As filed with the Securities and Exchange Commission on July 1, 1996
Registration No. 333-3501
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment #1
to
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, ESQ.
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
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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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CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Title of Each Amount Offering
Class of Security Being Price per
Being Registered Registered Unit/Share
(1)
- -------------------------------------------------------------------------------
Units (each consisting
of one share of Common
Stock $.001 par value
and one Series A Common Stock
Purchase Warrant(2) 1,265,000 $ 3.50
Units
Shares of Common Stock
$.001 par value, under-
lying the Series A Common
Stock Purchase Warrants(2)(3) 1,265,000 $ 4.00
Shares
Representative's Warrant 110,000 $ .001
to Purchase Units Units
Units underlying
the Representative's
Warrant (3) 110,000 $ 4.20
Units
Shares of Common Stock
$.001 par value under-
lying the Series A Warrants
included in the
Representative's 110,000 $ 4.00
Warrant (3) Shares
Shares of Common Stock
$.001 par value offered 1,000,000 $ 3.25
by Selling Stockholders(4) Shares
Series A Common Stock
Warrants issued in a
private placement (3) 1,500,000 $ .001
Warrants
Shares of Common Stock
$.001 par value underlying
the Series A Warrants issued
in a private placement (3) 1,500,000 $ 4.00
Shares of Common Stock
$.001 par value underlying
the Series B Warrants
issued in a private 500,000 $ 9.00
placement (3)(5) Shares
Total.............................. $ 8,324.59
Previously paid.................. $ 7,415.19
Balance Due...................... $ 909.40
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CALCULATION OF REGISTRATION FEE
Proposed
Maximum
Title of Each Aggregate Amount of
Class of Security Offering Registration
Being Registered Price Fee
--------------------------------------------------
Units (each consisting
of one share of Common
Stock $.001 par value
and one Series A Common Stock
Purchase Warrant(2) $ 4,427,500.00 $ 1,526.73
Shares of Common Stock
$.001 par value, under-
lying the Series A Common
Stock Purchase Warrants(2)(3) $ 5,060,000 $ 1,744.84
Representative's Warrant $ 110.00 $ .04
to Purchase Units
Units underlying
the Representative's
Warrant (3) $ 462,000 $ 159.31
Shares of Common Stock
$.001 par value under-
lying the Series A Warrants
included in the
Representative's $ 440,000 $ 151.73
Warrant (3)
Shares of Common Stock
$.001 par value offered $ 3,250,000 $ 1,120.70
by Selling Stockholders(4)
Series A Common Stock
Warrants issued in a
private placement (3) $ 1,500 $ .53
Shares of Common Stock
$.001 par value underlying
the Series A Warrants issued
in a private placement (3) $ 6,000,000 $ 2,068.98
Shares of Common Stock
$.001 par value underlying
the Series B Warrants
issued in a private $ 4,500,000 $ 1,551.73
placement (3)(5)
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(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Includes 165,000 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. These shares and warrants herein are being
registered for resale only pursuant to an alternate prospectus
prepared in connection with the Registration Statement.
(5) Represents shares of Common Stock underlying Series B Warrants sold in
a private placement in February 1996. These shares are being registered
for resale only pursuant to an alternate prospectus prepared in
connection with the Registration Statement.
------------------------------
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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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") 1,100,000 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.
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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 July 1, 1996
PROSPECTUS
THE HARMAT ORGANIZATION, INC.
1,100,000 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 1,100,000 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 $4.00 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
equaled 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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See "Use of Proceeds." Upon completion of the Company's public offering,
management will own an aggregate of 46.3% (23.8% if the escrowed shares are not
included) 44.1% (22.8% 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 an option to purchase up to 110,000 Units as
well as 110,000 Units covered by the options and the underlying securities to be
issued to the Underwriter. The Warrants contained in the Units to be sold to the
Underwriter have the same terms and conditions as the public Series A Warrants
and are redeemable on the same terms as the Warrants forming a part of the Units
offered hereby. The Underwriter`s Unit Purchase Option is not redeemable by 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
Series A Warrants and 2,000,000 shares issuable upon exercise of outstanding
Series A and Series 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"). The Series A Warrants offered by the Selling
Stockholders are identical in all respects to the Warrants forming a part of the
Units offered hereby. The Series B Warrants are identical to the Series A
Warrants except that the exercise price is $9.00 per share, the term is for four
years and the strike price for redemption is $10 per share. Such securities are
subject to an 18 month lock-up by the Underwriter. The shares and Warrants being
offered by the Selling Stockholders are being registered for resale purposes
only pursuant to an Alternate Prospectus. 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 SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Price to Public Underwriting Discounts
and Commissions (1)
Per Unit offered by $ 3.50 $ .35
Company............
Per Share offered by $ 3.25 $ .325
Selling Stockholder
Total(3)..... $4,500,000 $ 450,000
Proceeds to Company(2) Proceeds to Selling
Stockholders
Per Unit offered by $ 3.15 $ -0-
Company............
Per Share offered by $ - $2.925
Selling Stockholder
Total(3)..... $3,465,000 $585,000
BILTMORE SECURITIES, INC
The Date of this Prospectus is _______, 1996
- ---------------
(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 110,000 Units (the "Underwriter's
Unit Purchase Option") at an exercise price equal to 120% of
the public offering price ($4.20 per Unit); and (b) a non-
accountable expense allowance of $135,000 Non-Accountable
Expense Allowance") equal to 3% of the aggregate initial
public offering price of the Units and the Shares(or $152,325
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 $410,500 (including the Underwriter's Non-
Accountable Expense Allowance of $115,000 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 $3,054,500.
(3) The Company has granted an option to the Underwriter to
purchase up to an aggregate of 165,000 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 ($3.50 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
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Commissions, and Proceeds to the Company will be $4,427,500, $442,750
and $3,984,750, 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 $3,556,925, 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."
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
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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 provision s of the
Securities Act of 1933, as amended (the "Securities Act"). Although this
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
to Matthew Schilowitz, the Company's President, CEO and Chairman of the Board of
Directors, in March 1, 1996 of 1,750,000 shares of Common Stock of the Company
in exchange for shares of
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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. The Company has outstanding
prior to the Offering contemplated hereby 2,250,000 shares of Common Stock. 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"), incorporated on December 14, 1995, 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... 1,100,000 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 $4.00 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)................. 3,350,000 Shares
Series A Warrants(2)............. 2,600,000 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) 2,000,000 shares of Common Stock
issuable upon exercise of the Series A and Series B Warrants
issued in a private placement and 1,100,000 shares of Common
Stock issuable upon exercise of the Series A Warrants
contained in the Units; (b) 165,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and
165,000 shares of Common Stock issuable upon the exercise of
the Series A Warrants contained therein; (c) 110,000 shares of
Common Stock issuable upon exercise of the Underwriter's Unit
Purchase Option and 110,000 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"
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and "Underwriting."
(2) Does not include the issuance of: (a) 165,000 Series A
Warrants issuable upon exercise of the Over-Allotment Option;
or (b) 110,000 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 and Other 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, the
Company`s working capital and shareholder`s deficits, economic dependency,
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 $600,000 for the
acquisition and development of property; (ii) repayment of approximately
$1,068,048 in outstanding indebtedness; and (iii) the remainder of approximately
$1,386,452, 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 and the three months ended March 31, 1996 and 1995 has been
derived from audited financial statements.
December 31,
1995
Balance Sheet Data
Working Capital (Deficit).............. (1,206,453)
Total Assets........................... 2,694,555
Total Liabilities...................... 2,876,485
Total Long-Term Obligations............ 1,156,273
Stockholders' Equity (Deficit)......... (181,930)
March 31, 1996
Actual As Adjusted(1)
Balance Sheet Data
Working Capital (Deficit).............. (1,201,617) 752,883
Total Assets........................... 3,130,848 5,117,300
Total Liabilities...................... 3,157,100 2,089,052
Total Long-Term Obligations............ 925,445 777,797
Stockholders' Equity (Deficit)......... (26,252) 3,028,248
Three Months Ended March 31,
1996 1995
Income Statement Data
Revenues................................ 87,822 45,783
Income from Operations.................. (43,818) (42,205)
Net Income (Loss)....................... (45,056) (113,857)
Net Income (Loss) Per Share
Of Common Stock........................ (.02) (.05)
Pro Forma Net Earnings.................. (45,056) (113,857)
Pro Forma Net Earnings per Share of
Common Stock........................... (.02) (.05)
Weighted Average Number of Common Shares
Outstanding Used in Computation......... 2,250,000 2,250,000
December 31, December 31,
1995 1994
Income Statement Data
Revenues................................ 2,323,524 4,518,872
Income from Operations.................. 131,710 1,260
Net Income (Loss)....................... 235,903 258,171
Net Income (Loss) per Share of
Common Stock........................... .10 .11
Pro Forma Net Earnings.................. 141,000 155,000
Pro Forma Net Earnings per Share of
Common Stock........................... .07 .06
Weighted Average Number of Common Shares
Outstanding Used in Computation......... 2,250,000 2,250,000
(1) Includes the effect of the proposed public offering with anticipated net
proceeds of $3,054,500.
(2) The decrease of sales revenues from 1994 to 1995
reflects the Company's decision to expand into the
construction management phase of the commercial real
estate market. In 1995, the Company entered into a
construction management contract to supervise the
construction of a 14 unit condominium project in
Westhampton, N.Y. As a result, all sales revenue
generated by the sale of these condominium units were
not reflected on the books of the Company, only the
construction management fee for the construction
period was reflected as revenue.
In addition, the Company has moved towards constructing
homes for the upscale market which has resulted in fewer homes
delivered last year. Although, fewer homes were delivered in
1995 than in 1994, the gross profit margin increased in 1995.
This increase in gross profit indicates the Company's
direction in producing an upscale product at that same time
monitoring costs.
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.
Qualified Independent Auditor`s Report - Financial Losses
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".
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Economic Dependency
Most of the Company`s business is of a non-recurring 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 houses,
such lack of new purchasers will have a negative impact to the Company in the
near term.
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 such as weather delays, cost of supplies and late deliveries 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. Such
construction risks can affect the Company`s cash flow and profits. To date the
Company has not been materially affected by such construction risks. See
"Business."
Expansion of Business - Unspecified Acquisitions
The Company proposes to seek opportunities to expand its business in
commercial real estate and to acquire income producing properties such as mini
storage facilities, apartments and commercial strip retail centers. The Company
has not entered into any negotiations in respect thereto. Such opportunities
management believes are attractive since they require low maintenance, limited
supervision and a preferred return. No assurance can be given that the Company
will be able to expand its business or realize
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profitable operations. See "Business - Strategy".
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 has a five year
employment agreement with Mr. Schilowitz. The Company intends to obtain keyman
insurance on the life of Mr. Schilowitz in the amount of $1,000,000. See
"Management".
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. The Company sometimes obtains
bridge loans to cover construction costs and utilizes its rental income from
apartments and the storage facility to cover its overhead during slow periods.
The Company`s construction projects usually begin in the fall with most sales
completed in the spring and early summer. See "Business - Seasonality".
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 of approximately
$1,986,452 or 65% of the net proceeds, including up to $4,400,000 funds that may
be 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-bearing obligations. 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
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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 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. Additional conflicts
could occur by reason of the fact that a director of the Company is a member of
the law firm representing the Company. See "Certain Transactions" and "Legal
Matters".
Working Capital - Use of Proceeds
A portion (approximately $1,386,452 or 45.4%) 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. To date, the
Company has had no problems in
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complying with such laws nor experienced any unusual cost with respect to
compliance therewith. The Company is also subject to changes in these
regulations that may have a materially adverse effect on its business. See
"Business - Government Regulation".
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 benefit, or an illegal dividend or stock purchase,
and not for such director's negligence or gross negligence in satisfying his
duty of care. See "Description of Securities".
Arbitrary 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
the securities 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 $2.40 per share, or approximately 68.6%,
assuming that the anticipated $3.50 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
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<PAGE>
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 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
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<PAGE>
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 relating to the
Company achieving earnings before taxes at certain levels. The Underwriter
required that all shareholders of the Company lock-up their securities in order
for the Underwriter to engage in the Offering. In previous offerings the
Underwriter has released the lock-up prior to the end of the lock-up period. See
"Certain Transactions" and "Underwriting."
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 Stock may have the effect of
rendering more difficult, or discouraging, an acquisition of the Company or
changes in control of the Company. 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
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<PAGE>
Effect", and "Description of Securities".
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
67.2% (57.7% 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 $3,850,000 for 1,100,000 shares of Common Stock,
or 32.8% (42.3% 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 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 and was 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
company must
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<PAGE>
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. See "Underwriting".
"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 acknowledgment from the customer that such
disclosure information was provided and must retain such acknowledgment 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.
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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 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 - SEC Judgement
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter 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
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("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
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 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
28
<PAGE>
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 the 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 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. See "Underwriting".
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. A hearing in
this matter has been scheduled for October 7, 1996. 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 securities.
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. See
"Underwriting".
Blue Sky Restrictions on Exercise of the Series A Warrants
The Company has qualified the sale of the securities being
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<PAGE>
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. See "Underwriting".
Underwriter's Unit Purchase Option
In connection with the Company's offering of the 1,100,000 Units, the
Company will sell to the Underwriter, for nominal consideration, an option to
purchase up to an aggregate of 110,000 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 $4.20 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 registration under 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
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<PAGE>
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 a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of the fiduciary duty of care as a director, 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 "Description of Securities".
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 achieved. Mr.
Schilowitz has the right to vote the shares held in escrow. See "Certain
Transactions."). Consequently, immediately upon completion of the Company's
public offering of the 1,100,000 Units, the officers and directors of the
Company will own or control the voting of 46.3% (23.8% 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. Although Mr.
Schilowitz does not own a majority of the Company`s issued and outstanding
Common Stock, Mr. Schilowitz will be in a position to exert substantial
influence over the actions of the Company. Mr. Schilowitz is also a Selling
Stockholder under the alternate prospectus selling 300,000 shares. After such
sale, Mr. Schilowitz will own 1,250,000 shares of the Company`s Common Stock
(including 750,000 shares held in escrow). See "Principal Stockholders" and
"Certain Transactions."
Current Prospectus Requirement
During the exercise period of the Series A Warrants as well as during
the 18 month lock-up period applicable to the Selling Stockholder, the Company
must maintain and make available a current prospectus. This Prospectus will no
longer be current after _________, 1996 (or earlier upon the occurrence of a
material event or change which would render the information herein inaccurate or
otherwise misleading). There can be no assurance give that the
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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. See "Underwriting".
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 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 $3,054,500 (or $3,574,250 if the
Over-Allotment Option is exercised in full). The Company intends to use the net
proceeds of its offering substantially as follows:
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Approximate
Proposed Use of Proceeds Amount Percentage
Acquisition and Development of Property (1).. $ 600,000 19.6%
Repayment of Debt(2)......................... 1,068,048 35.0%
General Working Capital (3).................. 1,386,452 45.4%
---------- -----
Total.............................. $3,054,500 100%
- -------------
(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 of approximately $3,425,000, a commitment
from Key Bank of New York having been obtained; and (b)
expansion of the mini storage facility in Quogue, New York
($100,000).
(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
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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 threat of 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 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 additional financing 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.
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- ----------------------------------------------------------------
CAPITALIZATION
- -----------------------------------------------------------------
The following table sets forth the Company's capitalization on a pro forma basis
and as adjusted as if all of the Units offered herein were sold.
March 31, 1996
Actual As Adjusted(1)(2)
Short-Term Debt $2,231,655 $ 1,311,255
Long-Term Debt $ 925,445 $ 777,797
Common Stock,
$0.001 par value
shares authorized;
outstanding(2) $ 2,250 $ 3,350
Additional Paid-In
Capital $ 225,563 $ 3,278,963
Retained Earnings
(Deficit) $ (254,065) $ (254,065)
----------- -----------
Total
Capitalization $3,130,848 $5,117,300
========== ==========
(1) Gives effect to the anticipated net proceeds of $3,054,500 public
offering and the repayment of debt of $1,068,048 with the proceeds.
(2) 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 1,100,000 shares of Common
Stock issuable upon exercise of the Series A Warrants
contained in the Units; (b) 165,000 shares of Common Stock
issuable upon exercise of the Over-Allotment Option and the
Series A Warrants contained therein; (c) 110,000 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
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"Description of Securities," "Certain Transactions,"
"Management-Other Options or Plans" and "Underwriting."
Private Placement
In February 1996, the Company completed a private placement of $500,000
by the sale of 500,000 Units, each Unit consisting of one share of the Company's
Common Stock; three Series A Warrants and one Series B Warrant. The Series A
Warrants are identical in all respects to the Series A Warrants forming a part
of the Units offered hereby. The Series B Warrants are exercisable at $9.00 per
share over a four year period commencing on the date of this Prospectus. The
Series B Warrants are callable at a redemption price of $.05 per Warrant in the
event that the price of the Company`s Common Stock equals or exceeds $10.00 per
share for 20 consecutive trading days ending with five days prior to the
Company`s notice of redemption. Of the $500,000 raised, $177,000 were utilized
towards expenses of the offering contemplated hereby, including blue sky filing
and legal fees, deposit towards Underwriter`s non-accountable expense allowance,
NASD and NASDAQ filing fees, SEC filing fees and legal and accounting expenses
and the balance of $323,000 was used for working capital purposes.
DILUTION
As of March 31, 1996, the Company had an aggregate of 2,250,000 shares
of Common Stock outstanding (including 750,000 shares held in escrow) and a net
tangible book value deficit of $(197,918) or $.(.09) 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 1,100,000 Units by the Company at
the offering price of $3.50 per Unit, the issuance of 1,100,000 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
$500,500 (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 $.72
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
1,100,000 shares of
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<PAGE>
Common Stock included in the Units) of approximately $2.53 per share of Common
Stock to new investors and an immediate increase (the difference between the pro
forma net tangible book value per share of Common Stock as of March 31, 1996 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 1,100,000 shares of Common Stock
included in the Units) of $.94 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)............... (.09)
Increase per share attributable to the sale of
1,100,000 shares of Common Stock included in the
Units offered by the Company(2)................... .94
Pro forma net tangible book value per share as of
December 31, 1995 reflecting the Company's
Offering(3)........................................ .85
Dilution per share to purchasers in the Company's
offering........................................... 2.40
- ------------------------
(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 tangible book value per share of common stock
after this Offering would be approximately $.96, representing
an immediate increase of $1.05 per share to current
stockholders and an immediate dilution of $2.29 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.
(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."
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The following table sets forth, as of March 31, 1996, 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 $3.50 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):
Common Stock Acquired Total Consideration Average Price
Number Percent Amount Percent Per Share
Current
Stockholders.... 2,250,000 67.2% $ 525,500 12% .23
New Investors(1). 1,100,000 32.8% $3,575,000 88% $3.25(3)
--------- ------- ---------- -------
Total(2)... 3,350,000 100% $4,100,000 100%
(1) Does not include 165,000 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
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."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31,1996 AND 1995
Revenues for the three months ended March 31, 1996 were $87,822
compared to revenues of $45,783 for the three months ended March 31, 1995, an
increase of approximately $42,000 or 52%.
REVENUES.
The Company delivered no homes during the three months ended March 31,
1996 and 1995, because the only homes in inventory during these periods were
under construction. $1,873 and $3,172 for the three months ended March 31, 1996
and 1995, respectively, represents proceeds received on construction extras. The
Company has moved into the commercial construction market and is concentrating
its residential inventory toward the upscale market. In addition, the Company
has grown into a construction management firm, and accordingly it has received a
management fee to supervise the construction of a project. The Company's first
commercial construction venture included the completion of the Hamptons
Synagogue in Westhampton Beach. 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 construction management fee
of$37,500 was the only source of revenue generated from the project ( see
"construction management revenue").
CONSTRUCTION MANAGEMENT REVENUE:
Construction management services for the three months ended March 31,
1996 generated $37,500 compared to S-0- generated for the three months ended
March 31, 1995. 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 additional construction management
projects for future development.
GROSS PROFIT MARGIN:
The Company had no costs of sales or direct operating expenses since no
homes were delivered for the three months ended Much 31,
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1996 and 1995. Gross profit represents incidental construction sales ( see
"Revenues" ), rental income of $48,449 and $42,611 for the three months ended
March 31, 1996 and 1995, respectively, and $37,500 of management fee income for
the three months ended March 31, 1996 ( see "Construction Management Revenue").
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Company's selling, general and administrative expenses increased to
$116,890 for the three months ended March 31, 1996, compared to $87,988 for the
three months ended March 31, 1995. The increase is principally due to the
reduction of revenue for the three months ended March 31, 1996 and the addition
of key employees to the Company.
CHARGE FOR EXECUTIVE COMPENSATION CAPITALIZED.
The $14,750 represents the fair value of services provided for
executive compensation that would have been paid had the Company chose to do so.
INCOME FROM OPERATIONS:
The Company's loss from operations for the three months ended March 31,
1996 and 1995 was $43,818 and $42,205, respectively. The increase of
approximately $1,600 is attributable to an increase in management fee income of
$37,500, (see "Construction Management Revenue") offset by an increase in S, G,
& A of $28,902 ( see "Selling, General & Administrative Expenses") and an
increase of $14,750 in executive compensation (see "Charge for Executive
Compensation").
OTHER INCOME EXPENSE):
Included in other income (expense) during the 1st quarter of 1996 is
$30,222 which represents a gain on sale of marketable securities, compared to
($1,131), a loss on sale of marketable securities for the three months ended
March 31, 1995. Also included in other income (expense) during the first quarter
of 1996 is $8,711 representing unrealized gains on marketable securities,
compared to ($27,725), representing unrealized losses on marketable securities.
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 activities have 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
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<PAGE>
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 producing properties will insure a stable growth for the
future should adverse market conditions arise.
PROFORMA NET (LOSS):
Proforma net (loss) gives effect to income tax considerations assuming
that each of the subsidiary entities had been a 'C" Corp. for the period January
1, 1996 to February 29, 1996. Since each of the subsidiary entities was an "S"
Corp. and that period no provision for income taxes was necessary. Although,
each of the subsidiary entities became "C" Corps. on March 1, 1996 no charge in
lieu of income taxes was deemed necessary.
LIQUIDITY AND CAPITAL RESOURCES:
At March 31, 1996 and 1995 the Company had cash of$82,340 and $47,392,
respectively.
The Company generated $341,577 from operating activities for the three
months ended March 3 1, 1996 as compared to $667,275 generated from operating
activities for the three months ended March 31, 1995. The overall net decrease
of$325,698 is substantially attributable to a reduction of$346,609 in customer
deposits ( fewer homes under contract than the same time in 1995), a reduction
of $213,918 in accounts payable, $100,120 utilized for the purchase of
marketable securities and $337,136 generated from the sale of other marketable
securities.
For the three months ended March 31, 1996 and 1995, $636,181 and
$1,355,174, respectively, were utilized for investing activities. The overall
net reduction in the utilization of cash of$718,993 is substantially
attributable to a $312, 631 reduction in the acquisition of property and
equipment, a $288,402 reduction in land and construction expenditures, no $1
50,00 Quick Storage acquisition as in 1995, a $43,997 reduction in advances to
related parties and $71,300 paid in connection with the proposed public
offering.
For the three months ended March 31, 1996, the company generated
$361,305 from financing activities as compared to $691,753 generated from
financing activities for the three months
41
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ended March 31, 1995. The overall net reduction in the cash generated by
financing activities of$330,448 was substantially attributable to $215,400 of
mortgage proceeds in 1996 as compared to 1995, $156,740 reduction in notes
payable from a stockholder in 1996 as compared to 1995, $52,616 of distributions
to stockholders in 1996 that did not occur in the same period in 1995 and no
$100,000 repayment of the proceeds from other notes payable in 1996 as there was
in 1995.
At March 31, 1996, the Company had notes and loans payable of $864,620,
mortgages payable of $1,256,71 1, accounts payable and accrued expenses of
$635,969 and customer deposit of $399,800. The Company intends to repay notes
payable and mortgages payable totaling $1,068,048 out of the proceeds of the
proposed public offering. This amount includes $928, 1 80 which is included in
current liabilities at March 31, 1996. If the proposed public offering is not
successful, such debt will need to be refinanced or funds will need to be
generated from operations or other sources obtained to repay or replace such
debt. Although, the Company intends to utilize one or more of these alternatives
if the proposed public offering is not successful, there is no assurance that
the Company will be successful in utilizing any or all of these alternatives.
It is anticipated that account payable and accrued expenses and
customers deposits will be paid from funds generated from operations which is
consistent with prior years.
GOING CONCERN:
The Company has, since its inception in 1985, built in excess of 150
single - family homes in the Hamptons resorts area of Long Island. It has also
been able to acquire residential and commercial rental properties which
generated additional cash flow for the Company. In addition the Company has
acquired 12 lot subdivision, Polo grounds, which is currently in development.
The Company is marketing Polo Grounds and currently has three contracts. The
Company is also in contract with a 57 unit subdivision in Westhampton Beach
(Jaegger) which it intends to close on during the summer of 1996, market
immediately thereafter and deliver homes from such development by year end 1996.
The Company provides construction management services to other developers and
charges a fee for providing construction supervision on a project.
The Company intends to expand into other areas of the real estate
market. The Company has acquired key personnel with the requisite skills,
contacts and experience to successfully expand into commercial and residential
management, construction supervision and consulting services. The Company
intends to access these markets by advertisements, reputation and referrals. The
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Company's first commercial construction venture included the completion of the
Hampton Synagogue of Westhampton Beach. The Company has taken steps to shelter
itself from significant upturns in mortgage rates. The Company intends to take
advantage of the current low interest rates and refinance properties currently
having floating rate mortgages and satisfy certain outstanding obligations from
the proceeds of this offerings The interest rates should not have a major impact
on home sales. The typical customer in the upscale market is not sensitive to
the increase in interest rates so sales should not be affected.
The Company intends to seek opportunities to acquire income producing
properties which would include apartment buildings, shopping centers, industrial
parks, office buildings and other income producing properties. The Company's
belief that investing in income producing properties will enable the Company to
generate sufficient residual income in the future to fund the Company's
operating expenses should adverse market conditions arise,
However no assurances can be given that the Company will be successful
in implementing its plan to attain positive cash flow from operations be
successful in raising capital or be successful in developing the commercial
market in the future.
THE YEARS ENDED DECEMBER 31, 1995 AND 1994
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 its residential
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 to
1994(14) reflects the Company's construction management contract to complete a
14 unit condominium project in Westhampton, whereby the sales revenues have been
deferred. The construction management fee of $75,000 was the only source of
revenue generated from the
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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 111 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 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 December 31, 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.
Charge for Executive Compensation Capitalized.
The $105,000 represents the fair value of services provided for
executive compensation that would have been paid had the Company chose to do so.
Income from Operations. The Company's income from operations for the
years ended December 31, 1995 and 1994 was $131,710 and $1,260, respectively.
This increase of approximately $130,450 is primarily attributable to the
improved gross profit in 1995 of
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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 producting properties
will insure a stable growth for the future should adverse market conditions
arise.
Pro Forma Net Income.
Proforma net income gives effect to income tax considerataions assuming
that each of the subsidiary entities had been a "C" Corp. For the year ended
December 31, 1995. Since each of the subsidiary entittes was an "S" Corp. No
provision for income taxes was necessary. In accordance therewith, an estimated
proforma income of $94,903 gave effect to an income tax provision had each of
the subsidiaries been a "C" Corp rather than an "S" Corp. Upon the conversion of
each of these subsidiaries to a "C" Corp., a provision for income taxes will be
reflected in net income.
LIQUIDITY AND CAPITAL RESOURCES:
At December 31, 1995 and 1994, the Company had cash of$15,439 and
$43,538,respectively.
The Company generated $1,315,076 from operating activities for the year
ended December 31, 1995 as compared to $81,149 generated
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from operating- activities for the year ended December 31, 1994. The overall net
increase in cash generated from operations of $1,23 3,927 was mainly
attributable to additional proceeds of $794,012 derived from the sale of
marketable securities. In addition, there was a decrease in accounts receivable
of$153,706 and a decrease in costs and profits in excess of billings on
uncompleted contracts of S499,73 7. This was primarily due to the completion of
construction contracts and the collection of amounts thereon, for contracts in
progress at January 1, 1995 and started during 1995. There was also, a charge of
$105,000 for executive compensation capitalized but not paid and a decrease of
$444,000 attributable to the purchase of additional marketable securities, for
the year ended December 3 1, 1995.
The Company's increase in 1995 over 1994, in funds generated by
operating activities was also due to the company's obtaining deposits from
purchasers, in order to assist in the financing of the construction costs
related to their homes. In addition, the Company was able to control costs and
produce a home with a higher gross profit margin and concentrate on developing
contracts relating to construction management duties.
For the year ended December 31, 1995 the Company utilized $584,006 for
investing activities as compared to $49,571 generated from investing activities
for the year ended December 31, 1994. The overall net increase in the
utilization of cash of $633,577 was primarily attributable to an increase of
$384,654 of land and construction expenditures (mainly the Polo Grounds
Subdivision), $150,000 spent on the acquisition of quick Storage, A $75,000
deposit on a parcel of land ("Jaegger") and $30,000 spent in connection with the
cost of the planned public offering,
For the years ended December 31, 1995 and 1994, $759,169 and $221,395
respectively, were utilized for financing activities. The net overall increase
in the utilization of cash reflects the Company's growth in 1995. More
specifically, the increase in the net overall utilization of cash for financing
activities of $537,774 was substantially attributable to $608,463 repaid to a
stockholder, an increase of $509,433 of distributions to stockholders, an
increase in proceeds from new loans by $209,500 and an increase of $355,034 from
the net proceeds of notes payable from a stockholder.
On an overall basis, there was a net decrease in cash of $28,099 for
the year ended December 31, 1995 as compared to a decrease in cash of $90,075
for the year ended December 31, 1994.
At December 31, 1995, the Company had notes and loans payable of
$871,360, mortgages payable of $1,260,850, accounts payable and accrued expenses
of $646,775 and customer deposits of $97,500. The Company intends to repay notes
payable and mortgages payable totaling $1,068,049 out of the proceeds of the
proposed public
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offering. This amount includes $805,551 which is included in current liabilities
at December 31, 1995. If the proposed public offering is not successful, such
debt will need to be refinanced or funds will need to be generated from
operations or other sources obtained to repay or replace such debt. Although,
the Company intends to utilize one or more of these alternatives if the proposed
public offering is successful, there is no assurance that the Company will be
successful in utilizing any of all of these alternatives.
It is anticipated that account payable and accrued expenses and
customers deposits will be paid from funds generated from operations which is
consistent with prior years.
GOING CONCERN:
The Company has, since its inception in 1985, built in excess of 150
single - family homes in the Hamptons resorts area oflong Island, It has also
been able to acquire residential and commercial rental properties which
generated additional cash flow for the Company. In addition the Company has
acquired a 12 lot subdivision, Polo grounds, which is currently in development.
The Company is marketing Polo Grounds and currently has three contracts. The
Company is also in contract with a 57 unit subdivision in Westhampton Beach
(Jaegger) which it intends to close on during the summer of 1996, market
immediately thereafter and deliver homes from such development by year end 1996.
The Company provides construction management services to other developers and
charges a fee for providing construction supervision on a project,
The Company intends to expand into other areas of the real estate
market. The Company has acquired key personnel with the requisite skills,
contacts and experience to successfully expand into commercial and residential
management, construction supervision and consulting services. The Company
intends to access these markets by advertisements, reputation and referrals. The
Company's first commercial construction venture included the completion ofthe
Hampton Synagogue of Westhampton Beach. The Company has taken steps to shelter
itself from significant upturns in mortgage rates. The Company intends to take
advantage of the current low interest rates and refinance properties currently
having floating rate mortgages and satisfy certain outstanding obligations from
the proceeds ofthis offering. The interest rates should not have a major impact
on home sales. The typical customer in the upscale market is not sensitive to
the increase in interest rates so sales should not be affected.
The Company intends to seek opportunities to acquire income producing
properties which would include apartment building, shopping centers, industrial
parks, office buildings and other
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income producing properties. The Company's belief that investing in income
producing properties will enable the Company to generate sufficient residual
income in the future to fund the Company's operating expenses should adverse
market conditions arise.
However no assurances can be given that the Company will be successful
in implementing its plan to attain positive cash tlow from operations, be
successful in raising capital or be sucmsful in developing the commercial market
in the future.
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BUSINESS
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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.
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
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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 are vacation 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
given that such fees will be paid or that such ventures will be profitable. The
Company may also make construction loans to either 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
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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; three of the lots have been built upon and
sold; (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 both rented on an annual
basis; (iii) three acres of unimproved real property in Westhampton, NY; (iv)
the 4,000 square foot premises in Quogue, NY housing the Company's executive
offices and corporate sales office, which the 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.
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The Company issued 1,750,000 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. The Company`s projects usually
begin in the fall with most sales completed in the spring and early summer. The
Company sometimes obtains bridge loans to cover construction costs and utilizes
its rental income from apartments and the storage facility to cover its overhead
during slow periods.
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.
Government Regulation
In the construction business, the Company is required to meet and satisfy both
State and local building and zoning regulations as well as State and local
environmental regulations. Prior to the commencement of construction building
plans must be approved which show full compliance with all applicable rules and
regulations. In addition, building permits are needed. To date, the Company has
had no problems in meeting and satisfying such requirements and in obtaining all
permits that it needs for its projects.
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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
of their $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. The litigation was settled on June 20, 1996
without cost or liability to the Company.
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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 New York 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
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Technology.
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.
Long-Term Compensation
Annual Compensation Awards
Other Annual Restricted
Name and Compensation Stock
Principal Position Year Salary($) Bonus ($) Awards($)
---- --------- ----- ----------- ----------
Matthew Schilowitz(1)(2) 1995 197,000
Chief Executive Officer, 1994 217,000
Chief Financial Officer 1993 154,000
Payouts
All
Other
Name and Options LTIP Compen-
Principal Position Year SARs Payouts(#) sation($)
---- ------- ---------- ---------
Matthew Schilowitz(1)(2) 1995
Chief Executive Officer, 1994
Chief Financial Officer 1993
- -------
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(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
partnerships and no salary was paid.
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
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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 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 equaling
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 equaling or exceeding $1,500,000; (iii) the right to purchase
250,000 shares of Common Stock such right to vest and become exercisable upon
the Company realizing earnings before taxes equaling 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 have entered, 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.
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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:
Company Name Mr. Schilowitz' Interest Transactions
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.
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Company Name Mr. Schilowitz' Interest Transactions
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.
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 Organization Inc., which owns an
interest in Woodland Development Associates, a partnership; and a fifty percent
interest in Quick Storage of Quogue, Inc. which owns the storage facility in
Quogue, New York. The Company has a contract to purchase the remaining 50%
interest from 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 within ten 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. The
Underwriter requested that the shares be placed in escrow in order to provide a
better valuation for the public shareholders in the event the Company`s earnings
did not reach certain financial goals. As part of the arrangements, the
Company`s Board of Directors and the
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Underwriter believe that it is important that Mr. Schilowitz have significant
incentive to achieve the financial goals. Although the amounts are the same,
there is no relationship between the escrowed shares and the Schilowitz
Incentive Plan.
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, which will not be repaid by the Company
from the proceeds of the Offering.
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 will be 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.
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.
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- -----------------------------------------------------------------
PRINCIPAL STOCKHOLDERS
- -----------------------------------------------------------------
The following table provides, on a pro forma basis, information as of May 31,
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% 46.3%(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% 46.3%
as a group (5 persons)
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- ------------------
* No shares owned.
(1) Includes 200,000 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 and 300,000 shares to
be sold by Mr. Schilowitz or part of the alternate prospectus
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 which Mr. Schilowitz proposes to sell through
the alternate prospectus after the 18 month lock-up to which such
shares are subject.
(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.
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 (i)
800,000 shares of Common Stock (ii) 1,500,000 Series A Warrants and (iii)
2,000,000 shares of Common Stock issuable upon the exercise of 1,500,000 Series
A Warrants and 500,000 Series B Warrants. 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, to earlier release at the sole discretion of the
Underwriter. Such shares are being registered for resale purposes only and will
be offered pursuant to an alternate prospectus. 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
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of the Series A Warrants and Series B Warrants issued in a private placement.
Such warrants and the underlying shares are registered for resale purposes only
and will be offered pursuant to an alternate prospectus. 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 $4.00. 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
been sold. 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 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 $10,500,000.
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:
Number of
Number of Shares to Be
Shares Owned Offered
Before Concurrently
Offering with the Units
Name (1)
Matthew Schilowitz(2) 1,750,000 200,000
Dr. Irving Kraut (5) 250,000 -0-
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Martin Rothstein (6) 200,000 -0-
Alan & Rita Robinson (7) 50,000 -0-
TOTAL
Number of Shares
Registered but
Subject to 18 Number of Shares Percentage
Month Owned After Owned After
Restriction Offering Offering (4)(8)
Name (1)
Matthew Schilowitz(2) 300,000 500,000(3) 14.9%
Dr. Irving Kraut (5) 250,000 -0- -
Martin Rothstein (6) 200,000 -0- -
Alan & Rita Robinson (7) 50,000 -0- -
TOTAL
- -------------------------
(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 750,000 shares held in escrow. If such shares were included Mr.
Schilowitz would own 1,250,000 shares or 37.3% of the outstanding shares of
the Company.
(4)Does not give effect to: (a) 1,100,000 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) 110,000 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.
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
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<PAGE>
investors were affiliated with the Company at the time of making their
investment, at the time of this offering, or at any other time.
Plan of Distribution
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 hereby may 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 be effected in one or
more transactions, privately-negotiated transactions or through sales to one or
more broker-dealers for resale of such 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 Selling Stockholders
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 without limitation, Rules 10b-6 and 10b-7 in
connection with transactions in such securities, which provisions may limit the
timing of purchases and sales of such securities by the Selling Stockholders.
Sales of securities by the Selling Stockholders or even the
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<PAGE>
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 Mr. Schilowitz will be 1,300,000 shares of Common Stock and
1,100,000 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 such securities
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 of stockholders. The Company has not paid any dividends on
its Common Stock to date. The Company anticipates that, for the foreseeable
future, it will retain earnings, if any, to finance the continuing operations of
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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 issue shares 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 $4.00 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 Common Stock
is then quoted), the NASD OTC Electronic Bulletin
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<PAGE>
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 the Registration 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 principal exchange 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.
Limitation on Directors Liabilities
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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 benefit, or an illegal dividend or stock purchase, and not for
such director's negligence or gross negligence in satisfying his duty of care.
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 1,100,000 Units from the Company (exclusive of the
165,000 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 $3.50 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 of the 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
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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 negotiation between 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 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 Underwriter has required that all shareholders of the Company
lock-up their securities in order for the Underwriter to engage in the Offering
as well as in order to maintain a more orderly trading market. Such shares will
have a legend placed on the certificates to express the lock-up.
The Underwriting Agreement prohibits the Company from issuing any
capital stock or other securities for a period of 18 months following the
Effective Date without the Underwriter`s prior consent. This provision may limit
the Company`s ability to raise additional equity capital. The purpose of such
provision is to protect against unnecessary dilution to the public shareholders.
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
165,000 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 110,000 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
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1 year after the effective Date and ending four years thereafter at an exercise
price of $4.20 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 a
period of four years. The exercise price of the Underwriter's Unit Purchase
Option was arbitrarily determined by the Company and the Underwriter and should
not be deemed to reflect any estimate of the intrinsic value of either the
Underwriter's Unit Purchase Option, the Units or the underlying Common Stock and
Series A Warrants. The Underwriter's Unit Purchase Option will also contain
certain 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 to obtain additional equity capital on terms more favorable than those
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 additional underwriter 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 its expense, the Underwriter's Unit Purchase Option
(including the underlying securities) upon the request of the holders of 50% or
more of 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
71
<PAGE>
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 based upon the consideration received by the Company in connection with such
a transaction and may range from between 1% to 5% of such transaction 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 Underwriter if: (I) the market
price of the Common Stock on the date that any such Series 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
Warrant based 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 during certain
periods while the Series A Warrants are exercisable
72
<PAGE>
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) the
exercise 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 the
Company's equity securities has agreed not to sell, transfer, convey, pledge,
hypothecate or otherwise dispose of any of the respective securities of the
Company owned by them for a period of 18 months from the Effective Date without
the Underwriter's prior approval.
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 reliance upon
information furnished in writing to the Company by the Underwriter specifically
for or in connection with the preparation of the 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 documents have been filed with the Commission as
exhibits to the Registration Statement of which this Prospectus forms a part and
are also on file at the offices of the Underwriter and the Company. Reference is
hereby made to each such exhibit for a detailed description of the provisions
thereof which have been summarized above. See "Available Information."
73
<PAGE>
Action Involving the Underwriter
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter 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
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
74
<PAGE>
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 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 the 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 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 business in such state. A hearing in
this matter has been scheduled for October 7, 1996. 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
75
<PAGE>
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 securities.
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.
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 and Class 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 1,300,000 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.
sass/harmat/sb2.amd
76
<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
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
March 31, December 31,
1 9 9 6 1 9 9 5
[Unaudited]
Assets:
Current Assets:
Cash $82,340 $15,439
Marketable Securities 87,556 367,492
Accounts Receivable 30,052 14,764
Land and Construction Costs 798,523 114,889
Prepaid Expenses 8,367 1,175
Due from Related Parties 23,200 --
---------------------------
Total Current Assets 1,030,038 513,759
--------------------------------
Property, Plant and
Equipment - Net 1,143,770 1,125,067
------------------------------------
Other Assets:
Land and Construction Costs 608,349 776,327
Goodwill - Net 70,366 72,377
Land Held for Development 72,298 72,298
Investment in Partnership 29,727 29,727
Land Deposits 75,000 75,000
Deferred Offering Costs 101,300 30,000
-----------------------------
Total Other Assets 957,040 1,055,729
----------------------------------
Total Assets $3,130,848 $2,694,555
=======================
Substantially all of the assets are pledged.
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-2
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------
March 31, December 31,
1 9 9 6 1 9 9 5
[Unaudited]
Liabilities and Stockholder's
Equity [Deficit]:
Current Liabilities:
Current Portion of Mortgage Payable$331,266 $229,577
Notes Payable - Shareholders 270,260 277,000
Notes Payable - Related Parties 215,000 90,000
Loans Payable - Bank 240,000 240,000
Other Loan Payable 139,360 139,360
Accounts Payable and Accrued
Expenses 635,969 646,775
Customer Deposits 399,800 97,500
--------------------------------------
Total Current Liabilities 2,231,655 1,720,212
Commitment and Contingencies [8] --
Other Liabilities:
Mortgages Payable - Net
of Current Maturities 925,445 1,031,273
Notes Payable - Related Party -- 125,000
Total Other Liabilities 925,445 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, 2,250,000 and
1,750,000 Shares Issued and Outstanding at March 31, 1996 and December 31,
1995, respectively 2,250 1,750
Additional Paid-in Capital -
Common Stock 225,563 128,750
Retained Earnings [Deficit] (254,065) (312,430)
Total Stockholder's Equity
[Deficit] (26,252) (181,930)
----------------------------- --------------
Total Liabilities and
Stockholder's Equity [Deficit] $3,130,848 $2,694,555
The Accompanying Notes are an Integral
Part of these Consolidated Financial Statements.
F-3
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------
Three months ended
March 31,
1 9 9 6 1 9 9 5
------------------
[Unaudited] [Unaudited]
Revenues:
Construction Sales $1,873 $3,172
Rental Income 48,449 42,611
Management Fee Income 37,500 --
----------------
Total Revenues 87,822 45,783
Cost of Sales and Direct Operating
Expenses -- --
--------------
Gross Profit 87,822 45,783
Selling, General and
Administrative Expenses 116,890 87,988
Charge for Executive
Compensation Capitalized (14,750) --
[Loss] Income from Operations (43,818) (42,205)
Other Income [Expense]:
Gain on Sale of
Marketable Securities 30,222 (1,131)
Unrealized Gain on Marketable
Securities 8,711 (27,725)
Interest and Dividend Income 451 176
Interest Expense (40,622) (42,972)
Total Other [Expense] Income (1,238) (71,652)
Net [Loss] Income: Historical $(45,056)$(113,857)
Charge in Lieu of
Income Taxes [1] -- (94,903)
----------------------------------
Pro Forma Net [Loss] Income [2] $(45,056) $141,000
Earnings Per Share:
Net [Loss] Income $ (.05)
=================
Pro Forma [Loss] Earnings
Per Share:
Net [Loss] Income $ (.02)
=================
Number of Shares 2,250,000 2,250,000
=====================================
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------
Years ended
December 31,
19 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
Charge for Executive
Compensation Capitalized (105,000) --
[Loss] Income from Operations 131,710 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 [Expense] Income 104,193 256,911
Net [Loss] Income: Historical $235,903 $258,171
Charge in Lieu of Income Taxes [1] (94,903)
--------------------
Pro Forma Net [Loss] Income [2] $141,000
=======================
Earnings Per Share:
Net [Loss] Income $.11
Pro Forma [Loss] Earnings Per Share:
Net [Loss] Income $.07 $
Number of Shares 2,250,000 2,250,000
=======================================
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-4 (continued)
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY [DEFICIT]
- ---------------------------------------------------------------------
Common Stock
Stockholder's
Number of
Equity
Shares [At Par]
(Deficit)
Balance - December 31, 1993 $1,750,000 $1,750
Net Income -- --
Stockholder Distributions -- --
---------------------------
Balance - December 31, 1994 1,750,000 1,750
Net Income -- --
Executive Compensation
Capitalized -- --
Stockholder Distributions -- --
-------------------------
Balance - December 31, 1995 1,750,000 1,750
March 1, 1996 - Transfer of S
Corporation Deficit to
Additional Paid-in Capital -- --
Net Proceeds from Private
Placement 500,000 500
Executive Compensation
Capitalized --
Net [Loss] -- --
Stockholder Distributions -- --
----------------
Balance - March 31, 1996
[Unaudited] 2,250,000 $ 2,250
======================================
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5
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THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY [DEFICIT]
- ---------------------------------------------------------------------
Total
Additional Retained
Amount Paid-in Earnings
Capital[Deficit]
Balance - December 31, 1993 $23,750 $(123,630) $(98,130)
Net Income -- 258,171 258,171
Stockholder Distributions -- (78,887) (78,887)
-------------------------- ----------
Balance - December 31, 1994 23,750 55,654 81,154
Net Income -- 235,903 235,903
Executive Compensation
Capitalized 105,000 -- 105,000
Stockholder Distributions -- (603,987) (603,987)
-------------------------- ----------
Balance - December 31, 1995 128,750 (312,430) (181,930)
March 1, 1996 - Transfer of S
Corporation Deficit to
Additional Paid-in Capital (342,437) 342,437 --
Net Proceeds from Private
Placement 424,500 -- 425,000
Executive Compensation
Capitalized 14,750 -- 14,750
Net [Loss] -- (45,056) (45,056)
Stockholder Distributions -- (239,016) (239,016)
-------------------------- ---------
Balance - March 31, 1996
[Unaudited] $225,563 $(254,065) $(26,252)
======================================= ========
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-5 (CONTINUED)
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THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------
Three months ended
March 31,
1996 1995
[Unaudited] [Unaudited]
Operating Activities:
Net Income $(45,056) $113,857)
--------- --------
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 9,333 5,297
Gain on Sale of Marketable
Securities (30,222) 1,131
Change in Unrealized [Gain] Loss
on Investments (8,711) 27,725
Allowance for Uncollectible
Mortgage Receivable -- --
Loss on Partnership Investment -- 250
Executive Compensation Capitalized 14,750 --
Changes in Assets and Liabilities:
Contract Receivables (15,288) --
Accrued Interest Receivable -- --
Purchase of Marketable Securities (204,667) (107,547)
Sales of Marketable Securities 337,136 --
Costs and Profits in Excess of
Billings on Uncompleted Contacts -- --
Billing in Excess of Costs and Profits
on Uncompleted Contracts -- --
Prepaid Expenses (7,192) 2,255
Accounts Payable and Accrued
Expenses (10,806) 203,112
Customer Deposits 302,300 648,909
-----------------------------------
Total Adjustments 386,633 781,132
-----------------------------------
Net Cash - Operating Activities -
Forward 341,577 667,275
---------------------------------------------
Investing Activities:
Acquisition of Quick Storage -- (150,000)
Less: Cash of Quick Storage at
Acquisition -- 4,737
Acquisition of Property and
Equipment (26,025) (338,656)
Deposit on Land -- --
Land and Construction Costs (515,656) (804,058)
Payment of Deferred Offering
Costs (71,300) --
Advances from/to Affiliates
and Related Parties (23,200) (67,197)
------------------- -------------
Net Cash - Investing
Activities - Forward $(636,181) $(1,355,174)
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6
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<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------
Years ended
December 31,
1995 1994
[Unaudited] [Unaudited]
Operating Activities:
Net Income $235,903 $258,171
---------
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 5,297 29,414
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
Executive Compensation Capitalized 105,000 --
Changes in Assets and Liabilities:
Contract Receivables 153,706 (153,706)
Accrued Interest Receivable
Purchase of Marketable Securities (107,547) ( 2,905,276)
Sales of Marketable Securities 3,402,329 2,618,317
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 and Accrued
Expenses 135,234 202,370
Customer Deposits 97,500 --
--------
Total Adjustments 1,079,173 (177,022)
---------------------------------------
Net Cash - Operating Activities -
Forward 1,315,076 (177,022)
-------------------------------------------------
Investing Activities:
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 - Forward $(1,584,006) $ 49,571
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F-6 (CONTINUED)
85
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THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------
Three months ended
March 31,
1996 1995
- ------------------------------------------------------
[Unaudited] [Unaudited]
Net Cash - Operating
Activities - Forwarded $341,577 $667,275
--------------------------
Net Cash - Investing
Activities - Forwarded (636,181) (1,355,174)
-------- -----------------
Financing Activities:
[Repayments] Proceeds from
New Loans -- --
Proceeds of Mortgage Payable -- 215,400
Repayments of Mortgages
Payable (4,139) (3,300)
[Repayments] Proceeds of Notes
Payable - Stockholder (6,740) 150,000
[Repayments] Proceeds of Notes
Payable - Other -- (100,000)
Proceeds [Repayment] of Due to
Stockholder -- 429,653
Distribution to Stockholders (52,616) --
Net Proceeds of Private
Placement 425,000 --
---------------------------------------
Net Cash - Financing
Activities 361,505 691,753
----------------------------------------
Net Increase [Decrease]
in Cash 66,901 3,854
Cash - Beginning of Periods 15,439 43,538
----------------------
Cash - End of Periods $82,340 $47,392
=====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $40,622 $42,792
Income Taxes $ -- $ --
Supplemental Disclosures on Non-Cash Investing and Financing Activities: For the
quarter ended March 31, 1996, the company distributed marketable securities with
a fair value of $186,400 to its controlling stockholder. The Accompanying Notes
are an Integral Part of these Consolidated Financial Statements.
F-7
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THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------
Years ended
December 31,
1995 1994
- ------------------------------------------------
Net Cash - Operating
Activities - Forwarded $1,315,076 $81,149
-----------------------
Net Cash - Investing
Activities - Forwarded (584,006) 49,571
-------- ------------
Financing Activities:
[Repayments] Proceeds from
New Loans 309,500 100,000
Proceeds of Mortgage
Payable -- --
Repayments 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)
Proceeds [Repayment] of
Due to Stockholder (608,463) --
Distribution to Stockholders (587,322) (78,889)
Net Proceeds of Private
Placement -- --
---------------------------------------
Net Cash - Financing
Activities (759,169) (221,395)
--------------------------- -----------
Net Increase [Decrease] in
Cash (28,099) (90,675)
Cash - Beginning of Periods 43,538 134,213
---------------------
Cash - End of Periods $15,439 $43,538
====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $50,066 $38,585
Income Taxes $ -- $ --
Supplemental Disclosures on Non-Cash Investing and Financing Activities: For the
quarter ended March 31, 1996, the company distributed marketable securities with
a fair value of $186,400 to its controlling stockholder. The Accompanying Notes
are an Integral Part of these Consolidated Financial Statements.
F-7 (CONTINUED)
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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.
F-8
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Of the 1,750,000 held by the individual stockholder, 750,000 were placed in
escrow for his benefit. Such stockholder will continue to vote his respective
escrowed shares while they are is escrow; however, the escrowed shares are not
assignable or transferable, except through laws of inheritance, guardianship,
legal representation or trusteeship for the benefits of the holder or the
holder's immediate family. In the event the Company's earnings before interest
and taxes first equals or exceeds an amount listed below for any fiscal year
ending prior to the years after the date the Company's initial public offering,
the escrowed shares shall be released to such stockholder as follows:
Earnings Before Escrowed Shares
Interest and Taxes to be Released
$750,000 250,000
$1,500,000 250,000
$2,250,000 250,000
If the above earnings levels are achieved, the Company will recognize
compensation expense equal to the difference between the fair market value at
the time of release of the escrowed shares to such stockholder and the recorded
value at the time of issuance. Release of the escrowed shares is likely to
result in substantial compensation expense to the Company in future years. In
the event the above does not occur, the shares shall be returned to the Company
for cancellation.
F-9
89
<PAGE>
THE HARMAT ORGANIZATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
[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.
Economic Dependency - There were six construction contracts which were deemed
major customers and accounted for approximately 99% of total construction sales
for the year ended December 31, 1995. These contracts varied from 16% to 20% of
total sales. There was no amounts due under such contracts at December 31, 1995.
In 1994 no individual customer exceeded 10% of total sales. 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, a 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 the straight-line method and for building and building improvements and
accelerated methods for furniture and equipment, 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. Shares or equivalents issued at below the IPO
price are included for all periods presented.
F-10
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<PAGE>
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.
[2] Summary of Significant Accounting Policies [Continued]
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.
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 as it is earned
pursuant to the terms of each lease on a straight line basis. All leases have an
initial or remaining term of one year or less.
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.
F-11
91
<PAGE>
On March 1, 1996, each of the S Corporation terminated their S Corporation
status and became C Corporations. The undistribution S Corporation deficit of
each entity at March 1, 1996 was transferred to additional paid-in capital.
[2] Summary of Significant Accounting Policies [Continued]
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.
Stock Options and Similar Equity Instruments Issued to Employees - The Company
uses the intrinsic value method to recognize cost in accordance with APB 25
[Accounting for Stock Issued to Employees].
[3] Marketable Securities
Marketable securities consist of investments in equity and debt securities at
fair value. The cost of such securities is $361,710. The change in the
unrealized gain account for 1995 is $5,575.
[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 1,279,769
Less: Accumulated Depreciation 154,702
F-12
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<PAGE>
Property and Equipment - Net $1,125,067
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.
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<PAGE>
The mortgage is secured by land
and building having a cost of
approximately $200,000. 146,980
-------------------
Total Mortgages Payable $1,260,850
[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 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 [totaling approximately $2,000 ] represents the difference between
the stated rate of interest in the promissory notes and the market rate of
interest and is 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
94
<PAGE>
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 [totaling about $3,000] 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
[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,
95
<PAGE>
assuming the Company successfully raises additional funds that the Company will
achieve profitability or attain positive cash flows from operations.
96
<PAGE>
[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.
[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 and statement of operations 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
======================================================
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[10] 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.
[10] Private Placement [Continued]
The following is a schedule of warrants:
No. of
Date of Grant Type Warrants Issued
February 1996 Series A 1,500,000
February 1996 Series B 500,000
Total Total 2,000,000
FMV at No. of
Exercise Date of Warrants
Price Grant Exercised
February 1996 $3.50 $3.25 $ --
February 1996 $9.00 $3.25 $ --
[11] Subsequent Events [Unaudited]
[A] Proposed Initial Public Offering - The Company is offering for public sale
1,100,000 units at $3.50 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 $4.00 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 $3,054,500
are intended to be used to develop properties and business opportunities, repay
certain indebtedness, and for general working capital needs.
The following supplementary earnings per share reflects on a pro forma basis the
repayment of indebtedness of $1,068,048 as if it had taken place at the
beginning of the respective periods [See Note 10A].
March 31, December 31,
1996 1995
Income [Loss] Per Share (.01) .06
Number of Shares 3,250,000 3,250,000
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<PAGE>
[B] 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. No shares have been granted pursuant to this stock option plan.
[C] 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 for
ten years exercisable at $3.25 per share with rights vesting upon attainment of
earnings as detailed below.
Pre Tax Incremental
Annual Earnings Shares
$750,000 $250,000
$1,500,000 $250,000
$2,250,000 $250,000
The exercise price is equal to the fair value at the date of grant and there
will be no compensation expense to the Company.
[D] Litigation
The litigation described in Note 8A, was settled on June 20, 1996 without cost
or liability to the Company.
[12] New Authoritative Pronouncement
The FASB has also issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
in October 1995. SFAS No. 123 uses a fair value based method of recognition for
stock options and similar equity instruments issued to employees as contrasted
to the intrinsic valued based method of accounting prescribed by Accounting
Principles board ["APB"]Opinion No. 25, "Accounting for Stock Issued to
Employees." The recognition requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company will continue to apply Opinion No. 25 in recognizing its stock based
employee arrangements. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company adopted the disclosure requirements on January 1, 1996. SFAS 123 also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. Those transactions must be
accounting for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
This requirement is effective for transactions entered into after December 15,
1995.
[13] Unaudited Interim Statements
The financial statements for the three months ended March 31, 1996 and 1995 are
unaudited; however, in the opinion of management all adjustments which are
necessary in order to make the interim financial statements not misleading have
been made. The results for interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
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Alternate Cover Page
SUBJECT TO COMPLETION, DATED JULY 1 , 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 the expiration of the lock-up period
and in some cases immediately after the exercise of the Over-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 1,100,000 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 19, AND "DILUTION" page 37.
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>
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
StockOutstanding After Offering(1)...3,350,000 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 165,000 Units;
(iii) the Underwriter's Unit Purchase Option to purchase up to 110,000
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
any information or to make any representations in connection with this Offering
other than those 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 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
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.
200,000 Shares of Common Stock
1,100,000 UNITS
Each Unit consisting of One share of Common Stock and One
Series A Redeemable Common Stock Purchase Warrant
THE HARMAT ORGANIZATION, INC.
Biltmore Securities, Inc.
<PAGE>
No dealer, salesperson or other person has been authorized to give
any information or to make any representations in connection with this Offering
other than those 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 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
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.
800,000 Shares of Common Stock
1,500,000 Class A Warrants
2,000,000 Shares of Common Stock issuable upon
exercise of outstanding Warrants
THE HARMAT ORGANIZATION, INC.
<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 ss.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 ss.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 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.......... $ 8,324.59
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.................................... $ 2,350.41
-----------
TOTAL................................ $295,000.00
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.
<PAGE>
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 and Warrant Agreement
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 Intentionally Left Blank
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
<PAGE>
24.1* Consent of Mortenson and Associates, P.C.
24.2 Consent of McLaughlin & Stern, LLP
(b) Financial Statement Schedules
* Filed herewith.
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;
<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
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.
<PAGE>
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
July 1, 1996
<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 Amendment to
the registration statement to be signed on its behalf by the undersigned, in the
City of Quogue, State of New York, on July 1, 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 July 1 , 1996
Matthew Schilowitz Principal Executive,
Operating and Financial
Officer
/s/ Seymour G. Siegel Treasurer and Director July 1, 1996
Seymour G. Siegel
/s/ Scott Prizer Secretary and Director July 1, 1996
- ----------------
Scott Prizer
/s/ David S. Eiten Director July 1, 1996
- ------------------
David S. Eiten
/s/ David W. Sass Director July 1, 1996
- -----------------
David W. Sass
<PAGE>
1,100,000 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 ^ 1,100,000 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 ^ $4.00 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 ^ 165,000 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 ^ 1,100,000 Units to be
sold by the Company, together with all or any part of the ^ 165,000 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 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. ^ 333-03501) 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 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., ^ Harmat Organization, Inc., and
Quick Storage of Quogue, Inc. and that there are ^ 2,250,000 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 consumated 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 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 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.
(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
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 ^
$ 3.15 per Unit (the "Unit Price"), at the place and time hereinafter specified,
^ 1,100,000 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 ^ 165,000 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 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 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 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 and warrant holders, if any, 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
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 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.
(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 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.
Additionally, the Company shall have the right to reject any proposed deal, for
any reson whatsoever, without incurring any liability hereunder to the
Underwriter.
(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 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 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^;
(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 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 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 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 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
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 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 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, of which $45,000 has already been paid in full to
such counsel, 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 ^ $135,000 (net of any payments previously made to the Underwriter,
including payment of $25,000 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 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 ^ $110.00, 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 ^ 110,000 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.
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 Securites 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.
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
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
BILTMORE SECURITIES, INC.
__________________________
Its
The undersigned are executing this Agreement solely to be bound by the
provisions of Section 3(l) hereof.
-----------------------------------
Matthew C. Schilowitz ^
------------------------------------
Dr. Irving Kraut
------------------------------
Martin Rothstein
Alan Robinson
Rita Robinson
<PAGE>
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
^ 1,100,000 UNITS
CONSISTING OF
^ 1,100,000 SHARES OF COMMON STOCK
AND
^ 1,100,000 SERIES 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, ^ 1,100,000 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)
^ Series 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") 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 $ ^ 3.50 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 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 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.
1
<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
2
<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) ^ Series 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
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.001 PAR VALUE $.001
SHARES
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LIMITATIONS CUSIP 413110 10 7
THE HARMAT ORGANIZATION, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF THE HARMAT
ORGANIZATION, INC. (hereinafter called the Corporation) transferable on the
books of the Corporation or by the holder hereof, in person or b duly authorized
Attorney, upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned and registered by the Transfer Agent and
Registrar. WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent and Registrar
AUTHORIZED SIGNATURE
SECRETARY
PRESIDENT
The following abbreviations, when used in the inscription on the face of this
certificate, shall be constured as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tentnants in common
<PAGE>
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
Under Uniform Gifts to Minor Act
(State)
Addtional abbreviations may also be used though not in the above list.
For Value received hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN)
Shares
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the within-named Corporation with full power of substitution in the
premises.
Dated
SIGNATURE
<PAGE>
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-1 5.
NOTICE: The signature of this assignment must correspond with
name(s) as written upon the face of the certificate in every
particular without alteration or enlargement or any change whatever.
<PAGE>
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 ^ 1,265,000
units ("Units"), each ^ Unit consisting of one (1) share of the Company's Common
Stock, $.001 par value ("Common Stock"), and one (1) ^ Series A Redeemable
Common Stock Purchase Warrant (the ^"Series 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 ^ 110,000 additional Units (the "Purchase Option") and (ii)
certain ^ Private Placement investors of 500,000 Units consisting of 500,000
shares of Common Stock and 1,500,000 ^ Series A Warrants and 500,000 Series B
Redeemable Common Stock Purchase Warrants, the Company will issue up to ^
2,875,000 Series 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:
(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 $ ^ 4.00 per share for the ^ Series 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 Expiration Date" 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
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 ^ 2,875,000 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 ^ Private Placement 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 ^ 110,000 Units, which include up to
^ 110,000 Series A Warrants.
==============
3. Form and Execution of Warrant Certificates.
(a) The ^ Series 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 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.
^ Series A Warrant Certificates shall be numbered serially with the letter ^ W
A.
(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 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 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, 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
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 ^ Series A Warrants, the Market Price of the Common Stock receivable upon
exercise of the ^ Series 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 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 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 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 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 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, 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 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.
(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 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,
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 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 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 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 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 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 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.
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
1
<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
2
<PAGE>
EXHIBIT A to EXHIBIT 4.2
AW-
SERIES A WARRANTS
CUSIP 413110 11 5
VOID AFTER 2001
SERIES A REDEEMABLE COMMON STOCK WARRANT CERTIFICATE FOR PURCHASE OF
COMMON STOCK OF
THE HARMAT ORGANIZATION, INC.
This certifies that FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Series A Redeemable Common Stock Purchase Warrants (the "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, $0.001 par value, of The Harmat Organization, Inc., a
Delaware corporation (the "Company") at any time commencing 6 days from the date
of the Warrant Agreement or such earlier time as Biltmore Securities, Inc., in
its sole discretion, may determine, 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
<PAGE>
United States of America in cash or by official bank or certified check made
payable to the Warrant Agent. 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 as of 1996, by and among the Company, the Warrant Agent and
Biltmore Securities, Inc.
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 modification
or adjustment.
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 "Expiration Date" shall mean 5:00 p.m. (New York City
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 be 5:00 p.m. (New York City
<PAGE>
time) the next day which in the State of New York is not a holiday or a day in
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 together with 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 to vote
or to receive dividends or other distributions and shall not
<PAGE>
be entitled to receive any notice of any proceedings of the Company,
except as provided in the Warrant
Agreement.
Commencing days after the date of the Warrant Agreement or such earlier date as
Biltmore Securities, Inc., in its sole discretion, may determine, this Warrant
may be redeemed at the option of the Company, at redemption price of $0.05 per
Warrant, (I) provided the closing bid price of the Company's Common Stock as
reported on the automated quotation system of the National Association of
Securities Dealers, Inc. ("NASDAQ") averages, for at least 20 consecutive
trading days ending within a period of 30 consecutive trading days ending within
5 days prior to the date of the notice of redemption, in excess of $8.00 per
share or (ii) with Biltmore Securities, Inc. prior written consent. Notice of
redemption shall be given not later than the thirtieth (30th) 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 $0.05 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. The
Company has agreed to pay a fee of four (4%) percent of the
<PAGE>
Purchase Price upon certain conditions as specified in the Warrant Agreement
upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in accordance with
the laws of the State of Delaware. This Warrant Certificate is not valid
unless countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile by two (2) of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Countersigned and Registered:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By
AUTHORIZED OFFICER
Dated:
By
SECRETARY
THE HARMAT ORGANIZATION, INC.
By
PRESIDENT
<PAGE>
THE HARMAT ORGANIZATION, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise Warrant
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 SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER (please print or type
name and address) 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.
The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers, Inc., ("NASD").
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by Biltmore Securities,
Inc.
Name of NASD Member if other than Biltmore Securities, Inc.
Dated:
Signature
Street Address
City, State and Zip Code
<PAGE>
Taxpayer ID Number
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 SOCIAL SECURITY 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.
Dated:
Signature Guaranteed
THIS SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION PURSUANT TO S.E.C.
RULE 17 AD 15.
Option to Purchase
^ 110,000 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 ^ 110,000 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) ^ Series A Redeemable Common Stock Purchase Warrant, each
to purchase one (1) share of Common Stock as now constituted at an
exercise price of ^ $4.00 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. 333-03501) declared effective by the
Securities and Exchange Commission on , 1996 (the "Registration Statement").
This Option (the "Option") to purchase
^ 110,000 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 ^ 1,100,000 Units (the "Public Units")
through the Underwriter, in consideration of ^ $110.00 received for
the Option.
Except as specifically otherwise provided herein, the Common
Stock and the Warrants issued pursuant to this Option shall bear the same
terms and conditions as described under the caption
"Description of Securities" in the Registration Statement, and 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 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, 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 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 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 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, 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 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, 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 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 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 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)
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by
such Option for, and to purchase thereunder,
Units of THE HARMAT ORGANIZATION, INC., each Unit consisting
of one share of $.001 Par Value Common Stock and one ^ Series 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:
1
<PAGE>
<PAGE>
EXHIBIT 5
McLaughlin & Stern, LLP
380 Lexington Avenue
New York, New York 10168
(212) 867-2500
June 27, 1996
United States Securities
and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: The Harmat Organization, Inc. (the "Company")
Gentlemen:
Reference is made to the registration statement
("Registration Statement") on Form SB-2 filed with the Securities and
Exchange Commission by the Company.
We hereby advise you that we have examined originals
or copies certified to our satisfaction of the Certificate of
Incorporation and amendments thereto and the By-Laws and amendments
thereto of the Company, minutes of the meetings of the Board of
Directors and Shareholders and such other documents and instruments,
and we have made such examination of law as we have deemed appropriate
as the basis for the opinions hereinafter expressed.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of
Delaware.
2. The 1,265,000 Units (each Unit consisting of one
(1) share of the Company's Common Stock $0.001 par value, and one (1)
Series A Redeemable Common Stock Purchase Warrant ("Series A Warrants")
which are due to be sold pursuant to the Registration Statement have
been duly and validly authorized and when issued and paid for in
accordance with the terms of the Underwriting Agreement ("Agreement")
between the Company and Biltmore Securities, Inc. ("Underwriter"), will
be validly issued, fully paid and non-assessable.
3. The 1,265,000 shares of Common Stock of the
Company which are to be sold as part of the Units pursuant to the
Registration Statement have been duly and validly authorized, and when
issued and paid for in accordance with the terms of the Agreement, will
be validly issued, fully paid and non-assessable.
<PAGE>
4. The Series A Warrants to purchase up to 1,265,000
shares of the Company's Common Stock to be sold as part of the Units
pursuant to the Registration Statement will be duly and validly issued
and exercisable in accordance with their terms. The 1,265,000 shares of
Common Stock issuable upon exercise of such Series A Warrants have been
reserved for issuance upon exercise thereof, and when issued and paid
for in accordance with the terms of the Series A Warrants will be
validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
5. The 1,000,000 shares of the Company's Common
Stock, the 1,500,000 Series A Warrants issued in a private placement
and the 1,500,000 of Common Stock issuable upon exercise of such Series
A Warrants as well as 500,000 shares of Common Stock issuable upon
exercise of outstanding Series B Warrants all to be sold by Selling
Stockholders have been duly and validly authorized and issued and are
fully paid and non-assessable. The 2,000,000 shares of Common Stock
underlying such Series A Warrants and Series B Warrants have been
reserved for issuance upon exercise thereof, and when issued and paid
for in accordance with the terms of the Series A Warrants and Series B
Warrants will be validly issued, fully paid and non-assessable shares
of Common Stock of the Company.
6. The Underwriter's Unit Purchase Option ("Unit
Purchase Option") to be sold to the Underwriter entitling it to
purchase 110,000 Units in accordance with the Agreement and the shares
issuable upon exercise of the Series A Warrants forming a part of the
Units and their underlying shares, have been duly and validly
authorized, and when issued and paid for, will be validly issued and
exercisable in accordance with their terms. The 110,000 shares of
Common Stock issuable upon full exercise of the Unit Purchase Option
have been duly reserved for issuance upon exercise thereof, and when
issued, and paid for in accordance with their terms, will be validly
issued, fully paid and non-assessable shares of Common Stock of the
Company.
We hereby consent to the reference to our firm under
the caption "Legal Matters" in the prospectus forming part of such
Registration Statement and to the filing of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
McLAUGHLIN & STERN,LLP
