As filed with the Securities and Exchange Commission on May 10, 1996
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THE HARMAT ORGANIZATION, INC.
(Name of small business issuer in charter)
Delaware 1521 11-2780723
- ------------------ ----------------------- --------------
(State or other (Standard Industrial (IRS Employer
jurisdiction of Primary Classification I.D. Number)
incorporation Code Number)
or organization)
(Address and telephone number, of registrant's
principal executive offices)
Old Country Road
P.O. Box 539
Quogue, New York 11959
(Address of principal place of business or
intended principal place of business)
(Name, address and telephone number, of agent for service)
MATTHEW SCHILOWITZ
c/o The Harmat Organization, Inc.
Old Country Road
P.O. Box 539
Quogue, New York 11959
(516) 653-3303
Please send a copy of all communications to:
DAVID W. SASS, ESQ. STEVEN WASSERMAN
McLaughlin & Stern, LLP Bernstein & Wasserman, LLP
380 Lexington Avenue 950 Third Avenue
New York, New York 10168 New York, New York 10022
(212) 867-2500 (212) 826-0730
Fax (212) 697-2817 Fax (212) 371-4730
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box [x]
______________________________
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<TABLE><CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Security Being Price per Offering Registration
Being Registered Registered Unit/Share Price Fee
(1)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (each consisting
of one share of Common
Stock $.001 par value
and one Series A Common Stock
Purchase Warrant(2) 1,150,000 $ 3.25 $ 3,737,500.00 $ 1,288.79
Units
Shares of Common Stock
$.001 par value, under-
lying the Series A Common
Stock Purchase Warrants(2)(3) 1,150,000 $ 3.50 $ 4,025,000 $ 1,387.93
Shares
Representative's Warrant 100,000 $ .001 $ 100.00 $ .03
to Purchase Units Units
Units underlying
the Representative's
Warrant (3) 100,000 $ 3.90 $ 390,000 $ 134.48
Units
Shares of Common Stock
$.001 par value under-
lying the Series A Warrants
included in the
Representative's 100,000 $ 3.50 $ 350,000 $ 120.69
Warrant (3) Shares
Shares of Common Stock
$.001 par value offered 1,000,000 $ 3.25 $ 3,250,000 $ 1,120.69
by Selling Stockholders(4) Shares
Series A Common Stock
Warrants issued in a
private placement (3) 1,500,000 $ .001 $ 1,500 $ .52
Warrants
Shares of Common Stock
$.001 par value underlying
the Series A Warrants issued
in a private placement (3) 1,500,000 $ 3.50 $ 5,250,000 $ 1,810.34
Shares of Common Stock
$.001 par value underlying
the Series B Warrants
issued in a private 500,000 $ 9.00 $ 4,500,000 $ 1,551.72
placement (3)(5) Shares
Total.............................. $7,415.19
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 150,000 Units which may be issued on exercise of a 30-day
option granted to the Underwriters to cover over-allotments. See
"Underwriting".
(3) Pursuant to Rule 416 there are also being registered such additional
shares as may be issued as a result of the anti-dilution provisions of
the Common Stock Purchase Warrants and the Representative's Warrant.
(4) Includes 500,000 shares of Common Stock sold in a private placement in
February 1996 contained in 500,000 Private Placement Units, each Unit
consisting of one share of Common Stock, three Series A Warrants and
one Series B Warrant. The Series A Warrants are identical to the
Warrants contained in the Units. The Series B Warrants are exercisable
at $9.00 per share. Also includes 500,000 shares to be sold by Selling
Stockholders.
(5) Represents shares of Common Stock underlying Series B Warrants sold in
a private placement in February 1996.
______________________________
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.
_____________________________
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<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering of Units by
The Harmat Organization, Inc. ("Company") and the offering of securities by
certain selling stockholders ("Selling Stockholders"). The Company is
registering, under the primary prospectus ("Primary Prospectus") 1,000,000
Units, each Unit consisting of one share of Common Stock and one Class A Warrant
and 200,000 shares of common stock being sold by a Selling Stockholder. The
Selling Stockholders are registering, under an alternate prospectus
("Alternate Prospectus"), 800,000 shares of Common stock, 1,500,000 Class A
Warrants and 2,000,000 shares of Common Stock underlying outstanding Class A
and Class B Warrants. The Alternate Prospectus pages, which follow the Primary
Prospectus, contain certain sections which are to be combined with all of the
sections contained in the Primary Prospectus, with the following exceptions:
The front and back cover pages, and the sections entitled "The Offering"
and "Selling Stockholders." In addition, the sections entitled "Concurrent
Sales" and "Plan of Distribution" will be added to the Alternate Prospectus.
Furthermore, all references contained in the Alternate Prospectus to the
"offering" shall refer to the Company's offering under the Primary Prospectus.
<PAGE>
THE HARMAT ORGANIZATION, INC.
Cross Reference Sheet
Item Caption Location
- ---- ------- --------
1. Forepart of Registration Statement Outside Front Cover
Page and Outside Front Cover Page of Page
Prospectus
2. Inside Front and Outside Back Cover Inside Front and
Outside Pages of Prospectus Outside Back Cover
Pages
3. Summary Information and Risk Factors Prospectus Summary;
Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting; Risk
Factors
6. Dilution Dilution
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Underwriting
9. Legal Proceedings Business-Litigation
10. Directors, Executive Officers, Management
Promoters and Control Persons
11. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
12. Description of Securities Description of
Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Underwriting-
Indemnification for Securities Act Indemnification
15. Organization Within Last Five Years The Company
16. Description of Business Business; Risk
Factors; Financial
Statements; Selected
Financial Data;
Prospectus Summary;
Use of Proceeds
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17. Management's Discussion and Analysis Management's
or Plan of Operation Discussion and
Analysis of Financial
Condition and Results
of Operation
18. Description of Property Business-Properties
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Market Information;
Stockholder Matters Prospectus Summary
21. Executive Compensation Management-Executive
Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Not Applicable
Accountants on Accounting and
Financial Disclosure
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Subject to Completion dated May 10, 1996
PROSPECTUS
THE HARMAT ORGANIZATION, INC.
1,000,000 UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE SERIES A REDEEMABLE COMMON STOCK PURCHASE WARRANT
and
200,000 SHARES OF COMMON STOCK
The Harmat Organization, Inc., a Delaware corporation (the "Company"),
is offering for sale 1,000,000 Units (the "Units"), each consisting of one
share of Common Stock, par value $.001 per share (the "Common Stock"), and
one Series A Redeemable Common Stock Purchase Warrant (the "Series A Warrants").
The shares of Common Stock and the Series A Warrants included in the Units may
be separately transferred and traded immediately upon the date on which the
registration statement (the "Registration Statement") of which this prospectus
(the "Prospectus") forms a part is declared effective (the "Effective Date") by
the Securities and Exchange Commission (the "Commission"). This offering also
includes 200,000 shares of Common Stock owned and offered by an affiliate of
the Company (the "Underwritten Shares"). The Company will not receive any of
the proceeds from the sale of the shares of Common Stock by the holder thereof.
See "Selling Stockholders" and "Underwriting."
Each Series A Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $3.50 per share for
a period of four years commencing one year after the Effective Date. The Series
A Warrants are subject to redemption by the Company upon 30 days prior written
notice thereof (the "Redemption Notice") at any time after _________, 1997 at
$.05 per Series A Warrant if the closing bid price per share of Common
stock has equalled or exceeded $8.00 for 20 consecutive trading days ending
within 10 days of the Company's Redemption Notice. The exercise price and
exercise date of the Series A Warrants are subject to adjustment under certain
circumstances including, without limitation, the recapitalization or
reorganization of the Company and certain corporate combinations. See
"Descriptions of Securities". The offering price of the Units and the exercise
price of the Series A Warrants were determined arbitrarily by the Company and
Biltmore Securities, Inc. ("Biltmore"), the underwriter of this offering (the
"Underwriter"), and are not necessarily related to the Company's assets, book
value, net worth or any other established criteria of value. See "Risk Factors"
and "Underwriting". The Company will receive proceeds (net of certain
expenses) of its offering of the Units, including the proceeds from the
exercise, if any, of the Series A Warrants included therein.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these activities 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 of the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any State.
<PAGE>
See "Use of Proceeds." Upon completion of the Company's public offering,
management will own an aggregate of 47.6% (32% if the escrowed shares are not
included) 45.5% (30.1% if the escrowed shares are not included) if the
Over-Allotment Option, as hereinafter defined, is exercised in full) of the
then outstanding Common Stock of the Company.
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of 800,000 shares of Common Stock; 1,500,000
Class A Warrants and 2,000,000 shares issuable upon exercise of outstanding
Class A and Class B Warrants which were previously issued by the Company to
the holders thereof and are to be offered and sold by such stockholders (the
"Selling Stockholders"). Such securities are subject to an 18 month lock-up by
the Underwriter. Sales of the securities to be offered by Selling Stockholders
(or even the potential of such sales) would likely have an adverse effect on the
market prices of the securities being offered by the Company. The Company will
not receive the proceeds of any sale of such securities by the Selling
Stockholders. The Selling Stockholders will receive the proceeds from the
sale, if any, of the securities to be offered by Selling Stockholders. Except
as otherwise set forth herein, the costs incurred in connection with the
registration of such securities are to be borne by the Company. See "Selling
Stockholders."
AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION." SUCH
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price Underwriting Proceeds to Proceeds to
to Public Discounts and Company(2) Selling
Commissions (1) Stockholders
Per Unit offered
by Company............ $ 3.25 $ .325 $ 2.925 $ -0-
Per Share offered by
Selling Stockholder $ 3.25 $ .325 $ - $ 2.925
Total(3).............. $ 3,900,000 $ 390,000 $2,925,000 $585,000
BILTMORE SECURITIES, INC
The Date of this Prospectus is _______, 1996
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- ---------------
(1) Does not include additional underwriting compensation to be paid by the
Company to the Underwriter in the form of: (a) an option to purchase up
to 100,000 Units (the "Underwriter's Unit Purchase Option") at an
exercise price equal to 120% of the public offering price ($3.90 per
Unit); and (b) a non-accountable expense allowance of $117,000
Non-Accountable Expense Allowance") equal to 3% of the aggregate
initial public offering price of the Units and the Shares(or $131,625
assuming exercise in full of the Over-Allotment Option, as defined
below), $25,000 of which has been advanced to the Underwriter.
(2) Exclusive of exercise of the Over-Allotment Option (as defined below)
and before deducting expenses payable by the Company estimated at
$392,500 (including the Underwriter's Non-Accountable Expense Allowance
of $97,500.00 payable by the Company). After deducting such expenses
and applicable underwriting discounts, the net proceeds to the Company,
exclusive of the exercise of the Over-Allotment Option (as defined
below), will be approximately $2,532,500.
(3) The Company has granted an option to the Underwriter to purchase up to
an aggregate of 150,000 additional Units exercisable for a period of
30 days following the Effective Date to cover over-allotments, if any,
at the initial public offering price ($3.25 per Unit) less an
underwriting discount equal to 10% of the public offering price (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in
full, the total of each of the Price to Public, Underwriting Discounts
and Commissions, and Proceeds to the Company of each of the Price to
Public, Underwriting Discounts and Commissions, and Proceeds to the
Company will be $3,737,500.00, $373,750.00 and $3,363,750.00,
respectively (exclusive of other expenses payable by the Company and
the Non-Accountable Expense Allowance). Assuming exercise of the
Over-Allotment Option and after deducting expenses and applicable
underwriting discounts, the net proceeds to the Company will be
approximately $2,956,625, See "Underwriting."
Prior to the Company's public offering as described herein, there has
been no public market for the Units, the Common Stock or the Series A Warrants,
and no assurance may be given that a public market will develop following the
completion of the offering or that, if any such market does develop, it will
be sustained. The Company has applied to have the Units, the Common Stock and
the Series A Warrants listed for quotation on The NASDAQ SmallCap MarketSM
("NASDAQ") under the symbols: "HMATU", "HMAT", and "HMATW", respectively.
There can be no assurance given that the Company will be able to satisfy on a
continuing basis the requirements for quotation of such securities on NASDAQ.
See "Risk Factors - No Assurances of Public Market or Continued NASDAQ
Listing," "Risk Factors-Penny Stock Regulations" and "Market for the Company's
Securities and Other Related Stockholder Matters."
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<PAGE>
The securities being offered for sale by the Company are being offered
on a "firm commitment" basis, subject to prior sale, when, as and if delivered
to and accepted by the Underwriter pursuant to the terms of the underwriting
agreement relating to the offering. See "Underwriting." It is expected that
delivery of certificates representing the securities being offered by the
Company will be made against payment therefor at the offices of the
Underwriter on or about ______, 1996. The Company does not currently file
reports and other information with the Commission. However, following
completion of its offering, the Company intends to issue annual reports
containing audited financial statements and such interim reports to its
Securityholders as the Company may determine to furnish or as the same may be
required by law. See "Available Information."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
ALTHOUGH IT HAS NO LEGAL OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM
TIME TO TIME ACT AS A MARKETMAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITER WILL NOT ACT AS A MARKETMAKER UNTIL SUCH
TIME AS ITS PARTICIPATION IN THIS OFFERING IS COMPLETE. THE UNDERWRITER, IF IT
PARTICIPATES IN THE MARKET, MAY BE A DOMINATING INFLUENCE IN ANY MARKET THAT
MIGHT DEVELOP FOR ANY OF THE COMPANY'S SECURITIES. SUCH ACTIVITIES, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME OR FROM TIME TO TIME. THEREFORE,
THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL NOT BE A DOMINATING
INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE
AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION IN THE
MARKET. SEE "RISK FACTORS" AND "UNDERWRITING."
AVAILABLE INFORMATION
Upon completion of its offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, a amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copies at the
Commission's public reference room located in Room 1024 at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials may also be obtained at prescribed
rates from the Public Reference Section of the Commission located in Room 1024
at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed a Registration Statement relating to the
securities offered hereby with the Commission pursuant to the provisions of
the Securities Act of 1933, as amended (the "Securities Act"). Although this
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Prospectus forms a part of the Registration Statement, it does not contain all
of the information set forth in the Registration Statement, the exhibits or the
schedules thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to the registration Statement,
the exhibits and the schedules thereto. Summaries of and references to various
documents in this Prospectus do not purport to be complete and in each case
reference is made to the copy of such document which has been filed as an
exhibit to the Registration Statement.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
data (including any financial statements and the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share and per
share amounts set forth hereinafter have been adjusted to reflect the issuance
in March 1, 1996 of 1,750,000 shares of Common Stock of the Company in
exchange for shares of common stock of Harmat Homes, Inc., Harmat Capital
Corp., Northside Woods, Inc., Harmat Holding Corp., Harmat Organization, Inc.
and Quick Storage of Quogue, Inc. (collectively the "Subsidiaries"). The
consideration for such exchange was arbitrarily determined and was not an
arms-length transaction. Of such 1,750,000 shares, 750,000 shares have been
placed in escrow to be released from escrow in the event certain financial
goals are achieved. See "The Company;" and "Certain Transactions." Each
prospective investor is urged to read this Prospectus in its entirety.
The Company
The Harmat Organization, Inc. (hereinafter with its Subsidiaries
collectively "Harmat" or the "Company"), a Delaware corporation, is a
construction, architectural and landscape design and real estate development
firm based in Long Island, New York. Harmat builds custom homes on either the
client's land or on properties owned or controlled by entities affiliated with
Harmat. The Company also builds commercial and residential rental properties.
The Company also offers interior design, renovation and restoration services
to its clients. In addition, Harmat owns undeveloped land, storage facilities
containing 115 units, rental properties and is involved in real estate
development projects. Over the past ten years, the Company has focused its
efforts in the Suffolk County area of eastern Long Island, New York, where it
has built approximately 150 single-family homes as well as such
commercial/public projects as the 6,000 square feet center of Jewish Life
in Westhampton Beach, the Hamptons Synagogue. The Company is currently
constructing a 14 unit luxury condominium in Westhampton Beach on a 10 acre
bayfront property on Dune Road consisting of club house, 6 tennis courts,
pool, patio, beach access and 30 boat slips. The Company maintains its
principal office at 2 Old Country Road, Quogue, NY 11959; its phone number
is (516) 653-3303.
- -
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The Offering
Securities Offered by the Company... 1,000,000 Units, each consisting of one
share of Common Stock and one Series A
Redeemable Common Stock Purchase Warrant.
Each Series A Warrant entitles the holder
thereof to purchase one share of Common
Stock at an exercise price of $3.50 per
share for a period of four years
commencing one year after the Effective
Date and terminating on the earlier of
its expiration date on ______, 2001 or
the prior redemption thereof by the
Company. The Series A Warrants are subject
to redemption at $.05 per warrant at any
time after _______ 1997 on 30 days notice
if the closing bid price of the Common
Stock equals or exceeds $8.00 for 20
consecutive days within 10 days of
redemption notice. See "Description of
Securities."
Securities Offered by Selling Stockholder 200,000 Shares
Securities Outstanding Prior to the
Company's Offering
Common Stock................... 2,250,000 Shares
Series A Warrants.............. 1,500,000
Series B Warrants............... 500,000
Securities Outstanding After the
Company's Offering:
Common Stock (1)................. 3,250,000 Shares
Series A Warrants(2)............. 2,500,000 Warrants
Series B Warrants................ 500,000 Warrants
Proposed NASDAQ SmallCap MarketSM
Symbols(3);
Units............................ HMATU
Series A Warrants................ HMATW
Common Stock..................... HMAT
_______________
(1) Does not include: (a) 1,000,000 shares of Common Stock
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issuable upon exercise of the Series A and Series B Warrants issued
in a private placement and 1,000,000 shares of Common Stock issuable
upon exercise of the Series A Warrants contained in the Units;
(b) 150,000 shares of Common Stock issuable upon exercise of the
Over-Allotment Option and 150,000 shares of Common Stock issuable
upon the exercise of the Series A Warrants contained therein; (c)
100,000 shares of Common Stock issuable upon exercise of the
Underwriter's Unit Purchase Option and 100,000 shares of Common Stock
issuable upon exercise of the Series A Warrants issuable upon
exercise thereof; (d) 400,000 shares of Common Stock reserved for
issuance pursuant to the Company's Stock Option Plan (as hereinafter
defined); and (e) 750,000 shares of Common Stock reserved for issuance
pursuant to an option issued to an officer of the Company. See
"Description of Securities," "Certain Transactions," "Management-Other
Options or Plans" and "Underwriting."
(2) Does not include the issuance of: (a) 150,000 Series A Warrants
issuable upon exercise of the Over-Allotment Option; or (b)
100,000 Series A Warrants issuable upon the exercise of the
Underwriter's Unit Purchase Option. See "Underwriting" and "Description
of Securities."
(3) The Units, the Common Stock and the Series A Warrants are expected to
be listed for quotation on NASDAQ under the symbols: "HMATU", "HMAT"
and "HMATW", respectively. There can be no assurance given that the
Company will be able to satisfy on a continuing basis the requirements
for quotation of such securities on NASDAQ. See "Risk Factors" and
"Market for the Company's Securities andOther Related Stockholder
Matters."
Risk Factors
An investment in any of the securities being offered hereby is highly
speculative and involves substantial risks including, but not limited to,
inherent risks of the real estate business, the risks of the construction
industry, potential conflicts of interest, the Company's ongoing capital
requirements, dependence upon and application of the proceeds of the Company's
public offering, the potential need for additional financing, the Company's
reliance on senior management, "penny stock" regulations, the Underwriter's
influence on the market, industry competition, lack of assurance with respect
to continued quotation of any of the Company's securities on NASDAQ (or any
other quotation market or exchange), lack of cash dividends and dilution.
See "Risk Factors," "Business," "Dilution," "Market for the Company's
Securities and Other Related Stockholder Matters" and "Underwriting."
Use of Proceeds
The Company will receive the net proceeds of its offer and sale of the
Units and will receive the proceeds from the exercise, if any, of the Series A
Warrants included in the Units. The Company intends to use the net proceeds
from its offering of the Units for the following: (i) approximately $1,100,000
for the acquisition and development of property; (ii) repayment of approximately
$1,068,048 in outstanding indebtedness; and (iii) the remainder for general
working capital purposes. See "Risk Factors-Use of Proceeds Subject to
Management Discretion," and "Use of Proceeds."
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Summary Financial Information
The following summary of selected financial information concerning the
Company, other the "As Adjusted" information reflecting the Company's receipt
and use of the net proceeds of its public offering (see "Use of Proceeds"),
has been derived from the financial statements (including the related notes
thereto) of the Company included elsewhere in this Prospectus (the "Financial
Statements"). This information should be read in conjunction with the
Financial Statements and the section hereof entitled "Management's Discussion
and Analysis of Financial condition and Results of Operations." The financial
information presented below for each of the fiscal years ended December 31, 1995
and December 31, 1994 has been derived from audited financial statements.
1995 As Adjusted(1)
Balance Sheet Data
Working Capital (Deficit).............. (1,206,453) 931,647
Total Assets........................... 2,694,555 4,584,007
Total Liabilities...................... 2,876,485 1,808,437
Total Long-Term Obligations............ 1,156,273 907,625
Stockholders' Equity (Deficit)......... (181,930) 2,775,570
1995 1994
Income Statement Data
Revenues................................ 2,323,524 4,518,872
Income from Operations.................. 236,710 1,260
Net Income.............................. 340,903 258,171
Net Income per Share of Common Stock.... .15 .11
Pro Forma Net Earnings.................. 197,000 155,000
Pro Forma Net Earnings per Share of
Common Stock........................... .09 .06
Weighted Average Number of Common Shares
Outstanding Used in Computation......... 2,250,000 2,250,000
(1) Includes the effect of the bridge financing in February 1996
with proceeds of $425,000 and the proposed public
offering with anticipated net proceeds of $2,532,500.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE
A HIGH DEGREE OF RISK. SUCH SECURITIES SHOULD BE PURCHASED ONLY BY PERSONS WHO
CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE
INVESTOR SHOULD, PRIOR TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK
FACTORS, AS WELL AS ALL OF THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS
PROSPECTUS AND THE INFORMATION CONTAINED IN THE FINANCIAL STATEMENTS, THE NOTES
THERETO AND THE DOCUMENTS REFERENCED HEREIN.
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Financial Information
The financial statements have been prepared assuming that the Company
will continue as a going concern and the accountant's report contains a going
concern qualification. There can be no assurance that the Company's business
strategy will prove successful, or that the Company will operate profitably.
Since the Company has incurred operating losses from inception and has capital
and working capital deficiencies, there is doubt as to the Company's ability
to continue as a going concern. See "Business", "Financial Statements" and
"Management's Discussion and Analysis".
Inherent Risks of the Real Estate Business
The real estate business is highly speculative. Land values and/or home prices
may fluctuate significantly, and the rate of home sales can be slow.
Furthermore, the Company's building has been centered in the Hamptons resort
area in eastern Long Island, New York, where the bulk of the market consists
of vacation homes. This market is highly dependant upon the disposable income
of potential buyers as well as the interest rate climate and the availability
of suitable financing for both the Company and its clients. No assurances
can be given that the housing or commercial real estate market will expand
such that the Company will be profitable or that the Company's inventory of
homes and lots will sell at such a rate that the Company will be able to carry
such inventory. See "Business."
Inherent Risks of the Construction Industry
The construction industry poses certain inherent risks to the Company,
such as a shortage of skilled labor or labor problems such as strikes,
walkouts, etc. In addition, certain other problems may arise resulting in
construction delays and/or cost overruns that the Company may have to absorb.
Furthermore, the Company may incur unexpected costs with respect to warranty
service on completed projects even though it carries warranty insurance to
cover such contingencies. See "Business."
Expansion of Business
The Company proposes to seek opportunities to expand its business in
commercial real estate and to acquire income producing properties. The Company
has not entered into any negotiations in respect thereto. No assurance can be
given that the Company will be able to expand its business or realize
profitable operations.
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<PAGE>
Dependence Upon Key Individual
The Company's success is dependent upon the activities of Matthew C.
Schilowitz, its principal shareholder and officer. The loss of Mr.
Schilowitz' services through death, disability or resignation will have a
material and adverse effect on the business of the Company. The Company
intends to obtain keyman insurance on the life of Mr. Schilowitz in the amount
of $1,000,000.
Seasonality
The Company generally experiences an increase in revenues in the fall
when it commences the majority of its construction projects, and a decrease in
revenues during the summer, when it does most of its marketing and in the
winter, when adverse weather may make construction difficult.
Broad Discretion in Application of Proceeds
The management of the Company has broad discretion to adjust the
application and allocation of the net proceeds of this offering, including funds
received upon exercise of the Class A Warrants, in order to address changed
circumstances and opportunities. As a result of the foregoing, the success of
the Company will be substantially dependent upon the discretion and judgment
of the management of the Company with respect to the application and
allocation of the net proceeds hereof. Pending use of such proceeds, the net
proceeds of this offering will be invested by the Company in temporary,
short-term interest-bearingobligations. See "Use of Proceeds," "Business"
and "Management."
Possible Need for Additional Financing
The Company intends to fund its operations and other capital needs for
the next twelve (12) months substantially form operations and the proceeds of
this offering, but there can be no assurance that such funds will be sufficient
for these purposes. The Company may require substantial amounts of the proceeds
of this offering for its future expansion, operating and capital needs, there
can be no assurance that such financing will be available, or that it will be
available on acceptable terms. See "Use of Proceeds."
Conflicts of Interest
Mr. Schilowitz currently has interests in several real estate
development projects either individually or through entities either owned
outright or controlled by him. To the extent feasible, Mr. Schilowitz will
seek to have the Company retained as a construction and/or development firm
for such projects, and to have the Company
17
<PAGE>
receive a management fee for services provided to such entities. All such
arrangements will be reviewed solely by the Company's outside directors, who
will determine the value of any services provided by the Company and attempt
to ensure that all terms received by the Company will be equivalent to those
granted by unrelated third parties.
Working Capital - Use of Proceeds
A small portion of the proceeds derived from the sale of the Units
offered hereby will be added to the Company's general working capital.
Management will have complete discretion as to the application of such funds.
No assurance can be given as to the amounts that will be raised under this
offering and if such amounts will be sufficient to meet the Company's needs.
See "Use of Proceeds."
Competition
The Company faces competition from a number of local builders, many
of which can offer either the same or lower building costs than the Company.
The Company seeks to compete not solely on the basis of price, however, but
also on the basis of quality, reliability, selection of quality building
sites, customer service and its ability to offer a "turn key" operation. No
assurances can be given that this strategy will enable the Company to compete
successfully. See "Business - Competition."
Government Regulation
The Company is subject to federal and state regulations regarding
environmental,and the construction industry generally and is therefore subject
to expenditures to maintain its compliance with these regulations. The Company
is also subject to changes in these regulations that may have a materially
adverse effect on its business.
Limitation on Directors' Liabilities Under Delaware Law
The Company's Certificate of Incorporation limits the liability of the
Company's directors for breach of their fiduciary duty of care to the Company.
The effect is to eliminate liability of directors for monetary damages arising
out of negligent or grossly negligent conduct. Stockholder actions against a
director of the Company for monetary damages can only be maintained upon
a showing of a breach of the individual director's duty of loyalty to the
Company, a failure to act in good faith, intentional misconduct, a knowing
violation of the law, an improper personal
18
<PAGE>
benefit, or an illegal dividend or stock purchase, and not for such
director's negligence or gross negligence in satisfying his duty of care.
Determination of Offering Price of Securities
The public offering price of the Units and the exercise price of the
Series A Warrants were determined by negotiation between the Company and the
Underwriter and do not necessarily bear any relationship to the Company's
assets, book value, net worth or any other established criteria of value.
Among the factors considered in determining such prices were the Company's
historical performance and growth, management's assessment of the Company's
business potential and earning prospects, the prospects for growth in the
industry in which the Company operates, market prices and prevailing market
conditions generally. Neither the offering price of the Units nor the exercise
price of the Series A Warrants should be regarded as indicative of the actual
value of any of thesecurities being offered by the Company. See "Underwriting".
Immediate and Substantial Dilution
Purchasers of the securities being offered by the Company will suffer
immediate substantial dilution in the net tangible book value of shares of
Common Stock purchased in the amount of $2.43 per share, assuming that the
anticipated $3.25 price per Unit is all attributed to the share of Common
Stock and none to the Series A Warrants included in each Unit. Additional
dilution may result in the event of the exercise of options granted pursuant
to the Company's Stock Option Plan (as hereinafter defined). See
"Dilution," "Stock Option Plan," and "Other Options and Plans," "Description
of Securities" and "Certain Transactions."
Absence of Dividends on Common Stock
The Company has not paid any dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, working capital
and earnings, if any, will be retained for use in the Company's business
operations and in the expansion of its business. The Company has no present
intention to pay cash dividends on its Common Stock. See "Dividend Policy"
and "Description of Securities".
Future Issuances of Stock by the Company; Potential Anti-Takeover Effect
The Company has authorized capital stock of 25,000,000 shares of
Common Stock, $.001 par value per share, and 5,000,000 shares of
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<PAGE>
preferred stock, $.001 par value per share (the "Preferred Stock"). As of the
date hereof, there are 2,250,000 shares of Common Stock issued and outstanding.
Although there are no present plans, agreement or undertakings with respect to
the Company's issuance of any shares of stock or related convertible securities,
other than as disclosed herein, the issuance of any of such securities by the
Company could have anti-takeover effects insofar as such securities could be
used as a method of discouraging, delaying or preventing a change in control
of the Company. Such issuance could also dilute the public ownership of the
Company. Inasmuch as the Company may, in the future, issue authorized shares
of Common Stock or Preferred Stock without prior stockholder approval, there
may be substantial dilution to the interests of the Company's stockholders.
In addition, a stockholder's pro rata ownership interest in the Company may be
reduced to the extent of the issuance and/or exercise of any options or
warrants relating to the Common Stock or Preferred Stock (including exercise
of the Over-Allotment Option and the Series A Warrants included therein,
and the Series A Warrants included therein and the Series A Warrants included
in the Units). See "Use of Proceeds," "Capitalization," "Description of
Securities" and "Underwriting".
Future Sales of Stock by Stockholders
All of the Company's 2,250,000 outstanding shares of Common Stock are
"restricted securities" as that term is defined under the Securities Act and
in the future may only be sold in compliance with Rule 144 promulgated under
the Securities Act or pursuant to an effective registration statement. Rule
144 provides, in essence, that a person (including a group of persons whose
shares are aggregated) who has satisfied a two-year holding period for such
restricted securities may sell within any three-month period, under
certain circumstances, an amount of restricted securities which does not exceed
the greater of 1% of that class of the Company's outstanding securities or the
average weekly trading volume of that class of securities during the four
calendar weeks prior to such sale. In addition, pursuant to Rule 144, persons
who are not affiliated with the Company and who have held their restricted
securities for at least three years are not subject to the quantity limitations
or the manner of sale restriction of the rules. As of the date hereof, no shares
of Common Stock are available for resale pursuant to Rule 144. However,
1,000,000 shares of the 2,250,000 shares of the Company issued and outstanding
Common Stock have been included in the Registration Statement of which this
Prospectus forms a part. Pursuant to an agreement with the Underwriter, the
officers, directors and holders of 5% or more of the Company's equity
securities are restricted from selling their respective securities for a
period of 18 months from the Effective Date, absent waiver of such restriction
by the Underwriter. In addition, 750,000 shares are held in escrow and will only
be released if certain financial goals are achieved. See "Certain Transactions"
and "Underwriting."
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<PAGE>
In the event that shares of Common Stock which are not currently
salable become salable by means of registration, eligibility for sale under
Rule 144 or otherwise and the holders of such shares of Common Stock elect to
sell such shares of Common Stock in the public market, there is likely to be
negative effect on the market price of the Company's securities and on the
ability of the Company to obtain additional equity financing. In addition, to
the extent that such shares of Common Stock enter the market, the value of
the Common Stock in the over-the-counter market may be reduced. No predictions
can be made as to the effect, if any, that sales of the Units, the Common
Stock and the Series A Warrants or the availability of the Units, the Common
Stock and the Series A Warrants for sale will have on the market price of any
such securities which may prevail from time to time. Nevertheless, the
foregoing could adversely affect such prevailing market prices. See "Shares
Eligible For Future Sale," "Principal Stockholders," "Certain Transactions"
and "Description of Securities."
Authorization of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up
to 5,000,000 shares of Preferred Stock with such rights and preferences as may
be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors may, without shareholder approval, issue shares of
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
Common Stock. In addition, the issuance of such Preferred Stockmay have the
effect of rendering more difficult, or discouraging, an acquisition of the
Company or changes in control of theCompany. Although the Company does not
currently intend to issue any shares of Preferred Stock, there can be no
assurance that the Company will not do so in the future. See "Risk Factors -
Future Issuances of Stock by the Company; Potential Anti-Takeover Effect."
Financial Risk to Investors in Public Offering
Upon completion of the Company's public offering, the Company's current
stockholders will have paid $525,000 for 2,250,000 shares of Common Stock, or
69.2% (60% if the escrowed shares are not included) of the Company's then
outstanding shares of Common Stock, and purchasers of the Units in the
Company's public offering will have paid $3,250,000 for 1,000,000 shares of
Common Stock, or 30.8% (40% if the escrowed shares are not included) of the
Company's then outstanding shares of Common Stock, assuming no exercise of the
Over-Allotment Option or the Underwriter's Unit Purchase Option and no exercise
of the Series A Warrants included in the Units being offered by the Company
21
<PAGE>
pursuant hereto, the Units issuable upon exercise of the Over-Allotment Option
or the Units issuable upon exercise of the Underwriter's Unit Purchase Option
but including the 750,000 shares held in escrow. Therefore, investors purchasing
Units in the Company's public offering will bear a substantially greater
financial risk than the Company's current stockholders. See "Dilution."
No Assurance of Public Market or Continued NASDAQ Listing
Prior to the Company's public offering, there has been no public market
for any of the Company's securities, and there can be no assurance given that
a regular trading market for the Units, the Common Stock and/or the Series A
Warrants will develop after the completion of the Company's public offering.
If a trading market does in fact develop for any of the foregoing securities,
there can be no assurance given that it will be sustained. In connection with
the Company's public offering, the Company applied for andwas granted
inclusion of the Units, the Common Stock and the Series A Warrants for
quotation on NASDAQ under the symbols: HMATU, HMAT and HMATW, respectively.
While such securities are currently listed for quotation on NASDAQ, there can
be no assurance given that the Company will be able to satisfy the requirements
for continued quotation on NASDAQ or that such quotation will otherwise
continue. If, for any reason, any of such securities become ineligible for
continued listing and quotation or a public trading market does not develop,
purchasers of such securities may have difficulty selling their securities
should they desire to do so.
Under the current rules of the National Association of Securities
Dealers, Inc. ("NASD"), in order to qualify for initial listing on NASDAQ, a
company must have, among other things, 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. For continued listing, a
companymust have, among other things, $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. Although the Company is able initially
to satisfy the requirements for quotation on NASDAQ, it may be unable to satisfy
the requirements for continued quotation thereon, and trading, if any, in the
securities being offered hereby would be conducted in the over-the-counter
market in what are commonly referred to as the "pink sheets" of the National
Quotation Bureau, Inc. 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 such securities.
22
<PAGE>
"Penny Stock" Regulations
The Commission has adopted regulations which define a "penny stock" to
be any equity security that has a market price (as defined) of less than $5.00
per share, subject to certain exceptions. The Company believes that, as of the
date of this Prospectus, the Units, the Common Stock and/or the Series A
Warrants may be deemed to be "penny stocks" as defined by the Exchange Act and
the rules and regulations promulgated thereunder. For any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior
to the transaction, of a disclosure schedule prepared by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities information on the
limited market in penny stocks and, if the broker-dealer is the sole
marketmaker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. In addition, the broker-dealer must obtain
a written acknowledgement from the customer that such disclosure information
was provided and must retain such acknowledgement from the customer for at
least three years.
Further, monthly statements must be sent to the customer disclosing
current price information for the penny stock held in the account. While many
NASDAQ-listed securities would otherwise be covered by the definition of penny
stock, transactions in a NASDAQ-listed security would be exempt from all but
the sole marketmaker provision for: (i) issuers who have $2,000,000 in tangible
assets ($5,000,000 if the issuer has not been in continuous operation for three
years); (ii) transactions in which the customer is an institutional accredited
investor; and (iii) transactions that are not recommended by the broker-dealer.
In addition, transactions in a NASDAQ-listed security directly with a NASDAQ
marketmaker for such securities would be subject only to the sole marketmaker
disclosure, and the disclosure with respect to commissions to be paid to the
broker-dealer and the registered representative.
The above-described rules may materially adversely affect the
liquidity for the market of the Company's securities. Such rules may also
affect the ability of broker-dealers to sell the Company's securities and may
impede the ability of holders (including, specifically, purchasers in this
offering) of the Units, the Common Stock, the Series A Warrants or the Common
Stock underlying the Series A Warrants to sell such securities in the
secondary market.
Underwriter's Influence on the Market
Although it has no legal obligation to do so, the Underwriter may from
time to time act as a marketmaker and otherwise effect transactions in the
Company's securities. To the extent the Underwriter acts as a marketmaker in
the Units, the Common Stock or
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<PAGE>
the Series A Warrants, it may be a dominating influence in that market. The
price and liquidity of such securities may be affected by the degree, if any,
of the Underwriter's participation in the market inasmuch as a significant
amount of such securities may be sold to customers of the Underwriter. Such
customers subsequently may engage in transactions for the sale or purchase of
such securities through or with the Underwriter. In the event that
marketmaking activities are commenced, the Underwriter may discontinue
such activities at any time or from time to time. See "Underwriting."
Litigation Involving the Underwriter
The Company has been advised by the Underwriter that on or about
May 22, 1995, the Undewriter and Elliot Lowenstern and Richard Bronson,
principals of the Underwriter, and the Securities and Exchange Commission
(the "Commission") agreed to an offer of settlement (the "Offer of Settlement")
in connection with a complaint filed by the Commission in the United States
District Court for the Southern District of Florida alleging violations of the
federal securities laws, Section 17(a) of the Securities Act of 1933, Section
10(b) and 15(c) of the Securities Exchange Act of 1934, and Rules 10b-5,
10b-6 and 15c1-2 promulgated thereunder. The complaint also alleged that in
connection with the sale of securities in three (3) IPOs in 1992 and 1993,
the Underwriter engaged in fraudulent sales practices. The proposed Offer of
Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The
Offer of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant
to the final judgment (the "Final Judgment"), the Underwriter:
* was required to disgorge $1,000,000 to the Commission, which
amount was paid in four (4) equal installments on or
before June 22, 1995; and
* agreed to the appointment of an independent consultant
("Consultant").
Such Consultant is obligated, on or before May 15, 1996:
* to review the Underwriter's policies, practices and procedures
in six (6) areas relating to compliance and sales practices;
* to formulate policies, practices and procedures for the
Underwriter that the Consultant deems necessary with respect
to the Underwriter's compliance and sales practices;
* to prepare a report devoted to and which details the
24
<PAGE>
aforementioned policies, practices and procedures (the
"Report");
* to deliver the Report to the President of the Underwriter and
to the staff of the Southeast Regional office of the
Commission;
* to prepare, if necessary, a supervisory procedures and
compliance manual for the Underwriter, or to amend the
Underwriter's existing manual; and
* to formulate policies, practices and procedures designed to
provide mandatory on-going training to all existing and
newly hired employees of the Underwriter. The Final Judgment
further provides that, within thirty (30) days of the
Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain
any and all policies, practices and procedures set forth in
the Report.
The Final Judgment also provides that an independent auditor
("Auditor") shall conduct four (4) special reviews of the Underwriter's
policies, practices and procedures, the first such review to take place six
(6) months after the Report has been delivered to the Underwriter and
thereafter at six-month intervals. The Auditor is also authorized to conduct a
review, on a random basis and without notice to the Underwriter, to certify
that any persons associated with the Underwriter, who have been suspended or
barred by any Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronston was dismissed with prejudice. Mr. Bronson hasagreed to a suspension
from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investmentadvisor or investment company for a
period of twelve (12) months, dating from the beginning of such suspension.
Mr. Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing
upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of ths foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company's
stock, and additional brokers do not make a market in the Company's securities,
the market for and liquidity of the Company's securities may be adversely
affected. In the event that other broker dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In
25
<PAGE>
such event, the market for, liquidity and prices of the Company's securities
may not exist. For additional information regarding the Underwriter, investors
may call the National Association of Securities Dealers, Inc. at (800) 289-9999.
Recent State Action Involving the Underwriter - Possible Loss of Liquidity
The State of Indiana has commenced an action seeking among other things
to revoke the Underwriter's license to do business in such state. Such
proceeding if ultimately successful may adversely affect the market for and
liquidity of the Company's securities if additional broker dealers do not make
a market in the Company's securities. Moreover, should Indiana investors
purchase any of the securities sold in this Offering from the Underwriter
prior to the possible revocation of the Underwriter's license in Indiana, such
investors will not be able to resell such securities in such state through the
Underwriter but will be required to retain a new broker dealer firm for such
purpose. The Company cannot ensure that other broker dealers will make a market
in the Company's seucriites. In the event that other broker dealers fail to
make a market in the Company's securities, the possibility exists that the
market for and the liquidity of the Company's securities may be adversely
affected to an extent that public security holders may not have anyone to
purchase their securities when offered for a sale at any price. In such
event, the market for, liquidity and prices of the Company's securities may
not exist. It should be noted that although the Underwriter may not be the
sole market maker in the Company's securities, it will most likely be the
dominant market maker in the Company's securities.
Blue Sky Restrictions on Exercise of the Series A Warrants
The Company has qualified the sale of the securities being offered
hereby in a limited number of states. Although certain exemptions in the Blue
Sky laws of certain states, other than those states in which such securities
are initially qualified, may permit such securities, including the Series A
Warrants, to be transferred to purchasers in such states, the Company will be
prevented from issuing Common Stock upon exercise of the Series A Warrants in
such states unless an exemption from registration or qualification is
available or unless the issuance of Common Stock upon the exercise of the
Series A Warrants is qualified and a current registration statement is in
effect. The Company may decide not to seek or may not be able to obtain
qualification of the issuance of such Common Stock in all of the states in
which the ultimate purchasers of the Series A Warrants reside. In such case,
the Series A Warrants of such purchasers will expire and have no value if such
warrants cannot be exercised. Accordingly, the market for the Series A
Warrants may be limited.
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<PAGE>
Underwriter's Unit Purchase Option
In connection with the Company's offering of the 1,000,000 Units, the
Company will sell to the Underwriter, for nominal consideration, an option to
purchase up to an aggregate of 100,000 Units. The Underwriter's Unit Purchase
Option (as previously defined) will be exercisable commencing 12 months after
the Effective Date of the Registration Statement of which this Prospectus
forms a part and ending four years from such date at an exercise price of
$3.90 per Unit, subject to certain adjustments. The holder of the
Underwriter's Unit Purchase Option will have the opportunity to profit from a
rise in the market price of the Common Stock, if any, without assuming the
risk of ownership, with a resulting dilution in the interest of other
stockholders. The Company may find it more difficult to raise additional
equity capital if it should be needed for the business of the Company while
the Underwriter's Unit Purchase Option is outstanding. At any time at which
the holder thereof might be expected to exercise such option, the Company
would probably be able to obtain additional capital on terms more favorable
than those provided by the Underwriter's Unit Purchase Option. The holder of
the Underwriter's Unit Purchase Option will have the right to require
registrationunder the Securities Act of the securities issuable upon exercise
of the Underwriter's Unit Purchase Option and will have certain "piggy-back"
registration rights. The cost to the Company of effecting any such
registration may be substantial. See "Underwriting" and "Dilution."
Certain Provisions of Certificate of Incorporation and Bylaws
As previously noted, pursuant to the Company's Certificate of
Incorporation, the Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock without further action by the stockholders
in one or more series having such preferences, rights and other provisions as
the Board of Directors may designate in providing for the issuance of such
series. The Certificate of Incorporation and Bylaws contain provisions which
may discourage certain transactions which involve an actual or threatened
change in control of the Company. These provisions provide for a classified
Board of directors. See "Description of Securities" and "Management." As
permitted by the Delaware General Corporation Law, the Certificate of
Incorporation provides that adirector 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, except under certain circumstances
including breach of the director's duty of loyalty to the Company or its
stockholders or any transaction from which the director derived an improper
personal benefit. See "Management-Indemnification of Directors and Officers."
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<PAGE>
Voting Control by Current Officers and Directors
As of the date hereof, Matthew Schilowitz, a director and officer of
the Company owns 1,550,000 shares of Common Stock (after the sale by him of
200,000 shares as described under "Selling Stockholder" and including 750,000
shares held in escrow subject to release only if certain goals are acheived.
See "Certain Transactions."). Consequently, immediately upon completion of
the Company's public offering of the 1,000,000 Units, the officers and
directors of the Company will own or control the voting of 47.6% (32% if the
escrowed shares are excluded) of the Company's issued and outstanding Common
Stock, assuming no exercise of the Over-Allotment Option, no exercise of the
Underwriter's Unit Purchase Option, no exercise of the Series A Warrants
contained therein and no exercise of the Series A Warrants contained in the
Units being offered by the Company pursuant hereto nor the exercise of the
outstanding Series B Warrants. There are no cumulative voting rights and
directors must be elected by a plurality of the outstanding voting securities
entitled to vote. By virtue of his ownership of the Company's issued and
outstanding Common Stock, Mr. Schilowitz may have the ability to elect the
entire Board of Directors of the Company, control the outcome of any corporate
action requiring more than a majority of the outstanding voting securities
entitled to vote, and consequently, influence the Company's business and
affairs. See "Principal Stockholders" and "Certain Transactions."
Current Prospectus Requirement
During the exercise period of the Series A Warrants, the Company must
maintain and make available a current prospectus. ThisProspectus will not
longer be current after _________, 1996 (or earlier upon the occurrence of a
material event or change whichwould render the information herein inaccurate
or otherwise misleading). There can be no assurance give that the Company will
not be prevented by financial or other considerations from maintaining a
current prospectus. In the event that a current prospectus is not available,
the Series A Warrants may not be exercisable and the Company will be precluded
from redeeming the Series A Warrants.
Possible Redemption of the Series A Warrants
After _________ , 1997, in the event that the closing bid price of the
Common Stock exceeds $8.00 for any period of 20 consecutive trading days ending
within five days of the Company's Redemption Notice, the Series A Warrants may
be redeemed by the Company for $.05 per Series A Warrant prior to exercise or
expiration thereof. Although holders of the Series A Warrants will have the
right to exercise their Series A Warrants through the date of redemption, they
may be unable to do so because they lack
28
<PAGE>
sufficient funds at the time of redemption, or they may simply not wish to
invest any more money in shares of the Common Stock at that time. Should a
holder of the Series A Warrants fail to exercise such Series A Warrants or to
sell such Series A Warrants on or prior to the redemption date, such Series A
Warrants will have no value beyond their redemption value. The Company may not
redeem the Series A Warrants unless the Company has available a current
prospectus with respect to the Series A Warrants. See "Risk Factors-Current
Prospectus Requirement" above and "Description of Securities-The Series A
Warrants."
Restrictions on Marketmaking Activities During Warrant Solicitation
To the extent that the Underwriter solicits the exercise of the
Series A Warrants from the holders thereof, it may be prohibited pursuant to
the requirements of Rule 10b-6 under the Exchange Act from engaging in
marketmaking activities during such solicitation and for a period of up to
nine days preceding such solicitation. As a result, the Underwriter may be
unable to continue to provide a market for the Company's securities during
certain periods while the Series A Warrants are exercisable. The Underwriter
is not obligated to act as a marketmaker. See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units being
offered by the Company, after deducting expenses and other costs of the
offering, are estimated to be approximately $2,532,500 (or $2,956,625 if the
Over-Allotment Option is exercised infull). The Company intends to use the
net proceeds of its offering substantially as follows:
Approximate
Proposed Use of Proceeds Amount
- ------------------------ -----------
Acquisition and Development of Property (1).. $1,100,000
Repayment of Debt(2)......................... 1,068,048
General Working Capital (3).................. 364,452
Total.............................. $2,532,500
- -------------
(1) To be utilized for a) the Jaegger Woods project in Westhampton, New
York ($500,000) with the balance of the funds needed for this project
to be obtained from conventional mortgage financing, a commitment from
a bank having been
29
<PAGE>
obtained; (b) expansion of the mini storage facility in Quogue, New
York ($100,000) and (c) $500,000 for a project to be determined.
(2) Of the total debt of $1,068,048 being repaid (a) $125,000 bears
interest at 8% and matures on March 26, 1997 and is payable
to an unaffiliated party; (b) $20,000 bears interest at 6% and
matures December 31, 1996 and is payable to Sidney Prizer, the
grandfather of Matthew Schilowitz, the President of the Company;
(c) $70,000 bears interest at 8% and matures on December 31, 1996
and is payable to the mother of Matthew Schilowitz, the President of
the Company; (d) $240,000 bears interest of prime plus 1 1/2%
and matures September 30, 1996 and is payable to a bank; (e) $150,000
bears interest at 4% and matures December 31, 1996 or earlier
upon completion of the offering contemplated hereby and is payable to
the unaffiliated prior owners of Quick Storage of Quogue, Inc.; (f)
$100,000, bears interest at 12% and matures August 31, 1996 and is
payable to an unaffiliated party; (g) $215,400 bears interest at prime
plus 3%, is a demand obligation and is payable to a bank; and (h)
$147,648 bears interest at 10.625% and matures February 1, 2006 and is
payable to a bank.
(3) General working capital contemplates, among other things, the use for
general corporate purposes, including funding the day-to-day operations
of the Company and the Company's future development.
The amounts set forth above are estimates developed by management of
the Company based upon the Company's current plans and prevailing economic and
industry conditions. Although the Company does not currently contemplate
material changes in the proposed use of proceeds set forth above, to the
extent that management of the Company finds that adjustment thereto is
required, the amounts shown may be adjusted among the uses indicated above.
The Company's proposed use of proceeds is subject to changes in general,
economic and competitive conditions, timing and management discretion, each of
which may change the amount of proceeds expended for the purposes intended. The
proposed application of proceeds is also subject to changes in market
conditions and the Company's financial condition in general. Changes in
general, economic, competitive and market conditions and the Company's
financial condition would include, without limitation, the occurrence of an
economic slowdown or recession, changes in the competitive environment in
which the Company operates. While management of the Company is not currently
aware of the existence or pending threatof any of the foregoing events, there
can be no assurance given that one or more of such events will not occur. See
"Risk Factors" generally, including specifically, "Risk Factors-Working
Capital-Use of Proceeds" and "Risk Factors-Competition." Any additional
proceeds received upon
30
<PAGE>
exercise of the Over-Allotment Option, the Underwriter's Unit Purchase Option
or the Series A Warrants or the Series B Warrants will be added to working
capital and used as management, in its sole discretion, deems appropriate.
While there can be no assurance given, the Company believes that the
net proceeds from its public offering and internally generated funds will be
adequate to satisfy the Company's working capital needs for the next 12
months. The Company does not currently anticipate that it will need the
proceeds from the potential exercise of Series A Warrants to fund its working
capital needs or to maintain its operations over the next 12 months. However,
the Company may require additional financing in the future in order to expand
its business. The Company is not able at this time to predict the amount or
potential source of such additional funds and has no current commitments to
obtain such funds, other than as set forth herein. There can be no assurance
that additionalfinancing on acceptable terms will be available to the Company
when needed, if at all. See "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Pending use of the
net proceeds from the Company's public offering, the Company may make temporary
investments in short-term, high grade, interest-bearing instruments.
31
<PAGE>
_________________________________________________________________
CAPITALIZATION
_________________________________________________________________
The following table sets forth the Company's capitalization as of
December 31, 1995 on a pro forma basis and as adjusted as if all of
the Units offered herein were sold.
December 31, 1995
-----------------
Actual Pro Forma(1) As Adjusted(2)
------ --------- -----------
Short-Term Debt(1) $ 975,937 $ 975,937 $ 156,537
Long-Term Debt(2) $1,156,273 $1,156,273 $ 907,625
Common Stock,
$0.001 par value
shares authorized;
outstanding(3). $ 1,750 $ 2,250 $ 3,250
Additional Paid-In
Capital $ 23,750 $ 448,250 $2,979,750
Retained Earnings
(Deficit) $ (203,430) $ (207,430) $ (207,430)
----------- ----------- -----------
Total
Capitalization $1,950,280 $2,375,280 $3,839,732
=========== =========== ===========
(1) Gives effect to the bridge financing for 500,000 Private Placement
Units in February 1996 with net proceeds of $425,000.
(2) Gives effect to the anticipated net proceeds of $2,532,500 from the
public offering and the repayment of debt of $1,068,048 with the
proceeds.
(3) Does not include: (a) 2,000,000 shares of Common Stock issuable upon
exercise of the Series A and Series B Warrants issued in a private
placement and 1,000,000 shares of Common Stock issuable upon exercise
of the Series A Warrants contained in the Units; (b) 150,000 shares of
Common Stock issuable upon exercise of the Over-Allotment Option and
the Series A Warrants contained therein; (c) 100,000 shares of Common
Stock issuable upon exercise of the Underwriter's Unit Purchase Option
and the Series A Warrants issuable upon exercise thereof; (d) 400,000
shares of Common Stock reserved for issuance pursuant to the Company's
Stock Option Plan (as hereinafter defined); or (e) 750,000 shares of
Common Stock reserved for issuance pursuant to an option issued to an
officer of the Company. Includes 750,000 shares held in escrow to be
released if certain financial goals are achieved. See "Description of
Securities," "Certain Transactions," "Management-Other Options or
Plans" and "Underwriting."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Total revenues for the year ended December 31, 1995 were $2,323,524
compared to revenues of $4,518,872 for the year ended December 31, 1994, a
decrease of approximately $2,200,000 or 50%.
Construction Sales. Deliveries of 6 homes resulted in housing
revenues of $2,065,126 for the year ended December 31, 1995. For the year
ended December 31, 1994, the Company delivered 14 homes which generated
$4,449,827 of housing revenues. Housing revenues in 1995 decreased $2,384,701.
The Company's plan is to move into the commercial construction market and
concentrate itsresidential inventory toward the upscale market. Although,
fewer homes were delivered in 1995 than in 1994 the gross profit margin
increased (see Gross Profit Margin). The Company's first commercial
construction venture includes the completion of The Hamptons Synagogue in
Westhampton Beach in 1994 which generated $650,000 in additional revenues for
the year ended December 31, 1994. This initial commercial construction venture
has given the Company publicity towards successfully entering this market with
plans to secure future commercial ventures. In addition, the Company has
grown into a construction management firm, where the Company receives a
management fee to supervise the construction of a project. The decrease in the
homes delivered for 1995(6), compared to1994(14) reflects the Company's
construction management contract to complete a 14 unit condominium project in
Westhampton, wherebythe sales revenues have been deferred. The construction
management fee of $75,000 was the only source of revenue generated from the
project (see "Construction Management Revenue").
Rental Income. Acquisition of additional rental based properties
resulted in rental income of $183,398 for the year ended December 31, 1995.
For the year ended December 31, 1994, the Company generated rental income of
$69,045. Rental income in 1995 increased by $114,353 which reflects the
acquisition of Quick Storage At Quogue, a self storage facility with 115 units.
This facility generated rental income of $113,905 for the year ended
December 31, 1995. The Company plans to expand the existing facility
by purchasing and constructing on the acquisition of rental based properties.
Construction Management Revenue. Construction Management Services for
the year ended December 31, 1995 generated $75,000 compared to $-0- generated
for the year ended December 31, 1994. This increase reflects a contract
secured by the Company to perform construction management supervision for a
14 unit condominium development in Westhampton. Construction management
supervision is consistent with the Company's plans to emerge as a full service
real estate development company. The Company is currently pursuing
33
<PAGE>
additional construction management projects for future development.
Gross Profit Margin. The Company's gross profit margin on homes
delivered was approximately seventeen percent (17%) during the year ended
December 31, 1995, compared to four percent (4%) in the year ended
December 31, 1994. The gross profit margin on homes increased due to the
quality and pricing of the homes built in 1995. In 1995, the Company
positioned itself in the upscale market segment. As a result, the number of
homes decreased in 1995 from 1994 but the gross profit margin increased
substantially.
Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses increased to $367,498 (16% of Revenues)
for the year ended December 31, 1995, compared to $239,791 (5% of revenues)
for the year ended December31, 1994. The increase percentage is principally
due to the reduction of revenue for the year ended 1995, the addition of Key
Employees and the acquisition of Quick Storage At Quogue (a self storage
facility) which produced $54,770 of S,G & A expenses for the year ended
December 31, 1995.
Income from Operations. The Company's income from operations for the
years ended December 31, 1995 and 1994 was $236,710 and $1,260, respectively.
This increase of approximately $235,000 is primarily attributable to the
improved gross profit in 1995 of approximately $350,000.
Gross Interest Costs. Gross interest costs were $157,678 for the
year ended December 31, 1995, compared to $51,470 for the year ended
December 31, 1994. The increase in gross interest cost for the year ended
1995 resulted from the acquisition of Quick Storage at Quogue (a self storage
facility), Polo Grounds (12 unit subdivision) and other real estate ventures
whereby additional debt was incurred upon acquisition.
Other (Income) Expense. Included in other (Income) expense in 1995
is ($245,022) which represents gain on sale of marketable securities, compared
to $281,767 for the year ended December 31, 1994. The Company realizes that the
real estate industry is highly speculative. Land values and/or home prices may
fluctuate significantly, and the rate of home sales can be slow. The
Company's building has centered in the Hamptons resort area in Eastern Long
Island, New York, where the bulk of the market consists of vacation homes. The
Company has already begun to expand into other areas of the real estate
industry (rental properties, primary residences, construction management and
commercial construction projects). The Company has acquired key personnel
with the requisite skills, contacts and experience to successfully expand into
these areas within the real estate field. The Company will seek out additional
opportunities to construct, manage and/or invest in family communities,
shopping centers, industrial parks, congregate care facilities and other
income producing properties. The Company's belief that investing in income
productionproperties will insure a stable growth for the future should
adverse market conditions arise.
34
<PAGE>
Liquidity and Capital Resources. The Company's working capital
deficit at December 31, 1995 was approximately $1,200,000. The Company
believes the net proceeds of approximately $2,532,500 from the proposed
public offering and the net proceeds of $425,000 from the private placement
transaction in February of 1996 will provide sufficient working capital for
the Company for twelve months.
The Company generated $818,023 from operating activities for the year
ended December 31, 1995 as compared to $75,729 utilized in the year ended
December 31, 1994 for operating activities.
For the year ended December 31, 1995 the Company utilized $86,953
for investing activities as compared to $206,449 generated from investing
activities for the year ended December 31, 1994.
For the years ended December 31, 1995 and 1994 approximately
$760,000 and $221,000, respectively, were utilized for financing activities.
The Company's commitments total approximately $1,100,000 on the repayment of
short term debt, however, approximately $820,000 will be repaid from the
proposed public offering.
DILUTION
As of December 31, 1995, the Company had an aggregate of 1,750,000
shares of Common Stock outstanding (including 750,000 shares held in escrow)
and a net tangible book value deficit of $(284,307) or $.(.16) per share of
Common Stock. "Net Tangible Book Value Per Share" represents the total amount
of the Company's tangible assets, less the total amount of its liabilities,
divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale of 1,000,000 Units by the Company at
the offering price of $3.25 per Unit, the issuance of 1,000,000 shares of
Common Stock included in such Units, and the deduction of offering expenses in
the amount of $295,000 and underwriting discounts and commissions estimated at
$422,500 (which amounts include payment of the Underwriter's Non-Accountable
Expense Allowance but without taking into account exercise of the Over-Allotment
Option or the Series A Warrants included in the Units or those issued in a
private placement and assuming that no part of the public offering price of
the Units is allocated to the Series A Warrants), or the exercise of the
Series B Warrants, the pro forma note tangible book value of the Company would
be $.82 per share of Common Stock. This amount represents an immediate dilution
(the difference between the attributed price per share of Common Stock to
purchasers in the Company's offering and the pro forma net tangible book value
per share of Common Stock as of December 31, 1995, after giving effect to the
issuance of 1,000,000 shares of Common Stock included in the Units) of
approximately$2.43 per share of Common Stock to new investors and an
immediate increase
35
<PAGE>
(the difference between the pro forma net tangible book value per share of
Common Stock as of December 31, 1995 and the pro forma net tangible book value
per share of Common Stock as of December 31, 1995 after giving effect to the
issuance of 1,000,000 shares of Common Stock included in the Units) of $.98
per share of Common Stock to the Company's stockholders. Such increase to the
Company's current stockholders is solely attributable to the cash price paid
by purchasers of the Units offered for sale by the Company.
The following table illustrates the per share dilution as of ________:
Public offering price per share(1)................. $3.25
Net tangible book value per share before giving
effect to the Company's offering(2)............... (.16)
Increase per share attributable to the sale of
1,000,000 shares of Common Stock included in the
Units offered by the Company(2)................... .98
Pro forma net tangible book value per share as of
December 31, 1995 reflecting the Company's
Offering(3)........................................ .82
Dilution per share to purchasers in the Company's
offering........................................... 2.43
________________________
(1) Attributes all of the public offering price per Unit to the share of
Common Stock and none to the Series A Warrants contained in each Unit.
Represents the public offering price before deduction of estimated
expenses of the Company's offering, underwriting discounts and
commissions. If the Underwriter's option is exercised in full,
the pro forma as adjusted net tangiable book value per share of common
stock after this Offering would be approximately $.92, representing an
immediate increase of $1.08 per share to current stockholders and an
immediate dilution of $2.33 per share to new investors. The foregoing
table does not give effect to issuance of 500,000 shares of common
stock in a private placement transaction in February, 1996 in which
the Companyrealized net proceeds of $425,000 but includes 750,000
shares held in escrow. If such transactions had been completed as of
December 31, 1995 the pro forma as adjusted net tangiable book value
per share of common stock after this offering would be approximately
$1.00 representing an immediate increase of $.69 per share to current
stockholders and an immediate dilution of $2.25 per share to new
investors.
(2) Gives retroactive effect to the issuance by the Company of an
aggregate of 1,750,000 shares of Common Stock to stockholders
in connection with the acquisition of the Subsidiaries.
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<PAGE>
(3) Assumes no exercise of: (a) the Underwriter's Unit Purchase Option (or
exercise of the Series A Warrants included therein); (b) the
Over-Allotment Option (or exercise of the Series A Warrants included
therein); or (c) the Series A Warrants included in the Units or the
Series A and the Series B Warrants issued in a private placement.
See "Capitalization," "Underwriting," "Certain Transactions" and
"Description of Securities."
The following table sets forth, as of December 31, 1995, a comparison
of the number of shares of Common Stock acquired by current stockholders from
the Company, the total consideration paid for such shares of Common Stock and
the average price per share paid by current stockholders of Common Stock and
to be paid by the prospective purchasers of Units offered for sale by the
Company(based upon the anticipated public offering price of $3.25 per Unit,
before deducting underwriting discounts and commissions and estimated offering
expenses and attributing all $717,500 consideration to the Common Stock
contained in each Unit):
<TABLE><CAPTION>
Common Stock Acquired Total Consideration Average Price
--------------------- ------------------
Number Percent Amount Percent Per Share
----- ------- ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Current Stockholders..... 2,250,000 69.2% $ 525,500 14% .23
New Investors(1)......... 1,000,000 30.8% $3,250,000 86% $3.25(3)
--------- ------- --------- -----
Total(2)............. 3,250,000 100% $3,775,500 100%
</TABLE>
(1) Does not include 150,000 Units which may be issued on exercise of a
30-day option granted to the Underwriters to cover over-allotments.
See "Underwriting".
(2) Assumes no exercise of: (a) the Underwriter's Unit Purchase Option (or
exercise of the Series A Warrants included therein); (b) the
Over-Allotment Option (or exercise of the Series A Warrants included
therein); or (c) the Series A Warrants included in the Units or the
Series A and Series B Warrants issued in a private placement. See
"Capitalization," "Underwriting," "Certain Transactions" and
"Description of Securities."
(3) Aggregate offering price before deduction of offering expenses,
underwriting discounts and commissions.
DIVIDEND POLICY
The Company has not, to date, paid and does not anticipate
37
<PAGE>
paying any dividends on its Common Stock in the foreseeable future. The
Company currently intends to retain all working capital and earnings, if any,
for use in the Company's business operations and in the expansion of its
business. See "Description of Securities-Common Stock."
_________________________________________________________________
BUSINESS
_________________________________________________________________
The Harmat Organization, Inc. ("Harmat" or "Company"), a Delaware corporation,
has, through its wholly owned subsidiary Harmat Homes, Incorporated ("Harmat
Homes"), been engaged in real estate development and construction in the
Hamptons resort area of Long Island, New York ("Hamptons") for the past eleven
years. The Company develops large multi-parcel projects, builds custom single-
family homes and rental properties as well as commercial/public structures such
as the Hamptons Synagogue in Westhampton Beach. Harmat also provides
remodeling, design and landscape architectural services. The Company will
build on either land owned or provided by the client or on land owned or
controlled by entities affiliated with the Company. To date, the Company has
built approximately 150 single-family homes as well as rental properties, a
short-term storage facility and commercial properties.
To date, the Company's strategy for growth has been to integrate the foregoing
services into a "turn key" business which can offer its customers the
convenience of obtaining all of the necessary elements and services regarding
the purchase and maintenance of a home, including the land, architectural,
interior and landscape design services, construction of a home, swimming pool
or tennis court, and maintenance of the property. The Company believes that
it has carved a niche for itself as one of the premier full-service
builder/developers in the western portion of the Hamptons.
Since Harmat Homes' inception in 1985, the Company's founder and principal
shareholder, Matthew C. Schilowitz, has sought to not only provide
construction services through the Company but also to invest in real estate
development ventures by purchasing large parcels of real property for
development. To date, the majority of such investments have been made by
Mr. Schilowitz individually, as a general partner, joint venturer or principal
stockholder of a corporation. Mr. Schilowitz has been able to invest in the
majority of such properties using private non-recourse financing with only a
modest down payment on the purchase price. This type of financing is
attractive because the investor is often able to recoup its cash investment
after selling only a small number of lots while being able to market the
balance with minimal exposure. The Company believes that such sources and
terms of financing will be available for future projects, although no
assurances can be given that this will be the case.
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<PAGE>
These projects have involved the construction of single-family homes as well
as the development and construction of luxury properties where each home has
its own swimming pool and tennis court. Such developments have included
"Hidden Cove" in Southampton (12 lots, all of which have been sold);
"Woodridge" in Bridgehampton (52 lots, 32 of which have been sold); "The
Woodlands" (52 lots, 37 of which have been sold) and "The Crossings,"
(14 lots, 12 of which have been sold) each in East Quogue; "Emerald Woods"
in East Quogue (14 lots, 12 of which have been sold) and "The Fairways" in
Westhampton Beach (6 lots, 4 of which have been sold). All of these projects
are located in prime areas where the bulk of the lots abut either a nature
preserve, golf course or farm land. The Company also anticipates performing
construction services for the "Bridal Path" development in Westhampton. The
real property for all of the foregoing projects is owned by entities
affiliated with the Company.
The Company has built homes ranging in price from $200,000 to $2,000,000.
While the bulk of the homes built in the Hamptons arevacation homes, the
Company believes that approximately 25% of its clients live in their homes
on a year-round basis.
Strategy
- --------
Harmat is now seeking to expand, by providing first class construction, design
and homeowner and management services to not only residential buyers but to a
broad array of commercial clients as well.
For example, the Company is considering developing or investing in luxury
single-family developments, senior citizen condominium units and undeveloped
real property (including oceanfront acreage) in such areas as western Suffolk
County, the Hamptons, Florida and the Washington, D.C./Maryland area that
management believes provide attractive opportunities. The Company further
believes that it could obtain financing similar to that used in its previous
projects, (i.e. a modest down payment and no recourse against the Company) and
that such projects would enhance its growth. Furthermore, Management of
Harmat is of the opinion that all of such potential projects involve lots in
prime locations where homes (or commercial buildings) could be sold or leased
profitably within a reasonable amount of time, although no assurances can be
given that such transactions will be consummated or that any sales or
leases thereunder will occur within any particular time frame. Depending on
the project, the Company may either simply build model homes or may be
required to put in the required infrastructure such as roads, etc. It is
presently contemplated that the Company would receive a management fee and
construction fees for services provided for such projects, although no
assurances can be giventhat such fees will be paid or that such ventures will
be profitable. The Company may also make construction loans to either
39
<PAGE>
its affiliates or to third parties during the course of such projects.
The Company also intends to expand into the commercial real estate field
including income producing properties and will therefore aggressively seek out
opportunities to construct, manage and/or invest in shopping malls, motels,
golf courses, industrial parks and other income-producing properties. The
Company believes that its officers and directors have the requisite skills,
contacts and experience to successfully enter this field, but no assurances
can be given that such goals will be achieved or that any of Harmat's
future real estate investments will be profitable.
Competition
- -----------
The Company believes that it is one of the larger, more sophisticated builders
in the western Suffolk County area. Unlike smaller local builders, the
Company maintains a permanent sales office and has a registered architect
on staff to supervise construction and work with clients who request such
services. The construction business is highly competitive, however, and the
Company is aware of many builders who are able to meet or improve upon a price
the Company can offer its clients for a given construction project. The
Company seeks to compete not solely on the basis of price, but on the ability
to provide integrated quality real estate, design and construction services
under one roof. No assurances can be given that this strategy will enable the
Company to compete successfully.
Employees
- ---------
The Company has five full-time employees, 3 in management and 2 in clerical.
Since 1990, Harmat has not employed a full-time construction staff but has
hired skilled non-union local labor on a per-project basis. The Company
believes that its relationships with its employees and its sub-contractors
are good, and that the supply of skilled labor in the area is adequate for its
needs.
Properties
- ----------
The Company's wholly-owned subsidiaries hold title to certain real property.
Such properties include (i) The Polo Grounds, a development with 12 one acre
lots in Southampton, New York, each building lot contains room for house with
all amenities, pool and tennis court; (ii) 2 single-family residential rental
properties in the Hamptons; one six bedroom home in Westhampton Beach, New
York with eight horse stalls and the other an 8 bedroom house in Southampton,
New York; (iii) three acres of unimproved real property in Westhampton, NY and
one unimproved lot in Southold, NY; (iv) the 4,000 square foot premises in
Quogue, NY housing the Company's executive offices and corporate sales office,
which the
40
<PAGE>
Company believes is adequate for its foreseeable needs; and (v) a 115,000
square foot mini-storage facility in Quogue, NY., which the Company expects
to expand on adjacent property.
The Company issued 2,000,000 shares of its common stock to Mr. Schilowitz upon
transfer of the stock of the corporations holding title to the foregoing
properties. See "Certain Transactions."
The Company currently has the following projects under contract:
(A) Jagger Woods at Westhampton Beach, N.Y. - A 41 acre parcel with
approvals to construct 57 single family residences on 1/2 to
3/4 acre parcels complete with the following amenities:
(community pool, tennis court and clubhouse). Homes will range
between 1,271 and 2,160 square feet.
(B) Two 1 1/2 acre building lots with all road improvements
completed located in East Quogue, N.Y., - The lots will be
marketed whereby the Company shall construct a single family
house complete with pool and tennis court.
(C) Vacant parcel located adjacent to the Company's mini storage
facility in Quogue, N.Y. The Company intends to develop this
property to expand its current facility by constructing 5,000
additional square feet of specialized storage.
Seasonality
- -----------
The Company generally experiences an increase in revenues in the fall when it
commences the majority of its construction projects, and a decrease in
revenues during the summer, when it does most of its marketing and in the
winter, when adverse weather may make construction difficult.
Licensing
- ---------
The Company does not require any State or County license or permits to perform
services as a general contractor, but does require (and possess) a home
improvement license from the Town of Southampton.
Litigation
- ----------
In January, 1994, Harmat commenced an action in the Supreme Court of the State
of New York, County of Suffolk, against a former client seeking lost profits
in an undetermined amount for wrongful termination of a construction contract.
Harmat also filed a mechanic's lien on the property. The defendant
counterclaimed and is seeking rescission of the construction contract, a
refund oftheir $28,500 contract deposit, and $100,000 in damages for the
wrongful filing of a mechanic's lien. Defendants are also seeking to recover
$150,000 against Mr. Schilowitz personally on an alleged personal guaranty of
Harmat's performance. Harmat's motion for summary judgment is pending. In a
related litigation, the subcontractor on this project brought an action
against Harmat and its former client seeking damages of $30,000 for monies
owed regarding this project. The Company does not believe this litigation will
have a material adverse effect on its business.
41
<PAGE>
_________________________________________________________________
MANAGEMENT
_________________________________________________________________
Directors and Officers
- ----------------------
The Executive Officers and Directors of the Company and a brief summary of
their business experience and certain other information with respect to them
are set forth below:
Name Age Title
- ---- --- ------
Matthew C. Schilowitz 32 President, CEO & Chairman
Scott Prizer 33 Secretary & Director
Michael C. Gentile 32 Vice-President/Construction
Seymour G. Siegel 52 Treasurer & Director
David W. Sass 60 Director
David S. Eiten 36 Director
Matthew C. Schilowitz Mr. Schilowitz founded Harmat in 1985, and has been its
president and chairman since inception. Mr. Schilowitz has a B.A. in Business
Administration from Tulane University.
Scott Prizer Mr. Prizer became an officer and director of the Company in
July 1995. From 1990 to 1992, he worked as an investment banker specializing
in mergers and acquisitions at European Investors, Inc. ("EII"). Since 1992,
he has worked as a investment advisor/asset manager in the real estate group
of EII. He is a Vice President of EII an investment advisor with real estate and
securities portfolios, in excess of $800,000,000. Mr. Prizer has a B.A. from
George Washington University and an M.B.A. from NewYork University. Mr.
Prizer is Mr. Schilowitz' first cousin.
Michael C. Gentile Mr. Gentile joined the Company in February 1995 and serves
as vice-president/staff architect and construction site manager for all of the
Company's projects. Mr. Gentile has eight years of architectural and design
experience in commercial and high-end residential construction. From July
1990 to June 1991, he worked as a designer for James Gaddis, R.A. From
June 1991 to September 1993 he was project manager for Fanning Phillips and
Molnar, Engineers, and from September 1993 to January 1995, served as project
manager for Brockwood Communities, Inc. Mr. Gentile earned a B.A. in
architecture from New York Institute of Technology.
42
<PAGE>
Seymour G. Siegel Mr. Siegel became a director of the Company in July 1995.
Mr. Siegel is a CPA and from 1969-1990 was senior partner and founder of
Siegel Rich & Co. P.C. ("Siegel Rich"), an accounting firm specializing in
privately owned businesses and high net worth individuals. In 1990, Siegel
Rich merged with M.R. Weiser & Co. Mr. Siegel stayed on as a senior partner
until 1994, when he co-founded Siegel Rich Resources, Inc., a firm providing
advisory services to businesses regarding mergers and acquisitions, long-range
planning and problem resolution. Mr. Siegel is a director of the Oak Hall
Capital Fund and Prime Motor Inns, L.P.
David W. Sass Mr. Sass has been a director of the Company since July 1995.
For the past 35 years, Mr. Sass has been a practicing attorney in New York
City and is currently a senior partner in the law firm of McLaughlin &
Stern, LLP, counsel to the Company. Mr. Sass is a director and officer
of J.E.C. Lasers, Inc., a public company engaged in various aspects of the
laser business; a director and officer of Carter, Milchman & Frank, Inc., a
company in the wholesale distribution of tools and related building
equipment; an officer of Ionic Fuel Technology, Inc., a company engaged in the
sale and distribution of emission control systems, and a member and Vice
Chairman of the Board of Trustees of Ithaca College.
David S. Eiten Mr. Eiten became a director of the Company in January 1996.
From 1990 to the present he is the owner and operator of a residential and
commercial construction company. From 1986 to 1990 he was Vice President of
Field Operations for the Company.
Executive Compensation
- ----------------------
Summary Compensation Table. The following table sets forth the aggregate cash
compensation paid for services rendered to the Company during each of the
Company's last three fiscal years by all individuals who served as the
Company's Chief Executive Officer during the last fiscal year and the
Company's most highly compensated executive officers who served as such
during the last fiscal year.
<TABLE><CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ---------------------- -------
All
Other Annual Restricted Other
Name and Compensation Stock Options LTIP Compen-
Principal Position Year Salary($) Bonus ($) Awards($) SARs Payouts(#) sation($)
- ------------------ ---- -------- ----- ------------ ----------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew Schilowitz(1)(2) 1995 197,000
Chief Executive Officer, 1994 217,000
Chief Financial Officer 1993 154,000
</TABLE>
- -------
(1) See "Employment Agreement" below for a description of the Company's
employment agreement with Mr. Schilowitz.
(2) During the three years ended December 31, 1995, Mr. Schilowitz
received distributions as the Companies were Sub Chapter S
corporations and/or partnershipsand no salary was paid.
43
<PAGE>
Employment Agreement. On April 1, 1996 the Company entered into a
five year employment agreement with Matthew Schilowitz, a stockholder, director
and officer of the Company (the "Schilowitz Agreement"). Under the Agreement
Mr. Schilowitz's compensation is$105,000 for the first year, $155,000 for the
second year, $205,000 for the third year, $255,000 for the fourth year and
$305,000 for the fifth year. In addition, Mr. Schilowitz will receive a bonus
of 5% of the pre-tax earnings of the Company in each fiscal year.
The foregoing employment agreement terminates upon death or disability
of the employee and permits the Company to terminate the Schilowitz Agreement
upon the occurrence of certain events or the commission of certain acts or for
any other reason provided that the Company pays to such employee a severance
payment equal to the aggregate base salary otherwise owed to such employee over
the remaining term of the employment agreement (other than for instances in
which such employee is terminated for "cause" as defined in such agreement).
Pursuant to the provisions of his employment agreement in the event that Mr.
Schilowitz is not nominated or re-elected to serve as member of the Board of
Directors, either may terminate his employment with the Company and will, in
such event, be entitled to continue to receive his base salary as set forth in
such employment with the Company for the remainder of the term thereof. The
employment agreement also contains certain confidentiality and non-competition
provisions which are operative during the term of the agreement and for given
periods of time after termination thereof.
Stock Option Plan
In February 1996, the Board of Directors adopted and the Company's
stockholders approved The Harmat Organization, Inc. 1996 Stock Option Plan
(the "Stock Option Plan"), which provides for the grant of options which
qualify as incentive stock options("Incentive Options") under the Internal
Revenue Code of 1986, as amended, to be issued to officers and employees, as
well as options which do not so qualify ("Non-Qualified Options") to be issued
to the Company's officers, directors, employees and consultants. The Stock
Option Plan provides for the grant of options with respect to, in the
aggregate, up to 400,000 shares of Common Stock (which number is subject to
adjustment in the event of the Company's declaration of stock dividends, stock
splits, reclassification and the occurrence of other similar events). The
Company has reserved 400,000 shares of Common Stock for issuance under the
Stock Option Plan.
Pursuant to its terms, the Stock Option Plan is to be administered by
the Board of Directors or a committee established by the Board of Directors (the
"Stock Option Committee"). The Board
44
<PAGE>
of Directors or such committee determines the persons to whom options are
granted, the number of shares of stock subject to an option, the period during
which options may be exercised and the exercise price thereof. The Stock Option
Plan places restrictions on the grant of options to persons who are, at the
time of the grant, members of the Stock Option Committee and, if no such
committee is established, on the grant of options to directors.
Non-employee directors of the Company may participate in the Stock
Option Plan but may only be granted Non-Qualified Options on a
non-discretionary basis. To date, no options have been granted under the
Stock Option Plan.
Other Options or Plans
The Plan for Incentive Compensation of Matthew Schilowitz (the
"Schilowitz Incentive Plan") was adopted by the Board of Directors and
approved by the Company's stockholders on March 1, 1996. Pursuant to such
plan, Mr. Schilowitz has been granted an option (the "Option") to purchase up
to an aggregate of 750,000 shares of Common Stock at an exercise price of
$3.25 per share. The Option has a duration of ten years. The Option provides
for the grant of: (i) the right to purchase 250,000 shares of Common Stock
such right to vest and become exercisable upon the Company realizing earnings
before taxes equalling or exceeding $750,000; (ii) the right to purchase
250,000 shares of Common Stock such right to vest and become exercisable upon
the Company realizing earnings before taxes equalling or exceeding
$1,500,000; (iii) the right to purchase 250,000 shares of Common Stock such
right to vestand become exercisable upon the Company realizing earnings
before taxes equalling or exceeding $2,250,000. Shares subject to options
granted under the Schilowitz Incentive Plan are subject to adjustment in the
event of the Company's declaration of stock dividends, stock splits,
reclassification and the occurrence of other similar events. The Company has
reserved 750,000 shares of Common Stock for issuance under the Schilowitz
Incentive Plan. Pursuant to the terms of the Schilowitz Incentive Plan, the
Board of Directors or a committee established by the Board of Directors
administers such plan.
CERTAIN TRANSACTIONS
Mr. Schilowitz has interests, either as a general partner, joint venturer or
shareholder, in a number of entities which either haveentered, or may in the
future enter, into a variety of transactions with the Company. In addition,
entities owned or controlled by Mr. Schilowitz own interests in various real
estate ventures which may retain the Company as a builder for such
developments.
45
<PAGE>
The following table sets forth the name of each of the Company's affiliates,
Mr. Schilowitz' interest therein, and its transactions (either current or
contemplated), if any, with the Company:
<TABLE><CAPTION>
Company Name Mr. Schilowitz' Interest Transactions
- ------------ ------------------------ ------------
<S> <C> <C>
Woodlands Construction
Corp. LLP 50% shareholder Woodlands provides contracting services on
small jobs - Woodlands owns no property.
It is possible that the Company may provide
services to Woodlands in the future.
Crossings Associates, L.P. 33% shareholder
Services The Crossings had a 14 lot subdivision.
There are only 2 available lots. The
Company may provide construction services
to the crossings in the future.
Emerald Woods Dev. Corp. 50% shareholder
Services Emerald had a 14 lot subdivision. There are
only 3 available lots. The Company may
provide construction services to Emerald
in the future.
Fairways at Westhampton, Inc. 50% shareholder
Services Fairways had 6 building lots. All Lots
have been sold. Fairways owns no other property.
Bridal Path Development Corp. 50% shareholder
Services Bridle Path had a 14 lot subdivision. There are
13 available lots. The company may provide construction
services to Bridle Path in the future.
Woodland Development
Association, a partnership 1/3 partner Woodland owns 3 building lots located in East
Quogue, N.Y. The Company may provide construction
to Woodland in the future.
Woodland Pines Associates,
a partnership Joint Venture Woodland Pines owns 10 building lots
located in East Quogue, N.Y. The Company
may provide construction to Woodland
Pines in the future.
46
</TABLE>
<PAGE>
The Company has issued 1,750,000 shares of its Common Stock to Mr. Schilowitz
in connection with the transfer to the Company of all of the issued and
outstanding stock of Harmat Homes, Inc. a construction and sales company;
Harmat Capital Corp. which owns the corporate headquarters, and vacant l and
in Southampton, New York and Southold, New York; Northside Woods, Inc., which
owns rental property in Westhampton, New York; Harmat Holding Corp., which
owns the subdivision known as the Polo Grounds; Harmat OrganizationInc.,
which owns an interest in Woodland Development Associates, a partnership; and
a fifty percent interest in Quick Storage ofQuogue, Inc. which owns the
storage facility in Quogue, New York. The Company has a contract to purchase
the remaining 50% interestfrom unrelated parties for a purchase price of
$150,000.
At the request of the Underwriter, Mr. Schilowitz has placed 750,000 shares of
the 1,750,000 shares he received in consideration for the capital stock of the
various companies in escrow. Such escrowed shares shall be released from
escrow as follows: (a) 250,000 shares shall be released and returned to Mr.
Schilowitz upon the Company realizing earnings before taxes equaling or
exceeding $750,000; (b) 250,000 shares shall be released and returned to Mr.
Schilowitz upon the Company realizing earnings before taxes equaling or
exceeding $1,500,000; and (c) 250,000 shares shall be released and returned to
Mr. Schilowitz upon the Company realizing earnings before taxes equaling or
exceeding $2,250,000. In the event such goals have not been achieved in whole
or in part withinten years from the date of this Prospectus, then the shares
which have not been previously released from escrow shall be returned to
the Company for cancellation.
All transactions between the Company and its affiliates will be reviewed
solely by the Company's outside directors, who will determine the value of any
services provided by the Company for any affiliated entity. All sums received
by the Company will be equivalent to those granted by unrelated third parties.
The Company is indebted to Mr. Schilowitz in the amount of $127,000 bearing
interest at 7% due December 31, 1996 representing advances made by Mr.
Schilowitz on behalf of the Company.
The Company borrowed from affiliated persons an aggregate of $240,000 as
follows: $20,000 from Sidney Prizer, the grandfather of Matthew Schilowitz,
the President of the Company, which loan bears interest at 6% per annum,
matures on December 31, 1996 and willbe repaid from the proceeds of this
offering; $70,000 from the mother of Matthew Schilowitz, which loan bears
interest at 8% per annum and matures on December 31, 1996 and will be repaid
from the proceeds of this offering; $150,000 payable to three former
owners of Quick Storage of Quogue, Inc. in connection with the purchase by
the Company of such persons 50% interest in such company.
47
<PAGE>
All of the Company's mortgages on the properties that it owns are personally
guaranteed by Matthew Schilowitz, the President of the Company. The Company
has agreed to indemnify Mr. Schilowitz against any liability with respect to
such guarantees.
_________________________________________________________________
PRINCIPAL STOCKHOLDERS
_________________________________________________________________
The following table provides, on a pro forma basis, information as of
April 30, 1996 concerning officers and directors as a group as well as each
person who beneficially owned more than five (5%) percent of the Company's
outstanding common shares.
Name and Address of Common Shares Percentage Percentage
Beneficial Owner Beneficially Owned Before Offering After Offering
- --------------- ------------------ -------------- --------------
Matthew C. Schilowitz 1,750,000(1) 77.7% 47.6%(2)
c/o Harmat Homes Inc.
P.O. Box 539
Quogue, NY 11959
Scott Prizer -0- * *
145 W.67th St.
New York, NY 10023
Seymour G. Siegel -0- * *
c/o Siegel Rich Resources, Inc.
1180 Avenue of the Americas
New York, NY 10036
David W. Sass -0- * *
c/o McLaughlin & Stern, LLP
380 Lexington Ave.
New York, NY 10168
David S. Eiten -0- * *
7 Thorngrove Lane
Dix Hills, New York 11746
Dr. Irving Kraut(3) 250,000 11.1% *
740 River Road
Trenton, New Jersey 08628
Martin Rothstein(3) 200,000 8.8% *
c/o Model Marketing
39 West 19th Street
New York, New York 10011
All officers and directors 1,750,000 77.7% 47.6%
as a group (5 persons)
- ------------------
48
<PAGE>
* No shares owned.
(1) Includes 500,000 shares of Common Stock which are included in the
Registration Statement, of which this Prospectus is a part
which are being sold by Mr. Schilowitz as well as 750,000 shares held
in escrow to be released subject to achieving certain financial goals.
See "Certain Transactions" and "Selling Stockholders".
(2) Includes 1,550,000 shares owned after sale of 200,000 shares
indicated in the Registration Statement. Does not give effect
to the sale of an additional 300,000 shares.
(3) Assumes all shares are sold after the public offering. Does not
include 1,000,000 shares issuable upon exercise of the Series A
Warrants and Series B Warrants owned by Dr. Kraut nor 800,000 shares
issuable upon exercise of the Series A Warrants and Series B Warrants
owned by Mr. Rothstein.
49
<PAGE>
SELLING STOCKHOLDERS
In addition to the Units, the Registration Statement, of which this
Prospectus forms a part, also covers the registration of an aggregate of
800,000 shares of Common Stock. The Company will not receive any proceeds from
the sale of these shares. The costs of qualifying these 800,000 shares of
Common Stock under federal and state securities laws, together with legal and
accounting fees, printing and other costs in connection with this offering,
will be paid by the Company.
The 800,000 shares of Common Stock registered in the Registration
Statement, of which this Prospectus forms a part, pursuant to an agreement
with the Underwriter, may not be sold for eighteen months from the date of
this Prospectus, subject, however, toearlier release at the sole discretion
of the Underwriter. See "Underwriting."
In addition to the 800,000 shares of Common Stock, the Registration
Statement, of which this Prospectus forms a part, also covers the registration
of 2,000,000 shares issuable upon exercise of the Series A Warrants and Series
B Warrants issued in a private placement. The terms and conditions of the
Common Stock the Series A and the Series B Warrants included in the private
placement are identical to the terms and conditions of the shares of Common
Stock and the Series A Warrants offered hereby, except that the exercise price
of the Series B Warrant is $9.00, whereas the exercise price of the Series A
Warrants is $3.50. All of the securities issued in the private placement are
being registered in the Registration Statement, of which this Prospectus forms
a part. Accordingly, that part of the securities issued in the private
placement being registered for resale by such persons are the shares of Common
Stock and the Series A Warrants as well as the Common Stock issuable upon
exercise of the Series A and Series B Warrants. Pursuant to an agreement with
the Underwriter, 800,000 shares of Common Stock held by the Selling
Stockholders and the shares of Common Stock issuable on exercise of the Series
A and Series B Warrants may not be sold until eighteen months from the date of
this Prospectus, subject, however, to earlier release at the sole discretion
of the Underwriter. The certificates representing the 800,000 shares of Common
Stock of the Selling Stockholders, as well as the shares of Common Stock
issuable on exercise of the Series A and Series B Warrants will have legends
affixed setting forth such restrictions. The Underwriter may release these
securities from this eighteen month restriction at any time after all
securities subject to this offering have beensold. See "Underwriting." The
resale of securities by the Selling Stockholders are subject to prospectus
delivery and other requirements of the Securities Act. Sales of these
securities, or even the potential for such sales at any time, would likely have
an adverse effect on the market prices of the Units, Common Stock and the
Series A Warrants. The Company
50
<PAGE>
will not receive any proceeds from the sale of the securities of the Selling
Stockholders. Like the Series A Warrants, the Series B Warrants are redeemable
upon certain circumstances. See "Description of Securities ." If all of the
Series A Warrants and Series B Warrants issued in the private placement are
exercised, of which there is no assurance, the Company will receive the gross
proceeds therefrom aggregating up to an addition $9,750,000.
Set forth below is a list of the Selling Stockholders and the number
of shares of Common Stock owned which are being registered pursuant to the
Registration Statement, of which this Prospectus forms a part:
<TABLE><CAPTION>
Selling Stockholders
--------------------
Number of Number of Shares
Number of Shares to Be Registered but
Shares Owned Offered Subject to 18 Number of Shares Percentage
Before Concurrently Month Owned After Owned After
Name (1) Offering with the Units Restriction Offering Offering (4)(8)
- ---- ------------ -------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Matthew Schilowitz(2) 1,750,000 200,000 300,000 500,000(3) 20%
Dr. Irving Kraut (5) 250,000 -0- 250,000 -0- -
Martin Rothstein (6) 200,000 -0- 200,000 -0- -
Alan & Rita Robinson (7) 50,000 -0- 50,000 -0- -
TOTAL
- -------------------------
</TABLE>
(1) The persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned
by them, except as otherwise indicated.
(2) The Company's President and Chief Executive Officer.
(3) Excludes shares held in escrow.
(4) Does not give effect to: (a) 1,000,000 shares of Common Stock issuable
upon exercise of the Series A Warrants as well as 2,000,000 shares
issuable upon exercise of the Series A and Series B Warrants issued
in the private placement; (b) 100,000 shares of Common Stock issuable
upon exercise of the Underwriter's Unit Purchase Option; (c) 100,000
shares of Common Stock issuable upon exercise of the Series A Warrants
included in the Underwriter's Unit Purchase Option; (d) the
Over-Allotment Options and the shares issuable upon exercise of the
Series A Warrants included therein; and (e) any Employment Options.
See "Description of Securities", "Certain Transactions", "Underwriting"
and "Management - Employment Agreement".
(5) Does not include 1,000,000 shares issuable upon exercise of the
Series A and Series B Warrants.
(6) Does not include 800,000 shares issuable upon exercise of the Series
A and Series B Warrants.
(7) Does not include 200,000 shares issuable upon exercise of the Series A
and Series B Warrants.
(8) Assumes (i) each investor sells all shares of Common Stock acquired
upon exercise of the Series A and Series B Warrants and (ii) no
additional securities of the Company are acquired.
51
<PAGE>
After making the investment in the private placement, the investors
did not own, nor did any of them have any right to acquire, any other
securities of the Company. None of the investors were affiliated with the
Company at the time of making their investment, at the time of this offering,
or at any other time.
Subject to the eighteen month restriction on the offer and sale for
800,000 shares, the Common Stock issuable on the exercise of the Series B
Warrants, and the 200,000 shares of Common Stock of the Selling Stockholder,
the securities offered herebymay be sold from time to time directly by the
Selling Stockholders. Alternatively, the Selling Stockholders may, from time
to time,offer such securities through underwriters, dealers and/or agents.
The distribution of securities by the Selling Stockholders may beeffected in
one or more transactions, privately-negotiated transactions or through sales
to one or more broker-dealers for resale ofsuch securities as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the
SellingStockholders in connection with such sales. The Selling Stockholders,
and intermediaries through whom such securities are sold, may be deemed
"underwriters" within the meaning of the Securities Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf
of the Selling Stockholders to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and
the terms of the offering, including the name or names of any underwriter,
dealer or agent, the purchase price paid by the underwriter for securities
purchased from the Selling Stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended ("Exchange Act")
and the regulations promulgated thereunder, any person engaged in the
distribution of the securities of the Company offered by this Prospectus may
not simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling off" period (which is
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act, and the rules and regulations
promulgated thereunder, including withoutlimitation, Rules 10b-6 and 10b-7
in connection with transactions in such securities, which provisions may limit
the timing ofpurchases and sales of such securities by the Selling
Stockholders.
52
<PAGE>
Sales of securities by the Selling Stockholders or even the potential
of such sales, would likely have an adverse effect on the market prices of the
securities offered hereby . Following the closing of this offering, the freely
tradeable securities of the Company ("public float"), including this offering,
assuming the sale of the entire 200,000 shares of Common Stock by the
Concurrent Selling Stockholder will be 1,200,000 shares of Common Stock and
1,000,000 Series A Warrants, not including 800,000 shares of Common Stock
owned by the Selling Stockholders and an aggregate of 2,000,000 shares of
Common Stock issuable upon exercise of the Series A and Series B Warrants
owned by the private placement investors, which such securities are not
transferable for eighteen months commencing on the date of this Prospectus or
at such earlier date as may be permitted by the Underwriter, which may release
suchsecurities at any time after all securities subject to this offering have
been sold and assuming no exercise of the Underwriter's Unit Purchase Option
or any Employment Options. See "Descriptions of Securities" and "Underwriting".
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock, $.001 par value per
share, and one Series A Redeemable Common Stock Purchase Warrant, each such
Series A Warrant entitling the holder thereof to purchase one share of Common
Stock. The components of the Units are detachable and separately transferable
immediately upon the Effective Date of the Registration Statement of which this
Prospectus forms a part.
Common Stock
The Company is currently authorized to issue 25,000,000 shares of
Common Stock, having a par value of $.001 per share of which 2,250,000 are
outstanding prior to the offering contemplated hereby including 750,000 shares
held in escrow. Each share of Common Stock entitles the holder thereof to one
vote on each matter submitted to the stockholders of the Company for a vote
thereon. The holders of Common Stock: (i) have equal ratable rights to
dividends from funds legally available therefor when, as and if declared by
the Board of Directors; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company;
(iii) do not have preemptive, subscription or conversion rights, or redemption
or sinking fund provisions applicable thereto; and (iv) as noted above,
are entitled to one non-cumulative vote per share on all matters submitted to
stockholders for a vote at any meeting ofstockholders. The Company has not
paid any dividends on its Common Stock to date. The Company anticipates that,
for the foreseeable future, it will
53
<PAGE>
retain earnings, if any, to finance the continuing operations of its
business. The payment of dividends will depend upon, among other things,
capital requirements and operating and financial conditions of the Company.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the
issuance of up to 5,000,000 shares of Preferred Stock, $.001 par value per
share. None of such Preferred Stock has been designated or issued. The Board
of Directors is authorized to issueshares of Preferred stock from time to time
in one or more series and, subject to the limitations contained in the
Certificate of Incorporation and any limitations prescribed by law, to
establish and designate any such series and to fix the number of shares and
the relative conversion rights, voting rights and terms of redemption
(including sinking fund provisions) and liquidation preferences. If shares of
Preferred Stock with voting rights are issued, such issuance could affect the
voting rights of the holders of the Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or
series voting rights. If the Board of Directors authorizes the issuance of
shares of Preferred Stock with conversion rights, the number of shares of
Common Stock outstanding could potentially be increased by up to the
authorized amount. Issuance of shares of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control
of the Company and may adversely affect the rights of holders of Common
Stock. Also, the Preferred Stock could have preferences over the Common Stock
(and other series of preferred stock) with respect to dividends and
liquidation rights.
Series A Redeemable Common Stock Purchase Warrants
Each Series A Common Stock Purchase Warrant entitles the holder
thereof to purchase one share of Common Stock at an exercise price of $3.50
per share for a period of four years commencing one year after the Effective
Date of the Registration Statement of which this Prospectus forms a part. The
exercise price and/or the exercise date of each Series A Warrant is subject
to adjustment under certain circumstances including, without limitation, the
following: (i) the Company's issuance of Common Stock for less than its fair
market value; (ii) the Company's issuance of a dividend in Common Stock; (iii)
the subdivision of outstanding shares of Common Stock; (iv) the
recapitalization or reorganization of the Company; (v) the merger or
consolidation of the Company with or into another company; and (vi) the sale
of all or substantially all of the assets of the Company. Each Series A
Warrant is redeemable upon 30 days prior written notice by the Company at a
redemption price of $.05 per Series A Warrant at any time after
_____________, 1997, provided that the closing bid price of the Common Stock,
as reported by NASDAQ (or such other principal exchange on which the
54
<PAGE>
Common Stock is then quoted), the NASD OTC Electronic Bulletin Board or the
National Quotation Bureau, Inc., as the case may be, equals or exceeds $8.00
per share for 20 consecutive trading days ending within five days prior to the
date of the Company's notice of redemption. Pursuant to the terms of the
Series A Warrants, the Company has the right, upon 30 days written notice to
all holders of the Series A Warrants and subject to compliance with Rule 13e-4
under the Exchange Act (including the filing of Schedule 13E-4), to reduce
the exercise price and/or extend the term of the Series A Warrants.
Series B Warrants
Each Series B Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $9.00 per share with respect for
a period of four years commencing 90 days after issuance (February, 1996)
after the Effective Date of theRegistration Statement of which this
Prospectus forms a part. The exercise price and/or the exercise date of each
Series B Warrant is subject to adjustment under certain circumstances
including, without limitation, the following: (i) the Company's issuance of
Common Stock for less than its fair market value; (ii) the Company's issuance
of a dividend in Common Stock; (iii) the subdivision of outstanding shares of
Common Stock; (iv) the recapitalization or reorganization of the Company; (v)
the merger or consolidation of the Company with or into another company; and
(vi) the sale of all or substantially all of the assets of the Company. Each
Series B Warrant is redeemable upon 30 days prior written notice by the
Company at a redemption price of $.05 per Series B Warrant at any time after
May, 1996, provided that the closing bid price of the Common Stock, as
reported by NASDAQ (or such other principalexchange on which the Common Stock
is then quoted), the NASD OTC Electronic Bulletin Board or the National
Quotation Bureau, Inc.,as the case may be, equals or exceeds $10.00 per
share for 20 consecutive trading days ending within five days prior to the
date of the Company's notice of redemption. Pursuant to the terms of the
Series B Warrants, the Company has the right, upon 30 days written
notice to all holders of the Series B Warrants and subject to compliance
with Rule 13e-4 under the Exchange Act (including the filing of Schedule
13E-4), to reduce the exercise price and/or extend the term of the Series B
Warrants.
Transfer and Warrant Agent
American Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer Agent for the Units and the Common Stock and the
Registrar and Warrant Agent for the Series A Warrants.
55
<PAGE>
UNDERWRITING
General
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Underwriter (the "Underwriting
Agreement"), the Underwriter has agreed to purchase on a "firm commitment"
basis, an aggregate of 1,000,000 Units from the Company (exclusive of the
150,000 Units subject to the Over-Allotment Option), each consisting of one
share of Common Stock and one Series A Warrant and 200,000 Underwriter's
Shares from a Selling Stockholder.
The Units being offered to the public by the Company are being
offered at a price of $3.25 per Unit as set forth on the cover page of this
Prospectus. The Units are offered by the Underwriter subject to: (i) the
Underwriter's receipt and acceptance; (ii) the Underwriter's right to reject
any order in whole or in part; (iii) approval of certain legal matters by
counsel to the Underwriter; and (iv) certain other conditions specified in
the Underwriting Agreement.
The Company has agreed to sell the Units to the Underwriter at a
discount of 10% of the public offering price thereof. The Company has also
agreed to pay the Underwriter the Non-Accountable Expense Allowance (as
previously defined) equal to 3% of the aggregate offering price of the Units
and Shares ($25,000 of which was advanced to the Underwriter). Pursuant to
the provisions ofthe Underwriting Agreement, in the event that the Company's
public offering is terminated for any reason, the Underwriter shall be
reimbursed for all accountable expense incurred by it. Any amounts previously
paid shall be credited against any amounts due.
The Underwriter has advised the Company that sales to certain dealers
may be made at the public offering price less a concession not in excess
of ____ % or $______per Unit. Upon completion of the Company's public
offering, the public offering price and other selling terms may be changed by
the Underwriter. The Underwriter does not intend to confirm sales of more
than 1% of the Units offered hereby to any accounts over which it exercises
discretionary authority.
Prior to the Company's public offering, there has been no public
trading market for the Units, the Common Stock or the Series A Warrants. The
offering price of the Units and the exercise price of the Series A Warrants
were determined by negotiationbetween the Company and the Underwriter. The
major factors considered by the Company and the Underwriter in determining the
public offering price of the Units and the exercise price of the Series A
Warrants, in addition to prevailing market conditions, were the Company's
historical performance and growth, management's assessment of the Company's
business potential and earning prospects, the prospects
56
<PAGE>
for growth in the industry in which the Company operates, and the foregoing
factors in relation to market valuations of other similar companies. The
public offering price may not bear any relationship to the Company's assets,
book value, net worth or other criteria of value applicable to the Company.
The Over-Allotment Option
The Company has granted to the Underwriter the Over-Allotment Option
which is exercisable for a period of 30 days following the Effective Date of
the Registration Statement of which this Prospectus forms a part to purchase
up to 150,000 Units (equal to an aggregate of up to 15% of the number of Units
being offered by the Company to the public) for the purpose of covering over-
allotments. The Over-Allotment Option is exercisable upon the same terms and
conditions as are applicable to the sale of the Units.
The Underwriter's Unit Purchase Option
As part of the consideration to the Underwriter for its services in
connection with the public offering described herein,the Company has agreed
to issue to the Underwriter, for nominal consideration, the Underwriter's Unit
Purchase Option to purchase up to 100,000 Units (an aggregate of up to 10% of
the number of Units being offered by the Company to the public). The
Underwriter's Unit Purchase Option will be exercisable commencing 1 year after
the effective Date and ending four years thereafter at an exercise
price of $3.90 per Unit (120% of the public offering price of the Units).
The Underwriter's Unit Purchase Option will be restricted from exercise, sale,
transfer, assignment or hypothecation, except to officers of the Underwriter
and members of the selling group and/or their officers or partners, for a
period of one year from the Effective Date and will, thereafter, be
exercisable for aperiod of four years. The exercise price of the
Underwriter's Unit Purchase Option was arbitrarily determined by the Company
andthe Underwriter and should not be deemed to reflect any estimate of the
intrinsic value of either the Underwriter's Unit PurchaseOption, the Units or
the underlying Common Stock and Series A Warrants. The Underwriter's Unit
Purchase Option will also containcertain anti-dilution and adjustment
provisions.
During the period in which the Underwriter's Unit Purchase Option is
exercisable, the holders thereof are given the opportunity to profit from a
rise in the market price of the Units, the Common Stock and the Series A
Warrants which may result in a dilution of the interest of the stockholders.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriter's Unit
Purchase Option is outstanding. At any time when the holders thereof might be
expected to exercise such Options and the underlying securities, the Company
would probably be able toobtain additional equity capital on terms more
favorable than those
57
<PAGE>
provided by the Underwriter's Unit Purchase Option. Any profit realized on
the sale of securities issuable upon the exercise of the Underwriter's Unit
Purchase Option may be deemed additionalunderwriter compensation.
Registration Rights
In connection with the underwriting of the Company's public offering,
the Company has granted to the Underwriter certain "piggy back" and "demand"
registration rights. Pursuant to the terms of the Underwriting Agreement, the
Company has granted to the Underwriter, for a period of seven years commencing
one year from the Effective Date, the right to include for registration, the
Underwriter's Unit Purchase Option (including the underlying securities) in
the event that the Company files a registration statement under the securities
act relating to the Public sale of any of its securities. Consequently,
the "piggy back" registration rights are only operative if the Company
otherwise files a registration statement. In addition, the Company has
agreed, for a period of five years from the Effective Date, to register under
the Securities Act: (i) on one occasion and at itsexpense, the Underwriter's
Unit Purchase Option (including the underlying securities) upon the request of
the holders of 50% or moreof the Underwriter's Unit Purchase Option
(including the underlying securities); and (ii) on one occasion and at the
holder's expense, the Underwriter's Unit Purchase Option (including the
underlying securities) upon the request of any holder thereof.
Finder's Fees
The Company has also agreed, pursuant to the provisions of the
Underwriting Agreement, to pay the Underwriter a finder's fee (the "Finder's
Fee") in the event that the Company consummates a transaction with a party
introduced to the Company by the Underwriter during the five-year period
following completion of the public offering described herein. The Finder's
Fee is basedupon the consideration received by the Company in connection with
such a transaction and may range from between 1% to 5% of suchtransaction
price. No finder has been associated with the Company's public offering as
described herein; nor does the Company have any obligation to pay a finder's
fee to anyone in connection with any pending transaction involving the Company.
Warrant Solicitation Fee
The Company has agreed with the Underwriter that the Company will pay
to the Underwriter a warrant solicitation fee (the "Warrant Solicitation Fee")
equal to 4% of the exercise price of the Series A Warrants exercised beginning
one year after the Effective Date and to the extent not inconsistent with the
guidelines of the NASD and the rules and regulations of the Commission.
Such Warrant Solicitation Fee will be paid to the
58
<PAGE>
Underwriter if: (i) the market price of the Common Stock on the date that any
suchSeries A Warrant is exercised is greater than the exercise price of the
Series A Warrant; (ii) the exercise of such Series A Warrant was solicited by
the Underwriter; (iii) prior specific written approval for exercise is
received from the customer if the Series A Warrant is held in a discretionary
account; (iv) disclosure of this compensation arrangement is made to the
customer prior to or upon the exercise of such Series A Warrant; (v)
solicitation of the exercise is not in violation of Rule 10b-6 of the
Exchange Act; and (vi) solicitation of the exercise is in compliance with
NASD Notice to Members 81-38. In addition, unless granted an exemption
by the Commission from Rule 10b-6 under the Exchange Act, the Underwriter
will, be prohibited from engaging in any market making activities or solicited
brokerage activities with respect to the Company's securities for the period
from nine business days prior to any solicitation of the exercise of any
Series A Warrant or nine business days prior to the exercise of any Series A
Warrantbased on a prior solicitation until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriter may have to receive such a fee for the exercise of the
Series A Warrants following such solicitation. As a result, the Underwriter
may be unable to continue to provide a market for the Company's securities
duringcertain periods while the Series A Warrants are exercisable.
Other Terms of the Underwriting
The Company has agreed not to issue, sell, offer to sell, grant any
option relating to the sale of or otherwise dispose of (directly or
indirectly) any of the Company's equity securities (including securities
convertible into, exercisable for or exchangeable into equity securities)
without the Underwriter's prior written consent, except for issuances pursuant
to: (i) theexercise of the Underwriter's Unit Purchase Option; (ii) the
Company's public offering of securities as described herein; (iii) a
declaration of dividends, recapitalization, reorganization or similar
transaction; or (iv) a currently existing stock incentive or option plan,
for 18 months from the Effective Date. In addition, each officer, director
and stockholder who owns 5% or more of theCompany's equity securities has
agreed not to sell, transfer, convey, pledge, hypothecate or otherwise dispose
of any of therespective securities of the Company owned by them for a period
of 18 months from the Effective Date without the Underwriter's prior approval.
In connection with and as consideration for the Underwriter's
participation in the Company's public offering, the Companyhas given the
Underwriter the right, upon completion of such public offering, to designate
one member to the Company's Board of Directors. The Company has further
agreed that such designee shall
59
<PAGE>
serve on the Board of Directors for a period of three years from the Effective
Date. As of the date hereof, the Underwriter has not identified a designee nor
has it expressed to the Company the desire to exercise its right to select such
a designee.
Indemnification
The Company has agreed to indemnify the Underwriter and others against
certain liabilities, including liabilities under the Securities Act. Insofar
as indemnification for liabilities arising under the Securities Act may be
provided to officers, directors or persons controlling the Company, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy and is therefore unenforceable. The
Underwriter has agreed to indemnify the Company, its directors, and each
person who controls it within the meaning of Section 15 of the Securities
Act with respect to any statement in or omission from the Registration
Statement, the Prospectus or any amendment or supplement thereto if such
statement or omission was made in relianceupon information furnished in
writing to the Company by the Underwriter specifically for or in connection
with the preparation ofthe Registration Statement, the Prospectus, or any
such amendment or supplement thereto.
The foregoing summaries of certain terms and conditions of the
Underwriting Agreement and the Underwriter's Unit Purchase Option do not
purport to be complete statements of the terms and/or contents of such
agreements. Copies of the foregoing documentshave been filed with the
Commission as exhibits to the Registration Statement of which this Prospectus
forms a part and are also onfile at the offices of the Underwriter and the
Company. Reference is hereby made to each such exhibit for a detailed
description ofthe provisions thereof which have been summarized above.
See "Available Information."
Action Involving the Underwriter
The Company has been advised by the Underwriter that on or about
May 22, 1995, the Undewriter and Elliot Lowenstern and Richard Bronson,
principals of the Underwriter, and the Securities and Exchange
Commission (the "Commission") agreed to an offer of settlement (the "Offer
of Settlement") in connection with a complaint filed by the Commission in the
United States District Courtfor the Southern District of Florida alleging
violations of the federal securities laws, Section 17(a) of the Securities
Act of 1933, Section 10(b) and 15(c) of the Securities Exchange Act of 1934,
and Rules 10b-5, 10b-6 and 15c1-2 promulgated thereunder. The complaint also
alleged that in connection with the sale of securities in three (3) IPOs in
1992 and 1993, the Underwriter engaged infraudulent sales practices. The
proposed Offer of
60
<PAGE>
Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The
Offer of Settlement was approved by Judge Gonzales on June 6,1995. Pursuant
to the final judgment (the "Final Judgment"), the Underwriter:
* was required to disgorge $1,000,000 to the Commission, which
amount was paid in four (4) equal installments on or
before June 22, 1995; and
* agreed to the appointment of an independent consultant
("Consultant").
Such Consultant is obligated, on or before May 15, 1996:
* to review the Underwriter's policies, practices and procedures
in six (6) areas relating to compliance and sales
practices;
* to formulate policies, practices and procedures for the
Underwriter that the Consultant deems necessary with respect
to the Underwriter's compliance and sales practices;
* to prepare a report devoted to and which details the
aforementioned policies, practices and procedures (the
"Report");
* to deliver the Report to the President of the Underwriter and
to the staff of the Southeast Regional office of the
Commission;
* to prepare, if necessary, a supervisory procedures and
compliance manual for the Underwriter, or to amend the
Underwriter's existing manual; and
* to formulate policies, practices and procedures designed to
provide mandatory on-going training to all existing and
newly hired employees of the Underwriter. The Final Judgment
further provides that, within thirty (30) days of the
Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain
any and all policies, practices and procedures set forth in
the Report.
The Final Judgment also provides that an independent auditor
("Auditor") shall conduct four (4) special reviews of the Underwriter's
policies, practices and procedures, the first such review to take place
six (6) months after the Report has been delivered to the Underwriter and
thereafter at six-month intervals. The Auditor is also authorized to conduct
a review, on a randombasis and without notice to the Underwriter, to certify
that any
61
<PAGE>
persons associated with the Underwriter, who have been suspended or barred by
any Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronston was dismissed with prejudice. Mr. Bronson has agreed to a suspension
from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months, dating from the beginning of such suspension.
Mr. Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing
upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of ths foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company's
stock, and additional brokers do not make a market in the Company's securities,
the market for and liquidity of the Company's securities may be adversely
affected. In the event that other broker dealers fail to make a market in the
Company'ssecurities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. For
additional information regarding the Underwriter, investors may call the
National Association of Securities Dealers, Inc. at (800) 289-9999.
The State of Indiana has commenced an action seeking among other
things to revoke the Underwriter's license to do businessin such state. Such
proceeding if ultimately successful may adversely affect the market for and
liquidity of the Company's securities if additional broker dealers do not make
a market in the Company's securities. Moreover, should Indiana investors
purchase any of the securities sold in this Offering from the Underwriter
prior to the possible revocation of the Underwriter's license in Indiana,
such investors will not be able to resell such securities in such state
through the Underwriter but will be required to retain a new broker dealer
firm for such purpose. The Company cannot ensure that other broker dealers
will make a market in the Company's seucriites. In the event that other broker
dealers fail to make a market in the Company's securities, the possibility
exists that the market for and the liquidity of the Company's securities may
be adversely affected to an extent thatpublic security holders may not have
anyone to purchase their securities when offered for a sale at any price. In
such event, themarket for, liquidity and prices of the Company's securities
may not exist. It should be noted that although the Underwriter may not
be the sole market maker in the Company's securities, it will most likely
be the dominant market maker in the Company's securities.
62
<PAGE>
CONCURRENT SALES BY SELLING STOCKHOLDERS
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of up to 800,000 shares of Common Stock,
1,500,000 Class A Warrants and 2,000,000 shares of Common Stock issuable upon
exercise of outstanding Class A andClass B Warrants previously issued to the
Selling Stockholders. Such securities are to be offered and sold by the Selling
Stockholders and are subject to an 18 month lock-up. Such securities are
expected to become tradeable on or about the date of this Prospectus. Sales of
the shares of Common Stock to be offered by Selling Stockholders, or even
the potential of such sales, would likely have an adverse effect on the market
prices of the securities being offered for sale by the Company. The freely
tradeable shares of the Common Stock (the public float), upon the Effective
Date of the Registration Statement of which this Prospectus forms a part and
upon consummation of the transactions contemplated herein, will be 1,200,000
shares of Common Stock, of which 200,000 shares are to be sold by a Selling
Stockholder.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the
securities being offered by the Company will be passed upon for the Company
by McLaughlin & Stern, LLP, New York, New York, David W. Sass, a member of
such firm is a Director of the Company. Legal matters for the Underwriter will
be passed upon by Bernstein and Wasserman, LLP, New York, New York.
EXPERTS
The Financial Statements of the Company included in this Prospectus
to the extent and for the periods indicated in their report have been reported
on by Mortenson and Associates, P.C., independent certified public accountants,
as stated in their report appearing herein in reliance upon such report given
on the authority of that firm as experts and auditing.
63
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholder of
The Harmat Organization, Inc. and Subsidiaries
Quogue, New York
We have audited the accompanying consolidated balance sheet of
Harmat Organization, Inc. and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholder's equity [deficit],
and cash flows for each of the two years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Harmat Organization, Inc. and Subsidiaries as of December 31, 1995,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that The Harmat Organization, Inc. and Subsidiaries will
continue as a going concern. As discussed in Note 7 to the consolidated
financial statements, the Company has insufficient cash resources and negative
working capital that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 7. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
MORTENSON AND ASSOCIATES, P. C.
Certified Public Accountants.
Cranford, New Jersey
March 27, 1996
F-1
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995.
Assets:
Current Assets:
Cash $ 15,439
Marketable Securities 367,492
Accounts Receivable 14,764
Land and Construction Costs 114,889
Prepaid Expenses 1,175
---------
Total Current Assets 513,759
---------
Property, Plant and Equipment - Net 1,125,067
---------
Other Assets:
Land and Construction Costs 776,327
Goodwill - Net 72,377
Land Held for Development 72,298
Investment in Partnership 29,727
Land Deposits 75,000
Deferred Offering Costs 30,000
---------
Total Other Assets 1,055,729
---------
Total Assets $2,694,555
=========
Substantially all of the assets are pledged.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-2
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995.
Liabilities and Stockholder's Equity [Deficit]:
Current Liabilities:
Current Portion of Mortgage Payable $ 229,577
Notes Payable - Shareholders 277,000
Notes Payable - Related Parties 90,000
Loans Payable - Bank 240,000
Other Loan Payable 139,360
Accounts Payable and Accrued Expenses 646,775
Customer Deposits 97,500
---------
Total Current Liabilities 1,720,212
---------
Commitment and Contingencies [8] --
---------
Other Liabilities:
Mortgages Payable - Net of Current Maturities 1,031,273
Notes Payable - Related Party 125,000
---------
Total Other Liabilities 1,156,273
---------
Stockholder's Equity [Deficit]:
Preferred Stock - $.001 Par Value, 5,000,000 Shares Authorized
No Shares Issued and Outstanding --
Common Stock - $.001 Par Value, 25,000,000 Shares Authorized,
1,750,000 Shares Issued and Outstanding 1,750
Additional Paid-in Capital - Common Stock 23,750
Retained Earnings [Deficit] (207,430)
---------
Total Stockholder's Equity [Deficit] (181,930)
---------
Total Liabilities and Stockholder's Equity [Deficit] $2,694,555
==========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-3
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
-----------
December 31,
-------------
1 9 9 5 1 9 9 4
------- -------
Revenues:
Construction Sales $2,065,126 $4,449,827
Rental Income 183,398 69,045
Management Fee Income 75,000 --
--------- ---------
Total Revenues 2,323,524 4,518,872
Cost of Sales and Direct Operating Expenses 1,719,316 4,277,821
--------- ---------
Gross Profit 604,208 241,051
Selling, General and Administrative Expenses 367,498 239,791
--------- ---------
Income from Operations 236,710 1,260
--------- ---------
Other Income [Expense]:
Gain on Sale of Marketable Securities 245,022 281,767
Unrealized Gain on Marketable Securities 5,575 13,803
Interest and Dividend Income 11,274 12,811
Interest Expense (157,678) (51,470)
--------- ---------
Total Other Income 104,193 256,911
--------- ---------
Net Income $ 340,903 $ 258,171
========= =========
Earnings Per Share:
Net Income $ .15 $ .11
========= =========
Number of Shares 2,250,000 2,250,000
========= =========
Pro Forma:
Net Income [2] $ 197,000 $ 155,000
========= =========
Pro Forma Earnings Per Share:
Net Income $ .09 $ .06
========= =========
Number of Shares 2,250,000 2,250,000
========= =========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY [DEFICIT]
<TABLE><CAPTION>
Total
-----
Common Stock Additional RetainedStockholder's
---------------- ---------- ---------------------
Number of Amount Paid-in EarningsEquity
--------- ------ ------- --------------
Shares [At Par] Capital [Deficit][Deficit]
------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1993 1,750,000 $ 1,750 $23,750 $(123,630) $(98,130)
Net Income -- -- -- 258,171 258,171
Stockholder Distributions -- -- -- (78,887) (78,887)
------- ------- ------- ------- -------
Balance - December 31, 1994 1,750,000 1,750 23,750 55,654 81,154
Net Income -- -- -- 340,903 340,903
Stockholder Distributions -- -- --
(603,987) (603,987)
------- ------- ------- -------- --------
Balance - December 31, 1995
1,750,000 $ 1,750 $23,750 $(207,430) $(181,930)
========= ======= ======= ======== =========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
------------
December 31,
-------------
1 9 9 5 1 9 9 4
------- -------
Operating Activities:
Net Income $ 340,903 $ 258,171
--------- ---------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 29,414 17,091
Gain on Sale of Marketable Securities (245,022) (281,767)
Change in Unrealized [Gain] Loss on Investments 8,228 (13,803)
Allowance for Uncollectible Mortgage Receivable -- 35,325
Loss on Partnership Investment 1,000 416
Changes in Assets and Liabilities:
Contract Receivables 153,706 (153,706)
Accrued Interest Receivable (16,665) --
Costs and Profits in Excess of Billings on Uncompleted
Contacts 345,123 (154,614)
Billing in Excess of Costs and Profits on Uncompleted
Contracts (32,478) 7,466
Prepaid Expenses 1,080 7,322
Accounts Payable 135,234 202,370
Customer Deposits 97,500 --
--------- ---------
Total Adjustments 477,120 (333,900)
--------- ---------
Net Cash - Operating Activities 818,023 (75,729)
--------- ---------
Investing Activities:
Purchase of Marketable Securities (2,905,276)(2,461,439)
Sales of Marketable Securities 3,402,329 2,618,317
Acquisition of Quick Storage (150,000) --
Less: Cash of Quick Storage at Acquisition 4,737 --
Acquisition of Property and Equipment (19,825) (774)
Deposit on Land (75,000) --
Land and Construction Costs (406,070) (21,416)
Payment of Deferred Offering Costs (30,000) --
Advances from/to Affiliates and Related Parties 92,152 71,761
--------- ---------
Net Cash - Investing Activities (86,953) 206,449
--------- ---------
Financing Activities:
[Repayments] Proceeds from New Loans 309,500 100,000
[Repayments] Proceeds of Mortgages Payable (14,764) (9,352)
[Repayments] Proceeds of Notes Payable - Stockholder 150,000 (205,034)
[Repayments] Proceeds of Notes Payable - Other (8,120) (28,120)
Repayment of Due to Stockholder (608,463) --
Distribution to Stockholders (587,322) (78,889)
--------- ---------
Net Cash - Financing Activities (759,169) (221,395)
--------- ---------
Net [Decrease] in Cash (28,099) (90,675)
Cash - Beginning of Years 43,538 134,213
--------- ---------
Cash - End of Years $ 15,439 $ 43,538
========= =========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
------------
December 31,
-------------
1 9 9 5 1 9 9 4
------- -------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 50,066 $ 38,585
Income Taxes $ -- $ --
Supplemental Disclosures on Non-Cash Investing and Financing Activities:
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-7
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Principles of Consolidation and Business
The Harmat Companies are owned by an individual stockholder.
In November 1995, the Harmat Organization, Inc. [Delaware] [the "Company"]
was formed for the purpose of offering securities to the general public and
1,750,000 shares of common stock were issued to the individual stockholder of
the Harmat Companies. On March 1, 1996, the individual stockholder of the
Harmat Companies transferred his stock in the Harmat Companies to the Harmat
Organization [Delaware] for a 100% ownership interest in the Harmat
Organization, Inc. [Delaware].
These December 31, 1995 and 1994 financial statements reflect the financial
position and results of operations of the Parent Company and its subsidiaries
on a consolidated basis, which reflects the Company's current organizational
structure. The Company's policy is to consolidate all majority-owned
subsidiaries. All intercompany amounts have been eliminated in
consolidation.
Entity Nature of Business
------ ------------------
Parent Company:
The Harmat Organization, Inc. - Delaware
Harmat Companies: [Subsidiaries]
Harmat Homes, Inc. ["Harmat"] Construction of custom homes and
residential and commercial
rental properties.
Harmat Holding Corp. ["Harmat Holding"] Subdivision and development of
undeveloped land.
Northside Woods, Inc. ["Northside"] Rental of residential property.
Harmat Capital Corp. ["Harmat Capital"] Rental of residential property.
Harmat Organization - New York Limited Partner in real estate
partnership.
Quick Storage, Inc. Short-term rental of storage
facilities
The sole stockholder who owns all of the above entities is a general partner
in the partnership in which the Harmat Organization - New York has a limited
partnership interest.
[2] Summary of Significant Accounting Policies
Concentration of Credit Risk - Accounts receivable arise principally from the
construction and sale of custom homes and residential and commercial
properties in Eastern Suffolk County, New York. The management of the
Subsidiaries continually reviews and evaluates such accounts receivable and
provides an allowance for doubtful accounts for accounts it deems
uncollectible and as a consequence, believes its accounts receivable credit
risk exposure beyond such allowance is limited. Such estimates of the
financial strength of such customers may be subject to change in the near
term.
Deferred Offering Costs - As of December 31, 1995, the Company incurred
$30,000 of legal and accounting fees in connection with the proposed public
offering of the Company's common stock. These costs will be charged to
additional paid-in capital upon completion of the proposed public offering.
F-8
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[2] Summary of Significant Accounting Policies [Continued]
Economic Dependency - Sales from six constructions contract accounted for
approximately 99% of total construction sales for the year ended December 31,
1995. There was no amounts due under such contracts at December 31, 1995.
Most of the Company's business is of a nonrecurring nature. The Company must
continually market its homes in order to attract new purchasers. Unless the
Company is successful in attracting new purchasers for its homes, such lack
of new purchasers will have a severe negative impact to the Company in the
near term.
Marketable Securities - The Company adopted Statement of Financial Accounting
Standards ["SFAS"] No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at January 1, 1994. SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
Those investments are to be classified into the following three categories:
held-to-maturity debt securities; trading securities; and available-for-sale
securities. In accordance with SFAS No. 115, prior years' financial
statements are not to be restated to reflect the change in adopting the new
accounting method. There was no cumulative effect as a result of adopting
SFAS No. 115 at January 1, 1994.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. At December 31, 1995 all of the
Company investments were classified as trading securities. Trading
securities are securities bought and held principally for the purpose of
selling them in the near term and are reported at fair value, with unrealized
gains and losses included in operations for the current year. The Company
primarily uses the specific identification method for gains and losses on the
sales of marketable securities [See Note 3].
Property and Equipment and Depreciation - Property and equipment are stated
at cost. Depreciation is computed over the estimated useful lives of the
assets, using either the straight-line or accelerated methods as follows:
Building and Building Improvements 40 Years
Furniture and Equipment 5 to 7 Years
Earnings Per Share - Earnings per share are based on the 1,750,000 shares
issued [See Note 1] and the 500,000 shares issued in the private placement
[See Note 10A] for all periods presented.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Land Development Costs - Costs that clearly relate to land development
projects are capitalized. Costs are allocated to project components by the
specific identification method whenever possible. Otherwise, acquisition
costs are allocated based on their relative fair value before development,
and development costs are allocated based on their relative sales value.
Interest costs are capitalized while development is in progress.
Revenue Recognition - Harmat recognizes revenues from fixed-price and
modified fixed-price construction contracts on the percentage-of-completion
method, measured by the percentage of cost incurred to date to estimated
total cost for each contract. That method is used because management
considers total cost to be the best available measure of progress on the
contracts. Because of inherent uncertainties in estimating costs, it is at
least reasonably possible that the estimates used will change within the near
term.
F-9
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[2] Summary of Significant Accounting Policies [Continued]
Revenue Recognition [Continued] - Contract costs include all direct material
and labor costs and those indirect costs related to contract performance,
such as indirect labor, supplies, tools, repairs, and depreciation. Selling,
general, and administrative costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to costs and
income, which are recognized in the period in which the revisions are
determined. Changes in estimated job profitability resulting from job
performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
At December 31, 1995, all construction contracts were complete.
- - Harmat Holding - Harmat Holding recognizes revenue from the
acquisition, development and sale of land and construction and sale of
houses on such land. Pursuant to the terms of such contracts and
Statement of Financial Accounting Standards ["SFAS"] No. 66,
"Accounting for Sales of Real Estate," the Company uses the deposit
method of accounting. The method provides that all construction costs
be recorded as incurred and monies received from the purchases recorded
as deposits until the purchase contracts close when all revenue costs
and profits are recognized.
Harmat Holding classifies all land and construction costs that are
expected to be completed within one year as a current asset. At
December 31, 1995, such land and construction costs totaled $114,889.
Customer deposits received on such contracts totaled $97,500 at
December 31, 1995.
- - Northside Woods and Harmat Capital - Rental income is recognized
pursuant to the terms of each lease.
Income Taxes - Each of the Subsidiaries has elected S corporation status
under the Internal Revenue Code and similar statutes, and, therefore, does
not incur federal or state income taxes except for a New York State
equalization tax on S corporation earnings which is based on the differential
between corporate and personal income tax rates. The amount of this tax has
been deemed to be immaterial and is not included in the financial statements.
Taxes are passed through to the individual shareholder. Pro forma net income
and earnings per share are presented as if the companies were C corporations.
Goodwill - Amortization for securities of the newly acquired subsidiary,
Quick Storage, in excess of the fair value of the net assets of such
subsidiary has been charged to goodwill. Goodwill is related to revenues the
Company anticipates realized in future years. The Company has decided to
amortize its goodwill over a period of up to ten years under the straight-
line method. Accumulated amortization at December 31, 1995 was $8,042. The
Company's policy is to evaluate the periods of goodwill amortization to
determine whether later events and circumstances warrant revised estimates of
useful lives. The Company also evaluates whether the carrying value of
goodwill has become impaired by comparing the carrying value of goodwill to
the value of projected undiscounted cash flows from the acquired assets of
Quick Storage, Inc. Impairment is recognized if the Company value of
goodwill is less than the projected undiscounted cash flow from acquired
assets or business.
[3] Marketable Securities
Marketable securities consist of investments in equity and debt securities at
market value. The cost of such securities is $361,710. The change in the
unrealized gain account for 1995 is $5,575.
F-10
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[4] Property and Equipment
Property and equipment consist of the following at December 31, 1995:
Land $ 450,495
Building and Building Improvements 795,950
Furniture and Office Equipment 33,324
---------
Total 1,278,769
Less: Accumulated Depreciation 154,702
---------
Property and Equipment - Net $1,124,067
---------------------------- =========
Depreciation expense for the years ended December 31, 1995 and 1994 totaled
$21,380 and $17,091, respectively.
[5] Notes and Mortgages Payable
[A] Mortgages - At December 31, 1995, the mortgages payable consist of the
following:
Mortgage payable, dated November 30, 1992, in the amount of $400,000,
bearing interest at 4% plus contingent interest participation payments upon
the sale of subdivided lots. This mortgage is secured by property with a
cost of approximately $450,000 and the personal guaranty of the stockholder
of the Companies. This mortgage requires semi-annual payments of interest
only commencing June 30, 1993 through October 30, 1997 when the mortgage
matures and contingent interest participation payments upon the sale of
subdivided lots. $ 400,000
Mortgage payable, dated November 14, 1985, in the original amount of
$270,000, payable in monthly installments of $2,379 including interest
through December 1, 2015. Interest is payable at adjustable interest rate
[10% at December 31, 1995] which is determined every three years.
The mortgage is secured by rental property consisting of land and
building having a cost of approximately $330,000 246,817
Mortgage payable, dated January 30, 1992, in the original amount of
$264,000, payable in monthly installments of $1,979 including interest
through February 1, 2022. Interest is payable at an adjustable interest
rate [8.375% at December 31, 1995] which is determined annually. The
mortgage is secured by rental property consisting of land and building
having a cost of approximately $270,000. 251,653
Mortgage payable, dated March 11, 1994, in the original amount of $215,400,
with monthly interest at prime plus 3% until December 15, 1994 when all
unpaid principal and interest is due. This loan was extended until
October 11, 1996. The mortgage is secured by land and building have a
cost of approximately $415,000. 215,400
Mortgage payable dated January 17, 1991, and amended June 14, 1994
in the original amount of $180,000 payable in monthly installments
of $1,975 including interest through February 1, 2006. Interest is
payable at an adjustable interest rate [10.625% at December 31, 1995]
which is determined annually. The mortgage is secured by land and
building having a cost of approximately $200,000. 146,980
-------
Total Mortgages Payable $1,260,850
----------------------- =========
F-11
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[5] Notes and Mortgages Payable [Continued]
[B] Related Party Notes Payable
A loan payable to a related party which was originally due on June 25, 1994
and was extended to March 26, 1997 and bears interest at 8% per annum.
Repayment of this loan has been guaranteed by the sole stockholder of the
Companies. $125,000
Notes payable to two related parties due on demand for $70,000 and $20,000,
bearing interest at 10% and 6% per annum, respectively. 90,000
[C] Note Payable - Bank
A one year bank loan dated September 21, 1995, with interest of prime plus
1.5% is guaranteed by the sole stockholder of the Company. The loan is
collateralized by marketable securities of Harmat Capital having a
fair market value at December 31, 1995 of approximately $360,000 240,000
[D] Notes Payable - Shareholders
Promissory notes to resulting from the buyout of an interest in Quick
Storage with annual interest of 4% due at the earlier of December 31,
1996 or thirty days after the completion on the initial public offering
by the Company [See Note 12]. Interest, representing the difference
between the stated rate of interest in the promissory notes and a
market rate of interest, has been deemed immaterial and, therefore,
not imputed. 150,000
Promissory note to a shareholder dated January 1, 1995 with interest of
7% per annum due December 31, 1996. 127,000
[E] Other Loans Payable
In 1994 and 1995, there was a loan to an individual with interest at
12% per annum. This loan was due February 1, 1996 and has been
extended to August 31, 1996. Repayment of this loan is guaranteed
by the sole stockholder of the Companies. 100,000
Legal settlement obligation from 1991 to a contractor is payable in
equal semi-annual installments on June 1 and December 1 of each year
with annual payments of $8,120. Interest is considered to be
immaterial and has not been imputed. 39,360
-------
Total $871,360
----- =======
Annual maturities of notes and mortgages payable are as follows:
Year ended
----------
December 31,
------------
1996 $1,069,697
1997 425,145
1998 26,939
1999 28,925
2000 29,880
Thereafter 551,624
-------
Total Notes and Mortgages Payable $2,132,210
--------------------------------- =========
F-12
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[6] Fair Value of Financial Instruments
Effective December 31, 1995, the Company adopted SFAS No. 107, fair value of
financial investments which requires disclosing fair value to the extent
practicable for financial instruments which are recognized or unrecognized in
the balance sheet. The fair value of the financial instruments disclosed
therein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table summarizes
financial instruments by individual balance sheet accounts as of December 31,
1995:
Carrying
--------
Amount Fair Value
------ ----------
Debt Maturing Within One Year $1,100,937 $1,100,937
Long-Term Debt 1,031,273 1,031,273
--------- ---------
Totals $2,132,210 $2,132,210
------ ========= =========
For certain financial instruments, including cash and cash equivalents, trade
receivables and payables, customer deposits and short-term debt, it was
assumed that the carrying amount approximated fair value because of the near
term maturities of such obligations. The fair value of long-term debt is
based on current rates at which the Company could borrow funds with similar
remaining maturities. The carrying amount of long-term debt approximates
fair value.
[7] Going Concern
The Company's financial statements for the year ended December 31, 1995, have
been prepared on a going concern basis which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course
of business. Management recognizes that the Company must generate additional
resources and is pursuing equity and debt financing. In addition, management
intends to expand into the commercial market to develop properties and
accelerate growth. However, no assurances can be given that the Company will
be successful in raising additional capital or developing the commercial
market. Further, there can be no assurance, assuming the Company
successfully raises additional funds that the Company will achieve
profitability or attain positive cash flows from operations.
[8] Commitments and Contingencies
[A] Land Contract - Pursuant to an agreement dated December 1995, the Harmat
Organization, Inc. has agreed to purchase three parcels of undeveloped land
located in Westhampton, New York for $1,247,000. The Harmat Organization,
Inc. has deposited $75,000 pursuant to the terms of such contract. This
contract is subject to the Company receiving a commitment for the financing
of land acquisitions.
[B] Litigation - Harmat Homes, Inc. owns a mechanics lien and has instituted
legal action against an individual for damages and lost profits in an
undeterminable amount for wrongful termination of a contract. This
individual has instituted a counter claim in the amount of $250,000 claiming
breach of contract and the wrongful filing of a mechanics lien. Harmat's
motion for summary judgement to foreclose upon its mechanics lien has been
denied and an appeal from that order has been taken. The parties are now
engaged in discovery and at this time counsel has advised the Company that
the outcome on this case cannot be rendered. Therefore, no amounts have been
accrued in the financial statements regarding this case. The Company
believes the action is without merit and intends to vigorously contest this
case. Nevertheless, due to the uncertainties in the legal process, it is at
least reasonably possible that management's view of the outcome could change
in the near term. In addition, a subcontractor of Harmat Homes, Inc. has
instituted claims against both Harmat Homes, Inc. and the other individual
for the sum of $30,000.
F-13
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[8] Commitments and Contingencies [Continued]
[B] Litigation [Continued] -The Company is also involved in other legal
proceedings which are considered routine and incidental to its business. The
Company believes that the legal proceedings which are presently pending have
no potential liability which would have an adverse material effect on the
financial condition of the Company.
[9] Segment Information
The Company's operations are classified into two industry segments:
construction and rental. The following is a summary of segment information
for 1995 and 1994:
Construction Rental Consolidated
------------ ------ ------------
Revenue from Non-Affiliates:
1995 $2,140,126 $ 183,398 $2,323,524
========== ========== =========
1994 $4,449,827 $ 69,045 $4,518,872
========= ========== =========
Income [Loss] from Operations:
1995 $ 164,460 $ 72,250 $ 236,710
========= ========== ==========
1994 $ 22,221 $ (20,961) $ 1,260
========= ========== ==========
Identifiable Assets:
1995 $1,064,945 $1,629,610 $2,694,555
========== ========== ==========
1994 $1,227,785 $1,359,045 $2,586,830
========== ========== ==========
Depreciation and Amortization:
1995 $ 1,193 $ 28,221 $ 29,414
========== ========== ==========
1994 $ -- $ 17,091 $ 17,091
========== ========== ==========
Capital Expenditures:
1995 $ 14,594 $ 5,231 $ 19,825
========== ========== ==========
1994 $ -- $ 774 $ 774
========== ========== ==========
[10] Subsequent Events [Unaudited]
[A] Proposed Initial Public Offering - The Company is offering for public
sale 1,000,000 units at $3.25 per unit. Each unit will consist of one [1]
share of common stock and one [1] Class A warrant. The Class A warrants
shall be exercisable during a four year period commencing one year after the
date of the proposed public offering ["Effective Date"]. The Class A warrant
entitles its holder to purchase one share of common stock at a price of $3.50
per share commencing one year from the effective date. The warrants may be
redeemed by the Company for $.05 per warrant under certain conditions.
Although no assurances can be given that the offering will be successful, the
Company intends to utilize the net proceeds from the proposed offering of
approximately $2,532,500 are intended to be used to develop properties and
business opportunities, repay certain indebtedness, and for general working
capital needs.
F-14
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[10] Subsequent Events [Unaudited] [Continued]
[B] Private Placement - In February of 1996, Harmat Organization, Inc.
[Delaware] offered 500,000 units at $1.00 per unit as part of a private
placement transaction. The units consist of one share of common stock, three
Series A warrants entitling the holder to purchase three shares of common
stock for $3.50 for a period of four years and one Series B warrant entitling
the holder to purchase one share of common stock for $9.00 for a period of
four years. The shares of common stock and the Series A warrants are being
registered as part of the proposed initial public offering. Deferred
financing costs will be recorded upon issuance of the shares of common stock
and amortized over the life of the loan. On February 22, 1996, the Company
received proceeds of $425,000 from the private placement.
[C] Stock Option Plan - In 1996, the Board of Directors adopted a stock
option plan providing for the granting of up to 400,000 shares of the
Company's common stock. This Plan excludes the Company's chief executive
officer and principal shareholder.
[D] Employment Agreement
On April 1, 1996, the Company entered into a five year employment agreement
with the President and Chief Executive Officer for a base salary of $105,000
with increments of $55,000 each year thereafter. In addition, the Officer
will receive a bonus of 5% of pre tax annual earnings and is granted warrants
to purchase up to an aggregate of 750,000 shares of the Company common stock
exercisable at $3.25 per share with rights vesting upon attainment of
earnings as defined within the employment contract.
The difference between the exercise price and the market value at the date of
grant is considered as compensation expense at the date of exercise.
. . . . . . . . . .
F-15
<PAGE>
--------------------- 200,000 Shares of Common Stock
1,000,000 UNITS
No dealer, salesperson or other person Each Unit consisting of One share
has been authorized to give any information of Common Stock and One Series A
or to make any representations in connection Redeemable Common Stock Purchase
with this Offering other than those Warrant
contained in this Prospectus and, if given
or made, such information or representations
must not be relied on as having been
authorized by the Company. This Prospectus
does not constitute an offer to sell or a
solicitation of an offer to buy any security
other than the securities offered by this
Prospectus, or an offer or solicitation of
an offer to buy any securities by any person
in any jurisdiction in which such offer or
solicitation is not authorized or is
unlawful. The delivery of this Prospectus
shall not, under any circumstances, create
any implication that the information herein THE HARMAT ORGANIZATION, INC.
is correct as of any time subsequent to the
date of this Prospectus.
TABLE OF CONTENTS
Page
Available Information..........
Prospectus Summary.............
Risk Factors...................
Use of Proceeds................
Capitalization.................
Management's Discussion and Biltmore Securities, Inc.
Analysis of Financial
Condition and Results
of Operations.................
Dilution.......................
Dividend Policy................
Business.......................
Management.....................
Certain Transactions...........
Principal Stockholder..........
Selling Stockholders...........
Description of Securities......
Underwriting...................
Concurrent Sales by Selling
Stockholders..................
Legal Matters..................
Experts........................
Financial Statements...........
Until , 199 (25 days after
-----------
the date of this Prospectus), all dealers
effecting transactions in the Debentures,
whether or not participating in the
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 regard to their unsold allotments or
subscription.
<PAGE>
ALTERNATE COVER PAGE
--------------------
SUBJECT TO COMPLETION, DATED MAY 10, 1996
PROSPECTUS
800,000 SHARES
THE HARMAT ORGANIZATION, INC.
This prospectus relates to the offering of 800,000 shares of common
stock ("Common Stock"), par value $.001 per share, of The Harmat Organization,
Inc. a Delaware corporation (the "Company"). This Prospectus also relates to
the sale of 1,500,00 shares of Common Stock of the Company issuable upon
exercise of 1,500,000 Class A Redeemable Warrants issued in a private placement
as well as 500,000 shares of Common Stock issuable upon exercise of 500,000
Class B Warrants issued in a private placement. The securities offered hereby
may not be transferred for eighteen (18) months from the date hereof, subject to
earlier release at the sole discretion of Biltmore Securities, Inc., which is
acting as the underwriter in connection with a public offering of the Company's
securities (the "Underwriter)". Included in the 800,000 shares offered hereby
are 300,000 shares held by Mr. Schilowitz, the President of the Company. The
certificates evidencing such securities include a legend with such restrictions.
The Underwriter may release the securities held by the Selling Stockholder at
any time after all securities subject to the Over-Allotment Option have been
sold or such option has expired. The Over-Allotment Option will expire thirty
(30) days from the date of this Prospectus. In other offerings where the
Underwriter has acted as the managing underwriter, it has release similar
restrictions applicable to Selling Stockholders prior to Allotment Option or the
expiration of the Over-Allotment Option period.
The Securities offered by this Prospectus may be sold from time to
time by the Selling Stockholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Stockholders. The
distribution of the securities by the Selling Stockholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection with sales of such securities. Transfers of the
securities may also be made pursuant to applicable exemptions under the
Securities Act of 1933 (the "Securities Act") including but not limited to sales
under Rule 144 under the Securities Act.
The Selling Stockholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. The \company
has agreed to indemnify the Selling Stockholders against certain liabilities,
including liabilities under the Securities Act.
On the date hereof, the Company commenced pursuant to the Registration
Statement of which this Prospectus is a part of a public offering of 1,000,000
Units, each Unit comprising one share of Common Stock and one Class A Warrant.
See "Concurrent Sales."
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Stockholders. All costs in incurred in the
registration of the securities of the Selling Stockholders are being borne by
the Company. See "Selling Stockholders."
The Company intends to furnish its security holders with annual
reports containing audited financial statements and the audit report of the
independent certified public accountants and such interim reports as it deems
appropriate or as may be required by law. The Company's fiscal year ends
December 31.
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
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS", WHICH BEGINS ON PAGE , AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS, ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
___________________________________________
The date of this Prospectus , 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating these securities has been filled with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
<PAGE>
THE OFFERING
Securities Offered by Selling Stockholders . . . 800,000 Shares
1,500,000 Class A Warrants
2,000,000 Shares Issuable
upon exercise of
outstanding Class A and
Class B Warrants
Shares of Common Stock Outstanding After
Offering(1) . . . . . . . . . . . . . . . . . . . 3,250,000 Shares
Use of Net Proceeds . . . . . . . . . . . . . . . See "Use of Proceeds"
Proposed Nasdaq Symbols
Units . . . . . . . . . . . . . . . . . . . . . . HMATU
Common Stock . . . . . . . . . . . . . . . . . . HMAT
Class A Warrants . . . . . . . . . . . . . . . . AMATW
____________________
(1) Includes 750,000 shares held in escrow. Does not include shares of
Common Stock issuable upon the exercise of (i) the Class A Warrants
offered as part of the Units in the public offering, (ii) the
Underwriter's Over-Allotment Option to purchase up to 150,000 Units;
(iii) the Underwriter's Unit Purchase Option to purchase up to 100,000
Units and (iv) 2,000,000 shares issuable upon exercise of the Class A
and Class B Warrants issued in a private placement. See "Description
of Securities."
<PAGE>
No dealer, salesperson or other
person has been authorized to give 8,00,000 Shares of Common Stock
any information or to make any 1,500,000 Class A warrants
representations in connection with 2,000,000 Shares of Common Stock
this Offering other than those issuable upon exercise of outstanding
contained in this Prospectus and, if Warrants
given or made, such information or
representations must not be relied on
as having been authorized by Company.
This Prospectus does not constitute
an offer to sell or a solicitation of
an offer to buy any security other
than the securities offered by this THE HARMAT ORGANIZATION, INC.
Prospectus, or an offer or
solicitation of an offer to buy any
securities by any person in any
jurisdiction in which such offer or
solicitation is not authorized or is
unlawful. The delivery of this
Prospectus shall not, under any
circumstances, create any implication
that the information herein is
correct as of any time subsequent to
the date of this Prospectus.
______________________
TABLE OF CONTENTS
Page
Available Information . . . . . . . .
Prospectus Summary . . . . . . . . .
Risk Factors . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . .
Capitalization . . . . . . . . . . .
Management's Discussion and
Analysis of Financial
Conditions and Results
of Operations . . . . . . . . . . .
Dilution . . . . . . . . . . . . . .
Dividend Policy . . . . . . . . . . .
Business . . . . . . . . . . . . . .
Management . . . . . . . . . . . . .
Certain Transactions . . . . . . . .
Principal Stockholder . . . . . . . .
Selling Stockholders . . . . . . . .
Description of Securities . . . . . .
Underwriting . . . . . . . . . . . .
Concurrent Sales by Selling
Stockholders . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . .
Financial Statements . . . . . . . .
UNTIL ___________, 199 (25 DAYS
AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN
THE DEBENTURES, WHETHER OR NOT
PARTICIPATING IN THE 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 REGARD TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTION.
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 24. Indemnification of Officers and Directors
Articles NINTH and TENTH of the Corporation's Certificate of
Incorporation provides:
NINTH: The personal liability of the directors of the corporation is
-----
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Sec.102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
-----
provisions of Sec.145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, non-accountable expenses of $97,500 ($112, 125
additional if the over-allotment option is exercised) are estimated as follows:
Securities and Exchange Commission Fees . . . . . . . . $ 7,415.19
NASDAQ Stock Market listing fee . . . . . . . . . . . . $ 10,000.00
Transfer/Warrant Agent's Fee and Expenses . . . . . . . $ 3,500.00
NASD filing fee . . . . . . . . . . . . . . . . . . . . $ 825.00
Accounting Fees and Expenses . . . . . . . . . . . . . $ 100,000.00
Blue Sky Fees and Expenses . . . . . . . . . . . . . . $ 45,000.00
Tombstone Advertisement . . . . . . . . . . . . . . . . $ 10,000.00
Printing Expenses (including Securities) . . . . . . . $ 35,000.00
Legal Fees . . . . . . . . . . . . . . . . . . . . . . $ 80,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . $ 3,259.81
------------
Total . . . . . . . . . . . . . . . . . . . . $ 295,000.00
<PAGE>
ITEM 26. Recent Sales of Unregistered Securities
In February 1996 the Company concluded a Private Placement of Units for
$500,000 to three people, each Unit consisting of one share of the Company's
Common Stock, three Series A Redeemable Common Stock Purchase Warrant and One
Series B Redeemable Common Stock Purchase Warrant.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company acquired all of the outstanding capital stock of
Harmat Homes, Inc., Harmat Capital Corp., Northside Woods, Inc., Harmat
Organization, Inc., Harmat Holding Corp. and a fifty (50%) percent interest in
Quick Storage, of Quogue, Inc. in exchange for 1,750,000 shares of Common Stock
of the Company.
Neither the Company nor any person acting on its behalf offered or sold the
securities described above by means of any form of general solicitation or
general advertising. Each purchaser represented in writing that he acquired the
securities for his own account. A legend was placed on the certificates stating
that the restrictions on their transferability and sale. Each purchaser signed
a written agreement that the securities will not be sold without registration
under the Act or exemption therefrom. The Registrant believes such issuances
are exempt transactions not involving a public offering under Section 4 (2) of
the Securities Act of 1933, as amended.
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Form of Underwriting Agreement
1.2 Selected Dealer Agreement
3.1 Registrant's Articles of Incorporation
3.2 Registrant's By-Laws
4.1 * Form of Common Stock Certificate
4.2 Form of Warrant
4.3 Form of Series B Warrant
4.4 Form of Representative's Unit Purchase Option
4.5 Registrant's Stock Option Plan
5 * Opinion of McLaughlin & Stern, LLP
10.1 * Form of Warrant Agreement between the Registrant.
II-2
<PAGE>
10.2 Employment Agreement dated April 1, 1996, between the Registrant
and Matthew Schilowitz.
10.3 Stock Sale Agreement between the Registrant and Bennett Brokow,
Lloyd Brokow and Donald Cohen.
10.4 Stock Purchase Agreement dated March 1, 1996 between the
Registrant and Matthew Schilowitz.
10.5 Escrow Agreement dated March 1, 1996 between Matthew Schilowitz,
the Registrant and McLaughlin & Stern, LLP.
21 List of Subsidiaries
24.1 Consent of Mortenson and Associates, P.C.
24.2 Consent of McLaughlin & Stern, LLP
(b) Financial Statement Schedules
* To be filed by Amendment.
Schedules other than those listed above have been omitted since they
are either not required, are not applicable or the required
information is shown in the financial statements or related notes.
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10 (a) (3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution;
II-3
<PAGE>
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time 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; and
(b) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(c) If the Registrant requests acceleration of the effective date of the
Registration Statement under Rule 461 under the Securities Act, the Registrant
acknowledges that:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant
to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the
small business issuer 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
as of the time it was declared effective.
(2) For the purpose of determining any liability under
II-4
<PAGE>
the securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, an the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Quogue,
State of New York, on May 10, 1996.
THE HARMAT ORGANIZATION, INC.
By: /s/ Matthew Schilowitz
------------------------
Matthew Schilowitz
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ Matthew Schilowitz President and Director May 10, 1996
----------------------
Matthew Schilowitz Principal Executive,
Operating and Financial
Officer
/s/ Seymour G. Siegel Treasurer and Director May 10, 1996
---------------------
Seymour G. Siegel
/s/ Scott Prizer Secretary and Director May 10, 1996
----------------
Scott Prizer
/s/ David S. Eiten Director May 10, 1996
------------------
David S. Eiten
/s/ David W. Sass Director May 20, 1996
-----------------
David W. Sass
II-6
<PAGE>
EXHIBIT INDEX
-------------
(a) Exhibits
1.1 Form of Underwriting Agreement
1.2 Selected Dealer Agreement
3.1 Registrant's Articles of Incorporation
3.2 Registrant's By-Laws
4.1 * Form of Common Stock Certificate
4.2 Form of Warrant
4.3 Form of Series B Warrant
4.4 Form of Representative's Unit Purchase Option
4.5 Registrant's Stock Option Plan
5 * Opinion of McLaughlin & Stern, LLP
10.1 * Form of Warrant Agreement between the Registrant.
II-7
<PAGE>
10.2 Employment Agreement dated April 1, 1996, between the Registrant
and Matthew Schilowitz.
10.3 Stock Sale Agreement between the Registrant and Bennett Brokow,
Lloyd Brokow and Donald Cohen.
10.4 Stock Purchase Agreement dated March 1, 1996 between the
Registrant and Matthew Schilowitz.
10.5 Escrow Agreement dated March 1, 1996 between Matthew Schilowitz,
the Registrant and McLaughlin & Stern, LLP.
21 List of Subsidiaries
24.1 Consent of Mortenson and Associates, P.C.
24.2 Consent of McLaughlin & Stern, LLP
(b) Financial Statement Schedules
* To be filed by Amendment.
Schedules other than those listed above have been omitted since they
are either not required, are not applicable or the required
information is shown in the financial statements or related notes.
II-8
Exhibit 1.1
1,000,000 Units
200,000 Shares of Common Stock
(Each Unit consisting of one share of Common Stock, par value $.001
per share and one Series A Redeemable Common Stock Purchase Warrant,
each to purchase one share of Common Stock.)
THE HARMAT ORGANIZATION, INC.
UNDERWRITING AGREEMENT
New York, New York
April , 1996
Biltmore Securities, Inc.
6700 North Andrews Avenue
Fort Lauderdale, FL 33309
The Harmat Organization, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter") an aggregate of 1,000,000
Units, each Unit consisting of one (1) share of Common Stock, par value $.001
per share ("Common Stock"), and one (1) Series A Redeemable Common Stock
Purchase Warrant ("Warrants"), each to purchase one share of Common Stock at
$3.50 per share from , 1997 until , 2001, subject to redemption, in
---- ------
certain instances. 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 150,000 additional Units. In addition, a certain selling
security holder (the "Selling Securityholder") propose to sell to you an
aggregate of 200,000 shares of Common Stock (the "Selling Securities").
Unless the context otherwise requires, the aggregate of 1,000,000 Units to
be sold by the Company, together with all or any part of the 150,000 additional
Units which the Underwriter has the option to purchase, and the shares of Common
Stock and the Warrants comprising such Units, are herein called the "Units." The
Common Stock to be outstanding after giving effect to the sale of the Units are
herein called the "Shares." The Shares and Warrants included in the Units
(including the Units which the Underwriter has the option to purchase pursuant
to paragraph 2(b)) together with the Selling Securities are herein collectively
called the "Securities."
You have advised the Company and the Selling Securityholder that you desire
to purchase the Units and Selling Securities. The Company and the Selling
Securityholder confirm the
<PAGE>
agreements made by them with respect to the purchase of the Units and Selling
Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with you that:
(a) A registration statement (File No. ) on Form SB-2 relating
-------
to the public offering of the Units and Selling Securities and including
certain securities owned by certain investors to the Company, including a form
of prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared 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
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by you prior to the execution of this Agreement,
or (ii) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment to
such registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Registration Statement"
means such registration statement, as amended at the time when it was or is
declared effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A under the Act
and included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined) or the Option Closing Date, as the case
may be, (i) the Registration Statement and Prospectus will in all respects
2
<PAGE>
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 on page 2 with respect to the
Underwriter's practices relating to the release of lock-up restrictions, the
paragraph under the heading "Underwriting" relating to concessions to certain
dealers, the last paragraph on the cover page of the Prospectus, the three
legends on page 2 of the Prospectus, all descriptions involving litigation of
the Underwriter, the "Underwriting" Section of the Prospectus and the identity
of counsel to the Underwriter under the heading "Legal Matters" constitute for
purposes of this Section and Section 6(b) 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 and each of its subsidiaries ("the Subsidiaries")
have been duly incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporation, with
full corporate power and authority to own its properties and conduct its
business as described in the 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 nature of its business or the character or location of
its properties requires such qualification, except where the failure to so
qualify will not materially adversely affect the Company's or Subsidiaries'
business, properties or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of , 1996 is
-------------
as set forth in the Prospectus under "Capitalization"; the shares of issued and
outstanding capital stock of the Company set forth thereunder, including the
Selling Securities have been duly authorized, validly issued and are fully paid
and nonassessable; 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; the Stock
Purchase Agreement referred to in the "Certain Transactions" section of the
Prospectus has been consummated such that the Corporation owns all of the issued
and outstanding capital stock of Harmat Homes, Inc., Harmat Capital Corp.,
Northside Woods, Inc., Harmat Holding Corp., Southhampton Golf Course Community,
LLC, and Quick Storage of Quogue, Inc. and that there are 2,900,000 shares of
Common Stock of the Company issued and outstanding prior to the effective date;
and the capital stock conforms to all statements relating thereto contained in
the Registration Statement and Prospectus; and the transaction contemplated by
the Escrow Agreement referred to in the "Certain Transactions" section of the
Prospectus has been consummated so that the Selling Securityholder will has
placed 750,000 shares of the Company's Common Stock (the "Escrow Shares") in
escrow pursuant to the Escrow Agreement and that the Escrow Shares have been
duly authorized, fully paid and nonassessable shares which have been validly
issued to the
3
<PAGE>
Selling Securityholder prior to the execution of the Escrow Agreement.
(e) The Units and Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable 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 Units or Selling Securities as contemplated in this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock,
except as described in the Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the right of creditors
generally or by general equitable principles, and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable, and free of preemptive rights and no
personal liability will attach to the ownership thereof. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, will have been duly executed and delivered and will constitute the
valid and legally binding obligation of the Company enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other laws affecting the rights of creditors generally or by
general equitable principles. The Warrants and Warrant Agreement conform to the
respective descriptions thereof in the Registration Statement and Prospectus.
The Shares, Warrants and underlying Common Stock contained in the
Purchase Option (as defined as the Underwriter's Purchase Option in the
Registration Statement) have been duly authorized and, when duly issued and
delivered, such Warrants will constitute valid and legally binding obligations
of the Company enforceable in accordance with their terms and entitled to the
benefits provided by the Purchase Option, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles and the indemnification
contained in paragraph 7 of the Purchase Option may be unenforceable. The
shares of Common Stock included in the Purchase Option (and the shares of Common
Stock issuable upon exercise of the Warrants included therein) 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 and the Purchase Option have been duly and validly
authorized, executed, and delivered by the Company. The Company has full power
and authority to authorize, issue, and sell the Units to be sold by it hereunder
on the terms and conditions set forth
4
<PAGE>
herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or in connection with the authorization, issuance, and
sale of the Units or the Purchase Option, except such as may be required under
the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition (financial or otherwise), business
prospects, net worth or properties of the Company and Subsidiaries taken as a
whole (a "Material Adverse Effect"), the Company and Subsidiaries are not in
material 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 material breach or violation
of, any of the terms or provisions of, or constitute a material default under,
or result in the creation or imposition of any material lien, charge, or
encumbrance upon any of the property or assets of the Company or the
Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of
trust, loan agreement, or other material agreement or instrument to which the
Company or the Subsidiaries is a party or by which the Company or the
subsidiaries may be bound or to which any of the property or assets of the
Company or the Subsidiaries is subject, nor will such action result in any
violation of the provisions of the articles of incorporation or the by-laws of
the Company or the Subsidiaries, 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 or the
Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and Subsidiaries have 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 their business; subject to the
qualifications stated in the Prospectus, all of the material leases and
subleases under which the Company or the Subsidiaries is the lessor or sublessor
of properties or assets or under which the Company or the Subsidiaries holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and, except as described in the Prospectus, the
Company and Subsidiaries are not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and, to
the best knowledge of the Company, no claim has been asserted by anyone adverse
to rights of the Company or the Subsidiaries as lessor, sublessor, lessee, or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or the Subsidiaries to continued possession
of the leased or subleased premises or assets under any such lease or sublease
except as described or referred to in the Prospectus; and the Company and
Subsidiaries own or lease 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) Mortenson & Associates, P.C., which has given its reports on
certain financial statements filed with the Commission as a part of the
Registration Statement, is with respect to the Company, independent public
accountants as required by the Act and the Rules and Regulations.
5
<PAGE>
(j) The combined/consolidated financial statements, and schedules
together with related notes, set forth in the Prospectus or the Registration
Statement present fairly the financial position and results of operations and
changes in cash flow position of the Company and the Subsidiaries on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. Said statements and schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a basis which is consistent during the periods
involved except as disclosed in the Prospectus and Registration Statement. The
information set forth under the caption "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and the Subsidiaries have 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 would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or the Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or the
Subsidiaries or any Material Adverse Effect or any development involving, so far
as the Company or the Subsidiaries can now reasonably foresee a prospective
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now pending
or, to the knowledge of the Company, threatened, any action, suit or proceeding
to which the Company or the Subsidiaries is a party before or by any court or
governmental agency or body, which might result in any Material Adverse Effect,
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 which
might be reasonably expected to have a Material Adverse Effect; and no labor
disputes involving the employees of the Company or the Subsidiaries exist or to
the knowledge of the Company, are threatened which might be reasonably expected
to have a Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company and the
Subsidiaries have filed all necessary federal, state, and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been
asserted against the Company or the Subsidiaries.
(n) Except as disclosed in the Registration Statement, the Company
and each of the Subsidiaries has sufficient licenses, permits, and other
governmental authorizations currently necessary 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 owns or 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 others in respect thereof. To
the best knowledge of the Company, none of the activities or business of the
Company
6
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and the Subsidiaries are in violation of, or cause the Company or the
Subsidiaries 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 Effect.
(o) The Company and the Subsidiaries have 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's internal accounting controls and procedures are sufficient
to cause the Company and the Subsidiaries to comply in all material respects
with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (as hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units and Selling Securities to the
Underwriter hereunder will have been fully paid or provided for by the Company
and Selling Securityholder and all laws imposing such taxes will have been
complied with in all material respects.
(q) All contracts and other documents of the Company and the
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the Company
has no other subsidiaries.
(s) Except as disclosed in the Registration Statement, the Company
and the Subsidiaries have not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company or the Subsidiaries for services as a finder in connection with the
proposed public offering.
(t) Except as disclosed in the Prospectus, no officer, director, or
stockholder of the Company has any National Association of Securities
Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to underwrite
an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Units.
-----------------------------------------
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein
contained,(i) the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to buy from the Company at $2.925 per Unit (the
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<PAGE>
"Unit Price"), at the place and time hereinafter specified, 1,000,000 Units (the
"First Units"), and (ii) the Selling Securityholder agrees to sell to the
Underwriter, and the Underwriter agrees to buy from the Selling Securityholder
an aggregate of 200,000 shares of Common Stock at $2.925 per share (the "Share
Price") at the place and time here after specified.
Delivery of the First Units and Selling Securities against
payment therefor shall take place at the offices of Bernstein & Wasserman, LLP,
950 Third Avenue, New York, New York (or at such other place as may be
designated by agreement between the Underwriter and the Company) at 10:00 a.m.,
New York time, on , 1996, or at such later time and date as the Underwriter
-----
may designate in writing to the Company at least two business days prior to such
purchase, but not later than , 1996 such time and date of payment and
-------
delivery for the First Units and Selling Securities 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 150,000 Units at the
same price per Unit as the Underwriter shall pay for the First Units being sold
pursuant to the provisions of subsection (a) of this Section 2 (such additional
Units being referred to herein as the "Option Units"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon written notice by the Underwriter to the Company advising as to the amount
of Option Units as to which the option is being exercised, the names and
denominations in which the certificates for such Option Units 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 (but in no event more than 40 days after the First Closing Date),
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 Units
against payment therefor shall take place at the offices of Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York (or at such other place as
may be designated by agreement between the Underwriter and the Company). The
Option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriter of First Units referred to in subsection (a) above. No
Option Units shall be delivered unless all First Units shall have been delivered
to the Underwriter as provided herein.
(c) The Company will make the certificates for the securities
comprising the Units to be purchased by the Underwriter hereunder available to
the Underwriter 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"). The certificates shall be in such names and
denominations as the Underwriter may request, at least three full business days
prior to the Closing Dates. Delivery of the certificates 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 Units to be
purchased by the Underwriter hereunder will be delivered by the Company to the
Underwriter for the account of the
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<PAGE>
Underwriter against payment of the respective purchase prices by the
Underwriter, by wire transfer in immediately available funds, payable to the
Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Units pursuant to the
provisions of subsection (b) above, payment for such Units shall be made to or
upon the order of the Company by certified or bank cashier's checks payable in
immediately available funds at the offices of Bernstein & Wasserman, LLP,
950 Third Avenue, New York, New York (or at such other place as may be
designated by agreement between the Underwriter and the Company), at the time
and date of delivery of such Units as required by the provisions of
subsection (b) above, against receipt of the certificates for such Units by the
Underwriter for the Underwriter's account registered in such names and in such
denominations as the Underwriter may reasonably request.
It is understood that the Underwriter proposes to offer the Units and
Selling Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with the
------------------------
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise the Underwriter 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 the Underwriter
shall not previously have been advised and furnished with a copy or to which the
Underwriter or its 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
Units and Selling Securities 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) and (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 the Underwriter's
request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Units and Selling Securities.
As soon as the Company is advised thereof, the Company will advise the
Underwriter, and provide the Underwriter copies of any written advice, 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 an amendment of the Registration Statement or for
9
<PAGE>
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 or threat thereof 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 Units
for offering in any jurisdiction, or of the institution of any proceedings for
any of such purposes, and will use its best efforts to prevent the issuance of
any such order, and, if issued, to obtain as soon as possible the lifting
thereof.
The Company has caused to be delivered to the Underwriter copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Units and Selling Securities for such period as in the opinion
of counsel to the Underwriter and the Company the use thereof is required to
comply with the applicable provisions of the Act and the Rules and Regulations.
In case of the happening, at any time within such period as a Prospectus is
required under the Act to be delivered in connection with sales by the
Underwriter or dealer of any event of which the Company has knowledge and which
has a Material Adverse Effect on the Company or the securities of the Company,
or which in the opinion of counsel for the Company and 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 Units or Selling Securities, or
in case it shall be necessary to amend or supplement the Prospectus to comply
with law or with the Rules and Regulations, the Company will notify the
Underwriter promptly and forthwith prepare and furnish to the Underwriter copies
of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as the Underwriter may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter is
required, in connection with the sale of the Units or Selling Securities 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 Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the Units
and Selling Securities.
(b) The Company will furnish such information as may be required and
to otherwise cooperate and use its best efforts to qualify to register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriter may designate and will make
10
<PAGE>
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 of service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Units or Selling Securities.
The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect for
so long a period as the counsel to the Company and the Underwriter deem
reasonably necessary.
(c) If the sale of the Units provided for herein is not consummated
as a result of the Company not performing its obligations hereunder in all
material respects, the Company shall pay all costs and expenses incurred by it
which are incident to the performance of the Company's obligations hereunder,
including but not limited to, all of the accountable out of pocket expenses of
the Underwriter up to $100,000.00 (including the reasonable fees and expenses of
counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii)
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
(e) 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 the Underwriter during the period
ending five (5) years from the date hereof, (i) as soon as practicable after the
end of each fiscal year, but no earlier than the filing of such information with
the Commission a balance sheet of the Company and any of its subsidiaries as at
the end of such fiscal year, together with statements of income, surplus and
cash flow of the Company and any subsidiaries for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report thereon
of independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
Series of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request. Notwithstanding the above,
reports provided by the Company to the Commission shall be deemed satisfactory
for the foregoing purposes.
(f) So long as the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished
11
<PAGE>
to its stockholders generally.
(g) The Company will deliver to the Underwriter 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 the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security holders
and to the registered holders of its Warrants and deliver to the Underwriter as
soon as it is practicable to do so but in no event later than 90 days after the
end of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Units substantially 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 Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(j) The Company will promptly 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 opinion of
counsel to the Underwriter and counsel to the Company, may be reasonably
necessary or advisable in connection with the distribution of the Units and
Selling Securities and will use its best efforts to cause the same to become
effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Purchase Option outstanding from time to time.
(l) (1) For a period of eighteen (18) months from the First Closing
Date, no officer, director or 5% shareholder prior to the offering will,
directly or indirectly, offer, sell (including any short sale), grant any option
for the sale of, acquire any option to dispose of, or otherwise dispose of any
shares of Common Stock (other than with respect to the Selling Securities)
without the prior written consent of the Underwriter, other than as set forth in
this Agreement and
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<PAGE>
in the Registration Statement. In order to enforce this covenant, the Company
shall impose stop-transfer instructions with respect to the shares owned by
every shareholder prior to the offering (other than with respect to the Selling
Securities) until the end of such period (subject to any exceptions to such
limitation on transferability set forth in the Registration Statement). If
necessary to comply with any applicable Blue-sky Law, the shares held by such
shareholders will be escrowed with counsel for the Company or otherwise as
required.
(2) Except for the issuance of shares of capital stock by the Company
in connection with a dividend, recapitalization, reorganization or similar
transactions or as result of the exercise of warrants or options disclosed in or
issued or granted pursuant to plans disclosed in the Registration Statement, the
Company shall not, for a period of twenty four (24) months following the First
Closing Date, directly or indirectly, offer, sell, issue or transfer any shares
of its capital stock, or any security exchangeable or exercisable for, or
convertible into, shares of the capital stock, without the prior written consent
of the Underwriter.
(m) 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 Units, Common Stock, and Warrants in the
NASDAQ system, and will use its best efforts to effect and maintain such listing
or a listing on a national securities exchange for at least five years from the
date of this Agreement to the extent that the Company has at least 300 record
holders of Common Stock.
(n) Except for the transactions contemplated by this Agreement
or as otherwise permitted by law, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of the Units, Shares,
the Warrants or Selling Securities or to facilitate the sale or resale of the
Securities.
(o) On the First Closing Date and simultaneously with the delivery of
the Units and Selling Securities, the Company shall execute and deliver to you
the Purchase Option. The Purchase Option will be substantially in the form
filed as an Exhibit to the Registration Statement.
(p) On or prior to the Effective Date of the Registration Statement,
the Selling Securityholder shall place 750,000 shares of the Company's Common
Stock (the "Escrow Shares") in escrow pursuant to an Escrow Agreement reasonably
acceptable to the Underwriter and the Selling Securityholder. The Escrow Shares
shall be duly authorized, fully paid and nonassessable shares which have been
validly issued to the Selling Securityholder prior to the execution of the
Escrow Agreement.
(q) On the Effective Date, the Company will have in force key person
life insurance on the life of Matthew C. Shilowitz in an amount of not less than
$1,000,000.00, payable to the Company, and will use its best efforts to maintain
such insurance for a three year period.
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(r) So long as any Warrants are outstanding and the exercise price of
the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption.
(s) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-QSB quarterly
report and the mailing of quarterly financial information to stockholders,
provided that the Company shall not be required to file a report of such
accountants relating to such review with the Commission.
(t) The Company agrees to allow a representative designated by the
Underwriter from time to time to receive timely, written notice of all Board of
Directors meetings and notice of all telephonic Board meetings and the right to
attend all Board meetings and participate in all telephonic Board meetings. The
Underwriter shall also have the right to obtain copies of the minutes form all
Board of Directors meetings for five (5) years following the Effective Date of
the Registration Statement, whether or not a representative of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis for other Board members.
(u) The Company agrees to pay to the Underwriter a finder's fee of
5.0% of the first $3,000,000.00, 4.0% of the next $3,000,000.00, 3.0% of the
next $2,000,000.00, 2% of next $2,000,000.00 and 1% of the excess, if any, over
$10,000,000.00, of the aggregate consideration received by the Company with
respect to any transaction (including, but not limited to, mergers,
acquisitions, joint ventures, and any other capital business transaction for the
Company) introduced to the Company by the Underwriter and consummated by the
Company (an "Introduced Consummated Transaction") during the five (5) year
period commencing on the First Closing Date. The entire amount of any such
finder's fee due and payable to Underwriter shall be paid in full by certified
funds or cashier's check payable to the order of Underwriter or in cash, in each
case in the discretion of the Company, at the first closing of the Introduced
Consummated Transaction for which the finder's fee is due. For the purposes
hereof, a party shall not be deemed to be introduced by the Underwriter unless
and until (a) a written disclosure of the identity of such prospective party
shall have been given by the Underwriter and received by the Company during the
period; (b) such
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<PAGE>
party was not previously known to the Company; and (c) such party shall have
commenced substantive negotiations with the Company relating to a Introduced
Consummated Transaction during such five (5) year period.
(v) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the holder of the warrant designates the Underwriter in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Rule 10b-6 under the Securities Exchange Act of 1934, and (f) solicitation of
the exercise is in compliance with the NASD Notice to Members 81-38 (September
22, 1981).
4. Conditions of Underwriters' Obligation. The obligations of the
----------------------------------------
Underwriter to purchase and pay for the Units and Selling Securities which it
has agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time, on
the day following the date of this Agreement, or at such later time or on such
later date as to which the Underwriter may agree in writing; on or 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 a similar
purpose shall have been instituted or shall be pending or, to the Underwriter's
knowledge or to the knowledge of the Company or Selling Securityholder shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the satisfaction of the
Commission; 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. If required, the
Prospectus shall have been filed with the Commission in the manner and within
the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of McLaughlin & Stern, LLP, counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) the Company and each of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, with all requisite
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
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<PAGE>
jurisdiction in which the ownership or leasing of its properties or conduct of
its business requires such qualification except where the failure to qualify or
be licensed will not have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of the date
set forth under "Capitalization" in the Prospectus; all shares of the Company's
outstanding Common Stock requiring authorization for issuance by directors have
been duly authorized and upon payment of consideration therefor, will be validly
issued, fully paid and non-assessable and conform in all material respects to
the description thereof contained in the Prospectus; to such counsel's knowledge
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 transfer of
any of the Common Stock except as provided in the Prospectus; the Common Stock,
the Warrants, the Purchase Option, and the Warrant Agreement conform in all
material respects to the respective descriptions thereof contained in the
Prospectus; the Shares have been, and the shares of Common Stock to be issued
upon exercise of the Warrants and the Purchase Option, upon issuance in
accordance with the terms of such Warrants, the Warrant Agreement and Purchase
Option will have been duly authorized and, when issued and delivered in
accordance with their respective terms, will be duly and validly issued, fully
paid, non-assessable, free of preemptive rights and no personal liability will
attach to the ownership thereof; all prior sales by the Company of the Company's
securities have been made in compliance with or under an exemption from
registration under the Act and applicable state securities laws; a sufficient
number of shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale of the
Units or Selling Securities as contemplated by this Agreement gives rise to any
registration rights other than those which have been waived or satisfied for or
relating to the registration of any shares of Common Stock or as otherwise being
exercised in connection with the concurrent offering; and each of the Stock
Purchase Agreements referred to in "Certain Transactions" have been consummated
such that the Corporation owns all of the issued and outstanding capital stock
of Harmat Homes, Inc., Harmat Capital Corp., Northside Woods, Inc., Harmat
Holding Corp., Southhampton Golf Course Community, LLC, and Quick Storage of
Quogue, Inc. and that there were 2,900,000 shares of Common Stock of the Company
issued and outstanding prior to the sale of the Units to the public.
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed, and delivered by the
Company;
(iv) the certificates evidencing the shares of Common Stock
comply with the Delaware General Corporation Law; the Warrants will be
exercisable for shares of Common Stock in accordance with the terms of the
Warrants and at the prices therein provided for;
(v) except as otherwise disclosed in the Registration Statement,
to the best
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of counsel's knowledge such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company or any Subsidiary is a party which
would materially adversely affect the business, property, financial condition,
or operations of the Company or any Subsidiary; or which question the validity
of the Securities, this Agreement, the Warrant Agreement, or the Purchase
Option, or of any action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement, or the Purchase Option; to the best of
counsel's knowledge 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;
(vi) the execution and delivery of this Agreement, the Purchase
Option, or the Warrant Agreement and the incurrence of the obligations herein
and therein set forth and the consummation of the transactions herein or therein
contemplated, will not result in a breach or violation of, or constitute a
default under the certificate or articles of incorporation or by-laws of the
Company or any Subsidiary, or to the best knowledge of counsel after due
inquiry, in the performance or observance of any material obligations,
agreement, covenant, or condition contained in any bond, debenture, note, or
other evidence of indebtedness or in any material contract, indenture, mortgage,
loan agreement, lease, joint venture, or other agreement or instrument to which
the Company or any Subsidiary is a party or by which it or any of its properties
is bound or in violation of any order, rule, regulation, writ, injunction, or
decree of any government, governmental instrumentality, or court, domestic or
foreign, the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no proceedings for
that purpose have been instituted or are pending before, or threatened by, the
Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President and Chief Executive Officer of the Company with respect to the
Registration Statement and Prospectus and such discussions did not disclose to
such counsel any information which gives such counsel 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 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 (including without limitation, the pro
forma financial information) and schedules contained therein, as to which such
17
<PAGE>
counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or any Subsidiary is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements 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 agreements to which the Company or any
Subsidiary is a party 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;
(x) 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 Units or Selling
Securities by the Company or Selling Securityholder in connection with the
execution, delivery, and performance of this Agreement by the Company or the
Selling Securityholder or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Units and Selling Securities under applicable state or foreign securities or
Blue Sky laws and registration under the Act; and
(xi) the Units, Common Stock and Warrants have been duly
authorized for quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ").
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the laws of
the United States or of the States of Delaware and New York upon opinions of
counsel satisfactory to the Underwriter, in which case the opinion shall state
that they have no reason to believe that the Underwriter and they are not
entitled to so rely.
(c) 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 Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(d) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Mortenson & Associates, P.C., independent public accountants
for the Company, substantially in the form reasonably acceptable to the
Underwriter.
(e) At the Closing Dates, (i) the representations and warranties of
the Company
18
<PAGE>
contained in this Agreement shall be true and correct in all material respects
with the same effect as if made on and as of the Closing Dates taking into
account for the Option Closing Dates the effect of the transactions contemplated
hereby and the Company shall have performed all of its obligations hereunder
and satisfied all the conditions on its part 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 shall in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is given, no Material
Adverse Effect, or to the Company's knowledge, any development involving a
prospective Material Adverse Effect 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 of the Registration
Statement, and the Company and the Subsidiaries shall not have incurred any
material liabilities or entered into any material agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
Prospectus; (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 or any Subsidiaries which would be required to be set forth in the
Registration Statement, and no proceedings shall be pending or threatened
against the Company or any Subsidiary before or by any commission, board, or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling, or finding would have a Material Adverse Effect, (v) the
Underwriter shall have received, at the First Closing Date, a certificate signed
by the President and the Chief Executive Officer of the Company, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (e) and (vi) the Underwriter shall have received, at the First
Closing Date, such opinions, certificates, letters and other documents as it
reasonably requests.
(f) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the Underwriter to purchase and pay for the Option Units
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the Underwriter's knowledge or the
knowledge of the Company, shall be contemplated by the Commission, and any
reasonable request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been delivered
to the Underwriter the signed opinion of McLaughlin & Stern, counsel to the
Company, dated as of the Option Closing Date, in form and substance reasonably
satisfactory to Bernstein & Wasserman, LLP, counsel to the Underwriter, which
opinion shall be substantially the same in scope and
19
<PAGE>
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Units.
(iii) At the Option Closing Date there shall have be delivered
to the Underwriter a certificate of the President and the Chief Executive
Officer of the Company and such other opinions, certificates, letters and other
documents as it reasonably requests, dated the Option Closing Date, in form and
substance reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate or
certificates furnished to you at the First Closing Date pursuant to Section 4(e)
hereof.
(iv) At the Option Closing Date there shall have been delivered
to the Underwriter a letter in form and substance satisfactory to the
Underwriter from Mortenson & Associates, P.C., dated the Option Closing Date and
addressed to the Underwriter confirming the information in their letter referred
to in Section 4(d) hereof and stating that nothing has come to their attention
during the period from the ending date of their review referred to in said
letter to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required to be
dated the Option Closing Date.
(g) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and issuance of the Option Units shall be reasonably
satisfactory in form and substance to you, and you and Bernstein & Wasserman,
LLP, counsel to the Underwriter, shall have been furnished with all such
documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties, or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to either of the
Closing Dates, for members of the NASD to execute transactions (as principal or
agent) in the Units, Common Stock, the Warrants or Selling Securities and no
proceedings for the taking of such action shall have been instituted or shall be
pending, or, to the knowledge of the Underwriter or the Company, shall be
contemplated by the Commission or the NASD. The Company represents that at the
date hereof it has no knowledge that any such action is in fact contemplated by
the Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be cancelled at, or at any time prior to, either of the Closing Dates 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 and Selling
----------------------------------------------------------------------
Securityholder. The obligation of the Company and Selling Securityholder to
- ---------------
sell and deliver the Units and Selling
20
<PAGE>
Securities 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) At the Closing Dates, 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 and Selling
Securityholder 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 Units on exercise of the option provided for in Section 2(b) hereof
shall be affected.
6. Indemnification.
---------------
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any 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 reasonable attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Units and Selling Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, Prospectus, or any amendment or supplement thereto,
or in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be required to indemnify the Underwriter and any
controlling person or 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
21
<PAGE>
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, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities, or litigation arising from the sale of Units or Selling
Securities to any person if a copy of the Prospectus was not delivered to such
person at or prior to the written confirmation of the sale to such person. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will 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,
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 reasonable 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, or any Blue Sky Application in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof and for any violation by the
Underwriter in the sale of such Units or Selling Securities of any applicable
state or federal law or any rule, regulation or instruction thereunder relating
to violations based on unauthorized statements by Underwriter or its
representative, provided that such violation is not based upon any violation of
such law, rule, or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the Company
or its representatives, including information furnished to the Underwriter as
contemplated herein. This indemnity agreement will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of
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<PAGE>
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable 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 indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party 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 such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party, which firm shall be designated in writing by the indemnified
party). No settlement of any action against an indemnified party shall be made
without the consent of the indemnified party, which shall not be unreasonably
withheld in light of all factors of importance to such indemnified party. If it
is ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
7. Contribution. In order to provide for just and equitable contribution
------------
under the Act in any case in which the indemnification provided in Section 6
hereof is requested 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,
then the Company and the Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages,
or liabilities represented by the percentage that the underwriting discount per
Unit 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 if such allocation is not permitted by
applicable law, then allocated in such proportion as is appropriate to reflect
relative benefits but also the relative fault of the Company and the
Underwriter, in the aggregate, in connection with the statements or omissions
which resulted in such damages and other relevant equitable considerations shall
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company or the Underwriter and the
parties' relative intent, knowledge, access to information, and opportunity
23
<PAGE>
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 this Section 7. No
person guilty of a fraudulent misrepresentation (within the meaning of
Section 1(f) of the Act) shall be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. 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 and the Company, its officers, directors, and
controlling persons shall be entitled to contribution from the Underwriter 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. Costs and Expenses.
------------------
(a) Whether or not this Agreement becomes effective or the sale of
the Units and Selling Securities 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 statements therein and all
amendments and exhibits thereto), Preliminary Prospectus, and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Units and Selling
Securities contemplated hereby; all expenses, including reasonable fees not to
exceed $45,000 (which does not include blue sky filing fees) and disbursements
of counsel to the Underwriter, in connection with the qualification of the Units
and Selling Securities 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, each Preliminary Prospectus,
the Prospectus, this Agreement, and the Blue Sky Memorandum, any fees relating
to the listing of the Units, Common Stock, and Warrants on NASDAQ or any other
securities exchange; the cost of printing the certificates representing the
securities comprising the Units; fees for bound volumes and prospectus
memorabilia; and the fees of the transfer agent and warrant agent. 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
$109,687.50 (net of any
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<PAGE>
payments previously made to the Underwriter). In the event the over-allotment
option is exercised, the Company shall pay to the Underwriter at the Option
Closing Date an additional amount in the aggregate equal to 3.0% of the gross
proceeds received upon exercise of the over-allotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action by
the Underwriter (except if such prevention is based upon a breach by the Company
or the Selling Securityholder of any covenant, representation, or warranty
contained herein or because any other condition to the Underwriter's obligations
hereunder required to be fulfilled by the Company or the Selling Securityholder
is not fulfilled) the Company and the Selling Securityholder shall not be liable
for any expenses of the Underwriter, including the Underwriter's legal fees. In
the event the transactions contemplated hereby are not consummated by reason of
the Company or the Selling Securityholder being unable to perform their
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees, not to exceed in the aggregate $100,000.00.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, 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 reasonable
attorneys' fees), to which the Underwriter or person 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 on such business day after the effective date of the Registration Statement
as the Underwriter in its discretion shall first commence the initial public
offering of the Units and Selling Securities. The time of the initial public
offering shall mean the time of release by the Underwriter of the first
newspaper advertisement with respect to the Units and Selling Securities, or the
time when the Units and Selling Securities are first generally offered by the
Underwriter to dealers by letter or telegram, whichever shall first occur. This
Agreement may be terminated by the Underwriter 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) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated at any
time prior to the First Closing Date, and the option referred to in Section 2(b)
hereof, if exercised, may be cancelled at any
25
<PAGE>
time prior to the Option Closing Date, by the Underwriter if in the
Underwriter's judgment it is impracticable to offer for sale or to enforce
contracts made by the Underwriter for the resale of the Units or Selling
Securities agreed to be purchased hereunder by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident, or other calamity, or from any labor dispute or
court or government action, order, or decree, which has caused a Material
Adverse Effect, (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof), (iv) a banking moratorium having
been declared by federal or New York state authorities, (v) an outbreak of major
international hostilities involving the United States or other substantial
national or international calamity having occurred, (vi) a pending or threatened
legal or governmental proceeding or action relating generally to the Company's
or any of the Subsidiaries' business, or a notification having been received by
the Company or any Subsidiary, of the threat of any such proceeding or action,
which would have a Material Adverse Effect;(vii) except as contemplated by the
Prospectus, the Company is merged with or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body of similar impact, of any act or measure, or the adoption of
any orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Underwriter to have a material adverse impact
on the business, financial condition, or financial statements of the Company and
its Subsidiaries taken as a whole, (ix) any material adverse change in the
financial or securities markets beyond normal market fluctuations having
occurred since the date of this Agreement, or (x) any Material Adverse Effect
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus.
(b) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by the Underwriter, by telephone or telegram,
confirmed by letter.
11. Purchase Option. At or before the First Closing Date, the Company
----------------
will sell the Underwriter or its designees for a consideration of $100.00, and
upon the terms and conditions set forth in the form of Purchase Option annexed
as an exhibit to the Registration Statement, a Purchase Option to purchase an
aggregate of 100,000 Units. In the event of conflict in the terms of this
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
12. Representations and Warranties of the Underwriter. The Underwriter
---------------------------------------------------
represents and warrants to the Company and Selling Securityholder that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Units and Selling Securities and that it will comply with all applicable state
or federal laws relating to the sale of the Units and Selling Securities,
including but not limited to, violations based on unauthorized statements by the
Underwriter or its representatives.
26
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13. Representations, Warranties and Agreements to Survive Delivery. The
---------------------------------------------------------------
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, Selling Securityholder, or
any of its officers or directors or any controlling person and will survive
delivery of and payment of the Units and Selling Securities and the termination
of this Agreement.
14. Notice. Any communications specifically required hereunder to be in
-------
writing, if sent to the Underwriter, will be mailed, delivered, or telecopied
and confirmed to them at Biltmore Securities, Inc., 6700 North Andrews Avenue,
Fort Lauderdale, FL 33309, with a copy sent to Bernstein & Wasserman, LLP, 950
Third Avenue, New York, NY 10022, Attention: Hartley T. Bernstein, Esq., or
if sent to the Company will be mailed, delivered, or telecopied and confirmed to
it at The Harmat Organization, Inc., Old Country Road, P.O. Box 539, Quogue, NY
11959, Attention: President with a copy to McLaughlin & Stern, LLP, 380
Lexington Avenue, New York, NY 10168, Attention: David W. Sass, Esq. Notice
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication.
15. Parties in Interest. The Agreement herein set forth is made solely
-------------------
for the benefit of the Underwriter, the Company, the Selling Securityholder, any
person controlling the Company or the Underwriter, and directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Units or Selling Securities.
16. Applicable Law. This Agreement will be governed by, and construed in
---------------
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts. This agreement may be executed in one or more
------------
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
18. Entire Agreement; Amendments. This Agreement constitutes the entire
-----------------------------
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter, the Company and the Selling Securityholder.
27
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company, the Selling Securityholder and the Underwriter in
accordance with its terms.
Very truly yours,
THE HARMAT ORGANIZATION, INC.
By: __________________________
Name: Matthew C. Schilowitz
Title: President
SELLING SECURITYHOLDER
- -----------------------
Matthew C. Schilowitz
28
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
BILTMORE SECURITIES, INC.
By:__________________________
Its
The undersigned are executing this Agreement solely to be bound by the
provisions of Section 3(l) hereof.
___________________________________
Matthew C. Schilowitz
___________________________________
Martin Averbuck
____________________________________
Dr. Irving Kraut
___________________________________
Martin Rothstein
-----------------------------------
Alan Robinson
-----------------------------------
Rita Robinson
29
Exhibit 1.2
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.
THE HARMAT ORGANIZATION, INC.
200,000 SHARES OF COMMON STOCK
AND
1,000,000 UNITS
CONSISTING OF
1,000,000 SHARES OF COMMON STOCK
AND
1,000,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Biltmore Securities, Inc., named as the Underwriter in the enclosed
Preliminary Prospectus (the "Representative" or "Underwriter"), proposes to
offer on a firm commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 1,000,000 units (including any
additional units offered pursuant to an over-allotment option, the "Firm Units")
of The Harmat Organization, Inc. (the "Company") each consisting of one (1)
share of common stock par value $.001 per share (the "Common Stock") and one
(1) Class A Redeemable Common Stock Purchase Warrants (the "Warrants"), each to
purchase one share of Common Stock, and 200,000 shares of Common Stock (the
"Additional Stock"). The Firm Units and Additional Stock 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 Units and Additional
Stock, 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")
<PAGE>
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. Units and/or Additional Stock are to be offered to the public at a
price of $ 3.25 per Unit and $ 3.25 per share, respectfully. Selected Dealers
will be allowed a concession of not less than _____% 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 Units and Additional Stock and their acceptance by
the 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 Units and Additional Stock 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 Units and/or Additional Stock 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 Units and/or Additional Stock, 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 Units and/or Additional Stock
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 Units and/or Additional Stock, 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 Units
and/or Additional Stock purchased by you remaining unsold, and we shall have the
right to repurchase such Units and/or Additional Stock upon demand at the public
offering price less the concession as set forth in paragraph 2 above. Any of
the Units and/or Additional Stock 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 Units and/or Additional Stock 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 Biltmore Securities,
Inc. Certificates for the
2
<PAGE>
securities shall be delivered as soon as practicable at the offices of Biltmore
Securities, Inc., 6700 North Andrews Avenue, Fort Lauderdale, FL 33309. 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 Units and Additional Stock. You will be promptly
advised when the registration statement becomes effective. Each Selected Dealer
in selling the Units and/or Additional Stock 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 Representative to give any information or to
make any representations other than those contained in the Prospectus in
connection with the sale of the Units and/or Additional Stock. Nothing
contained herein shall render the Selected Dealers a member of the underwriting
group or partners with the Representative or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Units and Additional Stock 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 Units and Additional Stock 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 Units and/or Additional Stock; 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) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of
3
<PAGE>
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 you have advised us that you have distributed your
allocation of Units and/or Additional Stock, bid for or purchase Units 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.
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 Units
and/or Additional Stock 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 Units and/or Additional Stock 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 Units and/or Additional Stock 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 Units and/or Additional Stock 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 Units and/or Additional Stock in a
discretionary account without the prior specific written approval of the
customer.
4
<PAGE>
15. All communications from you should be directed to us at the office of
the Underwriter, Biltmore Securities, Inc., 6700 North Andrews Avenue, Fort
Lauderdale, FL 33309. All communications from us to you shall be directed to
the address to which this letter is mailed.
Very truly yours,
BILTMORE SECURITIES, INC.
By: ______________________________
Its
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1996
[Name of Dealer]
By: ______________________________
Its
5
<PAGE>
To: Biltmore Securities, Inc.
6700 North Andrews Avenue
Fort Lauderdale, FL 33309
We hereby subscribe for _____________ Units of The Harmat Organization,
Inc., each Unit consisting of one (1) share of common stock, par value $.001 per
share (the "Common Stock") and one (1) Class A Redeemable Common Stock Purchase
Warrant (the "Warrants"), each to purchase one share of Common Stock and
------
shares of Additional Stock 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 Units
and/or Additional Stock. We further state that in purchasing said Units and
Additional Stock 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 Section 24
of Article III of the Rules of Fair Practice of the NASD, 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 Sections 8 and 36 of
Article III thereof as that Section applies to non-member foreign dealers.
[Name of Dealer]
______________________________
By: ______________________________
Address
______________________________
______________________________
Dated _____________________, 1996
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "THE HARMAT ORGANIZATION, INC.", FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF DECEMBER, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
___________________________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 7758821
DATE: 12-19-95
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
THE HARMAT ORGANIZATION, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
-----
"corporation") is The Harmat Organization, Inc.
SECOND: The address, including street, number, city and county, of
------
the registered office of the corporation in the State of Delaware is 9 East
Loockerman Street, City of Dover 19901, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware at such address is
National Corporate Research, Ltd.
THIRD: The purpose of the corporation is to engage in any lawful act
-----
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
------
corporation shall have authority to issue is twenty five million (25,000,000),
which are divided into twenty million (20,000,000) shares of Common Stock of a
par value of one mil per share and five million (5,000,000) shares of Preferred
Stock of a par value of one mil per share.
The shares of Preferred Stock may be issued from time to
time in one or more series, in any manner permitted by law, as determined from
time to time by the Board of Directors, and stated in the resolution or
resolutions providing for the issuance of such shares adopted by the Board of
Directors pursuant to authority hereby vested in it. Without limiting the
generality of the foregoing, shares in such series hall have such voting powers,
full or limited, or no voting powers, and shall have such designations,
preferences, and relative, participating, optional, or other special rights, and
qualifications, limitations, or restrictions thereof, permitted by law, as shall
be stated in the resolution or resolutions providing for the issuance of such
shares adopted by the Board of Directors pursuant to authority hereby vested in
it. The number of shares of any such series so set forth in such resolution or
resolutions may be increased (but not above the total number of authorized
shares of Preferred Stock) or decreased (but not below the number of shares
thereof then outstanding) by further resolution or resolutions adopted by the
Board of Directors pursuant to authority hereby vested in it.
FIFTH: The name and mailing address of the incorporator are as
-----
follows:
NAME MAILING ADDRESS
---- ---------------
David W. Sass c/o McLaughlin & Stern, LLP
380 Lexington Avenue
New York, NY 10168
<PAGE>
SIXTH: The corporation is to have perpetual existence.
-----
SEVENTH: Whenever a compromise or arrangement is proposed between
-------
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Sec.291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of Sec.279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
------
affairs of the corporation, and in further definition, limitation, and the
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Sec.109 of the General Corporation Law of the State of Delaware,
and, after the corporation has received any payment for any of its stock, the
power to adopt, amend, or repeal the Bylaws of the corporation may be exercised
by the Board of Directors of the corporation; provided, however, that any
provision for the classification of directors of the corporation for staggered
terms pursuant to the provisions of subsection (d) of Sec.141 of the General
Corporation Law of the State of Delaware shall be set forth in an initial Bylaw
or in a Bylaw adopted by the stockholders entitled to vote, of the corporation,
unless provisions for such classification shall be set forth in this certificate
of incorporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection ??? of Sec.242 of the General Corporation Law of the State of
Delaware shall otherwise require, provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
-----
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of Sec.102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
<PAGE>
TENTH: The corporation shall, to the fullest extent permitted by the
-----
provisions of Sec.145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all persons whom
it shall have power to indemnify under said section from and against any and all
of the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate
--------
of incorporation may be amended, altered, or repealed, and the provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on December 14, 1995
/s/ David W. Sass
______________________________________
David W. Sass, Incorporator
BY-LAWS
-------
OF
--
--------------------------------------
ARTICLE I - OFFICES
-------------------
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
------------------------------------
Section 1 - Annual Meetings:
- ----------------------------
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2- Special Meetings:
- ----------------------------
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place of Meetings-
- ------------------------------
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
By-Laws-1
<PAGE>
Section 4 - Notice of Meetings:
- -------------------------------
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
- -------------------
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
By-Laws - 2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at such
meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
- -------------------
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
By-Laws-3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
-------------------------------
Section 1 - Number, Election and Term of Office:
- ------------------------------------------------
(a) The number of the directors of the Corporation shall be five (5), unless and
until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders permitted by statute.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
- ------------------------------
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular MeetingS; Notice:
- ------------------------------------------------
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
By-Laws-4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
- -------------------------------------
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meeting shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
- ---------------------
At all meetings of the Board of Directors the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
By-Laws-5
<PAGE>
Section 6 - Quorum and Adjournments:
- ------------------------------------
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
- -----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
- ----------------------
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
- ------------------------
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws-6
<PAGE>
Section 10 - Removal:
- ---------------------
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for caused by action of
the Board.
Section 11 - Salary:
- ---------------------
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
- -----------------------
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
By-Laws-7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
- ------------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
- ---------------------
Section 1 - Number, Qualifications, Election
- --------------------------------------------
and Term of Office:
-------------------
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
- ------------------------
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
By-Laws-8
<PAGE>
Section 3 - Removal:
- --------------------
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
- ----------------------
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
- -------------------------------
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
- -------------------------------
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
- -----------------------------------------
Whenever the Corporation is the holder of shares of any other Corporation, any
fight or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
---------------------------
Section 1 - Certificate of Stock:
- ---------------------------------
(a) The certificates representing shares of the Corporation shall be in such
form as shall
By-Laws-9
<PAGE>
be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
- -------------------------------------------
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws-10
<PAGE>
Section 3 - Transfers of Shares'
- --------------------------------
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
Co) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
- ------------------------
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
By-Laws-11
<PAGE>
ARTICLE VI - DIVIDENDS
----------------------
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
------------------------------
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
-----------------------
Section 1 - By Shareholders:
- ----------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding shares entitled to vote
in the election of directors at any annual or speciai meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
- -------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
By-Laws-12
<PAGE>
ARTICLE X - INDEMNITY
---------------------
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein that such officer,
director or employee is liable for negligence or misconduct in the performance
of his duties.
(b) The foregoing fight of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to then existing rules of the American Arbitration
Association.
The undersigned Incorporator certifies that he has adopted the
foregoing by-laws as the first by-laws of the Corporation.
By-Laws- 13
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this day of 1996, by and between THE HARMAT
--- -----
ORGANIZATION, INC., a Delaware corporation ("Company"), and American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,000,000 units
("Units"), each unit consisting of one (1) share of the Company's Common Stock,
$.001 par value ("Common Stock"), and one (1) Class A Redeemable Common Stock
Purchase Warrant (the "Class A Warrants") pursuant to an underwriting agreement
(the "Underwriting Agreement") dated , 1996 between the Company and
------
certain of its stockholders and Biltmore Securities, Inc. ("Biltmore"), and the
issuance to (i) Biltmore or its designees of a Purchase Option to purchase
100,000 additional Units (the "Purchase Option") and (ii) certain bridge lenders
of 500,000 Units consisting of 500,000 shares of Common Stock and 1,500,000
Class A Warrants, the Company will issue up to 2,600,000 Class A Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings, unless the context shall otherwise require:
<PAGE>
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 25,000,000 authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (1) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants or (ii), in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office
is located at the date hereof at 40 Wall Street, New York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean , 1997.
------
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $ 3.50 per share for the
2
<PAGE>
Class A Warrants, subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right, in its sole
discretion, upon thirty (30) days written notice, to reduce the Purchase Price
upon notice to all warrant holders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant ExpirationDate" shall mean 5:00 P.M. (New York time) on
, 2001 or the Redemption Date as defined in Section 8, whichever is
- ------
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon
notice to all warrantholders, the Company shall have the right to extend the
warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
3
<PAGE>
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 2,600,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed, or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Purchase Option;(vi)
those issued to the bridge lenders; and (vii) those issued at the option of the
Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Biltmore may
purchase up to 100,000 Units, which include up to 100,000 Class A Warrants.
3. Form and Execution of Warrant Certificates.
-------------------------------------------
(a) The Class A Warrant Certificate shall be substantially in the
forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers, or other marks of
identification or designation and such legends, summaries, or endorsements
printed, lithographed, or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this
4
<PAGE>
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Warrants may be listed, or to conform to usage or to the
requirements of Section 2(b). The Warrant Certificates shall be dated the date
of issuance thereof (whether upon initial issuance, transfer, exchange, or in
lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and issued
in registered form. Class A Warrant Certificates shall be numbered serially
with the letter WA.
(b) Warrant Certificates shall be executed on behalf of the Company
by its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
--------
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a Warrant
5
<PAGE>
and shall notify the Company in writing of the exercise of the Warrants.
Promptly following, and in any event within five (5) business days after the
date of such notice from the Warrant Agent, the Warrant Agent, on behalf of the
Company, shall cause to be issued and delivered by the Transfer Agent, to the
person or persons entitled to receive the same, a certificate or certificates
for the securities deliverable upon such exercise (plus a certificate for any
remaining unexercised Warrants of the Registered Holder), unless prior to the
date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance of
checks received in payment of the Purchase Price pursuant to such Warrants.
Upon the exercise of any Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Warrant (the
"Warrant Proceeds") to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
------------------------------------------------------
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable, and free from all taxes, liens, and charges with
respect to the issue thereof, (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval and will use its reasonable
efforts to obtain appropriate
6
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approvals or registrations under state "blue sky" securities laws. With respect
to any such securities, however, Warrants may not be exercised by, or shares of
Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for such time
as it is acting as such to requisition the Company's Transfer Agent from time
to time for certificates representing shares of Common Stock issuable upon
exercise of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions. The Company will file with the
Warrant Agent a statement setting forth the name and address of the Transfer
Agent of the Company for shares of Common Stock issuable upon exercise of the
Warrants.
6. Exchange and Registration of Transfer.
-------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office,
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the Company shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
------------------
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
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<PAGE>
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
----------
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided, in the case of the redemption
of its Class A Warrants, the Market Price of the Common Stock receivable upon
exercise of the Class A Warrant shall equal or exceed $8.00 (the "Target Price")
subject to adjustment as set forth in Section 8(f) below. Market Price for the
purpose of this Section 8 shall mean (i) the average closing bid price for any
twenty (20) consecutive trading days within a period of thirty (30) consecutive
trading days ending within five (5) days prior to the date of the notice of
redemption, which notice shall be mailed no later than five (5) days thereafter,
of the Common Stock as reported by the National Association of Securities
Dealers, Inc. Automatic Quotation System or (ii) the last reported sale price,
for twenty (20) consecutive trading days within a period of thirty (30)
consecutive trading days ending within five (5) days of the date of the notice
of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such
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<PAGE>
notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On
and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total
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<PAGE>
number of shares of Common Stock to be outstanding immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
--------------------------------------------------------------------
Warrants.
- --------
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
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<PAGE>
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of the
Company, cause to be distributed to such Holder in substitution and replacement
for the Warrant Certificates held by him prior to the date of adjustment (and
upon surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately
12
<PAGE>
prior to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities, or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations, and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary
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<PAGE>
thereof to be sent by ordinary first class mail to Biltmore and to each
registered holder of Warrants at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants,
14
<PAGE>
or options shall consist of cash, whether or not such rights, warrants, or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such rights, warrants, or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration payable to the Company upon the exercise
of such rights, warrants, or options, plus the consideration received by the
Company for the issuance or sale of such rights, warrants, or options, plus, in
the case of such Convertible Securities, the minimum aggregate amount of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities
issuable upon (y) the exercise of such rights, warrants, or options) is less
than the fair market value of the Common Stock on the date of the issuance or
sale of such rights, warrants, or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants, or options) shall be
deemed to be outstanding shares of Common Stock for purposes of Sections 9(a)
and 9(b) hereof and shall be deemed to have been sold for cash in an amount
equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to
15
<PAGE>
be outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the market
price on the date prior to such modification, the Purchase Price to be in effect
after such modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding multiplied by the
market price on the date prior to the modification plus the number of shares of
Common Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the market price and
of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be issued
upon conversion, exchange, or exercise of the modified securities at the
modified rate. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
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<PAGE>
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants or Common Stock
comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the Company's
initial public offering, including, without limitation, shares sold upon the
exercise of any over-allotment option granted to the Underwriters in connection
with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in an exempt transaction unless the issuance or sale price is less
than 85% of the fair market value of the
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<PAGE>
Common Stock on the date of issuance, in which case the adjustment shall only be
for the difference between 85% of the fair market value and the issue or sale
price;
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges and/or consolidates
into or is acquired by the Company or from which the Company acquires assets and
some or all of the consideration consists of equity securities of the Company,
in proportion to their stock holdings of such corporation immediately prior to
the acquisition but only if no adjustment is required pursuant to any other
provision of this Section 9;
(vii) upon the issuance or exercise of options or upon the
issuance or grant of stock awards granted to the Company's directors, employees
or consultants under a plan or plans adopted by the Company's Board of Directors
and approved by its stockholders (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date hereof shall not
exceed ten percent (10%) of the Company's Common Stock at the time of issuance).
For the purposes of determining whether the consideration received by the
Company is less than the Market Price in connection with any issuance of stock
to the Company's directors, employees or consultants under plans adopted by the
Company's Board of Directors and approved by its stockholders, the consideration
received shall be deemed to be the amount of compensation to the director,
employee or consultant reported by the Company in connection with such issuance;
(viii) upon the issuance of Common Stock to the Company's
directors, employees or consultants under a plan or plans which are qualified
under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide public
offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
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<PAGE>
dissolution, or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale, or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities, or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the
amount of any such adjustment, if required, shall be binding upon the holders
of the Warrants and the Company if made in good faith by the Board of Directors
of the Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
-----------------------------------------
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section
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<PAGE>
9 hereof, the Company nevertheless shall not be required to issue fractions
of shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. In such event, the Company may
at its option elect to round up the number of shares to which the Holder is
entitled to the nearest whole share or to pay cash in respect of fractional
shares in accordance with the following: With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants shall,
---------------------------------------
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
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<PAGE>
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this Agreement
----------------
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
----------------------------
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase
------------------------------------
or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
21
<PAGE>
thereby or delivered to it for transfer, split up, combination, or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
----------------------------
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant
22
<PAGE>
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order,
or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving thirty
(30) days prior written notice to the Company. At least fifteen (15) days prior
to the date such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the Registered Holder
of each Warrant Certificate at the Company's expense. Upon such resignation, or
any inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the Registered
Holder of any Warrant Certificate may apply to any court of competent
jurisdiction in the State of New York for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than $10,000,000
or a stock transfer company. After acceptance in writing of such appointment by
the new warrant agent is received by the Company, such new warrant agent shall
be vested with the same powers, rights, duties, and responsibilities as if it
had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act, or deed; but if for any reason it shall be necessary
or expedient to execute and deliver any further assurance, conveyance, act, or
deed, the same shall be done at the expense of the Company and shall be legally
and validly
23
<PAGE>
executed and delivered by the resigning Warrant Agent. Not later than the
effective date of any such appointment the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
-------------------------
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
---------
however, that this Agreement shall not otherwise be modified, supplemented, or
- -------
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
-------- -------
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without
24
<PAGE>
the consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed or are made in compliance
with applicable law.
17. Notices. All notices, requests, consents, and other communications
-------
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, Old Country Road, P.O. Box 539, Quogue, New York 11959,
Attention: President, or at such other address as may have been furnished to
the Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the Company and the Warrant Agent, and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. Termination. This Agreement shall terminate at the close of business
-----------
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several counterparts,
------------
which taken together shall constitute a single document.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE HARMAT ORGANIZATION, INC.
By: ______________________________
Its
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: ______________________________
Its
Authorized Officer
26
<PAGE>
EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER , 2001
----------
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
THE HARMAT ORGANIZATION, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.001 par value ("Common Stock"), of THE HARMAT ORGANIZATION, INC., a
Delaware corporation (the "Company"), at any time between the Initial Warrant
Exercise Date (as herein defined) and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of AMERICAN STOCK TRANSFER & TRUST COMPANY as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $ 3.50(the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to THE HARMAT ORGANIZATION, INC.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated , 1996,
--------
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean , 1997.
--------
The term "Expiration Date" shall mean 5:00 p.m. (New York time on ,
-------
2001, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right
2
<PAGE>
to vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.05 per Warrant at any time after one (1) year from the Effective
Date, provided the Market Price (as defined in the Warrant Agreement) for the
securities issuable upon exercise of such Warrant shall equal or exceed
$8.00 per share. Notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
THE HARMAT ORGANIZATION, INC.
By: ______________________________
Its
Date: ______________________________
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert taxpayer identification or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, ______________ hereby sells, assigns, and transfers
unto
____________________________________________
(please insert taxpayer identification or other identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
EXHIBIT 4.3
Warrant to Purchase up to
_________ shares of Common Stock
THE HARMAT ORGANIZATION, INC.
Class B Common Stock Purchase Warrant
JANUARY , 1996
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SHALL NOT BE
TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED IN VIOLATION THEREOF UNTIL EITHER
(i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAW OR (ii) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH
SECURITIES WHICH OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH SECURITIES MAY BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
THIS CERTIFIES THAT ___________________ (hereinafter sometimes called
the "Holder") is entitled to purchase from The Harmat Organization, Inc., a
Delaware corporation (the "Company"), at the price and during the periods as
hereinafter specified, up to _________________ shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock").
1. a. The rights represented by this Warrant shall be exercised,
subject to adjustment in accordance with Section 7 of this Warrant (the
"Exercise Price"), commencing 90 days after the Effective Date of the
Registration Statement referred to below and four years thereafter inclusive
(the "Exercise Period"), at a purchase price of $1.50 per share. For purposes
of the adjustments under Paragraph 7 hereof, the per share Exercise Price shall
be deemed to be $1.50 subject to further adjustment as provided in such
Paragraph 7. After the expiration date of the Warrant, the Holder shall have no
right to purchase any shares of Common Stock underlying this Warrant.
<PAGE>
b. Notwithstanding anything herein contained to the contrary,
the Company and the Holder agree that in the event that the terms and conditions
of the warrants to be registered upon effectiveness of any registration
statement which may be filed with the Securities and Exchange Commission (the
"Registration Statement") are not identical to the terms and conditions of this
Warrant, this Warrant will be modified to conform exactly to the terms and
conditions of the warrants offered pursuant to such Registration Statement (the
"Public Warrants"), which may include, among other things, provisions for
redemption of the Warrants except that the initial exercise price shall remain
at $1.50 per share.
2. The rights represented by this Warrant may be exercised at any
time within the Exercise Period above specified, in whole or in part, by (i) the
surrender of this Warrant (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company, The Harmat
Organization, Inc., Quogue, New York (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); and (ii) payment to the
Company of the Exercise Price then in effect for the number of shares of Common
Stock specified in the above-mentioned purchase form together with applicable
stock transfer taxes, if any in the form of a certified check, cashier's check
or money order. This Warrant shall be deemed to have been exercised, in whole
or in part to the extent specified, immediately prior to the close of business
on the date this Warrant is surrendered and payment is made in accordance with
the foregoing provisions of this Section 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 shares of
Common Stock at that time and date. The certificate or certificates for the
shares of Common Stock so purchased shall be delivered to such person or persons
within a reasonable time, not exceeding thirty (30) days, after this Warrant
shall have been exercised.
3. Neither this Warrant nor the shares of Common Stock issuable upon
exercise hereof have been registered under the Act nor under any state
securities law and shall not be transferred, sold, assigned or hypothecated in
violation thereof. If permitted by the foregoing, any such transfer, sale,
assignment or hypothecation shall be effected by the Holder surrendering this
Warrant for cancellation at the office of the Company referred to in Section 2
hereof, accompanied by an opinion of counsel satisfactory to the Company and its
counsel, stating that such transferee is a permitted transferee under this
2
<PAGE>
Section 3 and that such transfer does not violate the Act or such state
securities laws.
4. The Company covenants and agrees that all shares of Common Stock
which may be issued upon exercise of this Warrant 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 Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Warrant.
5. The Warrant shall not entitle the Holder to any rights,
including, without limitation, voting rights, as a stockholder of the Company.
6. The Company will register the shares of Common Stock underlying
this Warrant in accordance with the Act as more fully described in the
subscription letter executed as of the date hereof.
7. The Exercise Price in effect at any time and the number and kind
of securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
a. If 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 effective date or record date, as the case may be, for
such sale, 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. Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to subsection 7.a. above, the number of shares of
Common Stock purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of shares of Common Stock initially issuable
upon exercise of this Warrant by the Exercise Price in
3
<PAGE>
effect on the date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.
c. Notwithstanding any adjustment in the Exercise Price or the
number or kind of shares of Common Stock purchasable upon the exercise of this
Warrant, certificates for Warrants issued prior or subsequent to such adjustment
may continue to express the same price and number and kind of shares of Common
Stock as are initially issuable pursuant to this Warrant.
8. This Agreement shall be governed by and in accordance with the
laws of the State of New York.
IN WITNESS WHEREOF, THE HARMAT ORGANIZATION, INC. has caused this
Warrant to be signed by its duly authorized officers and is to be dated JANUARY
___, 1996.
THE HARMAT ORGANIZATION, INC.
By:____________________________
Matthew Schilowitz
President
4
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase:
shares of Common Stock
------------
and herewith tenders in payment for such securities a certified or cashier's
check or money order payable to the order of The Harmat Organization, Inc. in
the amount of $ , all in accordance with the terms hereof. The
---------
undersigned requests that a certificate for such securities be registered in the
name of whose address is
----------------------------------
and that such Certificate be delivered to
- ---------------------------------
whose address is .
--------------------------------------
Dated:
Signature
--------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of the
Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
5
Exhibit 4.4
Option to Purchase
100,000 Units
THE HARMAT ORGANIZATION, INC.
PURCHASE OPTION
Dated: , 1996
--------
THIS CERTIFIES that BILTMORE SECURITIES, INC., 6700 North Andrews Avenue,
Ft. Lauderdale, FL 33309 (hereinafter sometimes referred to as the "Holder"
which shall include any permitted transferee hereunder), is entitled to purchase
from THE HARMAT ORGANIZATION, INC., a Delaware corporation (hereinafter referred
to as the "Company"), at the prices and during the periods as hereinafter
specified, up to 100,000 Units consisting of the Company's Common Stock and
Warrants to purchase the Company's Common Stock. Each Unit consists of one (1)
share of the Company's Common Stock, $.001 par value, as now constituted
("Common Stock") and one (1) Class A Redeemable Common Stock Purchase Warrant,
each to purchase one (1) share of Common Stock as now constituted at an exercise
price of $3.50 per share (the "Warrants"). The Warrants are exercisable until
, 2001.
- ------
The Units have been registered under a Registration Statement on Form SB-2
(File No. 33-80973) declared effective by the Securities and Exchange Commission
on , 1996 (the "Registration Statement"). This Option (the "Option") to
------
purchase 100,000 Units (the "Option Units") was originally issued pursuant to an
underwriting agreement between the Company and Biltmore Securities, Inc. as
underwriter (the "Underwriter"), in connection with a public offering of
1,000,000 Units (the "Public Units") through the Underwriter, in consideration
of $100.00 received for the Option.
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to this Option shall bear
<PAGE>
the same terms and conditions as described under the caption "Description of
Securities" in the Registration Statement, and the Warrants shall be governed by
the terms of the Warrant Agreement dated as of , 1996, executed in
---------
connection with such public offering (the "Warrant Agreement"), and except that
the Holder shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for the Option, the Common Stock and the Warrants included
in the Units, and the shares of Common Stock underlying the Warrants, as more
fully described in paragraph 6 of this Option . In the event of any reduction
of the exercise price of the Warrants included in the Public Units, the same
changes to the Warrants included in the Option Units shall be simultaneously
effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option, and
during the periods as follows:
(a) Between , 1997 and , 2001, inclusive, the Holder
-------- -------
shall have the option to purchase Units hereunder at a price of $4.20 per Unit
(subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After , 2001, the Holder shall have no right to purchase
--------
any Units 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 applicable Exercise Price then in effect for the number of Units
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
2
<PAGE>
with the foregoing provisions of this paragraph 2, and the person or persons in
whose name or names the certificates for shares of Common Stock and Warrants
shall be issuable upon such exercise shall become the Holder or Holders of
record of such Common Stock and Warrants at that time and date. The Common
Stock and Warrants and the certificates for the Common Stock and Warrants 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. 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 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 Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Units purchased hereunder and the Common Stock
which may be issued upon exercise of the Warrants 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 and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Units.
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,
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whether the Holder holds the Option or has exercised the Option and holds Units
or any of the securities underlying the Units, by written notice at least thirty
(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 five
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 Units underlying the Option, the Common Stock, or
Warrants included in the Units or the Common Stock issuable upon the exercise of
the Warrants (the "Registrable Securities"). 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 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
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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, the
Units, or any of the underlying securities contained in the Units underlying the
Option 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 sixty (60) 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, the
Units and/or any of the securities underlying the Units may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective 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
Units 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
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<PAGE>
option, request such post-effective amendment or new registration statement
during the described period with respect to the Option, the Units as a unit, or
separately as to the Common Stock and/or Warrants included in the Units and/or
the Common Stock issuable upon the exercise of the Warrants, and such
registration rights may be exercised by the 50% Holder prior to or subsequent to
the exercise of the Option. Within ten (10) 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.
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
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registration statement pursuant to this Section 6(b), within sixty (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 (6) months (and for up to an additional three (3) 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.
(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder of at least 50% of the Common Stock and the Warrants underlying the
Option (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 issued pursuant to this Option held by such
owner or owners as well as the number of shares then issuable upon exercise of
the Warrants.
(d) Notwithstanding anything in Section 6 contained to the contrary
(I) the demand registration rights granted hereunder will expire no later than
five (5) years from the effective date of the Registration Statement and (ii)
the piggyback registration rights granted hereunder will expire no later than
seven (7) years from the effective date of the Registration Statement.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants 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,
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<PAGE>
and each underwriter (within the meaning of the Act) of such securities and
each person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages, or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission 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, 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
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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. With respect to the Option Units, 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:
(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,
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<PAGE>
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. Notwithstanding anything to the contrary contained in
the Warrant Agreement, in the event an adjustment to the Exercise Price is
effected pursuant to this Subsection (a) (and a corresponding adjustment to
the number of Option Units is made pursuant to Subsection (d) below), the
exercise price of the Warrants shall be adjusted so that it shall equal the
price determined by multiplying the exercise price of the Warrants by a
fraction, the denominator of which shall be the number of shares of Common
Stock outstanding immediately 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. In such event, there shall be no adjustment
to the number of shares of Common Stock or other securities issuable upon
exercise of the Warrants. Such adjustment shall be made successively whenever
any event listed above shall occur.
(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 Unit 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
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<PAGE>
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 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 Unit 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 Units purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number
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<PAGE>
of Option Units 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 twenty (20) consecutive
business days before such date. The closing price for each day shall be the
last sale price regular way 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 (i) 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 (including
Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than twenty(20) days after any request for
such an adjustment by the Holder, cause
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<PAGE>
a notice setting forth the adjusted
Exercise Price and adjusted number of Option Units 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.
(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 (g), inclusive above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, The Harmat Organization, Inc. as caused this Option to
be signed by its duly authorized officers under its corporate seal, and this
Option to be dated , 1996.
----------
THE HARMAT ORGANIZATION, INC.
By: ______________________________
Its
(Corporate Seal)
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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,
Units of THE HARMAT ORGANIZATION, INC., each Unit consisting of one share
of $.001 Par Value Common Stock and one Class A Redeemable Common Stock Purchase
Warrant, and herewith makes payment of $______________ therefor, and requests
that the Warrants and 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 Units represented
by the foregoing Option to the extent of _____ Units, and appoints
_________________________________ attorney to transfer such rights on the books
of THE HARMAT ORGANIZATION, INC. with full power of substitution in the
premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
Exhibit 4.5
1995 JOINT INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN OF THE HARMAT ORGANIZATION, INC.
1. PURPOSE
The purpose of this Plan, which shall be known as the "1995 Joint Incentive
and Non-Qualified Stock Option Plan" (the "Plan"), is to permit THE HARMAT
ORGANIZATION, INC. (the "Company") and its "subsidiary" corporations, as defined
herein, to attract and retain the best available talent and encourage the
highest level of performance in order to continue to serve the best interests of
the Company and its shareholders. By affording key personnel the opportunity to
acquire proprietary interests in the Company and by providing them incentives to
put forth maximum efforts for the success of the business, the Plan is expected
to contribute to the attainment of those objectives. Options under the Plan may
be granted in the form of incentive stock options ("Incentive Options") as
provided in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or in the form of nonqualified stock options ("Non-Qualified Options").
Unless otherwise indicated, references in the Plan to "options" include
Incentive Options and Non-Qualified Options.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or, at their discretion, by a stock option committee (the
"Committee"), which shall be appointed by the Board of Directors of the Company
and shall consist of not less than two directors of the Board who shall serve at
the pleasure of the Board. Members of the Committee shall be eligible to
participate in the Plan while a member of the Committee except that the Board
may exclusively appoint two or more disinterested (non-participating) directors
to the Committee pursuant to Rule 16b-3(c)(2)(i) under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Vacancies
occurring in the membership of the Committee shall be filled by appointment by
the Board.
The Board or the Committee, as the case may be (hereinafter, the
"Committee" refers to the Board or Committee, as the case may be, unless
otherwise specified), is authorized, subject to the provisions of the Plan, from
time to time, to establish such rules and regulations and to appoint such agents
as they deem appropriate for carrying out the provisions and purposes of the
Plan. The interpretation and construction by the Committee of any provisions
of, and the determination of any questions arising under, the Plan, any such
rule or regulation, or any agreement granting options under the Plan, shall be
final and conclusive and binding on all persons interested in the Plan.
<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the Committee present at a meeting at which a quorum is present, or
acts approved in writing by all of its members, shall be acts of the Committee.
3. SHARES SUBJECT TO THE PLAN
Subject to the Plan, options may be granted under the Plan for shares of
the Company's Common Stock, $0.001 par value ("Common Stock"), and may be made
available from either authorized and unissued shares or issued shares held in
the treasury of the Company. The total amount of shares of Common Stock which
may be delivered upon exercise of options granted under the Plan shall not
exceed 400,000 shares. Such number of shares which may be granted under the
Plan is subject to adjustment in accordance with the provisions of Paragraph 10
hereof. In the event that any option granted under the Plan shall terminate,
expire or, with the consent of the optionee, be canceled as to any shares of
Common Stock, without having been exercised in full, new options may be granted
covering such shares.
4. AWARD OF OPTIONS
Non-Qualified Options under the Plan may be granted to any person,
including but not limited to employees, directors, independent agents and
consultants who, the Committee believes, has contributed, or will contribute to
the success of the Company. Incentive Options under the Plan may be awarded only
to persons who, at the time such Incentive Options are granted, are employees of
the Company or a subsidiary corporation, as defined herein, including any such
employees who may be directors and shareholders thereof. In determining the
persons to whom options shall be granted and the number of shares covered by
each option, the Committee may take into account the nature of the services
rendered by the respective persons, his or her present and potential
contribution to the success of the Company and such other factors as the
Committee, in its sole discretion, shall deem relevant.
Any option granted hereunder shall be evidenced by a stock option agreement
authorized by the Committee and executed by a duly authorized officer of the
Company (the "Stock Option Agreement"). Each Stock Option Agreement shall
specify the number of shares covered by such option and the purchase price per
share and shall contain such terms and conditions not inconsistent with the Plan
as the Committee shall deem appropriate (which terms and conditions need not be
the same in each Stock Option Agreement and may be changed from time to time).
The date on which an option shall be granted shall be the date of the Board's or
the Committee's authorization of such grant or such later date as may be
determined by the Committee at the time such grant is authorized (the "Date of
Grant"). Each Stock Option Agreement may require as conditions of exercise that
the optionee provide such investment representations
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<PAGE>
with respect to, and enter into such agreements concerning the sale and transfer
of, the shares receivable by the optionee upon exercise, as the Committee deems
appropriate. Each Stock Option Agreement for a Non-Qualified Option shall
provide for the withholding of income taxes and employment taxes that the
Company determines it is required to withhold upon the exercise of such option.
Anything herein to the contrary notwithstanding:
(i) The Company may not, in the aggregate, grant Incentive Options
that are first exercisable by any optionee, during any calendar year to the
extent that the aggregate Fair Market Value (within the meaning of Section 422
of the Code and the treasury regulations promulgated thereunder) of the
underlying stock (determined at the time the Incentive Option is granted) of all
of the options first exercisable by such optionee during such calendar year
(under all such plans of the optionee's employer corporation and its "parent"
and "subsidiary" corporations, as those terms are defined in Section 424 of the
Code) exceeds $100,000.
(ii) The purchase price of each share for which a Non-Qualified Option
is granted and the number of shares covered by such option shall be within the
discretion of the Committee based upon the value of the optionee's services, the
number of outstanding shares of Common Stock, the market price of such Common
Stock, and such other factors as the Committee determines are relevant; provided
however, that such purchase price may not be less than the par value of the
Common Stock. The purchase price of each share for which an Incentive Option is
granted under the Plan (the "Incentive Option Shares") shall not be less than
the amount which the Committee determines, in good faith, at the time such
Incentive Option is granted, constitutes 100% (110%, in the case of an Incentive
Option granted to an employee who, immediately before the Date of Grant, owns
more than 10% of the total combined voting power of all classes of stock of the
Company) of the then Fair Market Value of such Incentive Option Shares.
5. TERM OF PLAN
The Plan shall terminate ten years from the earlier of the date of adoption
of the Plan or the date the Plan is approved by the shareholders of the Company.
No option may be granted after such termination. Termination of the Plan,
however, shall not affect the rights of optionees under options theretofore
granted to them, and all unexpired options shall continue in force and operation
after termination of the Plan except as they may lapse or terminate by their own
terms and conditions.
3
<PAGE>
6. TERM OF OPTIONS
The period during which any option granted hereunder may be exercised shall
be determined in each case by the Board or the Committee, as the case may be;
however, anything herein to the contrary notwithstanding, options granted
hereunder shall only be exercisable during a period not to exceed ten years from
the Date of Grant (except that in the case of an Incentive Option granted to an
employee who owns, immediately before the Date of Grant, more than 10% percent
of the total combined voting power of all classes of stock of the Company, such
options shall only be exercisable during a period not to exceed five years from
the Date of Grant). Each option shall be subject to such other conditions
regarding its exercise or non-exercise as the Committee may determine.
7. PURCHASE OF OPTION BY COMPANY
The Stock Option Agreement with respect to any option at any time granted
under the Plan may contain a provision to the effect that the optionee (or any
persons entitled to act under Paragraph 8 hereof) may, at any time at which the
Fair Market Value of the Company's Common Stock is in excess of the purchase
price of the option and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the purchase price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the Fair Market Value of the
Company's Common Stock on the date of purchase. The Company shall have no
obligation to make any purchase pursuant to such request, but if it elects to do
so, such portion of the option as to which the request is made shall be
surrendered to the Company. The purchase price for the portion of the option to
be so surrendered shall be paid by the Company, at the election of the
Committee, either in cash or in shares of Common Stock (valued as of the date
and in the manner provided above), or in any combination of cash and Common
Stock, which may consist, in whole or in part, of shares of authorized but
unissued Common Stock or shares of Common Stock held in the Company's treasury.
No fractional share of Common Stock shall be issued or transferred and any
fractional share shall be disregarded. Shares covered by that portion of any
option purchased by the Company pursuant hereto and surrendered to the Company
shall not be available for the granting of further options under the Plan. All
determinations to be made by the Company hereunder shall be made by the
Committee.
8. TERMINATION OF EMPLOYMENT
No option or any portion thereof granted to an employee under the Plan
shall be exercisable by such optionee at any time
4
<PAGE>
following the termination of employment, except that the Stock Option Agreement
with respect to options granted by the Board or the Committee may permit an
option to be exercised by such optionee (or his or her legal representative if
the optionee dies or becomes incompetent) within three months after termination,
but only to the extent the Option was exercisable at the date of termination,
and may also provide that in the event of the death or disability (which, in the
case of Incentive Stock Options, shall mean permanent and total disability as
defined in Section 22(e)(3) of the Code) of the optionee, that the option may be
exercised by such optionee's legal representative, executor or administrator or
by his or her distributee to whom the option may have been transferred by will
or by the laws of descent and distribution within a period of not more than one
year after such death or disability, but only to the extent that it was
exercisable at the date of the termination of such optionee's employment.
Whether any leave of absence shall constitute termination of employment for the
purposes of any option granted under the Plan shall be determined in each case
by the Committee in its sole discretion.
9. PAYMENT FOR SHARES
Each Stock Option Agreement shall provide that payment for shares of Common
Stock purchased upon the exercise of an option (or any portion thereof) granted
hereunder shall be made in full in cash at the time of such exercise.
It shall be a condition to the obligation of the Company to issue or
transfer shares of Common Stock upon the exercise of an option, that the
optionee pay to the Company, upon its demand, such amount as may be requested by
the Company for the purposes of satisfying its liability to withhold federal,
state or local income or other taxes incurred by reason of the exercise of such
option or the transfer of such shares upon such exercise or the purchase of such
option by the Company pursuant to Paragraph 7 hereof.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The total number of shares of Common Stock which may be purchased upon the
exercise of options granted under the Plan shall be appropriately adjusted by
the Committee for any increase or decrease in the number of outstanding shares
of Common Stock resulting from a stock dividend, subdivision, combination or
reclassification of shares or any other change in the corporate structure or
shares of the Company; provided, however, in each case, that, with respect to
Incentive Options, no such adjustment shall be authorized to the extent that
such authority would cause the Plan to violate Section 422(b)(1) of the Code.
In the event of the dissolution or liquidation of the Company or upon any merger
or consolidation thereof, the Committee may make such adjustment with respect to
options or take such other action as it deems necessary or appropriate to
reflect or in anticipation of such dissolution,
5
<PAGE>
liquidation, merger or consolidation including, without limitation, the
substitution of new options or the termination of existing options, except in
the case of disability of the optionee resulting in termination of employment,
in which case the option may be exercised by such optionee's legal
representative as set forth in Paragraph 8 hereof.
11. NON-TRANSFERABILITY OF OPTIONS
No option granted to an optionee under the Plan shall be transferred by
such optionee otherwise than by will or the laws of descent and distribution.
No transfer of an option by the optionee by will, by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and a copy of the will and/or
such other evidence as the Company may deem necessary to establish the validity
of the transfer and the acceptance by the transferee or transferees of the terms
and conditions of such option. During the lifetime of the optionee, the option
may only be exercised by the optionee, except in the case of disability of the
optionee resulting in termination of employment, in which case the option may be
exercised by such optionee's legal representative as set forth in Paragraph 8
hereof.
12. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN
The Committee may terminate, and at any time and from time to time, in any
respect, amend or modify the Plan, including the designation of a formula that
determines the amount, price and timing for the granting of options in
accordance with Rule 16b-3(c)(ii),; provided, however, that no such action of
the Committee without approval of shareholders, may: (A) materially increase the
benefits accruing to participants under the Plan; (B) materially increase the
amount of Common Stock which may be issued under the Plan; or (C) materially
modify the requirements as to eligibility for participation in the Plan. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any option theretofore granted under the Plan without the consent of the
optionee; but it shall be conclusively presumed that any adjustment for changes
as provided in Paragraph 10 does not adversely affect any such option. Anything
in the Plan to the contrary notwithstanding, no term of the Plan relating to
Incentive Options shall be interpreted, amended, or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to disqualify
either the Plan or any Incentive Option under Section 422 of the Code.
13. FINALITY OF DETERMINATIONS
Each termination, interpretation, or other action made or taken by the
Committee pursuant to the provisions of the Plan,
6
<PAGE>
shall be final and shall be binding and conclusive for all purposes and upon all
persons.
14. EMPLOYMENT
Nothing in the Plan or in any Stock Option Agreement under the Plan, shall
confer on any person the right to become an employee of the Company or on any
employee any right to continue in the employ of the Company or affect in any way
the right of the Company to terminate his or her employment at any time.
15. ADDITIONAL PROVISIONS
It is the intent of the Company that this Plan comply in all respects with
the applicable provisions of Rule 16b-3(c) under the Exchange Act in connection
with any grant of options to, or other transaction by, an optionee under the
Plan who is subject to Section 16 of the Exchange Act (except for transactions
exempted under alternative Exchange Act Rules or acknowledged in writing to be
non-exempt by such optionee). Accordingly, if any provision of this Plan or any
Stock Option Agreement does not comply with the requirements of Rule 16b-3 as
then applicable to any transaction, such provision will be construed or deemed
amended to the extent necessary to conform to the applicable requirements of
Rule 16b-3 so that such optionee shall avoid liability under Section 16(b). In
addition, the per share price of any option shall be not less than 50% of the
Fair Market Value of the Company's Common Stock at the date of grant of the
option, if such pricing limitation is required in order to comply with Rule
16b-3 at the time of grant of the option.
Anything herein to the contrary notwithstanding, the Committee may, in its
sole discretion, impose more restrictive conditions on the exercise of an option
granted pursuant to the Plan; however, any and all such conditions shall be
specified in the Stock Option Agreement limiting and defining such option.
EFFECTIVE DATE OF PLAN
The Plan shall become effective on the date it is approved by the
shareholders of the Company.
7
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of the 1st day of
April, 1996 by and between The Harmat Organization, Inc. (the "Company") with
offices at 2 Old Country Road, Quogue, New York 11959 and Matthew Schilowitz
("Schilowitz") at 189 South Country Road, Remsenberg, New York 11960.
WHEREAS, Schilowitz and the Company have agreed that Schilowitz shall
render services to the Company in the capacity of President and Chief Executive
Officer pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
1. EMPLOYMENT TERM: The term of this Agreement shall commence on
----------------
the date that the initial public offering is declared effective by the
Securities and Exchange Commission and shall expire five years thereafter (the
"Employment Period") subject to the provisions of Section 5.
2. DUTIES OF EXECUTIVE: Schilowitz shall serve as President and
--------------------
Chief Financial Officer of the Company and shall be required to perform such
duties as may from time to time be required by the Board of Directors of the
Company.
3. COMPENSATION:
------------
(a) As compensation for his services hereunder, the Company shall pay
Schilowitz, during the Employment Period, a base salary ("Base Salary") payable
as follows:
<PAGE>
(i) One Hundred Five Thousand Dollars ($105,000.00) for the
first year;
(ii) One Hundred Fifty Five Thousand Dollars ($155,000.00) for
the second year;
(iii) Two Hundred Five Thousand Dollars ($205,000.00) for the
third year;
(iv) Two Hundred Fifty Five Thousand Dollars ($255,000.00) for
the fourth year; and
(v) Three Hundred Five Thousand Dollars ($305,000.00) for the
fifth year.
(b) Schilowitz shall also receive a bonus equal to 5% of the pre-tax
earnings of the Company in each fiscal year during the Employment Period payable
within ten (10) days after the completion of the year end audit for each such
fiscal year.
(c) In addition to the compensation provided under Sections 3(a) and
(b) above, Schilowitz is hereby granted a ten (10) year option to purchase up
to an aggregate of 750,000 shares of the Company's Common Stock (the "Common
Stock") at an exercise price of $3.25 per share (the "Option"), which Option
commences at the time of vesting. Schilowitz may exercise the Option as
follows: (i) the right to purchase 250,000 shares of Common Stock such right to
vest upon the Company realizing earnings before taxes equalling or exceeding
$750,000.00; (ii) the right to purchase 250,000 additional shares of Common
Stock such right to vest upon the Company realizing earnings before taxes
equalling or exceeding $1,500,000.00; and (iii) the right to purchase 250,000
additional shares of Common Stock such right to vest upon the Company realizing
earnings before taxes equalling or exceeding $2,250,000.00. Shares subject to
options granted to Schilowitz pursuant to this Section 3(c) are subject to
adjustment in the event of the Company's declaration of stock dividends, stock
splits, reclassification, and the occurrence of other similar events.
Schilowitz agrees to accept such Options when they vest as well as the shares
underlying the Options when the same
2
<PAGE>
are exercised for investment and not with the view toward the public
distribution thereof.
(d) The Company may withhold from payments of Employee's salary
amounts required to be withheld by the Company from time to time from such
salary under applicable Federal, State, and local laws and regulations then in
effect.
(e) Upon submission of written statements and bills in accordance
with the then regular procedures of the Company, Schilowitz shall be entitled to
reimbursement for reasonable out-of-pocket expenses necessarily incurred in the
performance of his duties hereunder, including, but not limited to,
reimbursement for travel and car expenses.
4. EMPLOYEE BENEFITS:
-----------------
(a) Schilowitz shall be included to the extent eligible thereunder
(at the expense of the Company, if appropriate) in any and all existing plans
(and any plans which may be adopted in the future) providing benefits for the
Company's employees generally, including, but not limited to, group life and
disability insurance, hospitalization, medical, vacation, retirement, stock
option plans and any and all similar or comparable benefits.
(b) Due to the fact that the Company's success is dependent upon the
activities of Schilowitz, the Company will provide keyman insurance on the life
of Mr. Schilowitz in the amount of $1,000,000.00 and Schilowitz will cooperate
in obtaining and maintaining such policy.
5. TERMINATION:
-----------
(a) The Company may terminate Schilowitz's employment hereunder at
any time by written notice but only after a decision by the Board of Directors
of the Company which is communicated to Schilowitz in writing thirty (30) days
prior to the effective date of termination;
3
<PAGE>
provided however, that the Company pays to Schilowitz a severance payment equal
- -------- -------
to the aggregate Base Salary otherwise owed to him over the remaining term of
the Employment Period and allow Schilowitz to retain any options granted under
Section 3(c) above notwithstanding the fact that such options may not be vested
and/or exercisable at the time of termination under this Section 5(a).
(b) Notwithstanding the provisions of Section 5(a) above, the Company
shall not be required to pay the amount owed under such Section if Schilowitz is
terminated "for cause." For purposes of this Agreement "For Cause" shall mean:
(i) Deliberate misappropriating any funds or properties of
the Company;
(ii) Gross mismanagement of the Company;
(c) In the event Schilowitz is not nominated or re-elected to serve
as a member of the Board of Directors during the Employment Period, either party
may terminate this Agreement and Schilowitz shall be entitled to continue to
receive his Base Salary as set forth in Section 3(a) above for the remainder of
the Employment Period and retain any options granted under Section 3(c) above
notwithstanding the fact that such options may not be vested and/or exercisable
at the time of termination under this Section 5(c).
(d) If, during the term of this Agreement, Schilowitz personally
guarantees any indebtedness of the Company to banks or others, this Agreement
cannot be terminated by the Company until such time as Schilowitz is relieved of
all obligations as such guarantor.
(e) In the event that Schilowitz dies or becomes disabled so as not
to be able to perform his duties as set forth herein for a period exceeding
twelve (12) months, this Agreement shall terminate and no further compensation
shall be payable to Schilowitz, except as may otherwise be provided under any
insurance policy, employee benefit plan, or similar instrument; provided
--------
however,
- -------
4
<PAGE>
that during any such period of disability, Schilowitz shall be entitled to his
base salary as provided under Section 3(a) for a period not to exceed twelve
(12) months.
6. COVENANT NOT TO COMPETE:
-----------------------
(a) Schilowitz agrees that, commencing the date hereof and continuing
until the due date of his final payment of salary due hereunder, he will not,
except on behalf of the Company or with the written consent of the Company (i)
engage in any business activity in Nassau or Suffolk county, directly or
indirectly, on his own behalf or as a partner, stockholder (except by ownership
of less than ten percent (10%) of the outstanding stock of a publicly-held
corporation), director, trustee, principal, agent, employee, consultant or
otherwise of any person, firm or corporation which then is competitive with an
activity in which the Company or any parent or subsidiary of the Company is then
engaged at the time; (ii) allow the use of his name by or in connection with any
business activity in Nassau and Suffolk county which then is principally
competitive with any activity in which the Company or any of its parents or
subsidiaries is then engaged; or (iii) offer employment to or employ, for
himself or on behalf of any then competitor of the Company or any of its parents
or subsidiaries, any persons in Nassau of Suffolk county who at any time within
the prior 6 months shall have been employed by the Company or any parent or
subsidiary of the Company.
(b) In the event Schilowitz is terminated without cause, the term
during which Schilowitz shall not be permitted to engage in the activities
described in Section 6(a) above shall commence on the date thereof and continue
until the date of final payment of salary due hereunder.
7. DEFAULT - REMEDIES: In the event of proof of breach by
------------------
Schilowitz, the Company shall be entitled to pursue any remedy at law or equity,
and shall specifically have the right to
5
<PAGE>
terminate any further payments of any kind or nature to be made under this
Agreement.
8. CONFIDENTIAL INFORMATION: Except as otherwise required by law,
------------------------
Schilowitz shall not disclose or use at any time, except as part of his
employment by the Company, either during or subsequent to such employment, any
secret or confidential information or knowledge obtained by Schilowitz while
employed by the Company. Without limiting the generality of the foregoing,
Schilowitz shall not disclose or use any information pertaining to the business
of the Company or any parent or subsidiary of the Company, including, but not
limited to, profit figures, names of or relationships with customers or
advertisers, or the terms of any contracts to which it or they may be a party.
The obligation imposed by this Section 8 shall survive the expiration or other
termination of this Agreement.
9. SURRENDER OF DOCUMENTS: Schilowitz shall, at the request of the
----------------------
Company, promptly surrender to the Company or its nominee, upon any termination
of his employment hereunder, or at any time prior thereto, any document,
memorandum, record, letter, specification or other paper in his possession or
under his control relating to the operations, business, customers, or affairs of
the Company or its affiliates.
10. WAIVER OF BREACH: The waiver be either the Company or Schilowitz
----------------
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by either the Company or Schilowitz.
11. SEVERABILITY: The invalidity or unenforceability of any
------------
provision of this Agreement, whether in whole or in part, shall not in any way
affect the validity or enforceability of
6
<PAGE>
any other part of such provision or of any provision herein contained, and any
invalid or unenforceable provision or part thereof shall be deemed severable to
the extent of any such invalidity or unenforceability. If such invalidity or
unenforceability is due to the unreasonableness of the time or geographical area
covered by the covenants or restrictions of such provision, such covenants and
restrictions shall nevertheless be effective for such period of time and for
such area as may be determined to be reasonable by a court of competent
jurisdiction.
12. ASSIGNMENT; BINDING EFFECT: The obligations of Schilowitz
--------------------------
hereunder may not be assigned or delegated without the prior written consent of
the Company. The rights and obligations of the parties shall inure to the
benefit of, and be binding upon, their respective heirs, personal
representatives, successors and assigns.
13. NOTICES:
-------
(a) All notices, requests, demands, and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed within the continental United States by first class, certified
mail, return receipt requested, postage and registry fees prepaid, or sent by
telecopier (with receipt confirmation), to the applicable party and addressed as
follows:
(i) if to the Company:
The Harmat Organization, Inc.
P.O. Box 339
Quogue, New York 11959
(ii) if to Schilowitz:
189 South Country Road
7
<PAGE>
Remsenberg, New York 11960
(b) Any notice or other communication given by certified mail shall
be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof. Any notice or other communication sent by telecopier transmission
shall be deemed given at the time of written confirmation of receipt.
13. ENTIRE AGREEMENT OF THE PARTIES: This Agreement expresses the
-------------------------------
entire agreement of the parties, and all promises, representations,
understandings, arrangements and prior agreements are merged herein and
superseded hereby. No person, other than pursuant to a resolution of the Board,
shall have any authority on behalf of the Company to agree to modify or change
this Agreement or anything in reference thereto, and any such modification or
change must be in writing and signed by both parties hereto.
14. LAWS GOVERNING: This Agreement has been entered into in the
--------------
State of New York and shall be construed, interpreted and governed in accordance
with the laws of the State of New York without regard to the choice of laws
provisions thereof.
15. COUNTERPARTS: This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one document.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and Schilowitz has hereunto set his hand as of the
day and year first above written.
THE HARMAT ORGANIZATION, INC.
By: /S/ Matthew Schilowitz
-------------------------
Name: Matthew Schilowitz
Title: President
Accepted and Agreed
By: /s/ Matthew Schilowitz
_____________________________
Matthew Schilowitz
9
Exhibit 10.3
STOCK SALE AGREEMENT
--------------------
THIS AGREEMENT, made the 1st day of January, 1995, by and between
HARMAT HOMES, INC., with offices at 2 Old Country Road, P.O. Box 539, Quogue,
New York 11959, (hereinafter "HARMAT"); and BENNETT BROKAW, residing at 32 Mill
Road, Westhampton Beach, New York 11978, (hereinafter "BROKAW"), LLOYD BROKAW,
residing at 407 East 91st Street, New York, New York, (hereinafter "LBROKAW"),
and DONALD COHEN, residing at 444 East 82nd Street, Apartment 5-N, New York, New
York, (hereinafter "COHEN"); and QUICK STORAGE OF QUOQUE, INC., having offices
at 2 Old Country Road, Quogue, NY ( Hereinafter "CORPORATION" ).
WHEREAS, BROKAW, LBROKAW, and COHEN are the holders of all outstanding
shares of said CORPORATION except for 100 shares held by Matthew Schilowitz; and
WHEREAS, HARMAT is desirous of acquiring the BROKAW's,
LBROKAW's and COHEN's interest in said CORPORATION and in purchasing the shares
of stock representing ownership therein currently held by BROKAW, LBROKAW, and
COHEN.
1
<PAGE>
WITNESSETH:
-----------
NOW, THEREFORE, in consideration of the mutual covenants,
promises and agreements herein contained, the parties hereto intending to be
legally bound hereby, covenant and agree as follows:
1. CORPORATION STATUS:
-------------------
The parties hereto, BROKAW, LBROKAW, COHEN and the
CORPORATION, together with Matthew Schilowitz, each warrant and represent as
follows:
A. That the CORPORATION is duly organized, presently
existing, and in good standing under the laws of New York.
B. That all the parties hereto are fully familiar with
the current terms and conditions of the Certificate of
Incorporation and the By-laws of said CORPORATION.
C. That the CORPORATION authorized shares consisting of
200 common shares having no par value, of which 200 shares are
issued and outstanding.
D. BROKAW, LBROKAW, and COHEN have good and
unencumbered titles to the shares issued by said CORPORATION and
2
<PAGE>
are owners of record and full beneficial owners of said shares as
follows:
Name Number of Shares Owned
---- ----------------------
BROKAW 50
LBROKAW 38
COHEN 12
E. That all the authorized shares of the CORPORATION
have been issued and the CORPORATION shall not issue any new or
additional shares except as provided herein.
2. Sale and Purchase:
------------------
a) Subject to the terms, covenants and agreements and
conditions of this agreement, and in furtherance and reliance on the
representations and warranties of parties contained herein, HARMAT agrees to
purchase and BROKAW, LBROKAW, and COHEN agree to sell, assign, and transfer all
of their outstanding shares in Quick Storage of Quogue Inc. for the aggregate
purchase price of $150,000.00 which purchase price will be paid by HARMAT
executing and delivering to each BROKAW, LBROKAW and COHEN a negotiable
3
<PAGE>
promissory note, each with interest at Four (4%) per cent per annum which notes
shall require interest only payments due on a monthly basis, the first payment
due one month after the execution of this document and with subsequent interest
payments being made monthly thereafter with the entire principal balance and any
accrued interest becoming due and owing, except as otherwise provided herein, no
later than December 31, 1996. Each note shall be payable to the order of the
individual BROKAW, LBROKAW and COHENs in the amounts hereinafter stated: BROKAW
- - $75,000.00; LBROKAW - $57,000.00; and COHEN - $18,000.00, and interest shall
be paid to each in proportion to these accounts.
b) That upon receipt of said notes fully executed by
HARMAT, BROKAW, LBROKAW, and COHEN shall cause to be delivered to HARMAT their
stock certificates fully and properly endorsed transferring such shares of stock
in Quick Storage of Quogue, Inc. to HARMAT.
c) That in order to secure HARMAT performance of this
agreement pursuant to the above-described notes, HARMAT shall
immediately cause the CORPORATION to re-issue the stock shares
4
<PAGE>
owned by BROKAW, LBROKAW, and COHEN to HARMAT and HARMAT shall immediately
thereafter endorse, assign, and otherwise transfer the shares back to BROKAW,
LBROKAW, and COHEN, which endorsed Shares shall be delivered to Kelly & Hulme,
P.C., as attorneys, who shall act as escrow agent for said shares as further
defined below.
d) That the escrowed share shall be delivered by
escrow agent as follow:
(I) To HARMAT, upon payment in full of the above
referenced notes including any and all principal and accrued
interest.
(II) To BROKAW, LBROKAW and COHEN upon a default
by HARMAT under any of the terms of this agreement, including but not limited to
the terms and conditions of the above referenced notes.
e) That the parties hereto agree that any and all
interest payments due to BROKAW, LBROKAW and COHEN, pursuant to said note,
shall be paid directly to the individuals at the addresses given above or at
addresses that the parties hereto may, from time to time, designate.
5
<PAGE>
3. Public Offering:
----------------
a) HARMAT is currently undertaking a public offering.
In the event that such public offering is complete before December 31, 1996,
the above referenced notes shall be due in full at the earliest of :December
31, 1996: or 30 days after the completion of the public offering.
4. EXISTING MORTGAGE
-----------------
The parties hereto represent and acknowledge of the
existence of a certain mortgage on the subject property for which BROKAW,
LBROKAW, and COHEN may be personally liable. HARMAT agrees that prior to final
delivery to it of unencumbered, unpledged stock certificates in the subject
CORPORATION, HARMAT will use its best efforts to eliminate any personally
liability for said note any of the parties hereto may have. However, in the
event that HARMAT is unable to eliminate such personal liability, the parties
nonetheless agree to close on this transaction. In addition, the value of said
mortgage at the time of this agreement, or the final transfer of stock shall in
no way effect the purchase price stated herein.
6
<PAGE>
5. ESCROW AGREEMENT
----------------
A. The BROKAW, LBROKAW and COHEN and HARMAT each irrevocably
appoint Kelly & Hulme, P.C., as ESCROWEE, to receive, hold administer and
delivery the escrowed stock certificates in accordance with the instructions
contained in this Agreement. Kelly & Hulme, P.C. hereby accepts such
appointment. The ESCROWEE shall have no liability under or duty to inquire into
the terms of any other Agreement and shall not be requested to construe any
document in connection herewith. The parties further agree that the ESCROWEE
shall not be restricted in any manner whatsoever from acting as attorney for the
BROKAW, LBROKAW and COHEN with respect to any matter and consent to the
ESCROWEE so acting as attorney for the BROKAW, LBROKAW and COHEN with respect
to any matter, including, but not limited to any matter related to this
Agreement or the above-referenced sales contract and whether or not there is a
controversy between the BROKAW, LBROKAW and COHEN and the HARMAT with respect to
this transaction.
B. The ESCROWEE shall hold the escrow amount and shall pay the
escrow amount as defined above.
C. The ESCROWEE's duty hereunder is purely administerial in nature
and the ESCROWEE shall have no duties or responsibilities except those
expressed and set forth herein. The ESCROWEE shall incur no liability
7
<PAGE>
whatsoever except for willful misconduct or gross negligence. If a controversy
arises between the HARMAT and the BROKAW, LBROKAW and COHEN related to this
Escrow Agreement, in the event the ESCROWEE shall be uncertain as to his duties
or rights hereunder or shall receive instructions from the HARMAT or BROKAW,
LBROKAW and COHEN, which in the ESCROWEE's opinion are in conflict with any of
the provisions hereof, the ESCROWEE shall be entitled to hold the escrow amount
until such time as the ESCROWEE receives:
(I) a copy of a written agreement between the HARMAT and BROKAW,
LBROKAW and COHEN, determining their respective rights; or
(ii) a copy of a final non-appealable judgment from a court of
competent jurisdiction with respect to the escrow amount, in which case the
ESCROWEE will then disburse the escrow amount in accordance with such agreement
or judgment.
6. INDEMNIFICATION
---------------
Except with respect to claims based upon the ESCROWEE's bad faith, willful
misconduct or gross negligence, BROKAW, LBROKAW and COHEN
and the HARMAT jointly and severally shall indemnify and hold harmless the
ESCROWEE (and any successor ESCROWEE) for and against any and all liability,
loss, damage or expense arising out of or in connection with this Escrow
Agreement, including, but not limited to, reasonable legal
8
<PAGE>
fees and expenses.
7. Survival of Representations:
----------------------------
All covenants, warrants, representations, warranties,
and statements contained in this agreement, any certificates or documents
delivered pursuant hereto or in connection with the transaction contemplated
heroin, shall survive the closing.
8. Parties:
--------
Accept to the extent otherwise provided herein, all the terms
and provisions of this agreement shall be binding upon and enure to the benefit
of and be enforceable by the parties hereto their, successors, assign, heirs,
executors, administrators, and legal representatives.
9. Governing Law:
--------------
This agreement shall be governed by and construed in
accordance with the laws of the State of New York.
10. Notices:
--------
All notices sha11 be in writing and shall be deemed
given when delivered personally to a party or his attorney, or
9
<PAGE>
when deposited in the U.S. Mail, Certified Mail, Postage Prepaid,
addressed to the party at his address set forth at the beginning
of this agreement, or to this attorney. Notices to the escrow
agents are likewise be deemed given when personally delivered to
him, or deposited in the U.S. Mail, Certified Mail, Postage
Prepaid, addressed to him at his address set forth in this
agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals, and the corporate party hereto has caused this agreement to be
executed by its President and its corporate seal to be affixed hereto and
attested to by its corporate secretary on the date first above written.
/s/ BENNETT BROKAW /s/ LLOYD BROKAW
- ------------------------ ----------------------------
BENNETT BROKAW LLOYD BROKAW
/s/ DONALD COHEN
- ------------------------
DONALD COHEN
HARMAT HOMES, INC. QUICK STORAGE OF QUOQUE, INC.
By: /s/ MATTHEW SCHILOWITZ By:
----------------------- ---------------------------
MATTHEW SCHILOWITZ
10
<PAGE>
when deposited in the U.S. Mail, Certified Mail, Postage Prepaid,
addressed to the party at his address set forth at the beginning
of this agreement, or tO this attorney. Notices to the escrow
agents are likewise be deemed given when personally delivered to
him, or deposited in the U.S. Mail, Certified Mail, Postage
Prepaid addressed to him at his address set forth in this
agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals, and the corporate party, hereto has caused this agreement to be
executed by its President and its corporate seal to be affixed hereto and
attested to by its corporate Secretary on the date first above written.
/s/ BENNETT BROKAW /s/ LLOYD BROKAW
- ------------------------ ----------------------------
BENNETT BROKAW LLOYD BROKAW
/s/ DONALD COHEN
- ------------------------
DONALD COHEN
HARMAT HOMES, INC. QUICK STORAGE OF QUOQUE, INC.
By: /s/ MATTHEW SCHILOWITZ By:
----------------------- ---------------------------
MATTHEW SCHILOWITZ
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of March 1, 1996, among THE HARMAT ORGANIZATION,
INC. a Delaware corporation having an address at Old Country Road, P.O. Box 539,
Quogue, New
York 11959 ("Purchaser"), and Matthew Schilowitz ("Schilowitz" or the "Seller"),
an individual who
resides at 189 South Country Road, Remsenburg, New York 11960.
WHEREAS, Seller is the holder of all of the issued shares of stock of
Harmat Homes, Inc., a New York corporation having an office at Old Country Road,
P.O. Box 539, Quogue, New York 11959 ("HHI"), Harmat Capital Corp., a New York
corporation having an office at Old Country Road, P.O. Box 539, Quogue, New York
11959 ("HCC"), Northside Woods, Inc., a New York corporation having an office
at Old Country Road, P.O. Box 539, Quogue, New York 11959 ("NWI"), Harmat
Organization, Inc., a New York corporation having an office at Old Country Road,
P.O. Box 539, Quogue, New York 11959 ("HOI") and Harmat Holding Corp., a New
York corporation having an office at Old Country Road, P.O. Box 539, Quogue, New
York 11959 ("HHC");
WHEREAS, Seller is the holder of 50% of the issued shares of stock of Quick
Storage of Quogue, Inc., a New York corporation having an office at Old Country
Road, P.O. Box 539, Quogue, New York 11959 ("QSQ")(HHI, HCC, NWI, HOI, HHC, and
QSQ collectively referred to as "The Companies");
WHEREAS, Purchaser desires to purchase from Seller and Seller desires to
sell to Purchaser all of the issued shares of stock of The Companies held by
Seller (collectively the "Stock");
NOW, THEREFORE, in consideration of the purchase and sale and the mutual
covenants, agreements, conditions, representations, and warranties hereinafter
set forth, and the parties hereto intending to be legally bound hereby, agree as
follows:
I. THE PURCHASE
------------
1.01 Terms of the Purchase. On the basis of the representations,
----------------------
warranties, covenants, and agreements contained in this Agreement and subject to
the terms and conditions of this Agreement:
(a) In exchange for the consideration set forth in Section 1.01(b) below;
(i) Seller, simultaneously herewith, hereby sells, assigns,
transfers, and conveys to Purchaser and Purchaser hereby
purchases from Seller the Stock.
<PAGE>
(ii) Seller does hereby deliver to Purchaser, certificates
representing such Stock , duly endorsed in blank or
accompanied by stock powers, or the equivalent thereto,
dulyendorsed in blank, in each case in proper form for
transfer, with all transfer and any other required
documentary stamps affixed thereto.
(b) In exchange for the transfer of Stock as set forth above, Purchaser
shall issue and delivers herewith and Seller accepts 1,750,000 shares of
Purchaser's common stock (the "Purchaser Stock").
(c) Seller also delivers to Purchaser the complete minute and stock books
and corporate seals and business records of each of The Companies.
1.02 The Closing
-----------
The closing of the transactions contemplated by Section 1.01 shall take
place at the offices of McLaughlin & Stern at 10:00 A.M. on March 1, 1996.
II. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
2.01 Seller represents and warrants to Purchaser as follows:
(a) Organization, Standing and Power.
i. The Companies are each duly organized corporations, validly
existing and in good standing under the laws of the states of
their incorporation .
ii. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not,
(A) conflict with or result in a breach of any provision of
the Certificates of Incorporation or By laws of The
Companies;
(B) to the best knowledge of the Seller, violate any
judgment, order, writ, injunction or decree of any
court, administrative agency or government body to
which The Companies are a party;
iii. No consent or approval of any public body or authority is
necessary for the consummation by the Seller of the transactions
contemplated by this Agreement except that consents of certain
mortgagees on properties owned by The Companies may have to be
obtained in some cases;
iv. This Agreement is a valid and binding obligation of the Seller
in accordance with the terms hereof.
<PAGE>
v. Seller owns the Stock free and clear of all liens and
encumbrances and upon transfer to Purchaser, Purchaser will own
the Stock free and clear of all liens and encumbrances.
vi. Seller is acquiring the Purchaser Stock for investment purposes
only without a view toward the public distribution or resale
thereof.
(b) Capital Structure.
i. The authorized capital stock and shareholders of record of each
of The Companies are as follows:
<TABLE>
<CAPTION>
Authorized
Name of Seller Capital Stock Shares owned of Record
- -------------- ------------- ----------------------
<S> <C> <C>
Harmat Homes, Inc. 200 shares, no par value Matthew Schilowitz 10 shrs.
Harmat Capital Corp. 200 shares, no par value Matthew Schilowitz 100 shrs.
Northside Woods, Inc. 200 shares, no par value Matthew Schilowitz 20 shrs.
Harmat Holding Corp. 200 shares, no par value Matthew Schilowitz 10 shrs.
Harmat Organization,
Inc. 200 shares, no par value Matthew Schilowitz 10 shrs.
Quick Storage of
Quogue, Inc. 200 shares, no par value Matthew Schilowitz 100 shrs.
Harmat Homes, Inc. 100 shares
</TABLE>
(c) Taxes.
i. All federal, state and local tax and information returns and
reports required to be filed by The Companies have been timely
filed with the appropriate governmental agency.
ii. All taxes, charges, interest, penalties, assessments and
deficiencies (including, without limitation, real estate taxes)
due from The Companies to any taxing authority under any
applicable law have been fully paid, whether or not disputed, on
the books and records of The Companies.
iii. Seller is not aware of any existing or pending audit with respect
to federal, state or local income tax.
(d) Agreements.
i. Attached hereto as Exhibit A is a list of all material agreements
to which each of The Companies are a party, not including those
purchase orders or sales orders entered into by The Companies in
the ordinary course of business and reflected on the books and
records of The Companies which have been made available to
Purchaser.
<PAGE>
ii. To the best knowledge of the Seller, all such agreements are
valid and binding obligations of the parties thereto, enforceable
in accordance with their terms. To the best knowledge of the
Seller, none of The Companies are in default under any agreement
listed on Exhibit A.
(e) Litigation.
i. Attached hereto as Exhibit B is a list of all litigation to
which The Companies are a party.
ii. To the best knowledge of Seller, no other claims have been
asserted against The Companies nor, to the best of Seller's
knowledge, are there any threats of litigation against the any of
The Companies.
(f) Permits.
The Companies presently hold all licenses, permits, and other approvals
that are required for them to conduct their businesses as they are now being
conducted. The consummation of this transaction will not adversely affect the
existence, validity and continued effectiveness of such licenses, permits or
other approvals except that consents of certain mortgagees on properties owned
by The Companies may have to be obtained in some cases.
(g) Compliance with Law.
To the best knowledge of Seller, The Companies have not violated any law,
ordinance, regulation or statute of the United States, or any state, or locality
having jurisdiction over the operations of The Companies.
(h) Adverse Developments.
Seller is not aware of any matter or event, occurring or threatened, which
threatens to disrupt, prevent, or materially impair the conduct of the
businesses of The Companies.
<PAGE>
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
3.01 Purchaser warrants and represents to Seller as follows:
-------------------------------------------------------
(a) Power.
i. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby will not
violate any judgment, order, writ, injunction or decree or any
court, administrative agency or government body to which
Purchaser is a party or which is otherwise
applicable to Purchaser.
ii. No consent or approval of any public body or authority is
necessary for the consummation by Purchaser of the transactions
contemplated by this Agreement.
iii. Purchaser is acquiring the Purchaser Stock for investment
purposes only without a view toward the public distribution or
resale thereof.
(b) Authority.
(i) This Agreement is a valid and binding obligation of the Purchaser
in accordance with the terms hereof.
(ii) The Purchaser Stock, when issued, will be duly authorized,
validly existing, fully paid, and non-assessable shares of common
stock of Purchaser.
IV. GENERAL PROVISIONS
------------------
4.01 Further Actions. At any time and from time to time, each party
----------------
agrees, at its or his expense, to take such actions and to execute and deliver
such documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
4.02 Availability of Equitable Remedies. Since a breach of the
-----------------------------------
provisions of this Agreement could not adequately be compensated by money
damages, any party shall be entitled, either before or after the Closing, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or threatened breach and to specific performance of any
such provisions of this Agreement, and, in either case, no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such an injunction and to the ordering of specific
performance.
<PAGE>
4.03 Integration. This Agreement and the Exhibits hereto, set forth
------------
the entire understanding of the parties with respect to the subject matter
hereof.
4.04 Notices. Any notice or other communication required or permitted
--------
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested (or by the most nearly comparable method if mailed from
or to a location outside of the United States) or shall be sent by an express
carrier (specifying one, two or three day delivery service) or delivered
against receipt to the party to whom it is to be given at the address of such
party set forth in the preamble to this Agreement (or to such other address as
the party shall have furnished in writing in accordance with the provisions of
this Section 4.04) with a copy to each of the other parties hereto.
Any notice or other communication given by certified mail (or by such comparable
method) shall be deemed given at the time of certification thereof (or
comparable act) except for a notice changing a party's address which will be
deemed given at the time of receipt thereof.
4.05 Waiver. Any waiver by any party of a breach of any provisions of
-------
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
4.06 Binding Effect. Subject to the limitations contained herein the
---------------
provisions of this Agreement shall be binding upon and inure to the benefit of
Purchaser its successors and assigns and Seller and his successors, assigns and
heirs.
4.07 Separability. If any provision of this Agreement is invalid,
-------------
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
4.08 Headings. The headings in this Agreement are solely for
---------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
4.09 Counterparts; Governing Law. This Agreement may be executed in
----------------------------
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
THE HARMAT ORGANIZATION, INC.
By: /s/ MATTHEW SCHILOWITZ
____________________________
Name: Matthew Schilowitz
Title: President
/s/ MATTHEW SCHILOWITZ
_______________________________
MATTHEW SCHILOWITZ
<PAGE>
EXHIBIT A
None
EXHIBIT B
The Company is a plaintiff in a litigation in the Supreme Court of the
State of New York, Suffolk County against a former client for lost profits.
EXHIBIT 10.5
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT made this 1st day of March, 1996, by and among
Matthew Schilowitz ("Schilowitz") with an office at P.O. Box 539, 22 Old Country
Road, Quogue, New York 11959; The Harmat Organization, Inc. ("Harmat") with an
office at P.O. Box 539, 22 Old Country Road, Quogue, New York 11959 and
McLaughlin & Stern, LLP (the "Escrow Agent") with an office at 380 Lexington
Avenue, New York, New York 10168.
W I T N E S S E T H :
WHEREAS, Harmat has entered into a Stock Purchase Agreement dated the
date hereof with Schilowitz pursuant to which Harmat has issued an aggregate of
1,750,000 shares of its common stock (the "Stock") to Schilowitz; and
WHEREAS, Harmat has entered into a Letter of Intent with Biltmore
Securities, Inc. ("Biltmore") in connection with a proposed public offering of
securities of Harmat; and
WHEREAS, Biltmore has requested that Schilowitz place in escrow
750,000 shares, which he owns in Harmat, to be released from escrow to
Schilowitz, in the event certain performance criteria have been achieved and, if
not achieved, that such shares or a portion thereof be canceled.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained and subject to the conditions hereinafter set forth, the
parties agree as follows:
1. Concurrently herewith Schilowitz is delivering to Escrow
Agent certificates representing 750,000 shares of Harmat
<PAGE>
Common Stock owned by him accompanied by Stock Powers endorsed in blank for
transfer as set forth in attached Schedule A (the "Harmat Stock"). There may be
delivered to the Escrow Agent, from time to time, additional certificates
representing shares of Harmat Stock, together with stock powers in respect
thereof representing stock dividends or stock distributions paid with respect to
shares of Harmat Stock then being held in escrow by the Escrow Agent. The
shares of Harmat Stock concurrently delivered to the Escrow Agent and such
additional shares of Harmat Stock as may, from time to time, be hereafter
delivered to the Escrow Agent, are hereinafter collectively referred to as the
"Escrowed Assets". The Escrow Agent will hold the Escrowed Assets on the terms
and conditions hereinafter set forth.
2. The Harmat Stock shall be released to Schilowitz as follows: (a)
250,000 shares upon Harmat realizing earnings before interest expense and taxes
equaling or exceeding $750,000; (b) 250,000 shares upon Harmat realizing
earnings before interest expense and taxes equaling or exceeding $1,500,000; and
(c) 250,000 shares upon Harmat realizing earnings before interest expense and
taxes equaling or exceeding $2,250,000. In the event such goals have not been
achieved in whole or in part within ten (10) years from Harmat`s initial public
offering, then the shares which have not been previously released from escrow
shall be returned to Harmat for cancellation. The Escrow Agent shall deliver the
Escrowed Assets or any portion thereof in accordance with any instruction or
instructions which shall be signed jointly by both
2
<PAGE>
Schilowitz and Harmat.
3. In the event that the Escrow Agent shall receive an instruction
(the "Instruction") with respect to the Escrowed Assets or any portion thereof
from Schilowitz but not from Harmat or from Harmat but not from Schilowitz (the
person giving the Instruction being hereinafter referred to as the "Instructing
Party" and the person which shall not have given the Instruction being
hereinafter referred to as the "Other Party"), the Escrow Agent shall transmit a
copy of the Instruction received from the Instructing Party to the Other Party.
The Escrow Agent shall thereafter act in accordance with the Instruction if the
Other Party shall fail, within ten days from transmittal by the Escrow Agent to
the Other Party of the copy of the Instruction, to notify the Escrow Agent in
writing that the Escrow Agent is not to comply with the Instruction. If the
Other Party shall, within ten days after transmittal of the Instruction by the
Escrow Agent to the Other Party, advise the Escrow Agent not to comply with the
Instruction, the Escrow Agent shall not act in accordance with the Instruction
but shall thereafter act, with respect to such of the Escrowed Assets as were
the subject of the Instruction, solely in accordance with any of the following:
(a) a new instruction signed jointly by Harmat and Schilowitz,
or
(b) separate instructions of like tenor from each of Harmat and
Schilowitz, or
(c) a certified copy of an arbitrators' award
3
<PAGE>
issued under the rules of the American Arbitration Association as to which the
Escrow Agent shall have received an opinion of counsel, satisfactory to the
Escrow Agent in its sole and absolute discretion, that such award is final
beyond appeal, or
(d) a certified copy of a judgment of a court of competent
jurisdiction as to which the Escrow Agent shall have received an opinion of
counsel, satisfactory to the Escrow Agent in its sole and absolute discretion,
that such judgment is final beyond appeal.
4. For purposes of this Agreement, the signature by Harmat must be by
an officer or director of Harmat other than Schilowitz. The Escrow Agent shall
not be bound in any way by any agreement or any contract between Harmat and
Schilowitz (whether or not it has knowledge thereof) and the Escrow Agent's only
duties and responsibilities shall be to hold the Escrowed Assets as Escrow Agent
and to dispose of said assets in accordance with the terms of this Escrow
Agreement.
5. The Escrow Agent may act upon any instruction or other writing
believed by the Escrow Agent in good faith to be genuine and to be signed or
presented by the proper person and the Escrow Agent shall not be liable in
connection with the performance of its duties under this Escrow Agreement except
for the Escrow Agent's own willful default or gross negligence. The Escrow
Agent may consult with counsel, and any opinion of counsel shall be full and
complete authorization and protection in respect of any action taken or
permitted by the Escrow Agent hereunder in good faith and
4
<PAGE>
in reliance upon such opinion. It is acknowledged by the parties hereto that
the Escrow Agent is general counsel to Harmat and may continue to represent
Harmat in its dealings.
6. Any notice, reports, demands or instruction required or permitted
by any provision of this Agreement shall be deemed to have been sufficiently
transmitted, delivered, given or served for all purposes if sent by prepaid
registered mail to the respective parties at their addresses hereinabove
written. The date of delivery or transmittal shall be deemed to be the date of
mailing except that no notice, report, demand or instruction shall be deemed to
have been delivered or transmitted to the Escrow Agent until actual receipt
thereof by the Escrow Agent.
7. Schilowitz and Harmat jointly and severally agree to reimburse the
Escrow Agent for all expenses incurred by the Escrow Agent in acting hereunder
and to indemnify the Escrow Agent and to hold the Escrow Agent harmless against
any loss, liability and expense incurred without negligence or bad faith on the
part of the Escrow Agent arising out of or in connection with the acceptance or
administration by the Escrow Agent of its duties hereunder, including the costs
and expenses of defending itself against any claim of liability hereunder.
8. This Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, successors and assigns.
9. So long as no Default (as hereinafter defined) shall have occurred
and be continuing, Schilowitz shall be entitled to
5
<PAGE>
exercise all voting or consensual rights relating to the Harmat Stock.
10. Schilowitz represents and warrants that he owns the Harmat Stock
free and clear of all liens and encumbrances and such Stock is the duly
authorized, non-assessable shares of Harmat.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be made and executed the day and year first above written.
/s/ MATTHEW SCHILOWITZ
______________________________
Matthew Schilowitz
The Harmat Organization, Inc.
By: /s/ MATTHEW SCHILOWITZ
____________________________
MATTHEW SCHILOWITZ
McLaughlin & Stern, LLP
By: /s/ DAVID W. SASS
_____________________________
DAVID W. SASS, PARTNER
6
EXHIBIT 21
List of Subsidiaries
Name State of Incorporation
- ---- ----------------------
Harmat Homes, Inc. New York
Harmat Capital Corp. New York
Northside Woods, Inc. New York
Harmat Holding Corp. New York
Harmat Organization, Inc. New York
Quick Storage of Quogue, Inc. New York
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
The Harmat Organization, Inc. and Subsidiaries
Quogue, New York
We hereby consent to the use in the Prospectus constituting a
part of this Registration Statement on Form SB-2 of our report dated March 27,
1996, relating to the consolidated financial statements of Harmat Organization,
Inc. and subsidiaries which is contained in the Prospectus.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants.
Cranford, New Jersey
May , 1996
EXHIBIT 24.2
CONSENT OF McLAUGLIN & STERN, LLP
We hereby consent to the reference to our firm name under the heading
"Management" and "Legal Matters" included herein in the Registration Statement
(Form SB-2) of The Harmat Organization, Inc.
McLaughlin & Stern, LLP
New York, New York
May , 1996
