligations of the Company and the Underwriter to contribute
pursuant to this Section 7 were to be determined by pro rata or per capita
allocation of the aggregate damages 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 and 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 paragraph, the word "Company"
includes any officer, director, or person who controls the Company within
the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled
to contribution from the Company to the full 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. Cost and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Shares to the Underwriter is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company,
including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident
to the preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statement therein and all
amendments and exhibits thereto), each Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the National Association
of Securities Dealers, Inc. ("NASD") in connection with the filing required
by the NASD relating to the offering of the Shares contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel in
connection with the qualification of the Shares under the state securities
or blue sky laws which the Underwriter shall designate; the cost of
printing and furnishing to the Underwriter copies of the Registration
Statement, and the Preliminary Prospectus, the Prospectus, this Agreement,
the Dealers' Agreement, and the Blue Sky Memorandum and the cost of
printing and certificates representing the securities comprising the
Shares. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales
to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a)
of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense
allowance of $180,000. In the event the over-allotment option is exercised,
the Company shall pay to the Underwriter at the Option Closing Date an
additional amount equal to 3% of the gross proceeds received upon exercise
of the over-allotment option. In the event the transactions contemplated
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hereby are not consummated by reason of the Company's unwillingness to
proceed or because of a breach by the Company of any covenant,
representation or warranty herein, the Company shall be liable for the
accountable out of pocket expenses of the Underwriter, including legal fees
but not in excess of $35,000.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Underwriter from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless the Underwriter from and
against any losses, claims, damages or liabilities, joint or several which
shall, for all purposes of this Agreement, include, but not be limited to,
all costs of defense and investigation and all attorneys' fee), to which
the indemnified party may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee
in connection with the proposed offering by reason of such person's or
entity's influence or prior contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution, except that
the Underwriter may, at its option, delay its effectiveness until 11:00
A.M., New York time, on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the
effective date of the Registration Statement as the Underwriter in its
discretion shall first commence the initial public offering of any of the
Shares. The time of the initial public offering shall mean the time of
release by you of the first newspaper advertisement with respect to the
Shares, or the time when the Shares 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 Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 shall
remain in effect notwithstanding such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b), if exercised, may be canceled, at any
time prior to the Option Closing Date, by the Underwriter if in its
judgment it is impracticable to offer for sale or to enforce contracts made
for the resale of the Shares 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 New York Stock Exchange or the American Stock Exchange
having been suspended or limited, (iii) material governmental restrictions
having been imposed on trading in securities generally (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 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
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act or measure, or the adoption of any orders, rules or regulations by any
government body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the
Underwriter 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 in the United States
having occurred since the date of this Agreement, or (viii) any material
adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial
or otherwise, whether or not arising in the ordinary course of business.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10 or
in Section 9, the Company shall be promptly notified by the Underwriter, by
telephone or telegram, confirmed by letter.
11. Underwriter's Option.
On the First Closing Date, the Company will sell to the Underwriter
for a consideration of $120, and upon the terms and conditions set forth in
the form of annexed as an exhibit to the Registration Statement, an option
to purchase an aggregate of 120,000 Shares (the "PO"). In the event of
conflict in the terms of this Agreement and the PO, the language of the PO
shall control.
12. Representations, Warranties, and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties
and other statements of the Company or its Principal Stockholders, where
appropriate, and the Underwriter set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter, the Company or any
of its officers or directors or any controlling person and will survive
delivery of any payment of the Shares and the termination of this
Agreement.
13. Notice.
All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to the Underwriter, will be
mailed, delivered or telegraphed and confirmed to them at Patterson Travis,
Inc. One Battery Park Plaza, New York, New York, 10004 with a copy sent to
Gerald A. Kaufman, 33 Walt Whitman Road, Huntington Station, New York 11746
of if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to it at 171 Palmer Road, Mamaroneck, New York 10538 with a copy
to Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York 10022,
Attn: Stuart Neuhauser, Esq.
14. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
Underwriter, the Company and, to the extent expressed, the Principal
Stockholders, any person
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controlling the Company or the Underwriter, and directors of the Company,
nominees for directors of the Company (if any) named in the Prospectus, the
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
purchasers, as such purchaser, from the Underwriter of the Shares.
15. Director
For a period of three years from Effective Date, the Underwriter will
have the right to designate one person to be elected as a director of the
Company or to be an observer at the meeting.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to agreements made and to be
entirely performed within New York the Company and the Underwriter in
accordance with its terms.
Very truly yours,
ECOMAT, INC.
By: _________________________
Diane Weiser, President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
Patterson Travis, Inc.,
By: ______________________
We hereby agree to be bound by the provisions of Sections 3(j),
and (o) and 12 hereof.
Palatin, AG
___________________________ by __________________________
Diane Weiser Astrid Hindemith, President
22
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET
BECOME EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND
NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE REGISTRATION
STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR
REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME
PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE.
Ecomat, Inc.
1,200,000 SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Patterson Travis, Inc., named as the underwriter in the
enclosed Preliminary Prospectus (the "Underwriter"), proposes to offer
on a firm commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 1,200,000 shares of Common
Stock, $.0001 par value per share ("Common Stock or "Shares")
(including any additional Shares offered pursuant to an over-allotment
option, the "Firm Shares") of Ecomat Inc. (the "Company"). The Firm
Shares are more particularly described in the enclosed Preliminary
Prospectus, additional copies of which as well as the Prospectus
(after effective date) will be supplied in reasonable quantities upon
request.
2. The Underwriter is soliciting offers to buy Shares upon
the terms and conditions hereof, from Selected Dealers, who are to act
as principals, including you, who are (i) registered with the
Securities and Exchange Commission ("the Commission") as
broker-dealers under the Securities Exchange Act of 1934, as amended
("the 1934 Act"), and members in good standing with the National
Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside
the United States, its territories and possessions and not registered
under the 1934 Act who agree to make no sales within the United
States, its territories and possessions or to persons who are
nationals thereof or residents therein and, in making sales, to comply
with the NASD's interpretation with respect to free-riding and
withholding. Shares are to be offered to the public at a price of
$5.00 per Share. Selected Dealers will be allowed a concession of 5%
of the offering price. You will be notified of the precise amount of
such concession prior to the effective date of the Registration
Statement. The offer is solicited subject to the issuance and delivery
of the Shares and their acceptance by the
<PAGE>
Underwriter to the approval of legal matters by counsel and to the
terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part
without obligation or commitment of any kind by you any time prior to
acceptance and no offer may be accepted by us and no sale can be made
until after the registration statement covering the Shares has become
effective with the Commission. Subject to the foregoing, upon
execution by you of the Offer to Purchase below and the return of same
to us, you shall be deemed to have offered to purchase the number of
Shares set forth in your offer on the basis set forth in paragraph 2
above. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation preceded
or accompanied by a copy of the Prospectus. If a contractual
commitment arises hereunder, all the terms of this Selected Dealers
Agreement shall be applicable. We may also make available to you an
allotment to purchase Shares, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an
exchange of confirmations reflecting completed transactions. All
references hereafter in this Agreement to the purchase and sale of the
Shares assume and are applicable only if contractual commitments to
purchase are completed in accordance with the foregoing.
4. You agree that in re-offering the Shares, if your offer is
accepted after the Effective Date, you will make a bona fide public
distribution of same. You will advise us upon request of the Shares
purchased by you remaining unsold, and we shall have the right to
repurchase such Shares upon demand at the public offering price less
the concession as set forth in paragraph 2 above. Any of the Shares
purchased by you pursuant to this Agreement are to be re-offered by
you to the public at the public offering price, subject to the terms
hereof and shall not be offered or sold by you below the public
offering price before the termination of this Agreement.
5. Payment for Shares which you purchase hereunder shall be
made by you on such date as we may determine by certified or bank
cashier's check payable in New York Clearinghouse funds to Patterson
Travis, Inc. Certificates for the securities shall be delivered as
soon as practicable at the offices of Patterson Travis, Inc., One
Battery Park Plaza, New York, NY 10004. Unless specifically authorized
by us, payment by you may not be deferred until delivery of
certificates to you.
6. A registration statement covering the offering has been
filed with the Commission in respect to the Shares. You will be
promptly advised when the registration statement becomes effective.
Each Selected Dealer in selling the Shares pursuant hereto agrees
(which agreement shall also be for the benefit of the Company) that it
will comply with the applicable requirements of the Securities Act of
1933 and of the 1934 Act and any applicable rules and regulations
issued under said Acts. No person is authorized by the Company or by
the Underwriter to give any information or to make any representations
other than those contained in the Prospectus in connection with the
sale of the Shares. Nothing contained herein shall render the Selected
Dealers a member of the underwriting group or partners with the
Underwriter or with one another.
2
<PAGE>
7. You will be informed by us as to the states in which we
have been advised by counsel the Shares have been qualified for sale
or are exempt under the respective securities or blue sky laws of such
states, but we have not assumed and will not assume any obligation or
responsibility as to the right of any Selected Dealer to sell Shares
in any state.
8. The Underwriter shall have full authority to take such
action as we may deem advisable in respect of all matters pertaining
to the offering or arising thereunder. The Underwriter shall not be
under any liability to you, except such as may be incurred under the
Securities Act of 1933 and the rules and regulations thereunder,
except for lack of good faith and except for obligations assumed by us
in this Agreement, and no obligation on our part shall be implied or
inferred herefrom.
9. Selected Dealers will be governed by the conditions herein
set forth until this Agreement is terminated. This Agreement will
terminate when the offering is completed. Nothing herein contained
shall be deemed a commitment on our part to sell you any Shares; such
contractual commitment can only be made in accordance with the
provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of
the National Association of Securities Dealers, Inc. ("Association")
and registered as a broker-dealer or are not eligible for membership
under Section I of the By-Laws of the Association who agree to make no
sales within the United States, its territories, or possessions or to
persons who are nationals thereof or residents therein and, in making
sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. Your attention is called to the
following: (a) Rules 2730, 2740, 2420 and 2750 of the NASD Conduct
Rules of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including
the interpretation with respect to "Free-Riding and Withholding"; (b)
Section 10(b) of the 1934 Act and Rules 10b-6 and 10b-10 of the
general rules and regulations promulgated under said Act; (c)
Securities Act Release #3907; (d) Securities Act Release #4150; and
(e) Securities Act Release #4968 requiring the distribution of a
Preliminary Prospectus to all persons reasonably expected to be
purchasers of Shares from you at least 48 hours prior to the time you
expect to mail confirmations. You, if a member of the Association, by
signing this Agreement, acknowledge that you are familiar with the
cited law, rules, and releases, and agree that you will not directly
and/or indirectly violate any provisions of applicable law in
connection with your participation in the distribution of the Shares.
11. In addition to compliance with the provisions of
paragraph 10 hereof, you will not, until advised by us in writing or
by wire that the entire offering has been distributed and closed, bid
for or purchase Shares or its component securities in the open market
or otherwise make a market in such securities or otherwise attempt to
induce others to purchase such securities in the open market. Nothing
contained in this paragraph 11 shall, however, preclude you from
acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
3
<PAGE>
12. You understand that the Underwriter may in connection
with the offering engage in stabilizing transactions. If the
Underwriter contracts for or purchases in the open market in
connection with such stabilization any Shares sold to you hereunder
and not effectively placed by you, the Underwriter may charge you the
Selected Dealer's concession originally allowed you on the Shares so
purchased, and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that your
net capital is such that you may, in accordance with Rule 15c3-1
adopted under the 1934 Act, agree to purchase the number of Shares you
may become obligated to purchase under the provisions of this
Agreement.
14. You agree that (i) you shall not recommend to a customer
the purchase of Firm Shares unless you shall have reasonable grounds
to believe that the recommendation is suitable for such customer on
the basis of information furnished by such customer concerning the
customer's investment objectives, financial situation and needs, and
any other information known to you, (ii) in connection with all such
determinations, you shall maintain in your files the basis for such
determination, and (iii) you shall not execute any transaction in Firm
Shares in a discretionary account without the prior specific written
approval of the customer.
15. All communications from you should be directed to us at the office
of the Underwriter, Patterson Travis, Inc., One Battery Park Plaza,
New York, NY 10004. All communications from us to you shall be
directed to the address to which this letter is mailed.
Very truly yours,
PATTERSON TRAVIS, INC.
By: ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By: ______________________________
Its
4
<PAGE>
To: Patterson Travis, Inc.
One Battery Park Plaza
New York, NY 10004
We hereby subscribe for _____________ Shares of Common Stock
of Ecomat, Inc., (the "Common Stock" or "Shares"), in accordance with
the terms and conditions stated in the foregoing letter. We hereby
acknowledge receipt of the Prospectus referred to in the first
paragraph thereof relating to said Shares. We further state that in
purchasing said Shares we have relied upon said Prospectus and upon no
other statement whatsoever, whether written or oral. We confirm that
we are a dealer actually engaged in the investment banking or
securities business and that we are either (i) a member in good
standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located
outside the United States, its territories and its possessions and not
registered as a broker or dealer under the Securities Exchange Act of
1934, as amended, who hereby agrees not to make any sales within the
United States, its territories or its possessions or to persons who
are nationals thereof or residents therein. We hereby agree to comply
with the provisions of Rule 2740 of the NASD Conduct Rules, and if we
are a foreign dealer and not a member of the NASD, we also agree to
comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with
the provisions of Rules 2730 and 2750 of the NASD Conduct Rules.
[Name of Dealer]
------------------------------
By: ______________________________
Address
------------------------------
------------------------------
Dated _____________________, 1996
<PAGE>
Option to Purchase
120,000 Shares
ECOMAT, INC.
PURCHASE OPTION
Dated: , 1996
THIS CERTIFIES that PATTERSON TRAVIS, INC., 12835 E. Arapahoe
RD #2 Ste 800, Englewood, CO 80112-6728 (hereinafter sometimes
referred to as the "Holder"), is entitled to purchase from Ecomat,
Inc., a Delaware corporation (hereinafter referred to as the
"Company"), at the prices and during the periods as hereinafter
specified, up to 120,000 shares of Common Stock, $.0001 par value, as
now constituted ("Common Stock" or "Shares").
The Shares have been registered under a Registration
Statement on Form SB-2 (File No. 333-1524) declared effective by the
Securities and Exchange Commission on , 1996 (the "Registration
Statement"). This Option (the "Option") to purchase 120,000 Shares(the
"Option Shares") was originally issued pursuant to an underwriting
agreement between the Company and Patterson Travis, Inc., as
underwriter (the "Underwriter"), in connection with a public offering
of 1,200,000 Shares (the "Public Shares") through the Underwriter, in
consideration of $.001 per Option Share.
Except as specifically otherwise provided herein, the Common
Stock issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities"
in the Registration Statement, and except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, and the Common Stock, as more fully described
in paragraph 6 of this Option.
1. The rights represented by this Option shall be exercised
at the prices, subject to adjustment in accordance with paragraph
<PAGE>
8 of this Option, and during the periods as follows:
(a) Between , 1997 and , 2001, inclusive,
the Holder shall have the option to purchase Shares hereunder at a price of
$6.00 per Share (subject to adjustment pursuant to paragraph 8 hereof) (the
"Exercise Price").
(b) After , 2001 (five (5) years from the
Effective Date), the Holder shall have no right to purchase any
Shares hereunder.
2. The rights represented by this Option may be exercised at
any time within the period above specified, in whole or in part, by
(i) the surrender of this Option (with the purchase form at the end
hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the
Holder appearing on the books of the Company); (ii) payment to the
Company of the Exercise Price then in effect for the number of 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. This Option
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 this Option 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. The
Common Stock and the certificates for the Common Stock so purchased
shall be delivered to the Holder within a reasonable time, not
exceeding ten (10) days, after the rights represented by this Option
shall have been so exercised.
3. For a period of one (1) year from the Effective Date, this
Option shall not be transferred, sold, assigned, or hypothecated,
except that it may be transferred to successors of the Holder, and may
be assigned in whole or in part to any person who is an officer of the
Holder during such period. Any such assignment shall be effected by
the Holder (i) executing the form
2
<PAGE>
of assignment at the end hereof and (ii) surrendering this Option for
cancellation at the office or agency of the Company referred to in
paragraph 2 hereof, accompanied by a certificate (signed by an officer
of the Holder if the Holder is a corporation), stating that each
transferee is a permitted transferee under this paragraph 3 hereof;
whereupon the Company shall issue, in the name or names specified by
the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same
number of Shares as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common
Stock which may be issued hereunder will, upon issuance, 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 this Option
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 this Option.
5. This Option shall not entitle the Holder to any voting,
dividend, or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof,
the Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Shares,
by written notice at least 30 days 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 (other than a registration statement on Form S-4
or S-8 or any successor forms thereto), and will for a period of seven
(7) years from the effective date of the Registration Statement, upon
the request of the Holder, include in any such post-effective
amendment or registration statement, such information as may be
required to permit a public offering of the Option, all or any of the
Shares underlying the Option, or the Common Stock (the "Registrable
Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public
sale or other disposition of the Registrable Securities, use its
reasonable efforts to register and qualify any of the Registrable
Securities for sale in such states as such Holder designates provided
that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or
3
<PAGE>
execute a general consent to service of process in any jurisdiction in
any action and do any and all other acts and things which may be
reasonably necessary or desirable to enable such Holders to consummate
the public sale or other disposition of the Registrable Securities,
and furnish indemnification in the manner provided in paragraph 7
hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7 except that the maximum amount which may be
recovered from the Holder shall be limited to the amount of proceeds
received by the Holder from the sale of the Registrable Securities.
The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to
permit the holders of Registrable Securities requested to be included
in the registration to include such securities in such underwritten
offering on the same terms and conditions as any similar securities of
the Company included therein. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering advises the
holders of Registrable Securities that the total amount of securities
which they intend to include in such offering is such as to materially
and adversely affect the success of such offering, then the amount of
securities to be offered for the accounts of holders of Registrable
Securities shall be eliminated, reduced, or limited to the extent
necessary to reduce the total amount of securities to be included in
such offering to the amount, if any, recommended by such managing
underwriter or underwriters (any such reduction or limitation in the
total amount of Registrable Securities to be included in such offering
to be borne by the holders of Registrable Securities proposed to be
included therein pro rata). The Holder will pay its own legal fees and
expenses and any underwriting discounts and commissions on the
securities sold by such Holder and shall not be responsible for any
other expenses of such registration.
(b) If any 50% holder (as defined below) shall give
notice to the Company at any time during the period set forth in
paragraph l(a) hereof to the effect that such holder desires to
register under the Act this Option, or the Shares, 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 45 days after receipt of such notice, file
a post-effective amendment to the current Registration Statement or a
new registration statement pursuant to the Act, to the end that the
Option, or the Shares may be publicly sold under the Act as promptly
as practicable thereafter and the Company will
4
<PAGE>
use its best efforts to cause such registration to become and remain
effective for a period of 120 days (including the taking of such steps
as are reasonably necessary to obtain the removal of any stop order);
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 (which for purposes hereof shall
mean any direct or indirect transferee of such 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 with respect to the Registrable Securities on only one
occasion during the term of this Option. The Holder may at its option
request the registration of the Option and/or any of the securities
underlying the Option in a registration statement made by the Company
as contemplated by Section 6(a) or in connection with a request made
pursuant to this Section 6(b) prior to acquisition of the Shares
issuable upon exercise of the Option and even though the Holder has
not given notice of exercise of the Option. The 50% holder may, at its
option, request such post-effective amendment or new registration
statement during the described period with respect to the Option, or
separately as to the Common Stock and such registration rights may be
exercised by the 50% holder prior to or subsequent to the exercise of
the Option. Within ten business days after receiving any such notice
pursuant to this subsection (b) of paragraph 6, the Company shall give
notice to the other holders of the Options, advising that the Company
is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying
the Options of the other holders. Each holder electing to include its
Registrable Securities in any such offering shall provide written
notice to the Company within twenty (20) days after receipt of notice
from the Company. The failure to provide such notice to the Company
shall be deemed conclusive evidence of such holder's election not to
include its Registrable Securities in such offering. Each holder
electing to include its Registrable Securities 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
such post-effective amendment or new registration statement shall be
borne by the Company, except that the holders shall bear the fees of
their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
In addition to the rights granted to 50% holders
5
<PAGE>
pursuant to this section 6(b), any holder(s) shall have such rights,
however, all expenses shall be borne by such holder(s).
The Company shall be entitled to postpone the filing
of any registration statement pursuant to this Section 6(b) otherwise
required to be prepared and filed by it if (i) the Company is engaged
in a material acquisition, reorganization, or divestiture, (ii) the
Company is currently engaged in a self-tender or exchange offer and
the filing of a registration statement would cause a violation of Rule
10b-6 under the Securities Exchange Act of 1934, (iii) the Company is
engaged in an underwritten offering and the managing underwriter has
advised the Company in writing that such a registration statement
would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as
a result of an underwritten public offering and such underwriter has
refused in writing, the Company's request to waive such lock-up. In
the event of such postponement, the Company shall be required to file
the registration statement pursuant to this Section 6(b), within 60
days of the consummation of the event requiring such postponement.
The Company will use its best efforts to 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) from the effective
date thereof. The Company shall supply prospectuses, and such other
documents as the Holder 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 holder designates, provided
that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to
service of process in any jurisdiction in any action and furnish
indemnification in the manner provided in paragraph 7 hereof. The
demand registration rights granted hereunder will expire no later than
five (5) years from the effective date of this offering.
(c) The term "50% holder" as used in this paragraph
6 shall mean the holder of more than 50% of the Common Stock
(considered in the aggregate) 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.
6
<PAGE>
7. (a) Whenever pursuant to paragraph 6 a registration
statement relating to the Option or any shares issued or issuable upon
the exercise of any Options, 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) which arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement
thereto, or which arise out of or are based upon the 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 and each such controlling person and underwriter
for any legal or other expenses reasonably incurred by 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, each person, if any, who controls the Company
(within the meaning of the Act) against any losses, claims, damages,
or liabilities, joint and 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,
7
<PAGE>
claims, damages, or liabilities 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 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, in each case to the extent, but
only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was 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 notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof,
the indemnifying party will not be liable to such indemnified party
under this paragraph 7 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof.
8. The Exercise Price in effect at any time and the number
and kind of securities purchasable upon the exercise of this Option
shall be subject to adjustment from time to time upon the happening of
certain events as follows:
8
<PAGE>
(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, 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 or reclassification shall be
adjusted so that it shall equal the price determined by multiplying
the Exercise Price by a fraction, the denominator of which shall be
the number of shares of Common Stock outstanding after giving effect
to such action, and the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such action.
(b) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the
"Subscription Price") (or having a conversion price per share) less
than the current market price of the Common Stock (as defined in
Subsection (e) below) on the record date mentioned below, the Exercise
Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an
Option Share by the product of the Exercise Price in effect
immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the record date mentioned below
and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per
share of the Common Stock, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so
offered are convertible). Such adjustment shall be made successively
whenever such rights or warrants are issued and shall become effective
immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration
of such rights or warrants the Exercise Price shall be readjusted to
the Exercise
9
<PAGE>
Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute
to the holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions and-dividends or
distributions referred to in Subsection (a) above) or subscription
rights or warrants (excluding those referred to in Subsection (b)
above), then in each such case the Exercise Price in effect thereafter
shall be determined by multiplying the number of shares then
comprising an Option Share by the product of 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
outstanding multiplied by the current market price per share of Common
Stock (as defined in Subsection (e) below), less the fair market value
(as determined by the Company's Board of Directors) of said assets or
evidences 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 such current market
price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment
shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon
exercise of this Option is adjusted pursuant to Subsections (a), (b)
or (c) above, the number of Option Shares purchasable upon exercise of
this Option shall simultaneously be adjusted by multiplying the number
of Option Shares initially issuable upon exercise of this Option by
the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under
Subsections (b) or (c)above, the current market price per share of
Common Stock at any date shall be deemed to be the average of the
daily closing prices for 20 consecutive business days before such
date. The closing price for each day shall be the last sale price
regular way
10
<PAGE>
or, in case no such reported sale takes place on such day, the average
of the last reported bid and asked prices regular way, in either case
on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted
to trading on such exchange, the average of the highest reported bid
and lowest reported asked prices as reported by NASDAQ, or other
similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as
determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or decrease
of at least ten cents ($0.10) in such price; provided, however, that
any adjustments which by reason of this Subsection (f) 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 Section 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.
(g) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly, but no later than 10 days
after any request for such an adjustment by the Holder, cause a notice
setting forth the adjusted Exercise Price and adjusted number of
Option Shares issuable upon exercise of this Option and, if requested,
information describing the transactions giving rise to such
adjustments, to be mailed to the Holder, at the address set forth
herein, and shall cause a certified copy thereof to be mailed to its
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 Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such
adjustment.
11
<PAGE>
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Option 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 Subsections (a) to (f), inclusive above.
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, Ecomat, Inc. has caused this Option to be
signed by its duly authorized officers under its corporate seal, and
this Option to be dated _____________________, 1996.
ECOMAT, INC.
By: _________________________
Its
(Corporate Seal)
12
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such
Option for, and to purchase thereunder,
Shares of Ecomat, Inc., and herewith makes payment of
$______________ therefor, 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:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns,
and transfers unto _________________________________ the right to
purchase Shares represented by the foregoing Option to the extent of
_____ Shares, and appoints _________________________________ attorney
to transfer such rights on the books of Ecomat, Inc., with full power
of substitution in the premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
<PAGE>
(Letterhead of Bernstein & Wasserman, LLP)
September 25, 1996
Board of Directors
Ecomat, Inc.
147 Palmer Avenue
Mamaroneck, NY 10543-3632
Re: Ecomat, Inc.
Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel for Ecomat, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing by the Company of a
registration statement (the "Registration Statement") on Form SB-2, File No.
333-1524, under the Securities Act of 1933, relating to the public offering of
1,200,000 shares of the Company's Common Stock, par value $.0001 per share (the
"Common Stock"). The offering also involves the grant to the Underwriter of an
option to purchase an additional 180,000 shares of Common Stock to cover
over-allotments in connection with the offering and the sale to the Underwriter
of an option (the "Purchase Option") to purchase up to 120,000 shares of Common
Stock.
We have examined the Certificate of Incorporation and the By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Common Stock, drafts of the Purchase Option, draft forms of
certificates representing the Common Stock, originals or copies of such records
of the Company, agreements, certificates of public officials, certificates of
officers and representatives of the Company and others, and such other
documents, certificates, records, authorizations, proceedings, statutes and
judicial decisions as we have deemed necessary to form the basis of the opinions
expressed below. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
As to various questions of fact material to such opinion, we have relied upon
statements and certificates of officers and representatives of the Company and
others.
<PAGE>
Ecomat, Inc.
April 15, 1996
Page 2
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock have been duly authorized and, when issued
and sold in accordance with the Prospectus, will be validly issued.
2. The Purchase Option has been duly authorized and, when issued and sold
in accordance with the Prospectus, will be validly issued.
3. The shares of Common Stock issuable upon exercise of the Purchase Option
have been duly authorized and reserved for issuance and, when issued in
accordance with the terms of the Purchase Option, will be duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to be named in the Registration Statement and the
Prospectus as attorneys who have passed upon legal matters in connection with
the offering of the securities offered thereby under the caption "Legal
Matters."
We further consent to your filing a copy of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
BERNSTEIN & WASSERMAN, LLP
B&W/mkc
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 5, 1996, except for Note A, as to which
the date is March 29, 1996, accompanying the financial statements of Ecomat,
Inc. and Subsidiaries contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts".
Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
September 25, 1996
<PAGE>
[Letterhead of Pustorino, Puglisi & Co., P.C.]
We have issued our report dated January 15, 1996, accompanying the financial
statements and schedules of Ecomat, Inc. (formerly, Diaber Laundromat, Inc.) and
Subsidiaries contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ Pustorino, Puglisi & Co., P.C.
PUSTORINO, PUGLISI & CO., P.C.
New York, New York
September 27, 1996
